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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______.
Commission file number 001-14057
VENCOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1323993
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Vencor Place
680 South Fourth Street
Louisville, KY 40202-2412
(Address of principal executive offices) (Zip Code)
(502) 596-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at April 30, 2000
----------------------------- -----------------------------
Common stock, $0.25 par value 69,937,473 shares
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1 of 43
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VENCOR, INC.
(Debtor-in-Possession)
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Statement of Operations -- for the three
months ended March 31, 2000 and 1999............................ 3
Condensed Consolidated Balance Sheet -- March 31, 2000 and
December 31, 1999............................................... 4
Condensed Consolidated Statement of Cash Flows -- for the
three months ended March 31, 2000 and 1999...................... 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 36
Item 5. Other Information................................................. 41
Item 6. Exhibits and Reports on Form 8-K.................................. 41
2
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 2000 and 1999
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Revenues............................................................ $715,456 $700,232
-------- --------
Salaries, wages and benefits........................................ 405,313 403,894
Supplies............................................................ 93,398 84,997
Rent................................................................ 76,220 75,452
Other operating expenses............................................ 119,796 107,007
Depreciation and amortization....................................... 17,902 22,285
Interest expense.................................................... 16,239 19,536
Investment income................................................... (1,206) (631)
-------- --------
727,662 712,540
-------- --------
Loss before reorganization costs and income taxes................... (12,206) (12,308)
Reorganization costs................................................ 3,065 2,312
-------- --------
Loss before income taxes............................................ (15,271) (14,620)
Provision for income taxes.......................................... 500 50
-------- --------
Loss from operations................................................ (15,771) (14,670)
Cumulative effect of change in accounting for start-up costs........ - (8,923)
-------- --------
Net loss................................................... (15,771) (23,593)
Preferred stock dividend requirements............................... (261) (261)
-------- --------
Loss to common stockholders................................ $(16,032) $(23,854)
======== ========
Loss per common share:
Basic:
Loss from operations.......................................... $ (0.23) $ (0.21)
Cumulative effect of change in accounting for start-up costs.. - (0.13)
-------- --------
Net loss................................................... $ (0.23) $ (0.34)
======== ========
Diluted:
Loss from operations.......................................... $ (0.23) $ (0.21)
Cumulative effect of change in accounting for start-up costs.. - (0.13)
-------- --------
Net loss................................................... $ (0.23) $ (0.34)
======== ========
Shares used in computing loss per common share:
Basic............................................................ 70,240 70,326
Diluted.......................................................... 70,240 70,326
</TABLE>
See accompanying notes.
3
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VENCOR, INC.
(Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 141,906 $ 148,350
Accounts receivable less allowance for loss......................... 317,185 324,135
Inventories......................................................... 29,817 28,956
Insurance subsidiary investments.................................... 39,376 16,483
Income taxes........................................................ 8,109 8,884
Other............................................................... 70,393 65,076
----------- -----------
606,786 591,884
Property and equipment, at cost...................................... 611,560 615,160
Accumulated depreciation............................................. (250,089) (243,526)
----------- -----------
361,471 371,634
Goodwill less accumulated amortization............................... 171,001 173,818
Investment in affiliates............................................. 16,255 15,874
Assets held for sale................................................. 16,343 17,217
Other................................................................ 65,217 65,547
----------- -----------
$ 1,237,073 $ 1,235,974
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................... $ 89,428 $ 101,219
Salaries, wages and other compensation.............................. 151,810 159,482
Due to third party payors........................................... 64,840 52,205
Other accrued liabilities........................................... 83,753 83,967
----------- -----------
389,831 396,873
Deferred credits and other liabilities............................... 61,849 56,250
Liabilities subject to compromise.................................... 1,177,992 1,159,417
Series A preferred stock (subject to compromise)..................... 1,743 1,743
Stockholders' equity (deficit):
Common stock, $0.25 par value; authorized 180,000 shares;
issued 70,228 shares -- March 31 and 70,278 shares -- December 31.. 17,557 17,570
Capital in excess of par value...................................... 667,090 667,078
Accumulated deficit................................................. (1,078,989) (1,062,957)
----------- -----------
(394,342) (378,309)
----------- -----------
$ 1,237,073 $ 1,235,974
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 2000 and 1999
(Unaudited)
(In thousands)
<TABLE>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $(15,771) $(23,593)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................. 17,902 22,285
Provision for doubtful accounts............................................... 8,801 6,725
Reorganization costs.......................................................... 3,065 2,312
Cumulative effect of change in accounting for start-up costs.................. - 8,923
Other......................................................................... 3,586 1,871
Changes in operating assets and liabilities:
Accounts receivable........................................................ (1,851) (11,472)
Inventories and other assets............................................... (2,697) 9,068
Accounts payable........................................................... (387) 10,934
Income taxes............................................................... 775 3,421
Due to third party payors.................................................. 12,635 (194)
Other accrued liabilities.................................................. 18,953 6,700
-------- --------
Net cash provided by operating activities before reorganization costs... 45,011 36,980
Payment of reorganization costs.................................................. (2,348) (923)
-------- --------
Net cash provided by operating activities............................... 42,663 36,057
-------- --------
Cash flows from investing activities:
Purchase of property and equipment............................................... (8,250) (24,492)
Sale of assets................................................................... 2,354 3,267
Surety bond deposits............................................................. (3,947) -
Net change in investments........................................................ (22,570) 5,083
Collection of notes receivable................................................... 1,468 -
Other............................................................................ 234 (767)
-------- --------
Net cash used in investing activities................................... (30,711) (16,909)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt...................................................... (5,711) (6,758)
Payment of debtor-in-possession deferred financing costs......................... (600) -
Payment of deferred financing costs.............................................. - (901)
Other............................................................................ (12,085) (29,756)
-------- --------
Net cash used in financing activities................................... (18,396) (37,415)
-------- --------
Change in cash and cash equivalents................................................. (6,444) (18,267)
Cash and cash equivalents at beginning of period.................................... 148,350 34,551
-------- --------
Cash and cash equivalents at end of period.......................................... $141,906 $ 16,284
======== ========
Supplemental information:
Interest payments................................................................ $ 3,444 $ 11,324
Income tax refunds............................................................... 275 3,371
</TABLE>
See accompanying notes.
5
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VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
Vencor, Inc. ("Vencor" or the "Company") provides long-term healthcare
services primarily through the operation of nursing centers and hospitals. At
March 31, 2000, the Company's health services division operated 320 nursing
centers (40,915 licensed beds) in 31 states and a rehabilitation therapy
business. The Company's hospital division operated 56 hospitals (4,931 licensed
beds) in 23 states and an institutional pharmacy business.
The Company and substantially all of its subsidiaries filed voluntary
petitions for protection under Chapter 11 of Title 11 of the United States Code
(the "Bankruptcy Code") on September 13, 1999. The Company currently is
operating its businesses as a debtor-in-possession subject to the jurisdiction
of the United States Bankruptcy Court in Delaware (the "Bankruptcy Court").
Accordingly, the condensed consolidated financial statements of the Company have
been prepared in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") and generally accepted
accounting principles applicable to a going concern, which assumes that assets
will be realized and liabilities will be discharged in the normal course of
business. The condensed consolidated financial statements do not include any
adjustments that might result from the resolution of the Chapter 11 Cases (as
defined) or other matters discussed in the accompanying notes. The Company's
continued operating losses, liquidity issues and the Chapter 11 Cases raise
substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern and the
appropriateness of using the going concern basis of accounting are dependent
upon, among other things, (i) the Company's ability to comply with the terms of
the DIP Financing (as defined), (ii) confirmation of a plan of reorganization
under the Bankruptcy Code, (iii) the Company's ability to achieve profitable
operations after such confirmation, and (iv) the Company's ability to generate
sufficient cash from operations to meet its obligations. The plan of
reorganization and other actions during the Chapter 11 Cases could change
materially the amounts currently recorded in the condensed consolidated
financial statements. See Note 3.
On May 1, 1998, Ventas, Inc. ("Ventas") (formerly known as Vencor, Inc.)
completed the spin-off (the "Spin-off") of its healthcare operations to its
stockholders through the distribution of Vencor common stock. Ventas retained
ownership of substantially all of its real property and leases such real
property to the Company pursuant to four master lease agreements. In
anticipation of the Spin-off, the Company was incorporated on March 27, 1998 as
a Delaware corporation. For accounting purposes, the consolidated historical
financial statements of Ventas became the historical financial statements of the
Company upon consummation of the Spin-off. Any discussion concerning events
prior to May 1, 1998 refers to the Company's business as it was conducted by
Ventas prior to the Spin-off.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," which was required to be
adopted in fiscal years beginning after June 15, 1999. In June 1999, FASB
delayed the effective date of SFAS 133 for one year. Management has not
determined the effect, if any, of SFAS 133 on the Company's consolidated
financial statements.
The accompanying unaudited condensed consolidated financial statements do not
include all of the disclosures normally required by generally accepted
accounting principles or those normally required in annual reports on Form 10-K.
Accordingly, these statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended December 31,
1999 filed with the Securities and Exchange Commission on Form 10-K.
6
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VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION (Continued)
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the Company's customary accounting practices
and the provisions of SOP 90-7. Management believes that the financial
information included herein reflects all adjustments necessary for a fair
presentation of interim results and, except for the costs described in Notes 2
and 5, all such adjustments are of a normal and recurring nature.
As disclosed in its 1999 Form 10-K, the Company realigned its Vencare
ancillary services business in the fourth quarter of 1999. Vencare's
rehabilitation, speech and occupational therapies were integrated into the
Company's health services division, and its institutional pharmacy business was
assigned to the hospital division. Vencare's respiratory therapy and certain
other ancillary businesses were discontinued. The accompanying condensed
consolidated financial statements reflect the realignment of the former Vencare
business for all periods presented.
Effective January 1, 2000, the Company adopted an amortization period of 20
years from date of acquisition for goodwill. Prior thereto, the Company
generally amortized such costs over 40 years.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
NOTE 2 -- ACCOUNTING CHANGE
Effective January 1, 1999, the Company adopted the provisions of the American
Institute of Certified Public Accountants Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"), which requires the Company to
expense start-up costs, including organizational costs, as incurred. In
accordance with the provisions of SOP 98-5, the Company wrote off $8.9 million
of such unamortized costs as a cumulative effect of change in accounting
principle in the first quarter of 1999.
NOTE 3 -- PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On September 13, 1999, the Company and substantially all of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the Bankruptcy
Code. The Chapter 11 cases have been consolidated for purposes of joint
administration under Case Nos. 99-3199 (MFW) through 99-3327 (MFW)
(collectively, the "Chapter 11 Cases"). The Company currently is operating its
businesses as a debtor-in-possession subject to the jurisdiction of the
Bankruptcy Court.
On September 14, 1999, the Company received approval from the Bankruptcy
Court to pay pre-petition and post-petition employee wages, salaries, benefits
and other employee obligations. The Bankruptcy Court also approved orders
granting authority, among other things, to pay pre-petition claims of certain
critical vendors, utilities and patient obligations. All other pre-petition
liabilities are classified in the condensed consolidated balance sheet as
liabilities subject to compromise. The Company currently is paying the post-
petition claims of all vendors and providers in the ordinary course of business.
In connection with the Chapter 11 Cases, the Company entered into a $100
million debtor-in-possession financing agreement (the "DIP Financing") with a
bank group led by Morgan Guaranty Trust Company of New York (collectively, the
"DIP Lenders"). The Bankruptcy Court granted final approval of the DIP Financing
on October 1, 1999. The DIP Financing, which was initially scheduled to mature
on March 13, 2000, is comprised of a $75 million tranche A revolving loan (the
"Tranche A Loan") and a $25 million tranche B revolving loan (the "Tranche B
Loan"). Interest is payable at prime rate plus 2 1/2% on the Tranche A Loan and
prime rate plus 4 1/2% on the Tranche B Loan.
7
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 -- PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (Continued)
Available aggregate borrowings under the Tranche A Loan were initially
limited to $45 million in September 1999 and increased to $65 million in
October, $70 million in November and $75 million thereafter. Pursuant to a
recent amendment to the DIP Financing, the aggregate borrowing limitations under
the Tranche A Loans are limited to approximately $68 million until maturity.
Borrowings under the Tranche B Loan require the approval of lenders holding at
least 75% of the credit exposure under the DIP Financing. The DIP Financing is
secured by substantially all of the assets of the Company and its subsidiaries,
including certain owned real property. The DIP Financing contains standard
representations and warranties and other affirmative and restrictive covenants.
As of March 31, 2000, there were no outstanding borrowings under the DIP
Financing.
Since the consummation of the DIP Financing, the Company and the DIP Lenders
have agreed to several amendments to the DIP Financing. These amendments
approved various changes to the DIP Financing including (i) extending the period
of time for the Company to file its plan of reorganization, (ii) approving
certain transactions and (iii) revising the Company's cash plan originally
submitted with the DIP Financing. In December 1999, the Company informed the DIP
Lenders that it planned to record a significant charge to earnings in the fourth
quarter of 1999 related to the valuation of accounts receivable that could have
resulted in noncompliance with certain covenants in the DIP Financing requiring
minimum Consolidated EBITDAR and a minimum Net Amount of Eligible Accounts (both
as defined in the DIP Financing). In connection with the third amendment to the
DIP Financing, the Company received a waiver from compliance with these
covenants of the DIP Financing through February 14, 2000. The Company received
subsequent waivers from compliance with these covenants in later amendments. In
connection with the amendment to the DIP Financing dated February 23, 2000, the
parties agreed, among other things, to (i) extend the maturity date of the DIP
Financing until June 30, 2000, (ii) extend the period of time for the Company to
file its plan of reorganization to May 1, 2000, and (iii) revise certain
financial covenants. The Bankruptcy Court granted approval of this amendment to
the DIP Financing on March 10, 2000.
At December 31, 1999, the Company was not in compliance with the DIP
Financing covenant related to the minimum Net Amount of Eligible Accounts
(accounts receivable). Since there were no outstanding borrowings under the DIP
Financing at December 31, 1999, the event of default had no effect on the
Company's 1999 consolidated financial statements. Effective April 12, 2000, the
Company and the DIP Lenders agreed to an additional amendment to the DIP
Financing to revise the covenant related to the minimum Net Amount of Eligible
Accounts. In this amendment, the DIP Lenders also waived all events of default
regarding this covenant that occurred prior to the date of the amendment.
On April 26, 2000, the Company and the DIP Lenders agreed to an additional
amendment to the DIP Financing to permit the Company to seek an extension to
file its plan of reorganization through June 15, 2000 and to permit sales of
surplus personal property.
On November 4, 1999, the Company received approval (subject to certain
conditions) to implement a management retention plan (the "Management Retention
Plan") to enhance the ability of the Company to retain key management employees
during the reorganization period. Under the Management Retention Plan, bonuses
aggregating $7.3 million will be awarded to certain key management employees
based upon various percentages of their annual salary. The Management Retention
Plan provides that the retention bonuses be paid in three equal amounts upon:
(i) the Bankruptcy Court's approval of the Management Retention Plan, (ii) the
effective date of the plan of reorganization and (iii) three months following
the effective date of the plan of reorganization.
8
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 -- PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (Continued)
Under the Bankruptcy Code, actions to collect pre-petition indebtedness
against the Company are subject to an automatic stay and other contractual
obligations against the Company may not be enforced. The automatic stay does not
necessarily apply to certain actions against Ventas for which the Company has
agreed to indemnify Ventas in connection with the Spin-off. In addition, the
Company may assume or reject executory contracts, including lease obligations,
under the Bankruptcy Code. Parties affected by these rejections may file claims
with the Bankruptcy Court in accordance with the reorganization process.
As previously disclosed, the Company is developing a plan of reorganization
through negotiations with key parties including its senior bank lenders (the
"Senior Lenders"), the holders of the Company's $300 million 9 7/8% Guaranteed
Senior Subordinated Notes due 2005 (the "1998 Notes"), Ventas and the Department
of Justice (the "DOJ"), acting on behalf of the Health Care Financing
Administration ("HCFA") and the Department of Health and Human Services' Office
of the Inspector General ("HHS"). A substantial portion of pre-petition
liabilities are subject to settlement under the plan of reorganization to be
submitted by the Company.
The plan of reorganization must be voted upon by the impaired creditors of
the Company and approved by the Bankruptcy Court. There can be no assurance that
the plan of reorganization to be proposed by the Company will be approved by the
requisite holders of claims, confirmed by the Bankruptcy Court or that it will
be consummated. If the plan of reorganization is not accepted by the required
number of impaired creditors and the Company's exclusive right to file and
solicit acceptance of a plan of reorganization ends, any party in interest may
subsequently file its own plan of reorganization for the Company. The Bankruptcy
Court currently has extended the Company's exclusive right to submit a plan of
reorganization through May 16, 2000.
On May 11, 2000, the Company filed a motion to extend its exclusive right to
submit a plan of reorganization through July 18, 2000. The hearing on this
motion is scheduled for May 31, 2000. The Company has requested an interim
order from the Bankruptcy Court to maintain the Company's exclusive right to
file a plan of reorganization until the motion is decided.
In support of its motion, the Company informed the Bankruptcy Court that it
has continued to make progress in its reorganization proceedings. In addition,
the motion notes that the Company has reached an understanding with certain of
the Senior Lenders, certain holders of the 1998 Notes and the advisors to the
official committee of unsecured creditors regarding the broad terms of a plan of
reorganization. The Company also has continued to engage in discussions with
Ventas to obtain its support for a consensual plan of reorganization and is
simultaneously pursuing alternatives based upon the possible outcome of those
negotiations. The Company also informed the Bankruptcy Court that it has
continued its conversations with the DOJ regarding a settlement of ongoing
investigations and the negotiation of other agreements with the Company. In
addition, the motion further notes that the Company has filed amended schedules
of unsecured creditors and has made progress in reviewing and analyzing pre-
petition claims against the Company.
A plan of reorganization must be confirmed by the Bankruptcy Court after
certain findings required by the Bankruptcy Code are made by the Bankruptcy
Court. The Bankruptcy Court may confirm a plan of reorganization notwithstanding
the non-acceptance of the plan by an impaired class of creditors or equity
holders if certain requirements of the Bankruptcy Code are satisfied. As
previously announced, the Company has indicated that any plan of reorganization
will result in the Company's common stock having little, if any, value.
9
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 -- PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (Continued)
Events Leading to Reorganization
The Company reported a net loss from operations in 1998 aggregating $573
million, resulting in certain financial covenant violations under the Company's
$1.0 billion bank credit facility (the "Credit Agreement"). Namely, the
covenants regarding minimum net worth, total leverage ratio, senior leverage
ratio and fixed charge coverage ratio were not satisfied at December 31, 1998.
Prior to the commencement of the Chapter 11 Cases, the Company received a series
of temporary waivers of these covenant violations. The waivers generally
included certain borrowing limitations under the $300 million revolving credit
portion of the Credit Agreement. The final waiver was scheduled to expire on
September 24, 1999.
The Company was informed on April 9, 1999 by HCFA that the Medicare program
had made a demand for repayment of approximately $90 million of reimbursement
overpayments by April 23, 1999. On April 21, 1999, the Company reached an
agreement with HCFA to extend the repayment of such amounts over 60 monthly
installments (the "HCFA Agreement"). Under the HCFA Agreement, monthly payments
of approximately $1.5 million commenced in May 1999. Beginning in December 1999,
the balance of the overpayments bears interest at a statutory rate approximating
13.4%, resulting in a monthly payment of approximately $2.0 million through
March 2004. If the Company is delinquent with two consecutive payments, the HCFA
Agreement will be defaulted and all subsequent Medicare reimbursement payments
to the Company may be withheld. Amounts due under the HCFA Agreement aggregate
$75.3 million and have been classified as liabilities subject to compromise in
the Company's condensed consolidated balance sheet at March 31, 2000. The
Company has received Bankruptcy Court approval to continue to make the monthly
payments under the HCFA Agreement during the pendency of the Chapter 11 Cases.
On May 3, 1999, the Company elected not to make the interest payment of
approximately $14.8 million due on the 1998 Notes. The failure to pay interest
resulted in an event of default under the 1998 Notes.
In accordance with SOP 90-7, outstanding borrowings under the Credit
Agreement ($509 million) and the principal amount of the 1998 Notes ($300
million) are presented as liabilities subject to compromise in the Company's
condensed consolidated balance sheet at March 31, 2000. If the Chapter 11 Cases
had not been filed, the Company would have reported a working capital deficit
approximating $895 million at March 31, 2000. The condensed consolidated
financial statements do not include any adjustments that might result from the
resolution of the Chapter 11 Cases or other matters discussed herein. During the
pendency of the Chapter 11 Cases, the Company is continuing to record the
contractual amount of interest expense related to the Credit Agreement. No
interest costs have been recorded related to the 1998 Notes since the filing of
the Chapter 11 Cases. Contractual interest expense not accrued for the 1998
Notes during the first quarter of 2000 was $7.4 million.
As previously reported, the Company has been informed by the DOJ that the
Company and Ventas are the subjects of ongoing investigations into various
Medicare reimbursement issues, including hospital cost reporting issues, Vencare
billing practices and various quality of care issues in the hospitals and
nursing centers formerly operated by Ventas and currently operated by the
Company. The Company has cooperated fully in these investigations. The DOJ has
informed the Company that it has intervened in several pending qui tam actions
asserted against the Company and/or Ventas in connection with these
investigations. The Company and Ventas are engaged in active discussions with
the DOJ that may result in a resolution of some or all of the DOJ investigations
including the pending qui tam actions. In addition, the DOJ has filed proofs of
claims with respect to certain alleged claims in the Chapter 11 Cases. The
Company believes that the DOJ's intervention in these actions will facilitate
the ability of the parties to reach a final resolution. Such a resolution with
the DOJ could include a payment to the Federal government which could have a
material adverse effect on the Company's liquidity and financial position. See
Note 9.
10
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 -- PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (Continued)
Agreements with Ventas
On March 18, 1999, the Company served Ventas with a demand for mediation
pursuant to the Agreement and Plan of Reorganization governing the Spin-off (the
"Spin-off Agreement"). The Company was seeking a reduction in rent and other
concessions under its lease agreements with Ventas (the "Master Lease
Agreements"). On March 31, 1999, the Company and Ventas entered into a
standstill agreement (the "Standstill Agreement") which provided that both
companies would postpone through April 12, 1999 any claims either may have
against the other. On April 12, 1999, the Company and Ventas entered into a
second standstill agreement (the "Second Standstill") which provided that
neither party would pursue any claims against the other or any other third party
related to the Spin-off as long as the Company complied with certain rent
payment terms. The Second Standstill was scheduled to terminate on May 5, 1999.
The Company and Ventas also agreed that any statutes of limitations or other
time-related constraints in a bankruptcy or other proceeding that might be
asserted by one party against the other would be extended and tolled from April
12, 1999 until May 5, 1999 or until the termination of the Second Standstill
(the "Tolling Agreement").
As a result of the Company's failure to pay rent, Ventas served the Company
with notices of nonpayment under the Master Lease Agreements. Subsequently, the
Company and Ventas entered into further amendments to the Second Standstill and
the Tolling Agreement to extend the time during which no remedies may be pursued
by either party and to extend the date by which the Company may cure its failure
to pay rent.
In connection with the Chapter 11 Cases, the Company and Ventas entered into
a stipulation (the "Stipulation") which provides for the payment by the Company
of a reduced monthly rent of approximately $15.1 million beginning in September
1999. The Stipulation was approved by the Bankruptcy Court. The difference
between the $18.9 million base rent under the Master Lease Agreements and the
reduced monthly rent is being accrued as an administrative expense subject to
compromise in the Chapter 11 Cases. Unpaid August 1999 rent of approximately
$18.9 million will constitute a claim by Ventas in the Chapter 11 Cases which
claim is potentially subject to dispute. During the pendency of the Chapter 11
Cases, the Company is recording the contractual amount of the $18.9 million
monthly base rent.
The Stipulation also continues to toll any statutes of limitations or other
time constraints in a bankruptcy proceeding for claims that might be asserted by
the Company against Ventas. The Stipulation automatically renews for one-month
periods unless either party provides a 14-day notice of termination. The
Stipulation also may be terminated prior to its expiration upon a payment
default by the Company, the consummation of a plan of reorganization or the
occurrence of certain defaults under the DIP Financing.
The Stipulation also provides that the Company will continue to fulfill its
indemnification obligations arising from the Spin-off.
If the Company and Ventas are unable to resolve their disputes or maintain an
interim resolution, the Company may seek to pursue claims against Ventas arising
out of the Spin-off and seek judicial relief barring Ventas from exercising any
remedies based on the Company's failure to pay some or all of the rent to
Ventas. The Company's failure to pay rent or otherwise comply with the
Stipulation, in the absence of judicial relief, would result in an "Event of
Default" under the Master Lease Agreements. Upon an Event of Default under the
Master Lease Agreements, assuming Ventas were to be granted relief from the
automatic stay by the Bankruptcy Court, the remedies available to Ventas
include, without limitation, terminating the Master Lease Agreements,
repossessing and reletting the leased properties and requiring the Company
to (i) remain liable for all obligations under the
11
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 -- PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (Continued)
Agreements with Ventas (Continued)
Master Lease Agreements, including the difference between the rent under the
Master Lease Agreements and the rent payable as a result of reletting the leased
properties or (ii) pay the net present value of the rent due for the balance of
the terms of the Master Lease Agreements. Such remedies, however, would be
subject to the supervision of the Bankruptcy Court.
Liabilities Subject to Compromise
"Liabilities subject to compromise" refers to liabilities incurred prior to
the commencement of the Chapter 11 Cases. These liabilities, consisting
primarily of long-term debt, amounts due to third party payors and certain
accounts payable and accrued liabilities, represent the Company's estimate of
known or potential claims to be resolved in connection with the Chapter 11
Cases. Such claims remain subject to future adjustments based on assertions of
additional claims, negotiations, actions of the Bankruptcy Court, further
developments with respect to disputed claims, future rejection of executory
contracts or unexpired leases, determination as to the value of any collateral
securing claims, treatment under the plan of reorganization and other events.
Payment terms for these amounts will be established in connection with the plan
of reorganization.
The Company has received approval from the Bankruptcy Court to pay pre-
petition and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting authority, among
other things, to pay pre-petition claims of certain critical vendors, utilities
and patient obligations. All other pre-petition liabilities are classified in
the condensed consolidated balance sheet as liabilities subject to compromise.
A summary of the principal categories of claims classified as liabilities
subject to compromise under the Chapter 11 Cases follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
Long-term debt:
Credit Agreement...................... $ 509,143 $ 506,114
1998 Notes............................ 300,000 300,000
Amounts due under the HCFA Agreement.. 75,295 80,296
8 5/8% Senior Subordinated Notes...... 2,391 2,391
Unamortized deferred financing costs.. (12,338) (12,626)
Other................................. 3,884 4,592
---------- ----------
878,375 880,767
---------- ----------
Due to third party payors.............. 112,694 112,694
Accounts payable....................... 32,990 33,693
Accrued liabilities:
Interest.............................. 56,027 45,521
Ventas rent........................... 45,133 33,884
Other................................. 52,773 52,858
---------- ----------
153,933 132,263
---------- ----------
$1,177,992 $1,159,417
========== ==========
</TABLE>
Substantially all of the liabilities subject to compromise would have been
classified as current liabilities if the Chapter 11 Cases had not been filed.
12
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4 -- REVENUES
Revenues are recorded based upon estimated amounts due from patients and
third party payors for healthcare services provided, including anticipated
settlements under reimbursement agreements with Medicare, Medicaid and other
third party payors.
A summary of first quarter revenues by payor type follows (in thousands):
<TABLE>
2000 1999
-------- --------
<S> <C> <C>
Medicare........................................... $263,877 $254,392
Medicaid........................................... 222,513 218,625
Private and other.................................. 243,653 243,548
-------- --------
730,043 716,565
Elimination........................................ (14,587) (16,333)
-------- --------
$715,456 $700,232
======== ========
</TABLE>
NOTE 5 -- REORGANIZATION COSTS
Reorganization costs include professional fees incurred in connection with
the Company's restructuring activities of $3.1 million for the first quarter of
2000 and $2.3 million for the first quarter of 1999.
NOTE 6 -- EARNINGS PER SHARE
Basic and diluted earnings per common share are based upon the weighted
average number of common shares outstanding. No incremental shares are included
in the calculations of the diluted loss per common share since the result would
be antidilutive.
13
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 7 -- BUSINESS SEGMENT DATA
The Company operates two business segments: the health services division and
the hospital division. The health services division operates nursing centers
and a rehabilitation therapy business. The hospital division operates hospitals
and an institutional pharmacy business. The Company defines operating income as
earnings before interest, income taxes, depreciation, amortization and rent.
Operating income reported for each of the Company's business segments excludes
allocations of corporate overhead.
The following table sets forth the Company's revenues, operating results and
assets by business segment (in thousands):
<TABLE>
<CAPTION>
First Quarter
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Health services division:
Nursing centers........................................... $ 412,703 $ 398,374
Rehabilitation services................................... 34,377 54,365
Other ancillary services.................................. (5) 16,263
Elimination............................................... (18,091) (34,205)
---------- ----------
428,984 434,797
Hospital division:
Hospitals................................................. 253,591 238,522
Pharmacy.................................................. 47,468 43,246
---------- ----------
301,059 281,768
---------- ----------
730,043 716,565
Elimination of pharmacy charges to Company nursing centers.. (14,587) (16,333)
---------- ----------
$ 715,456 $ 700,232
========== ==========
Income (loss) from operations:
Operating income (loss):
Health services division:
Nursing centers......................................... $ 70,846 $ 59,122
Rehabilitation services................................. 490 6,933
Other ancillary services................................ 130 3,596
---------- ----------
71,466 69,651
Hospital division:
Hospitals............................................... 56,029 58,411
Pharmacy................................................ (1,181) 4,045
---------- ----------
54,848 62,456
Corporate overhead........................................ (29,365) (27,773)
Reorganization costs...................................... (3,065) (2,312)
---------- ----------
Operating income...................................... 93,884 102,022
Rent........................................................ (76,220) (75,452)
Depreciation and amortization............................... (17,902) (22,285)
Interest, net............................................... (15,033) (18,905)
---------- ----------
Loss before income taxes.................................... (15,271) (14,620)
Provision for income taxes.................................. 500 50
---------- ----------
$ (15,771) $ (14,670)
========== ==========
March 31, 2000 December 31, 1999
-------------- -----------------
Assets:
Health services division.................................. $ 494,858 $ 489,316
Hospital division......................................... 342,366 337,218
Corporate................................................. 399,849 409,440
---------- ----------
$1,237,073 $1,235,974
========== ==========
</TABLE>
14
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8 -- INCOME TAXES
The provision for income taxes is based upon management's estimate of taxable
income or loss for the year and includes the effect of certain non-deductible
items such as goodwill amortization and the recording of additional deferred tax
valuation allowances.
The provision for income taxes for the first quarter of 2000 and 1999
includes charges of $4.9 million and $1.9 million, respectively, related to the
deferred tax valuation allowance. In addition, the Company recorded a valuation
allowance of $3.4 million in the first quarter of 1999 related to the change in
accounting for start-up costs. At March 31, 2000, the deferred tax valuation
allowance included in the Company's condensed consolidated balance sheet
aggregated $354.2 million.
NOTE 9 -- LITIGATION
Summary descriptions of various significant legal and regulatory activities
follow:
On September 13, 1999, the Company and substantially all of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the Bankruptcy
Code. The Chapter 11 Cases have been styled In re: Vencor, Inc., et al., Debtors
and Debtors in Possession, Case Nos. 99-3199 (MFW) through 99-3327 (MFW),
Chapter 11, Jointly Administered. See Note 3 for further discussion of the
Chapter 11 Cases.
On March 18, 1999, the Company served Ventas with a demand for mediation
pursuant to the Spin-off Agreement. The Company was seeking a reduction in rent
and other concessions under its Master Lease Agreements with Ventas. On March
31, 1999, the Company and Ventas entered into the Standstill Agreement which
provided that both companies would postpone through April 12, 1999 any claims
either may have against the other. On April 12, 1999, the Company and Ventas
entered into the Second Standstill which provided that neither party would
pursue any claims against the other or any other third party related to the
Spin-off as long as the Company complied with certain rent payment terms. The
Second Standstill was scheduled to terminate on May 5, 1999. Pursuant to the
Tolling Agreement, the Company and Ventas also agreed that any statutes of
limitations or other time-related constraints in a bankruptcy or other
proceeding that might be asserted by one party against the other would be
extended and tolled from April 12, 1999 until May 5, 1999 or until the
termination of the Second Standstill. As a result of the Company's failure to
pay rent, Ventas served the Company with notices of nonpayment under the Master
Lease Agreements. Subsequently, the Company and Ventas entered into further
amendments to the Second Standstill and the Tolling Agreement to extend the time
during which no remedies may be pursued by either party and to extend the date
by which the Company may cure its failure to pay rent.
In connection with the Chapter 11 Cases, the Company and Ventas entered into
the Stipulation which provides for the payment by the Company of a reduced
monthly rent of approximately $15.1 million beginning in September 1999. The
Stipulation was approved by the Bankruptcy Court. The Stipulation also continues
to toll any statutes of limitations or other time constraints in a bankruptcy
proceeding for claims that might be asserted by the Company against Ventas. The
Stipulation automatically renews for one-month periods unless either party
provides a 14-day notice of termination. The Stipulation also may be terminated
prior to its expiration upon a payment default by the Company, the consummation
of the plan of reorganization or the occurrence of certain defaults under the
DIP Financing. The Stipulation also provides that the Company will continue to
fulfill its indemnification obligations arising from the Spin-off.
15
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
If the Company and Ventas are unable to resolve their disputes or maintain an
interim resolution, the Company may seek to pursue claims against Ventas arising
out of the Spin-off and seek judicial relief barring Ventas from exercising any
remedies based on the Company's failure to pay some or all of the rent to
Ventas. The Company's failure to pay rent or comply with the Stipulation, in the
absence of judicial relief, would result in an "Event of Default" under the
Master Lease Agreements. Upon an Event of Default under the Master Lease
Agreements, assuming Ventas were to be granted relief from the automatic stay by
the Bankruptcy Court, the remedies available to Ventas include terminating the
Master Lease Agreements, repossessing and reletting the leased properties and
requiring the Company to (i) remain liable for all obligations under the Master
Lease Agreements, including the difference between the rent under the Master
Lease Agreements and the rent payable as a result of reletting the leased
properties or (ii) pay the net present value of the rent due for the balance of
the terms of the Master Lease Agreements. Such remedies, however, would be
subject to the supervision of the Bankruptcy Court.
The Company's subsidiary, TheraTx, Incorporated ("TheraTx") is a plaintiff in
a declaratory judgment action entitled TheraTx, Incorporated v. James W. Duncan,
Jr., et al., No. 1:95-CV-3193, filed in the United States District Court for the
Northern District of Georgia and currently pending in the United States Court of
Appeals for the Eleventh Circuit, No. 99-11451-FF. The defendants have asserted
counterclaims against TheraTx under breach of contract, securities fraud,
negligent misrepresentation and fraud theories for allegedly not performing as
promised under a merger agreement related to TheraTx's purchase of a company
called PersonaCare, Inc. and for allegedly failing to inform the
defendants/counterclaimants prior to the merger that TheraTx's possible
acquisition of Southern Management Services, Inc. might cause the suspension of
TheraTx's shelf registration under relevant rules of the Securities and Exchange
Commission (the "Commission"). The court granted summary judgment for the
defendants/counterclaimants and ruled that TheraTx breached the shelf
registration provision in the merger agreement, but dismissed the defendants'
remaining counterclaims. Additionally, the court ruled after trial that
defendants/counterclaimants were entitled to damages and prejudgment interest in
the amount of approximately $1.3 million and attorneys' fees and other
litigation expenses of approximately $700,000. The Company and the
defendants/counterclaimants both have appealed the court's rulings. The Company
is defending the action vigorously.
The Company is pursuing various claims against private insurance companies
who issued Medicare supplement insurance policies to individuals who became
patients of the Company's hospitals. After the patients' Medicare benefits are
exhausted, the insurance companies become liable to pay the insureds' bills
pursuant to the terms of these policies. The Company has filed numerous
collection actions against various of these insurers to collect the difference
between what Medicare would have paid and the hospitals' usual and customary
charges. These disputes arise from differences in interpretation of the policy
provisions and Federal and state laws governing such policies. Various courts
have issued various rulings on the different issues, some of which have been
adverse to the Company and most of which have been appealed. The Company intends
to continue to pursue these claims vigorously. If the Company does not prevail
on these issues, future results of operations and liquidity would be materially
adversely affected.
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al., was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Company's predecessor against the
Company and Ventas and certain current and former executive officers and
directors of the Company and Ventas. The complaint alleges that the Company,
Ventas and certain current and former executive officers of the Company and
Ventas during a specified time
16
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
frame violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
(the "Exchange Act"), by, among other things, issuing to the investing public a
series of false and misleading statements concerning Ventas' then current
operations and the inherent value of its common stock. The complaint further
alleges that as a result of these purported false and misleading statements
concerning Ventas' revenues and successful acquisitions, the price of the common
stock was artificially inflated. In particular, the complaint alleges that the
defendants issued false and misleading financial statements during the first,
second and third calendar quarters of 1997 which misrepresented and understated
the impact that changes in Medicare reimbursement policies would have on Ventas'
core services and profitability. The complaint further alleges that the
defendants issued a series of materially false statements concerning the
purportedly successful integration of Ventas' recent acquisitions and
prospective earnings per share for 1997 and 1998 which the defendants knew
lacked any reasonable basis and were not being achieved. The suit seeks damages
in an amount to be proven at trial, pre-judgment and post-judgment interest,
reasonable attorneys' fees, expert witness fees and other costs, and any
extraordinary equitable and/or injunctive relief permitted by law or equity to
assure that the plaintiff has an effective remedy. In December 1998, the
defendants filed a motion to dismiss the case. The court converted the
defendants' motion to dismiss into a motion for summary judgment and granted
summary judgment as to all defendants. The plaintiff appealed the ruling to the
United States Court of Appeals for the Sixth Circuit (the "Sixth Circuit"). On
April 24, 2000, the Sixth Circuit affirmed the district court's dismissal of the
action on the grounds that the plaintiff failed to state a claim upon which
relief could be granted. On May 8, 2000, the plaintiff filed a petition for
rehearing or a rehearing en banc with the Sixth Circuit. The Company is
defending this action vigorously.
A shareholder derivative suit entitled Thomas G. White on behalf of Vencor,
Inc. and Ventas, Inc. v. W. Bruce Lunsford, et al., Case No. 98CI03669, was
filed in June 1998 in the Jefferson County, Kentucky, Circuit Court. The suit
was brought on behalf of the Company and Ventas against certain current and
former executive officers and directors of the Company and Ventas. The complaint
alleges that the defendants damaged the Company and Ventas by engaging in
violations of the securities laws, engaging in insider trading, fraud and
securities fraud and damaging the reputation of the Company and Ventas. The
plaintiff asserts that such actions were taken deliberately, in bad faith and
constitute breaches of the defendants' duties of loyalty and due care. The
complaint is based on substantially similar assertions to those made in the
class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al., discussed
above. The suit seeks unspecified damages, interest, punitive damages,
reasonable attorneys' fees, expert witness fees and other costs, and any
extraordinary equitable and/or injunctive relief permitted by law or equity to
assure that the Company and Ventas have an effective remedy. The Company
believes that the allegations in the complaint are without merit and intends to
defend this action vigorously.
A class action lawsuit entitled Jules Brody v. Transitional Hospitals
Corporation, et al., Case No. CV-S-97-00747-PMP, was filed on June 19, 1997 in
the United States District Court for the District of Nevada on behalf of a class
consisting of all persons who sold shares of Transitional Hospitals Corporation
("Transitional") common stock during the period from February 26, 1997 through
May 4, 1997, inclusive. The complaint alleges that Transitional purchased shares
of its common stock from members of the investing public after it had received a
written offer to acquire all of Transitional's common stock and without making
the required disclosure that such an offer had been made. The complaint further
alleges that defendants disclosed that there were "expressions of interest" in
acquiring Transitional when, in fact, at that time, the negotiations had reached
an advanced stage with actual firm offers at substantial premiums to the trading
price of Transitional's stock having been made which were actively being
considered by Transitional's Board of Directors. The complaint asserts claims
pursuant to Sections 10(b), 14(e) and 20(a) of the Exchange Act, and common
law principles of negligent misrepresentation and names as defendants
17
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
Transitional as well as certain former senior executives and directors of
Transitional. The plaintiff seeks class certification, unspecified damages,
attorneys' fees and costs. In June 1998, the court granted the Company's motion
to dismiss with leave to amend the Section 10(b) claim and the state law claims
for misrepresentation. The court denied the Company's motion to dismiss the
Section 14(e) and Section 20(a) claims, after which the Company filed a motion
for reconsideration. On March 23, 1999, the court granted the Company's motion
to dismiss all remaining claims and the case was dismissed. The plaintiff has
appealed this ruling. The Company is defending this action vigorously.
On April 14, 1999, a lawsuit entitled Lenox Healthcare, Inc., et al. v.
Vencor, Inc., et al., Case No. BC 208750, was filed in the Superior Court of Los
Angeles, California by Lenox Healthcare, Inc. ("Lenox") asserting various causes
of action arising out of the Company's sale and lease of several nursing centers
to Lenox in 1997. Lenox subsequently removed certain of its causes of action and
refiled these claims before the United States District Court for the Western
District of Kentucky in a case entitled Lenox Healthcare, Inc. v. Vencor, Inc.,
et al., Case No. 3:99 CV-348-H. The Company has asserted counterclaims,
including RICO claims, against Lenox in the Kentucky action. The Company
believes that the allegations made by Lenox in both complaints are without merit
and intends to defend these actions vigorously. Lenox and its subsidiaries filed
for protection under Chapter 11 of the Bankruptcy Code on November 3, 1999. The
Company has not determined the effect, if any, such filing will have on the
Company's financial condition, results of operations or liquidity. By virtue of
both the Company's and Lenox's separate filings for Chapter 11 protection, the
two Lenox actions and the Company's counterclaims are stayed.
The Company has been informed by the DOJ that the Company and Ventas are the
subjects of ongoing investigations into various Medicare reimbursement issues,
including hospital cost reporting issues, Vencare billing practices and various
quality of care issues in the hospitals and nursing centers formerly operated by
Ventas and currently operated by the Company. These investigations include some
matters for which the Company indemnified Ventas in the Spin-off. In cases where
neither the Company nor any of its subsidiaries are defendants but Ventas is the
defendant, the Company had agreed to defend and indemnify Ventas for such claims
as part of the Spin-off. The Stipulation entered into with Ventas provides that
the Company will continue to fulfill its indemnification obligations arising
from the Spin-off. The Company has cooperated fully in the investigations.
The DOJ has informed the Company that it has intervened in several pending
qui tam actions asserted against the Company and/or Ventas in connection with
these investigations. The Company and Ventas are engaged in active settlement
discussions with the DOJ that may result in a resolution of some or all of the
DOJ investigations including the pending qui tam actions. In addition, the DOJ
has filed proofs of claims with respect to certain alleged claims in the Chapter
11 Cases. Such a resolution with the DOJ could include a payment to the Federal
government which could have a material adverse effect on the Company's liquidity
and financial position. However, there can be no assurance that a settlement or
other resolution will be consummated with the DOJ.
The following is a summary of the qui tam actions pending against the Company
and/or Ventas in which the DOJ has intervened. In connection with the DOJ's
intervention, the courts ordered these previously non-public actions to be
unsealed. Certain of the actions described below name other defendants in
addition to the Company and Ventas.
18
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
(a) The Company, Ventas and the Company's subsidiary, American X-Rays, Inc.
("AXR"), are defendants in a civil qui tam action styled United States ex rel.
Doe v. American X-Rays Inc., et al., No. LR-C-95-332, pending in the United
States District Court for the Eastern District of Arkansas and served on AXR
on July 7, 1997. The DOJ intervened in the suit which was brought under the
Federal Civil False Claims Act and added the Company and Ventas as
defendants. The Company acquired an interest in AXR when The Hillhaven
Corporation ("Hillhaven") was merged into the Company in September 1995 and
purchased the remaining interest in AXR in February 1996. AXR provided
portable X-ray services to nursing centers (including some of those operated
by Ventas or the Company) and other healthcare providers. The civil suit
alleges that AXR submitted false claims to the Medicare and Medicaid programs.
The suit seeks damages in an amount of not less than $1,000,000, treble
damages and civil penalties. The Company has defended this action vigorously.
The court has dismissed the action based upon the possible pending settlement
between the DOJ and Vencor and Ventas. In a related criminal investigation,
the United States Attorney's Office for the Eastern District of Arkansas
("USAO") indicted four former employees of AXR; those individuals were
convicted of various fraud related counts in January 1999. AXR had been
informed previously that it was not a target of the criminal investigation,
and AXR was not indicted. However, the Company received several grand jury
subpoenas for documents and witnesses which it moved to quash. The USAO has
withdrawn the subpoenas which rendered the motion moot.
(b) The Company's subsidiary, Medisave Pharmacies, Inc. ("Medisave"),
Ventas and Hillhaven (former parent company to Medisave), are the defendants
in a civil qui tam action styled United States ex rel. Danley v. Medisave
Pharmacies, Inc., et al., No. CV-N-96-00170-HDM, filed in the United States
District Court for the District of Nevada on March 15, 1996. The plaintiff
alleges that Medisave, an institutional pharmacy provider, formerly owned by
Ventas and owned by the Company since the Spin-off: (1) charged the Medicare
program for unit dose drugs when bulk drugs were administered and charged
skilled nursing facilities more for the same drugs for Medicare patients than
for non-Medicare patients; (2) improperly claimed special dispensing fees that
it was not entitled to under Medicaid; and (3) recouped unused drugs from
skilled nursing facilities and returned these drugs to its stock without
crediting Medicare or Medicaid, all in violation of the Federal Civil False
Claims Act. The complaint also alleges that Medisave had a policy of offering
kickbacks, such as free equipment, to skilled nursing centers to secure and
maintain their business. The complaint seeks treble damages, other unspecified
damages, civil penalties, attorneys' fees and other costs. The Company
disputes the allegations in the complaint. The defendants intend to defend
this action vigorously.
(c) Ventas and the Company's subsidiary, Vencare, Inc. ("Vencare"), among
others, are defendants in the action styled United States ex rel. Roberts v.
Vencor, Inc., et al., No. 3:97CV-349-J, filed in the United States District
Court for the Western District of Kansas on June 25, 1996 and consolidated
with the action styled United States of America ex rel. Meharg, et al. v.
Vencor, Inc., et al., No. 3:98SC-737-H, filed in the United States District
Court for the Middle District of Florida on June 4, 1998. The complaint
alleges that the defendants knowingly submitted and conspired to submit false
claims and statements to the Medicare program in connection with their
purported provision of respiratory therapy services to skilled nursing center
residents. The defendants allegedly billed Medicare for respiratory therapy
services and supplies when those services were not medically necessary, billed
for services not provided, exaggerated the time required to provide services
or exaggerated the productivity of their therapists. It is further alleged
that the defendants presented false claims and statements to the Medicare
program in violation of the Federal Civil False Claims Act, by, among other
things, allegedly causing skilled nursing centers with which they had
respiratory therapy contracts, to present false claims to Medicare for
respiratory therapy services and supplies. The complaint seeks treble damages,
other unspecified damages, civil penalties, attorneys' fees and other costs.
The Company disputes the allegations in the complaint. The defendants intend
to defend this action vigorously.
19
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
(d) In United States ex rel. Kneepkens v. Gambro Healthcare, Inc., et al.,
No. 97-10400-GAO, filed in the United States District Court for the District
of Massachusetts on October 15, 1998, the Company's subsidiary, Transitional,
and two unrelated entities, Gambro Healthcare, Inc. and Dialysis Holdings,
Inc., are defendants in this suit alleging that they violated the Federal
Civil False Claims Act and the Medicare and Medicaid antikickback, antifraud
and abuse amendments (the "Antikickback Amendments") and committed common law
fraud, unjust enrichment and payment by mistake of fact. Specifically, the
complaint alleges that a predecessor to Transitional formed a joint venture
with Damon Clinical Laboratories to create and operate a clinical testing
laboratory in Georgia that was then used to provide lab testing for dialysis
patients, and that the joint venture billed at below cost in return for
referral of substantially all non-routine testing in violation of the
Antikickback Amendments. It is further alleged that a predecessor to
Transitional and Damon Clinical Laboratories used multiple panel testing of
end stage renal disease rather than single panel testing that allegedly
resulted in the generation of additional revenues from Medicare and that the
entities allegedly added non-routine tests to tests otherwise ordered by
physicians that were not requested or medically necessary but resulted in
additional revenue from Medicare in violation of the Antikickback Amendments.
Transitional has moved to dismiss the case. Transitional disputes the
allegations in the complaint and is defending the action vigorously.
(e) The Company and/or Ventas are defendants in the action styled United
States ex rel. Huff and Dolan v. Vencor, Inc., et al., No. 97-4358 AHM (Mcx),
filed in the United States District Court for the Central District of
California on June 13, 1997. The plaintiff alleges that the defendant violated
the Federal Civil False Claims Act by submitting false claims to the Medicare,
Medicaid and CHAMPUS programs by allegedly: (1) falsifying patient bills and
submitting the bills to the Medicare, Medicaid and CHAMPUS programs, (2)
submitting bills for intensive and critical care not actually administered to
patients, (3) falsifying patient charts in relation to the billing, (4)
charging for physical therapy services allegedly not provided and pharmacy
services allegedly provided by non-pharmacists, and (5) billing for sales
calls made by nurses to prospective patients. The complaint seeks treble
damages, other unspecified damages, civil penalties, attorneys' fees and other
costs. Defendants dispute the allegations in the complaint. The Company, on
behalf of itself and Ventas, intends to defend this action vigorously.
(f) Ventas is the defendant in the action styled United States ex rel.
Brzycki v. Vencor, Inc., Civ. No. 97-451-JD, filed in the United States
District Court for the District of New Hampshire on September 8, 1997. Ventas
is alleged to have knowingly violated the Federal Civil False Claims Act by
submitting and conspiring to submit false claims to the Medicare program. The
complaint alleges that Ventas: (1) fabricated diagnosis codes by ordering
medically unnecessary services, such as respiratory therapy; (2) changed
referring physicians' diagnoses in order to qualify for Medicare
reimbursement; and (3) billed Medicare for oxygen use by patients regardless
of whether the oxygen was actually administered to particular patients. The
complaint further alleges that Ventas paid illegal kickbacks to referring
health care professionals in the form of medical consulting service agreements
as an alleged inducement to refer patients, in violation of the Federal Civil
False Claims Act, the Antikickback Amendments and the Stark provisions. It is
additionally alleged that Ventas consistently submitted Medicare claims for
clinical services that were not performed or were performed at lower actual
costs. The complaint seeks unspecified damages, civil penalties, attorneys'
fees and costs. Ventas disputes the allegations in the complaint. The Company,
on behalf of Ventas, intends to defend the action vigorously.
20
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
(g) United States ex rel. Lanford and Cavanaugh v. Vencor, Inc., et al.,
Civ. No. 97-CV-2845, was filed against Ventas in the United States District
Court for the Middle District of Florida, on November 24, 1997. The United
States of America intervened in this civil qui tam lawsuit on May 17, 1999. On
July 23, 1999, the United States filed its amended complaint in the lawsuit
and added the Company as a defendant. The lawsuit alleges that the Company and
Ventas knowingly submitted false claims and false statements to the Medicare
and Medicaid programs including, but not limited to, claims for reimbursement
of costs for certain ancillary services performed in defendants' nursing
centers and for third party nursing center operators that the United States
alleges are not properly reimbursable costs through the hospitals' cost
reports. The lawsuit involves the Company's hospitals which were owned by
Ventas prior to the Spin-off. The complaint does not specify the amount of
damages sought. The Company and Ventas dispute the allegations in the amended
complaint and intend to defend this action vigorously.
(h) In United States ex rel. Harris and Young v. Vencor, Inc., et al.,
filed in the Eastern District of Missouri on May 25, 1999, the defendants
include the Company, Vencare, and Ventas. The defendants allegedly submitted
and conspired to submit false claims for payment to the Medicare and CHAMPUS
programs, in violation of the Federal Civil False Claims Act. According to the
complaint, the Company, through its subsidiary, Vencare, allegedly (1) over
billed for respiratory therapy services, (2) rendered medically unnecessary
treatment, and (3) falsified supply, clinical and equipment records. The
defendants also allegedly encouraged or instructed therapist to falsify
clinical records and over prescribe therapy services. The complaint seeks
treble damages, other unspecified damages, civil penalties, attorneys' fees
and other costs. The Company disputes the allegations in the complaint and
intends to defend this action vigorously.
(i) In United States ex rel. George Mitchell, et al. v. Vencor, Inc., et
al., filed in the United States District Court for the Southern District of
Ohio on August 13, 1999, the defendants, consisting of the Company and its two
subsidiaries, Vencare and Vencor Hospice, Inc., are alleged to have violated
the Federal Civil False Claims Act by obtaining improper reimbursement from
Medicare concerning the treatment of hospice patients. Defendants are alleged
to have obtained inflated Medicare reimbursement for admitting, treating
and/or failing to discharge in a timely manner hospice patients who were not
"hospice appropriate." The complaint further alleges that the defendants
obtained inflated reimbursement for providing medications for these hospice
patients. The complaint alleges damages in excess of $1,000,000. The Company
disputes the allegations in the complaint and intends to defend vigorously the
action.
(j) In Gary Graham, on Behalf of the United States of America v. Vencor
Operating, Inc. et. al., filed in the United States District Court for the
Southern District of Florida on or about June 8, 1999, the defendants,
including the Company, its subsidiary, Vencor Operating, Inc., Ventas,
Hillhaven and Medisave, are alleged to have presented or caused to be
presented false or fraudulent claims for payment to the Medicare program in
violation of, among other things, the Federal Civil False Claims Act. The
complaint alleges that Medisave, a subsidiary of the Company which was
transferred from Ventas to the Company in the Spin-off, systematically up-
charged for drugs and supplies dispensed to Medicare patients. The complaint
seeks unspecified damages, civil penalties, interest, attorneys' fees and
other costs. The Company disputes the allegations in the complaint and intends
to defend this action vigorously.
21
<PAGE>
VENCOR, INC.
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 -- LITIGATION (Continued)
(k) In United States, et al., ex rel. Phillips-Minks, et al. v.
Transitional Corp., et al., filed in the United States District Court for
Southern District of California on July 23, 1998, the defendants, including
Transitional and Ventas, are alleged to have submitted and conspired to submit
false claims and statements to Medicare, Medicaid, and other Federal and state
funded programs during a period commencing in 1993. The conduct complained of
allegedly violates the Federal Civil False Claims Act, the California False
Claims Act, the Florida False Claims Act, the Tennessee Health Care False
Claims Act, and the Illinois Whistleblower Reward and Protection Act.
Defendant allegedly submitted improper and erroneous claims to Medicare,
Medicaid and other programs, for improper or unnecessary services and services
not performed, inadequate collections efforts associated with billing and
collecting bad debts, inflated and nonexistent laboratory charges, false and
inadequate documentation of claims, splitting charges, shifting revenues and
expenses, transferring patients to hospitals that are reimbursed by Medicare
at a higher level, failing to return duplicate reimbursement payments, and
improperly allocating hospital insurance expenses. In addition, the complaint
alleges that the defendants were inconsistent in their reporting of cost
report data, paid kickbacks to increase patient referrals to hospitals, and
incorrectly reported employee compensation resulting in inflated employee
401(k) contributions. The complaint seeks unspecified damages. The Company
disputes the allegations in the complaint and intends to defend this action
vigorously.
In connection with the Spin-off, liabilities arising from various legal
proceedings and other actions were assumed by the Company and the Company agreed
to indemnify Ventas against any losses, including any costs or expenses, it may
incur arising out of or in connection with such legal proceedings and other
actions. The indemnification provided by the Company also covers losses,
including costs and expenses, which may arise from any future claims asserted
against Ventas based on the former healthcare operations of Ventas. In
connection with its indemnification obligation, the Company has assumed the
defense of various legal proceedings and other actions. The Stipulation entered
into with Ventas provides that the Company will continue to fulfill its
indemnification obligations arising from the Spin-off.
The Company is a party to certain legal actions and regulatory investigations
arising in the normal course of its business. The Company is unable to predict
the ultimate outcome of pending litigation and regulatory investigations. In
addition, there can be no assurance that the DOJ, HCFA or other regulatory
agencies will not initiate additional investigations related to the Company's
businesses in the future, nor can there be any assurance that the resolution of
any litigation or investigations, either individually or in the aggregate, would
not have a material adverse effect on the Company's results of operations,
liquidity or financial position. In addition, the above litigation and
investigations (as well as future litigation and investigations) are expected to
consume the time and attention of the Company's management and may have a
disruptive effect upon the Company's operations.
NOTE 10 -- THIRD PARTY SETTLEMENTS
In January 2000, the Company filed its hospital cost reports for the year
ended August 31, 1999. Cost reports are filed annually in settlement of amounts
due to or from the various agencies administering the reimbursement programs.
These cost reports indicated amounts due from the Company aggregating $58
million. This liability arose during 1999 as part of the Company's routine
settlement of Medicare reimbursement overpayments. Such amounts are classified
as liabilities subject to compromise in the condensed consolidated balance sheet
and, accordingly, no funds were disbursed by the Company in settlement of such
pre-petition liabilities.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement
Certain statements made in this Form 10-Q, including, but not limited to,
statements containing the words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "may" and other similar expressions are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are inherently uncertain,
and stockholders must recognize that actual results may differ materially from
the Company's expectations as a result of a variety of factors, including,
without limitation, those discussed below. Such forward-looking statements are
based on management's current expectations and include known and unknown risks,
uncertainties and other factors, many of which the Company is unable to predict
or control, that may cause the Company's actual results or performance to differ
materially from any future results or performance expressed or implied by such
forward-looking statements. Factors that may affect the plans or results of the
Company include, without limitation, the ability of the Company to continue as a
going concern; the delays or the inability to complete the Company's plan of
reorganization; the ability of the Company to operate pursuant to the terms of
the DIP Financing; the ability of the Company to operate successfully under the
Chapter 11 Cases; risks associated with operating a business in Chapter 11;
adverse actions which may be taken by creditors and the outcome of various
bankruptcy proceedings; adverse developments with respect to the Company's
liquidity or results of operations; the Company's ability to attract patients
given its current financial position; the ability of the Company to attract and
retain key executives and other personnel; the effects of healthcare reform and
legislation on the Company's business strategy and operations; the Company's
ability to control costs, including labor costs, in response to the prospective
payment system; adverse developments with respect to the Company's settlement
discussions with the DOJ concerning ongoing investigations; and the dramatic
increase in the costs of defending and insuring against alleged patient care
liability claims. Many of these factors are beyond the control of the Company
and its management. The Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future performance. The
Company disclaims any obligation to update any such factors or to announce
publicly the results of any revisions to any of the forward-looking statements
to reflect future events or developments.
General
The business segment data in Note 7 of the Notes to Condensed Consolidated
Financial Statements should be read in conjunction with the following discussion
and analysis.
The Company provides long-term healthcare services primarily through the
operation of nursing centers and hospitals. At March 31, 2000, the Company's
health services division operated 320 nursing centers (40,915 licensed beds) in
31 states and a rehabilitation therapy business. The Company's hospital
division operated 56 hospitals (4,931 licensed beds) in 23 states and an
institutional pharmacy business.
Vencare Realignment. As disclosed in its 1999 Form 10-K, the Company
realigned its Vencare ancillary services business in the fourth quarter of 1999.
Vencare's rehabilitation, speech and occupational therapies were integrated into
the Company's health services division, and its institutional pharmacy business
was assigned to the hospital division. Vencare's respiratory therapy and
certain other ancillary businesses were discontinued. Financial and operating
data presented in the following discussion and analysis reflect the realignment
of the former Vencare business for all periods presented.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
General (Continued)
Reorganization. On September 13, 1999, the Company and substantially all of
its subsidiaries filed voluntary petitions for protection under Chapter 11 of
the Bankruptcy Code. The Company currently is operating its businesses as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. The
Company's continued operating losses, liquidity issues and the Chapter 11 Cases
raise substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to continue as a going concern and the
appropriateness of using the going concern basis of accounting are dependent
upon, among other things, (i) the Company's ability to comply with the terms of
the DIP Financing, (ii) confirmation of the plan of reorganization under the
Bankruptcy Code, (iii) the Company's ability to achieve profitable operations
after such confirmation, and (iv) the Company's ability to generate sufficient
cash from operations to meet its obligations. The plan of reorganization and
other actions during the Chapter 11 Cases could change materially the amounts
currently recorded in the condensed consolidated financial statements. See Note
3 of the Notes to Condensed Consolidated Financial Statements.
Spin-off. On May 1, 1998, Ventas completed the Spin-off through the
distribution of Vencor common stock to its stockholders. Ventas retained
ownership of substantially all of its real property and leases such real
property to Vencor pursuant to the Master Lease Agreements. In anticipation of
the Spin-off, the Company was incorporated on March 27, 1998. For accounting
purposes, the consolidated historical financial statements of Ventas became the
historical financial statements of the Company upon consummation of the Spin-
off. Any discussion concerning events prior to May 1, 1998 refers to the
Company's business as it was conducted by Ventas prior to the Spin-off.
The condensed consolidated financial statements have been prepared on the
basis of accounting principles applicable to going concerns and contemplate the
realization of assets and settlement of liabilities and commitments in the
normal course of business. The condensed consolidated financial statements do
not include any adjustments that might result from the resolution of the Chapter
11 Cases or other matters discussed herein.
Results of Operations
Regulatory Changes
Legislative and regulatory activities in the long-term healthcare industry
have had a significant negative impact on the Company's operating results.
The Balanced Budget Act of 1997 (the "Budget Act"), contains extensive
changes to the Medicare and Medicaid programs intended to reduce the projected
amount of increase in payments under those programs over a five year period.
Virtually all spending reductions come from reimbursements to providers and
changes in program components. The Budget Act has affected adversely the
revenues in each of the Company's operating divisions.
The Budget Act established a prospective payment system ("PPS") for nursing
centers for cost reporting periods beginning on or after July 1, 1998. While
most nursing centers in the United States became subject to PPS during the first
quarter of 1999, all of the Company's nursing centers adopted PPS on July 1,
1998. During the first three years, the per diem rates for nursing centers are
based on a blend of facility-specific costs and Federal costs. Thereafter, the
per diem rates will be based solely on Federal costs. The payments received
under PPS cover all services for Medicare patients including all ancillary
services, such as respiratory therapy, physical therapy, occupational therapy,
speech therapy and certain covered pharmaceuticals.
In November 1999, the Balanced Budget Refinement Act (the "BBRA") was enacted
to provide a measure of relief for some of the impact of PPS. The BBRA makes
temporary adjustments in payments for the care of higher acuity patients,
adjusts payment categories up by 4% for two years beginning in October 2000 and
allows nursing centers to transition more rapidly to the Federal payment rates.
The BBRA also imposes a two-year moratorium on certain therapy limitations for
skilled nursing center patients. All of these measures will expire at the end of
2002.
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Regulatory Changes (Continued)
Including the effect of the BBRA, revenues recorded under PPS in the
Company's health services division are substantially less than the cost-based
reimbursement it received before the enactment of the Budget Act.
The Budget Act also reduced payments made to the hospitals operated by the
Company's hospital division by reducing incentive payments pursuant to the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), allowable costs for
capital expenditures and bad debts, and payments for services to patients
transferred from a general acute care hospital. The reductions in allowable
costs for capital expenditures became effective October 1, 1997. The reductions
in the TEFRA incentive payments and allowable costs for bad debts became
effective between May 1, 1998 and September 1, 1998. The reductions for payments
for services to patients transferred from a general acute care hospital became
effective October 1, 1998. These reductions have had a material adverse impact
on hospital revenues. In addition, these reductions also may affect adversely
the hospital division's ability to develop additional long-term care hospitals
in the future.
Under PPS, the volume of ancillary services provided per patient day to
nursing center patients has declined dramatically. As previously discussed,
Medicare reimbursements to nursing centers under PPS include substantially all
services provided to patients, including ancillary services. Prior to the
implementation of PPS, the costs of such services were reimbursed under cost-
based reimbursement rules. The decline in the demand for ancillary services is
mostly attributable to efforts by nursing centers to reduce operating costs. As
a result, many nursing centers are electing to provide ancillary services to
their patients though internal staff or are seeking lower acuity patients who
require less ancillary services. In response to PPS and a significant decline in
the demand for ancillary services, the Company realigned its Vencare division in
the fourth quarter of 1999 by integrating the rehabilitation, speech and
occupational therapies into the health services division and assigning the
institutional pharmacy business to the hospital division. Vencare's respiratory
therapy and other ancillary businesses were discontinued.
There also continues to be state legislative proposals that would impose more
limitations on government and private payments to providers of healthcare
services such as the Company. Many states have enacted or are considering
enacting measures that are designed to reduce their Medicaid expenditures and to
make certain changes to private healthcare insurance. Some states also are
considering regulatory changes that include a moratorium on the designation of
additional long-term care hospitals. Regulatory changes in the Medicare and
Medicaid reimbursement systems applicable to the hospital division also are
being considered. There also are a number of legislative proposals including
cost caps and the establishment of Medicaid prospective payment systems for
nursing centers. Moreover, by repealing the Boren Amendment, the Budget Act
eases existing impediments on the states' ability to reduce their Medicaid
reimbursement levels.
The Company could be affected adversely by the continuing efforts of
governmental and private third-party payors to contain the amount of
reimbursement for healthcare services. There can be no assurance that payments
under governmental and private third-party payor programs will remain at levels
comparable to present levels or will be sufficient to cover the costs allocable
to patients eligible for reimbursement pursuant to such programs. In addition,
there can be no assurance that facilities operated by the Company, or the
provision of services and supplies by the Company, will meet the requirements
for participation in such programs.
There can be no assurance that future healthcare legislation or other changes
in the administration or interpretation of governmental healthcare programs will
not have a material adverse effect on the Company's results of operations,
liquidity and financial position.
25
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Health Services Division - Nursing Centers
Revenues increased 4% to $413 million in the first quarter of 2000 from $398
million in the same quarter of 1999. The increase was primarily attributable to
a 1% increase in patient days and price increases from Medicaid and private
payors. Medicare revenues per patient day under PPS were $292 in the first
quarter of 2000 compared to $293 in the first quarter a year ago. The decline
resulted primarily from lower average acuity levels of the Company's nursing
center Medicare patients.
Nursing center operating income increased 20% to $71 million in the first
quarter of 2000 from $59 million last year. A substantial portion of the
improvement resulted from growth in revenues and operating efficiencies related
to the fourth quarter 1999 Vencare realignment. However, costs related to
professional liability risks and doubtful accounts rose $8 million compared to
the first quarter of 1999. In the aggregate, operating costs (wages, benefits,
supplies and other expenses) per patient day were relatively unchanged from a
year ago.
During the first quarter of 2000, the Company entered into agreements to
manage 27 additional nursing centers. The impact of these transactions was not
significant.
Health Services Division - Rehabilitation Services
Revenues declined 37% to $34 million in the first quarter of 2000 from $54
million a year ago. The decline in revenues was primarily attributable to
continued reductions in demand for ancillary services in response to fixed
reimbursement rates under PPS. Approximately one-half of the revenue decline
was attributable to Company-operated nursing centers. Under PPS, the
reimbursement for ancillary services provided to nursing center patients is a
component of the total reimbursement allowed per nursing center patient. As a
result, many nursing center customers (including the Company's nursing centers)
have elected to provide ancillary services to their patients through internal
staff and no longer contract with outside parties for ancillary services.
Operating income declined to $0.5 million in the first quarter of 2000 from
$7 million last year. The reduction in operating income reflects a continued
decline in customer demand resulting from PPS. In addition, effective January
1, 2000, revenues for rehabilitation services provided to Company-operated
nursing centers approximate the costs of providing such services. Accordingly,
first quarter 2000 operating results do not reflect any operating income related
to intercompany transactions. While the health services division will continue
to provide rehabilitation services to nursing center customers, revenues and
operating income related to these services may continue to decline.
Health Services Division - Other Ancillary Services
Other ancillary services refers to certain ancillary businesses (primarily
respiratory therapy) that were discontinued as part of the Vencare realignment
in the fourth quarter of 1999.
Hospital Division - Hospitals
Revenues increased 6% to $254 million in the first quarter of 2000 from $239
million in the same period a year ago. The increase was primarily attributable
to 6% growth in patient days. While aggregate revenues per patient day were
relatively unchanged from a year ago, the Company's revenues from non-government
sources grew approximately 6% per patient day in part as a result of price
increases.
Medicare revenues per patient day declined 2% in the first quarter of 2000
from the same quarter a year ago. Medicare revenues recorded by the Company's
hospitals in prior years included reimbursement for expenses related to certain
costs associated with hospital-based ancillary services previously provided by
the Vencare division to its nursing center customers. As part of its ongoing
investigations, the DOJ has objected to including such costs on the Medicare
cost reports filed by the Company's hospitals. Medicare revenues related to the
reimbursement of such costs aggregated $7 million in the first quarter of
1999. In connection with the continued settlement discussions
26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Hospital Division - Hospitals (Continued)
with the DOJ, the Company has agreed to discontinue recording such revenues and
has excluded such costs from the Medicare cost reports since September 1, 1999.
Hospital operating income declined 4% to $56 million in the first quarter of
2000 from $58 million in the first quarter of 1999. Despite an increase in
patient days, hospital operating costs per patient day increased 3% to $727 from
$704, most of which was attributable to growth in labor costs. Operating income
also was adversely impacted by the previously discussed reduction in Medicare
reimbursement for hospital-based ancillary services.
Hospital Division - Pharmacy
Revenues increased 10% to $47 million in the first quarter of 2000 compared
to $43 million a year ago. The increase resulted primarily from growth in the
number of nursing center customers.
The Company's pharmacies reported an operating loss of $1 million in the
first quarter of 2000 compared to an operating profit of $4 million in the same
period of the prior year. Supply costs as a percentage of revenues rose to 66%
in the first quarter of 2000 from 54% in 1999. Management believes that the
deterioration in operating income in the first quarter of 2000 was primarily
attributable to pricing pressures associated with PPS.
Corporate Overhead
Operating income for the Company's operating divisions excludes allocation of
corporate overhead. These costs aggregated $29 million and $28 million in the
first quarter of 2000 and 1999, respectively. As a percentage of revenues
(before eliminations), the overhead ratio was 4% in the first quarter of 2000
compared to 3.9% in the same period of 1999.
Capital Costs
The Company leases substantially all of its facilities. Depreciation and
amortization, rents and net interest costs aggregated $109 million in the first
quarter of 2000 compared to $117 million last year. While rents were relatively
unchanged, depreciation and amortization declined primarily as a result of
significant write-offs of property, equipment and goodwill in the fourth quarter
of 1999 in connection with the Company's valuation of its long-lived assets. On
January 1, 2000, the Company changed its goodwill amortization period from 40
years to 20 years from date of acquisition. The impact of this change was not
material. See Note 1 of the Notes to Condensed Consolidated Financial
Statements.
During the pendency of the Chapter 11 Cases, the Company is continuing to
record the contractual amount of interest expense related to the Credit
Agreement and the rents due to Ventas under the Master Lease Agreements. No
interest costs have been recorded related to the 1998 Notes since the filing of
the Chapter 11 Cases. Contractual interest expense not accrued for the 1998
Notes in the first quarter of 2000 was approximately $7 million.
Income Taxes
The provision for income taxes is based upon management's estimate of taxable
income or loss for the year and includes the effect of certain non-deductible
items such as goodwill amortization and the recording of additional deferred tax
valuation allowances.
The provision for income taxes for the first quarter of 2000 and 1999
includes charges of $5 million and $2 million, respectively, related to the
deferred tax valuation allowance. In addition, the Company recorded a valuation
allowance of $3 million in the first quarter of 1999 related to the change in
accounting for start-up costs. At March 31, 2000, the deferred tax valuation
allowance included in the Company's condensed consolidated balance sheet
aggregated $354 million.
27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Consolidated Results
The Company reported a pretax loss from operations before reorganization
costs of $12 million, approximately the same as a year ago. Reorganization
costs include professional fees incurred in connection with the Company's
restructuring activities totaling $3 million and $2 million for the respective
first quarter of 2000 and 1999.
The net loss from operations in the first quarter of 2000 aggregated $16
million compared to $15 million in the first quarter of 1999. In addition, the
Company recorded a $9 million charge in the first quarter of 1999 to reflect an
accounting change for start-up costs. See Note 2 of the Notes to Condensed
Consolidated Financial Statements.
Liquidity
As previously discussed, the Company and substantially all of its
subsidiaries filed voluntary petitions for protection under Chapter 11 of the
Bankruptcy Code on September 13, 1999.
On September 14, 1999, the Company received approval from the Bankruptcy
Court to pay pre-petition and post-petition employee wages, salaries, benefits
and other employee obligations. The Bankruptcy Court also approved orders
granting authority, among other things, to pay pre-petition claims of certain
critical vendors, utilities and patient obligations. All other pre-petition
liabilities are classified in the condensed consolidated balance sheet as
liabilities subject to compromise. The Company currently is paying the post-
petition claims of all vendors and providers in the ordinary course of business.
The Company currently is operating its businesses as a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court. In connection with the
Chapter 11 Cases, the Company entered into the DIP Financing aggregating $100
million. The Bankruptcy Court granted final approval of the DIP Financing on
October 1, 1999. The DIP Financing, which was initially scheduled to mature on
March 13, 2000, is comprised of the Tranche A Loan and the Tranche B Loan.
Interest is payable at prime rate plus 2 1/2% on the Tranche A Loan and prime
rate plus 4 1/2% on the Tranche B Loan.
Available aggregate borrowings under the Tranche A Loan were initially
limited to $45 million in September 1999 and increased to $65 million in
October, $70 million in November and $75 million thereafter. Pursuant to a
recent amendment to the DIP Financing, the aggregate borrowing limitations under
the Tranche A Loans are limited to approximately $68 million until maturity.
Borrowings under the Tranche B Loan require the approval of lenders holding at
least 75% of the credit exposure under the DIP Financing. The DIP Financing is
secured by substantially all of the assets of the Company and its subsidiaries,
including certain owned real property. The DIP Financing contains standard
representations and warranties and other affirmative and restrictive covenants.
As of March 31, 2000, there were no outstanding borrowings under the DIP
Financing.
Since the consummation of the DIP Financing, the Company and the DIP Lenders
have agreed to several amendments to the DIP Financing. These amendments
approved various changes to the DIP Financing including (i) extending the period
of time for the Company to file its plan of reorganization, (ii) approving
certain transactions and (iii) revising the Company's cash plan originally
submitted with the DIP Financing. In December 1999, the Company informed the DIP
Lenders that it planned to record a significant charge to earnings in the fourth
quarter of
28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity (Continued)
1999 related to the valuation of accounts receivable that could have resulted in
noncompliance with certain covenants in the DIP Financing requiring minimum
Consolidated EBITDAR and a minimum Net Amount of Eligible Accounts (both as
defined in the DIP Financing). In connection with the third amendment to the DIP
Financing, the Company received a waiver from compliance with these covenants of
the DIP Financing through February 14, 2000. The Company received subsequent
waivers from compliance with these covenants in later amendments. In connection
with the amendment to the DIP Financing dated February 23, 2000, the parties
agreed, among other things, to (i) extend the maturity date of the DIP Financing
until June 30, 2000, (ii) extend the period of time for the Company to file its
plan of reorganization to May 1, 2000, and (iii) revise certain financial
covenants. The Bankruptcy Court granted approval of this amendment to the DIP
Financing on March 10, 2000.
At December 31, 1999, the Company was not in compliance with the DIP
Financing covenant related to the minimum Net Amount of Eligible Accounts
(accounts receivable). Since there were no outstanding borrowings under the DIP
Financing at December 31, 1999, the event of default had no effect on the
Company's 1999 consolidated financial statements. Effective April 12, 2000, the
Company and the DIP Lenders agreed to an additional amendment to the DIP
Financing to revise the covenant related to the minimum Net Amount of Eligible
Accounts. In this amendment, the DIP Lenders also waived all events of default
regarding this covenant that occurred prior to the date of the amendment.
On April 26, 2000, the Company and the DIP Lenders agreed to an additional
amendment to the DIP Financing to permit the Company to seek an extension to
file its plan of reorganization through June 15, 2000 and to permit sales of
surplus personal property.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness
against the Company are subject to an automatic stay and other contractual
obligations against the Company may not be enforced. The automatic stay does not
necessarily apply to certain actions against Ventas for which the Company has
agreed to indemnify Ventas in connection with the Spin-off. In addition, the
Company may assume or reject executory contracts, including lease obligations,
under the Bankruptcy Code. Parties affected by these rejections may file claims
with the Bankruptcy Court in accordance with the reorganization process.
As previously disclosed, the Company is developing a plan of reorganization
through negotiations with key parties including its Senior Lenders, the holders
of the 1998 Notes, Ventas and the DOJ, acting on behalf of HCFA and HHS. A
substantial portion of pre-petition liabilities are subject to settlement under
the plan of reorganization to be submitted by the Company.
The plan of reorganization must be voted upon by the impaired creditors of
the Company and approved by the Bankruptcy Court. There can be no assurance that
the plan of reorganization to be proposed by the Company will be approved by the
requisite holders of claims, confirmed by the Bankruptcy Court or that it will
be consummated. If the plan of reorganization is not accepted by the required
number of impaired creditors and the Company's exclusive right to file and
solicit acceptance of a plan of reorganization ends, any party in interest may
subsequently file its own plan of reorganization for the Company. The Bankruptcy
Court currently has extended the Company's exclusive right to submit a plan of
reorganization through May 16, 2000.
On May 11, 2000, the Company filed a motion to extend the Company's exclusive
right to submit a plan of reorganization through July 18, 2000. The hearing on
this motion is scheduled for May 31, 2000. The Company has requested an interim
order from the Bankruptcy Court to maintain the Company's exclusive right to
file a plan of reorganization until the motion is decided.
29
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity (Continued)
In support of its motion, the Company informed the Bankruptcy Court that it
has continued to make progress in its reorganization proceedings. In addition,
the motion notes that the Company has reached an understanding with certain of
the Senior Lenders, certain holders of the 1998 Notes and the advisors to the
official committee of unsecured creditors regarding the broad terms of a plan of
reorganization. The Company also has continued to engage in discussions with
Ventas to obtain its support for a consensual plan of reorganization and is
simultaneously pursuing alternatives based upon the possible outcome of those
negotiations. The Company also informed the Bankruptcy Court that it has
continued its conversations with the DOJ regarding a settlement of ongoing
investigations and the negotiation of other agreements with the Company. In
addition, the motion further notes that the Company has filed amended schedules
of unsecured creditors and has made progress in reviewing and analyzing pre-
petition claims against the Company.
A plan of reorganization must be confirmed by the Bankruptcy Court after
certain findings required by the Bankruptcy Code are made by the Bankruptcy
Court. The Bankruptcy Court may confirm a plan of reorganization notwithstanding
the non-acceptance of the plan by an impaired class of creditors or equity
holders if certain requirements of the Bankruptcy Code are satisfied. As
previously announced, the Company has indicated that any plan of reorganization
will result in the Company's common stock having little, if any, value.
The Company was informed on April 9, 1999 by HCFA that the Medicare program
had made a demand for repayment of approximately $90 million of reimbursement
overpayments by April 23, 1999. On April 21, 1999, the Company entered into the
HCFA Agreement under which monthly payments of approximately $1.5 million
commenced in May 1999. Beginning in December 1999, the balance of the
overpayments bears interest at a statutory rate approximating 13.4%, resulting
in a monthly payment of approximately $2.0 million through March 2004. If the
Company is delinquent with two consecutive payments, the HCFA Agreement will be
defaulted and all subsequent Medicare reimbursement payments to the Company may
be withheld. Amounts due under the HCFA Agreement aggregate $75.3 million and
have been classified as liabilities subject to compromise in the Company's
condensed consolidated balance sheet at March 31, 2000. The Company has
received Bankruptcy Court approval to continue to make the monthly payments
under the HCFA Agreement during the pendency of the Chapter 11 Cases.
Liabilities Subject to Compromise
"Liabilities subject to compromise" refers to liabilities incurred prior to
the commencement of the Chapter 11 Cases. These liabilities, consisting
primarily of long-term debt, amounts due to third party payors and certain
accounts payable and accrued liabilities, represent the Company's estimate of
known or potential claims to be resolved in connection with the Chapter 11
Cases. Such claims remain subject to future adjustments based on assertions of
additional claims, negotiations, actions of the Bankruptcy Court, further
developments with respect to disputed claims, future rejection of executory
contracts or unexpired leases, determination as to the value of any collateral
securing claims, treatment under the plan of reorganization and other events.
Payment terms for these amounts will be established in connection with the plan
of reorganization.
The Company has received approval from the Bankruptcy Court to pay pre-
petition and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting authority, among
other things, to pay pre-petition claims of certain critical vendors, utilities
and patient obligations. All other pre-petition liabilities are classified in
the condensed consolidated balance sheet as liabilities subject to compromise.
Substantially all of the liabilities subject to compromise would have been
classified as current liabilities if the Chapter 11 Cases had not been filed.
30
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity (Continued)
Cash Flows
Since the filing of the Chapter 11 Cases, cash flows from operations have
allowed the Company to fund post-petition obligations, sustain adequate
liquidity levels and minimize borrowings under the DIP Financing. Cash flows
from operations before reorganization costs totaled $45 million in the first
quarter of 2000 compared to $37 million in the first three months of 1999.
Prior period cash flows were reduced by $12 million in connection with the
settlement of certain litigation. There can be no assurance, however, that the
Company can maintain its current liquidity levels during the pendency of the
Chapter 11 Cases.
In January 2000, the Company filed its hospital cost reports for the year
ended August 31, 1999. Cost reports are filed annually in settlement of amounts
due to or from the various agencies administering the reimbursement programs.
These cost reports indicated amounts due from the Company aggregating $58
million. This liability arose during 1999 as part of the Company's routine
settlement of Medicare reimbursement overpayments. Such amounts are classified
as liabilities subject to compromise in the condensed consolidated balance sheet
and, accordingly, no funds were disbursed by the Company in settlement of such
pre-petition liabilities.
Capital Resources
Capital expenditures totaled $8 million and $24 million in the first three
months of 2000 and 1999, respectively. Capital expenditures could approximate
$100 million in 2000. Management believes that its capital expenditure program
is adequate to improve and equip existing facilities.
Capital expenditures in both periods were financed through internally
generated funds. At March 31, 2000, the estimated cost to complete and equip
construction in progress approximated $16 million. There can be no assurance
that the Company will have sufficient resources to finance its capital
expenditures program in 2000.
Other Information
The Company is a party to certain material litigation. See Note 9 of the
Notes to Condensed Consolidated Financial Statements.
31
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 Quarters First
--------------------------------------------- Quarter
First Second Third Fourth Year 2000
-------- -------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................... $700,232 $688,892 $681,924 $ 594,593 $2,665,641 $715,456
-------- -------- -------- ---------- ---------- --------
Salaries, wages and benefits........... 403,894 392,748 393,535 376,050 1,566,227 405,313
Supplies............................... 84,997 85,799 81,484 95,509 347,789 93,398
Rent................................... 75,452 76,088 77,423 76,157 305,120 76,220
Other operating expenses............... 107,007 129,189 116,948 589,054 942,198 119,796
Depreciation and amortization.......... 22,285 21,612 24,126 25,173 93,196 17,902
Interest expense....................... 19,536 20,032 26,030 14,844 80,442 16,239
Investment income...................... (631) (642) (673) (3,242) (5,188) (1,206)
-------- -------- -------- ---------- ---------- --------
712,540 724,826 718,873 1,173,545 3,329,784 727,662
-------- -------- -------- ---------- ---------- --------
Loss before reorganization costs
and income taxes..................... (12,308) (35,934) (36,949) (578,952) (664,143) (12,206)
Reorganization costs................... 2,312 4,547 5,443 6,304 18,606 3,065
-------- -------- -------- ---------- ---------- --------
Loss before income taxes............... (14,620) (40,481) (42,392) (585,256) (682,749) (15,271)
Provision for income taxes............. 50 50 50 350 500 500
-------- -------- -------- ---------- ---------- --------
Loss from operations................... (14,670) (40,531) (42,442) (585,606) (683,249) (15,771)
Cumulative effect of change in
accounting for start-up costs....... (8,923) - - - (8,923) -
-------- -------- -------- ---------- ---------- --------
Net loss..................... (23,593) (40,531) (42,442) (585,606) (692,172) (15,771)
Preferred stock dividend
requirements......................... (261) (262) (261) (262) (1,046) (261)
-------- -------- -------- ---------- ---------- --------
Loss to common
stockholders............... $(23,854) $(40,793) $(42,703) $ (585,868) $ (693,218) $(16,032)
======== ======== ======== ========== ========== ========
Loss per common share:
Basic:
Loss from operations............. $ (0.21) $ (0.58) $ (0.61) $ (8.32) $ (9.72) $ (0.23)
Cumulative effect of change in
accounting for start-up costs.. (0.13) - - - (0.13) -
-------- -------- -------- ---------- ---------- --------
Net loss..................... $ (0.34) $ (0.58) $ (0.61) $ (8.32) $ (9.85) $ (0.23)
======== ======== ======== ========== ========== ========
Diluted:
Loss from operations............. $ (0.21) $ (0.58) $ (0.61) $ (8.32) $ (9.72) $ (0.23)
Cumulative effect of change in
accounting for start-up costs.. (0.13) - - - (0.13) -
-------- -------- -------- ---------- ---------- --------
Net loss..................... $ (0.34) $ (0.58) $ (0.61) $ (8.32) $ (9.85) $ (0.23)
======== ======== ======== ========== ========== ========
Shares used in computing loss
per common share:
Basic............................ 70,326 70,395 70,438 70,463 70,406 70,240
Diluted.......................... 70,326 70,395 70,438 70,463 70,406 70,240
</TABLE>
32
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Operating Data
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1999 Quarters First
-------------------------------------------- Quarter
First Second Third Fourth Year 2000
-------- -------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Health services division:
Nursing centers................ $398,374 $397,930 $399,907 $ 398,033 $1,594,244 $412,703
Rehabilitation services........ 54,365 50,234 46,088 45,044 195,731 34,377
Other ancillary services....... 16,263 12,855 10,477 3,932 43,527 (5)
Elimination.................... (34,205) (34,564) (31,770) (27,728) (128,267) (18,091)
-------- -------- -------- --------- ---------- --------
434,797 426,455 424,702 419,281 1,705,235 428,984
Hospital division:
Hospitals...................... 238,522 234,868 230,682 146,476 850,548 253,591
Pharmacy....................... 43,246 42,951 40,707 44,589 171,493 47,468
-------- -------- -------- --------- ---------- --------
281,768 277,819 271,389 191,065 1,022,041 301,059
-------- -------- -------- --------- ---------- --------
716,565 704,274 696,091 610,346 2,727,276 730,043
Elimination of pharmacy charges
to Company nursing centers.... (16,333) (15,382) (14,167) (15,753) (61,635) (14,587)
-------- -------- -------- --------- ---------- --------
$700,232 $688,892 $681,924 $ 594,593 $2,665,641 $715,456
======== ======== ======== ========= ========== ========
Income (loss) from operations:
Operating income (loss):
Health services division:
Nursing centers............. $ 59,122 $ 59,186 $ 55,881 $ 11,575 $ 185,764 $ 70,846
Rehabilitation services..... 6,933 8,397 5,277 (17,374) 3,233 490
Other ancillary services.... 3,596 1,035 1,333 (1,798) 4,166 130
-------- -------- -------- --------- ---------- --------
69,651 68,618 62,491 (7,597) 193,163 71,466
Hospital division:
Hospitals................... 58,411 59,656 54,084 (35,248) 136,903 56,029
Pharmacy.................... 4,045 3,383 679 (7,388) 719 (1,181)
-------- -------- -------- --------- ---------- --------
62,456 63,039 54,763 (42,636) 137,622 54,848
-------- -------- -------- --------- ---------- --------
Corporate overhead............ (27,773) (29,674) (27,297) (24,196) (108,940) (29,365)
Unusual transactions.......... - (20,827) - (391,591) (412,418) -
Reorganization costs.......... (2,312) (4,547) (5,443) (6,304) (18,606) (3,065)
-------- -------- -------- --------- ---------- --------
Operating income (loss).... 102,022 76,609 84,514 (472,324) (209,179) 93,884
Rent............................. (75,452) (76,088) (77,423) (76,157) (305,120) (76,220)
Depreciation and amortization.... (22,285) (21,612) (24,126) (25,173) (93,196) (17,902)
Interest, net.................... (18,905) (19,390) (25,357) (11,602) (75,254) (15,033)
-------- -------- -------- --------- ---------- --------
Loss before income taxes......... (14,620) (40,481) (42,392) (585,256) (682,749) (15,271)
Provision for income taxes....... 50 50 50 350 500 500
-------- -------- -------- --------- ---------- --------
$(14,670) $(40,531) $(42,442) $(585,606) $ (683,249) $(15,771)
======== ======== ======== ========= ========== ========
</TABLE>
33
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Operating Data (Continued)
(Unaudited)
<TABLE>
<CAPTION>
1999 Quarters First
------------------------------------------ Quarter
First Second Third Fourth Year 2000
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nursing Center Data:
End of period data:
Number of nursing centers:
Leased and owned......... 280 280 280 282 280
Managed.................. 13 13 13 13 40
--------- --------- --------- --------- ---------
293 293 293 295 320
========= ========= ========= ========= =========
Number of licensed beds:
Leased and owned......... 36,924 36,726 36,675 36,912 36,653
Managed.................. 1,661 1,661 1,661 1,661 4,262
--------- --------- --------- --------- ---------
38,585 38,387 38,336 38,573 40,915
========= ========= ========= ========= =========
Revenue mix %:
Medicare..................... 28 27 24 26 26 28
Medicaid..................... 47 48 51 50 49 48
Private and other............ 25 25 25 24 25 24
Patient days (excludes managed
facilities):
Medicare..................... 380,748 366,272 339,303 349,965 1,436,288 398,329
Medicaid..................... 1,867,554 1,911,111 1,967,721 1,972,577 7,718,963 1,918,732
Private and other............ 633,137 623,665 626,903 617,483 2,501,188 590,619
--------- --------- --------- --------- ---------- ---------
2,881,439 2,901,048 2,933,927 2,940,025 11,656,439 2,907,680
========= ========= ========= ========= ========== =========
Hospital Data:
End of period data:
Number of hospitals.......... 57 56 56 56 56
Number of licensed beds...... 4,937 4,935 4,907 4,931 4,931
Revenue mix %:
Medicare..................... 59 56 55 65 58 58
Medicaid..................... 10 10 11 11 11 10
Private and other............ 31 34 34 24 31 32
Patient days:
Medicare..................... 175,953 171,011 159,739 163,273 669,976 188,063
Medicaid..................... 29,939 29,675 30,674 29,561 119,849 31,964
Private and other............ 49,924 49,165 47,756 45,631 192,476 51,747
--------- --------- --------- --------- ---------- ---------
255,816 249,851 238,169 238,465 982,301 271,774
========= ========= ========= ========= ========== =========
</TABLE>
34
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's only significant exposure to market risk is changes in the
levels of various interest rates. In this regard, changes in LIBOR interest
rates affect the interest paid on its borrowings. In addition, the interest
rates on the DIP Financing are affected by changes in the Federal Funds rate and
the prime rate of Morgan Guaranty Trust Company of New York. To mitigate the
impact of fluctuations in these interest rates, the Company generally maintains
a significant portion of its borrowings as fixed rate in nature either by
borrowing on a fixed rate long-term basis or entering into interest rate swap
transactions.
As previously discussed, the Company filed the Chapter 11 Cases on September
13, 1999. Accordingly, all amounts disclosed in the table below are subject to
compromise in connection with the Chapter 11 Cases. While the fair values of
the Company's debt obligations declined significantly as a result of the Chapter
11 Cases, such amounts do not reflect any adjustments that might result from the
resolutions of the Chapter 11 Cases or other matters discussed herein.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness
against the Company are subject to an automatic stay and other contractual
obligations against the Company may not be enforced. In addition, the Company
may assume or reject executory contracts under the Bankruptcy Code.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table
constitutes a forward-looking statement. For long-term debt, the table presents
principal cash flows and related weighted average interest rates by expected
maturity date. For interest rate swap agreements, the table presents notional
amounts and weighted average interest rates by contractual maturity dates.
Notional amounts are used to calculate the contractual cash flows to be
exchanged under the contract.
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
(Dollars in thousands)
<TABLE>
<CAPTION>
Expected Maturities Fair
------------------------------------------------------------------------ Value
2000 2001 2002 2003 2004 Thereafter Total 3/31/00
-------- ------- -------- ------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Long-term debt, including
amounts due within one year:
Fixed rate..................... $ 17,262 $18,164 $ 19,910 $21,663 $ 689 $303,882 $381,570 $145,028
Average interest rate.......... 11.50% 11.50% 11.50% 11.50% 9.50% 9.50%
Variable rate.................. $ 28,753 $76,974 $129,425 $57,500 $216,491 $ - $509,143 $356,400
(a) Average interest rate
Interest rate derivative
financial instruments related
to debt:
Interest rate swaps:
Pay fixed/receive variable..... $100,000 $100,000 $ 76
Average pay rate............... 6.3%
(b) Average receive rate
</TABLE>
- --------------
(a) Interest is payable, depending on the debt instrument, certain leverage
ratios and other factors, at a rate of LIBOR plus 3/4% to 3 1/2% or the
prime rate plus 2% to 3 1/2%.
(b) The variable rate portion of the interest rate swap is 3-month LIBOR.
35
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Summary descriptions of various significant legal and regulatory activities
follow:
On September 13, 1999, the Company and substantially all of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the Bankruptcy
Code. The Chapter 11 Cases have been styled In re: Vencor, Inc., et al., Debtors
and Debtors in Possession, Case Nos. 99-3199 (MFW) through 99-3327 (MFW),
Chapter 11, Jointly Administered. See Note 3 of the Notes to the Condensed
Consolidated Financial Statements for further discussion of the Chapter 11
Cases.
The Company is pursuing various claims against private insurance companies
who issued Medicare supplement insurance policies to individuals who became
patients of the Company's hospitals. After the patients' Medicare benefits are
exhausted, the insurance companies become liable to pay the insureds' bills
pursuant to the terms of these policies. The Company has filed numerous
collection actions against various of these insurers to collect the difference
between what Medicare would have paid and the hospitals' usual and customary
charges. These disputes arise from differences in interpretation of the policy
provisions and Federal and state laws governing such policies. Various courts
have issued various rulings on the different issues, some of which have been
adverse to the Company and most of which have been appealed. The Company intends
to continue to pursue these claims vigorously. If the Company does not prevail
on these issues, future results of operations and liquidity would be materially
adversely affected.
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al., was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Company's predecessor against the
Company and Ventas and certain current and former executive officers and
directors of the Company and Ventas. The complaint alleges that the Company,
Ventas and certain current and former executive officers of the Company and
Ventas during a specified time frame violated Sections 10(b) and 20(a) of the
Exchange Act, by, among other things, issuing to the investing public a series
of false and misleading statements concerning Ventas' then current operations
and the inherent value of its common stock. The complaint further alleges that
as a result of these purported false and misleading statements concerning
Ventas' revenues and successful acquisitions, the price of the common stock was
artificially inflated. In particular, the complaint alleges that the defendants
issued false and misleading financial statements during the first, second and
third calendar quarters of 1997 which misrepresented and understated the impact
that changes in Medicare reimbursement policies would have on Ventas' core
services and profitability. The complaint further alleges that the defendants
issued a series of materially false statements concerning the purportedly
successful integration of Ventas' recent acquisitions and prospective earnings
per share for 1997 and 1998 which the defendants knew lacked any reasonable
basis and were not being achieved. The suit seeks damages in an amount to be
proven at trial, pre-judgment and post-judgment interest, reasonable attorneys'
fees, expert witness fees and other costs, and any extraordinary equitable
and/or injunctive relief permitted by law or equity to assure that the plaintiff
has an effective remedy. In December 1998, the defendants filed a motion to
dismiss the case. The court converted the defendants' motion to dismiss into a
motion for summary judgment and granted summary judgment as to all defendants.
The plaintiff appealed the ruling to the United States Court of Appeals for the
Sixth Circuit. On April 24, 2000, the Sixth Circuit affirmed the district
court's dismissal of the action on the grounds that the plaintiff failed to
state a claim upon which relief could be granted. On May 8, 2000, the plaintiff
filed a petition for rehearing or a rehearing en banc with the Sixth Circuit.
The Company is defending this action vigorously.
The Company has been informed by the DOJ that the Company and Ventas are the
subjects of ongoing investigations into various Medicare reimbursement issues,
including hospital cost reporting issues, Vencare billing practices and various
quality of care issues in the hospitals and nursing centers formerly operated by
Ventas and currently operated by the Company. These investigations include some
matters for which the Company indemnified Ventas in the Spin-off. In cases
where neither the Company nor any of its subsidiaries are defendants but
Ventas is
36
<PAGE>
Part II. OTHER INFORMATION (Continued)
Item 1. Legal Proceedings (Continued)
the defendant, the Company had agreed to defend and indemnify Ventas for such
claims as part of the Spin-off. The Stipulation entered into with Ventas
provides that the Company will continue to fulfill its indemnification
obligations arising from the Spin-off. The Company has cooperated fully in the
investigations.
The DOJ has informed the Company that it has intervened in several pending
qui tam actions asserted against the Company and/or Ventas in connection with
these investigations. The Company and Ventas are engaged in active settlement
discussions with the DOJ that may result in a resolution of some or all of the
DOJ investigations including the pending qui tam actions. In addition, the DOJ
has filed proofs of claims with respect to certain alleged claims in the Chapter
11 Cases. Such a resolution with the DOJ could include a payment to the Federal
government which could have a material adverse effect on the Company's liquidity
and financial position. However, there can be no assurance that a settlement or
other resolution will be consummated with the DOJ.
The following is a summary of the qui tam actions pending against the Company
and/or Ventas in which the DOJ has intervened. In connection with the DOJ's
intervention, the courts ordered these previously non-public actions to be
unsealed. Certain of the actions described below name other defendants in
addition to the Company and Ventas.
(a) The Company, Ventas and the Company's subsidiary, American X-Rays,
Inc., are defendants in a civil qui tam action styled United States ex rel.
Doe v. American X-Rays Inc., et al., No. LR-C-95-332, pending in the United
States District Court for the Eastern District of Arkansas and served on AXR
on July 7, 1997. The DOJ intervened in the suit which was brought under the
Federal Civil False Claims Act and added the Company and Ventas as defendants.
The Company acquired an interest in AXR when Hillhaven was merged into the
Company in September 1995 and purchased the remaining interest in AXR in
February 1996. AXR provided portable X-ray services to nursing centers
(including some of those operated by Ventas or the Company) and other
healthcare providers. The civil suit alleges that AXR submitted false claims
to the Medicare and Medicaid programs. The suit seeks damages in an amount of
not less than $1,000,000, treble damages and civil penalties. The Company has
defended this action vigorously. The court has dismissed the action based upon
the possible pending settlement between the DOJ and Vencor and Ventas. In a
related criminal investigation, the USAO indicted four former employees of
AXR; those individuals were convicted of various fraud related counts in
January 1999. AXR had been informed previously that it was not a target of the
criminal investigation, and AXR was not indicted. However, the Company
received several grand jury subpoenas for documents and witnesses which it
moved to quash. The USAO has withdrawn the subpoenas which rendered the
motion moot.
(b) The Company's subsidiary, Medisave Pharmacies, Inc., Ventas and
Hillhaven (former parent company to Medisave), are the defendants in a civil
qui tam action styled United States ex rel. Danley v. Medisave Pharmacies,
Inc., et al., No. CV-N-96-00170-HDM, filed in the United States District Court
for the District of Nevada on March 15, 1996. The plaintiff alleges that
Medisave, an institutional pharmacy provider, formerly owned by Ventas and
owned by the Company since the Spin-off: (1) charged the Medicare program for
unit dose drugs when bulk drugs were administered and charged skilled nursing
facilities more for the same drugs for Medicare patients than for non-Medicare
patients; (2) improperly claimed special dispensing fees that it was not
entitled to under Medicaid; and (3) recouped unused drugs from skilled nursing
facilities and returned these drugs to its stock without crediting Medicare or
Medicaid, all in violation of the Federal Civil False Claims Act. The
complaint also alleges that Medisave had a policy of offering kickbacks, such
as free equipment, to skilled nursing centers to secure and maintain their
business. The complaint seeks treble damages, other unspecified damages, civil
penalties, attorneys' fees and other costs. The Company disputes the
allegations in the complaint. The defendants intend to defend this action
vigorously.
37
<PAGE>
Part II. OTHER INFORMATION (Continued)
Item 1. Legal Proceedings (Continued)
(c) Ventas and the Company's subsidiary, Vencare, Inc., among others, are
defendants in the action styled United States ex rel. Roberts v. Vencor, Inc.,
et al., No. 3:97CV-349-J, filed in the United States District Court for the
Western District of Kansas on June 25, 1996 and consolidated with the action
styled United States of America ex rel. Meharg, et al. v. Vencor, Inc., et
al., No. 3:98SC-737-H, filed in the United States District Court for the
Middle District of Florida on June 4, 1998. The complaint alleges that the
defendants knowingly submitted and conspired to submit false claims and
statements to the Medicare program in connection with their purported
provision of respiratory therapy services to skilled nursing center residents.
The defendants allegedly billed Medicare for respiratory therapy services and
supplies when those services were not medically necessary, billed for services
not provided, exaggerated the time required to provide services or exaggerated
the productivity of their therapists. It is further alleged that the
defendants presented false claims and statements to the Medicare program in
violation of the Federal Civil False Claims Act, by, among other things,
allegedly causing skilled nursing centers with which they had respiratory
therapy contracts, to present false claims to Medicare for respiratory therapy
services and supplies. The complaint seeks treble damages, other unspecified
damages, civil penalties, attorneys' fees and other costs. The Company
disputes the allegations in the complaint. The defendants intend to defend
this action vigorously.
(d) In United States ex rel. Kneepkens v. Gambro Healthcare, Inc., et al.,
No. 97-10400-GAO, filed in the United States District Court for the District
of Massachusetts on October 15, 1998, the Company's subsidiary, Transitional,
and two unrelated entities, Gambro Healthcare, Inc. and Dialysis Holdings,
Inc., are defendants in this suit alleging that they violated the Federal
Civil False Claims Act and the Antikickback Amendments and committed common
law fraud, unjust enrichment and payment by mistake of fact. Specifically, the
complaint alleges that a predecessor to Transitional formed a joint venture
with Damon Clinical Laboratories to create and operate a clinical testing
laboratory in Georgia that was then used to provide lab testing for dialysis
patients, and that the joint venture billed at below cost in return for
referral of substantially all non-routine testing in violation of the
Antikickback Amendments. It is further alleged that a predecessor to
Transitional and Damon Clinical Laboratories used multiple panel testing of
end stage renal disease rather than single panel testing that allegedly
resulted in the generation of additional revenues from Medicare and that the
entities allegedly added non-routine tests to tests otherwise ordered by
physicians that were not requested or medically necessary but resulted in
additional revenue from Medicare in violation of the Antikickback Amendments.
Transitional has moved to dismiss the case. Transitional disputes the
allegations in the complaint and is defending the action vigorously.
(e) The Company and/or Ventas are defendants in the action styled United
States ex rel. Huff and Dolan v. Vencor, Inc., et al., No. 97-4358 AHM (Mcx),
filed in the United States District Court for the Central District of
California on June 13, 1997. The plaintiff alleges that the defendant violated
the Federal Civil False Claims Act by submitting false claims to the Medicare,
Medicaid and CHAMPUS programs by allegedly: (1) falsifying patient bills and
submitting the bills to the Medicare, Medicaid and CHAMPUS programs, (2)
submitting bills for intensive and critical care not actually administered to
patients, (3) falsifying patient charts in relation to the billing, (4)
charging for physical therapy services allegedly not provided and pharmacy
services allegedly provided by non-pharmacists, and (5) billing for sales
calls made by nurses to prospective patients. The complaint seeks treble
damages, other unspecified damages, civil penalties, attorneys' fees and other
costs. Defendants dispute the allegations in the complaint. The Company, on
behalf of itself and Ventas, intends to defend this action vigorously.
38
<PAGE>
Part II. OTHER INFORMATION (Continued)
Item 1. Legal Proceedings (Continued)
(f) Ventas is the defendant in the action styled United States ex rel.
Brzycki v. Vencor, Inc., Civ. No. 97-451-JD, filed in the United States
District Court for the District of New Hampshire on September 8, 1997. Ventas
is alleged to have knowingly violated the Federal Civil False Claims Act by
submitting and conspiring to submit false claims to the Medicare program. The
complaint alleges that Ventas: (1) fabricated diagnosis codes by ordering
medically unnecessary services, such as respiratory therapy; (2) changed
referring physicians' diagnoses in order to qualify for Medicare
reimbursement; and (3) billed Medicare for oxygen use by patients regardless
of whether the oxygen was actually administered to particular patients. The
complaint further alleges that Ventas paid illegal kickbacks to referring
health care professionals in the form of medical consulting service agreements
as an alleged inducement to refer patients, in violation of the Federal Civil
False Claims Act, the Antikickback Amendments and the Stark provisions. It is
additionally alleged that Ventas consistently submitted Medicare claims for
clinical services that were not performed or were performed at lower actual
costs. The complaint seeks unspecified damages, civil penalties, attorneys'
fees and costs. Ventas disputes the allegations in the complaint. The Company,
on behalf of Ventas, intends to defend the action vigorously.
(g) United States ex rel. Lanford and Cavanaugh v. Vencor, Inc., et al.,
Civ. No. 97-CV-2845, was filed against Ventas in the United States District
Court for the Middle District of Florida, on November 24, 1997. The United
States of America intervened in this civil qui tam lawsuit on May 17, 1999. On
July 23, 1999, the United States filed its amended complaint in the lawsuit
and added the Company as a defendant. The lawsuit alleges that the Company and
Ventas knowingly submitted false claims and false statements to the Medicare
and Medicaid programs including, but not limited to, claims for reimbursement
of costs for certain ancillary services performed in defendants' nursing
centers and for third party nursing center operators that the United States
alleges are not properly reimbursable costs through the hospitals' cost
reports. The lawsuit involves the Company's hospitals which were owned by
Ventas prior to the Spin-off. The complaint does not specify the amount of
damages sought. The Company and Ventas dispute the allegations in the amended
complaint and intend to defend this action vigorously.
(h) In United States ex rel. Harris and Young v. Vencor, Inc., et al.,
filed in the Eastern District of Missouri on May 25, 1999, the defendants
include the Company, Vencare, and Ventas. The defendants allegedly submitted
and conspired to submit false claims for payment to the Medicare and CHAMPUS
programs, in violation of the Federal Civil False Claims Act. According to the
complaint, the Company, through its subsidiary, Vencare, allegedly (1) over
billed for respiratory therapy services, (2) rendered medically unnecessary
treatment, and (3) falsified supply, clinical and equipment records. The
defendants also allegedly encouraged or instructed therapist to falsify
clinical records and over prescribe therapy services. The complaint seeks
treble damages, other unspecified damages, civil penalties, attorneys' fees
and other costs. The Company disputes the allegations in the complaint and
intends to defend this action vigorously.
(i) In United States ex rel. George Mitchell, et al. v. Vencor, Inc., et
al., filed in the United States District Court for the Southern District of
Ohio on August 13, 1999, the defendants, consisting of the Company and its two
subsidiaries, Vencare and Vencor Hospice, Inc., are alleged to have violated
the Federal Civil False Claims Act by obtaining improper reimbursement from
Medicare concerning the treatment of hospice patients. Defendants are alleged
to have obtained inflated Medicare reimbursement for admitting, treating
and/or failing to discharge in a timely manner hospice patients who were not
"hospice appropriate." The complaint further alleges that the defendants
obtained inflated reimbursement for providing medications for these hospice
patients. The complaint alleges damages in excess of $1,000,000. The Company
disputes the allegations in the complaint and intends to defend vigorously the
action.
39
<PAGE>
Part II. OTHER INFORMATION (Continued)
Item 1. Legal Proceedings (Continued)
(j) In Gary Graham, on Behalf of the United States of America v. Vencor
Operating, Inc. et. al., filed in the United States District Court for the
Southern District of Florida on or about June 8, 1999, the defendants,
including the Company, its subsidiary, Vencor Operating, Inc., Ventas,
Hillhaven and Medisave, are alleged to have presented or caused to be
presented false or fraudulent claims for payment to the Medicare program in
violation of, among other things, the Federal Civil False Claims Act. The
complaint alleges that Medisave, a subsidiary of the Company which was
transferred from Ventas to the Company in the Spin-off, systematically up-
charged for drugs and supplies dispensed to Medicare patients. The complaint
seeks unspecified damages, civil penalties, interest, attorneys' fees and
other costs. The Company disputes the allegations in the complaint and intends
to defend this action vigorously.
(k) In United States, et al., ex rel. Phillips-Minks, et al. v.
Transitional Corp., et al., filed in the United States District Court for
Southern District of California on July 23, 1998, the defendants, including
Transitional and Ventas, are alleged to have submitted and conspired to submit
false claims and statements to Medicare, Medicaid, and other Federal and state
funded programs during a period commencing in 1993. The conduct complained of
allegedly violates the Federal Civil False Claims Act, the California False
Claims Act, the Florida False Claims Act, the Tennessee Health Care False
Claims Act, and the Illinois Whistleblower Reward and Protection Act.
Defendant allegedly submitted improper and erroneous claims to Medicare,
Medicaid and other programs, for improper or unnecessary services and services
not performed, inadequate collections efforts associated with billing and
collecting bad debts, inflated and nonexistent laboratory charges, false and
inadequate documentation of claims, splitting charges, shifting revenues and
expenses, transferring patients to hospitals that are reimbursed by Medicare
at a higher level, failing to return duplicate reimbursement payments, and
improperly allocating hospital insurance expenses. In addition, the complaint
alleges that the defendants were inconsistent in their reporting of cost
report data, paid kickbacks to increase patient referrals to hospitals, and
incorrectly reported employee compensation resulting in inflated employee
401(k) contributions. The complaint seeks unspecified damages. The Company
disputes the allegations in the complaint and intends to defend this action
vigorously.
In connection with the Spin-off, liabilities arising from various legal
proceedings and other actions were assumed by the Company and the Company agreed
to indemnify Ventas against any losses, including any costs or expenses, it may
incur arising out of or in connection with such legal proceedings and other
actions. The indemnification provided by the Company also covers losses,
including costs and expenses, which may arise from any future claims asserted
against Ventas based on the former healthcare operations of Ventas. In
connection with its indemnification obligation, the Company has assumed the
defense of various legal proceedings and other actions. The Stipulation entered
into with Ventas provides that the Company will continue to fulfill its
indemnification obligations arising from the Spin-off.
The Company is a party to certain legal actions and regulatory investigations
arising in the normal course of its business. The Company is unable to predict
the ultimate outcome of pending litigation and regulatory investigations. In
addition, there can be no assurance that the DOJ, HCFA or other regulatory
agencies will not initiate additional investigations related to the Company's
businesses in the future, nor can there be any assurance that the resolution of
any litigation or investigations, either individually or in the aggregate, would
not have a material adverse effect on the Company's results of operations,
liquidity or financial position. In addition, the above litigation and
investigations (as well as future litigation and investigations) are expected to
consume the time and attention of the Company's management and may have a
disruptive effect upon the Company's operations.
40
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 5. Other Information
On May 11, 2000, the Company filed a motion to extend its exclusive right to
submit a plan of reorganization through July 18, 2000. The hearing on this
motion is scheduled for May 31, 2000. The Company has requested an interim
order from the Bankruptcy Court to maintain the Company's exclusive right to
file a plan of reorganization until the motion is decided.
In support of its motion, the Company informed the Bankruptcy Court that it
has continued to make progress in its reorganization proceedings. In addition,
the motion notes that the Company has reached an understanding with certain of
the Senior Lenders, certain holders of the 1998 Notes and the advisors to the
official committee of unsecured creditors regarding the broad terms of a plan of
reorganization. The Company also has continued to engage in discussions with
Ventas to obtain its support for a consensual plan of reorganization and is
simultaneously pursuing alternatives based upon the possible outcome of those
negotiations. The Company also informed the Bankruptcy Court that it has
continued its conversations with the DOJ regarding a settlement of ongoing
investigations and the negotiation of other agreements with the Company. In
addition, the motion further notes that the Company has filed amended schedules
of unsecured creditors and has made progress in reviewing and analyzing pre-
petition claims against the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Fourth Amendment to Debtor-in-Possession Credit Agreement dated
February 9, 2000 among Vencor, Inc., Vencor Operating, Inc. and
each of Vencor's subsidiaries listed on the signature pages
thereof, the Lenders listed on the signature pages thereof and
Morgan Guaranty Trust Company of New York as Arranger, Collateral
Agent and Administrative Agent. Exhibit 10.11 to the Company's
Form 10-K for the year ended December 31, 1999 (Comm.
File No. 001-14057) is hereby incorporated by reference.
10.2 Fifth Amendment to Debtor-in-Possession Credit Agreement dated
February 23, 2000 among Vencor, Inc., Vencor Operating, Inc. and
each of Vencor's subsidiaries listed on the signature pages
thereof, the Lenders listed on the signature pages thereof and
Morgan Guaranty Trust Company of New York as Arranger, Collateral
Agent and Administrative Agent. Exhibit 10.12 to the Company's
Form 10-K for the year ended December 31, 1999 (Comm.
File No. 001-14057) is hereby incorporated by reference.
10.3 Sixth Amendment to Debtor-in-Possession Credit Agreement dated
April 7, 2000 among Vencor, Inc., Vencor Operating, Inc. and each
of Vencor's subsidiaries listed on the signature pages thereof,
the Lenders listed on the signature pages thereof and Morgan
Guaranty Trust Company of New York as Arranger, Collateral Agent
and Administrative Agent.
10.4 Seventh Amendment to Debtor-in-Possession Credit Agreement dated
April 26, 2000 among Vencor, Inc., Vencor Operating, Inc. and each
of Vencor's subsidiaries listed on the signature pages thereof,
the Lenders listed on the signature pages thereof and Morgan
Guaranty Trust Company of New York as Arranger, Collateral Agent
and Administrative Agent.
10.5 Master Trust Agreement dated January 17, 2000 by and between
Vencor, Inc. and Norwest Bank Minnesota, National Association.
10.6 Vencor Retirement Savings Plan Amended and Restated effective as
of March 1, 2000.
10.7 Retirement Savings Plan for Certain Employees of Vencor and its
Affiliates Amended and Restated effective as of March 1, 2000.
27 Financial Data Schedule (included only in filings submitted under
the Electronic Data Gathering, Analysis, and Retrieval system).
41
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K (Continued)
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on January 24, 2000 announcing
that the DOJ had informed the Company that it intended to intervene in all
remaining pending qui tam actions asserted against the Company. The Company
filed a Current Report on Form 8-K on February 28, 2000 announcing that it had
agreed with the DIP Lenders to extend the maturity and to amend certain other
provisions of the DIP Financing.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENCOR, INC.
Date: May 12, 2000 /s/ EDWARD L. KUNTZ
- ------------------- -------------------------------
Edward L. Kuntz
Chairman of the Board, Chief
Executive Officer and President
Date: May 12, 2000 /s/ RICHARD A. SCHWEINHART
- ------------------- -------------------------------
Richard A. Schweinhart
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer)
43
<PAGE>
EXECUTION
Exhibit 10.3
SIXTH AMENDMENT AND WAIVER TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
April 7, 2000
Reference is made to that certain Debtor-In-Possession Credit
Agreement dated as of September 13, 1999 (as heretofore amended, supplemented or
otherwise modified, the "DIP Credit Agreement"), by and among Vencor, Inc., a
Delaware corporation ("Vencor"), and Vencor Operating, Inc., a Delaware
corporation ("Vencor Opco"), each as debtor and debtor-in-possession, and each
of Vencor's subsidiaries listed on the signature pages thereof, each as debtor
and debtor-in-possession (each such subsidiary, Vencor and Vencor Opco
individually referred to herein as a "Borrower" and, collectively, on a joint
and several basis, as the "Borrowers"); the Lenders listed on the signature
pages thereof; and Morgan Guaranty Trust Company of New York, as arranger,
collateral agent and administrative agent (in such capacity, "Administrative
Agent") for the Lenders, and as an issuing bank for Letters of Credit
thereunder. Capitalized terms used herein without definition herein shall have
the meanings assigned to such terms in the DIP Credit Agreement and the
Borrowing Order.
Borrowers have (i) advised Lenders that Borrowers are not in
compliance with Section 6.04 of the DIP Credit Agreement requiring a minimum Net
Amount of Eligible Accounts of $350,000,000, and (ii) requested that Lenders (a)
waive any Event of Default in connection with Borrowers' failure to maintain the
requisite minimum Net Amount of Eligible Accounts, (b) amend certain financial
covenants, and (c) make certain other amendments to the DIP Credit Agreement, in
each case as more fully set forth below. Accordingly:
1. The undersigned Lenders hereby waive, for all periods through but
excluding the Sixth Amendment Effective Date (as defined below), compliance
with the provisions of Section 6.04 of the DIP Credit Agreement which
requires that Borrowers not permit the Net Amount of Eligible Accounts at
any time to be less than $350,000,000; provided that Borrowers, as of the
--------
Sixth Amendment Effective Date (as defined below) are in compliance with
the requirements of Section 6.04 as amended by this Sixth Amendment.
2. Borrowers and the undersigned Lenders hereby agree that:
(i) the definition of "Permitted Encumbrances" in Section 1.01
of the DIP Credit Agreement is hereby amended by deleting the
reference to "$5,000,000" contained in subparagraph (d) thereof and
substituting therefor "$10,000,000"; and
(ii) Section 6.04 of the DIP Credit Agreement is hereby amended
by deleting the reference to "$350,000,000" contained therein and
substituting therefor "$300,000,000".
<PAGE>
3. In partial recognition of the substantial additional
administrative services being performed by the Administrative Agent, the
parties hereto agree that Section 2.06(c) of the DIP Credit Agreement is
hereby amended to increase such Agent's monthly fee to $25,000 effective
beginning with the payment due on the last Business Day of April 2000.
On and after the Sixth Amendment Effective Date (as defined below),
each reference in the DIP Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the DIP Credit
Agreement, and each reference in the other Financing Documents to the "DIP
Credit Agreement", "thereunder", "thereof" or words of like import referring to
the DIP Credit Agreement, shall mean and be a reference to the DIP Credit
Agreement as amended by this Sixth Amendment and Waiver to Debtor-In-Possession
Credit Agreement (this "Sixth Amendment"; the DIP Credit Agreement, as so
amended, being the "Amended Agreement").
Without limiting the generality of the provisions of Section 11.05 of
the DIP Credit Agreement, the waiver and the amendments set forth in paragraphs
1 and 2 above shall be limited precisely as written, and nothing in this Sixth
Amendment shall be deemed to (a) constitute a waiver of compliance by Borrowers
with respect to (i) Section 6.04 of the DIP Credit Agreement in any other
instance or (ii) any other term, provision or condition of the DIP Credit
Agreement or any of such other Financing Documents, or (b) prejudice any right
or remedy that the Administrative Agent or any Lender may now have or may have
in the future under or in connection with the DIP Credit Agreement or any of
such other Financing Documents. Except as specifically waived or amended by
this Sixth Amendment, the DIP Credit Agreement and such other Financing
Documents shall remain in full force and effect and are hereby ratified and
confirmed. Without limiting the generality of the foregoing, nothing herein
shall constitute, and nothing herein shall be construed to create, an extension
of the Commitments or an obligation on the part of the Lenders to extend the
Commitments beyond the Commitment Termination Date.
In order to induce Lenders to enter into this Sixth Amendment, each
Borrower, by its execution of a counterpart of this Sixth Amendment, represents
and warrants that (a) such Borrower has the corporate or other power and
authority and all material Governmental Approvals required to enter into this
Sixth Amendment and to carry out the transactions contemplated by, and perform
its obligations under, the Amended Agreement, (b) the execution and delivery of
this Sixth Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate or other action on the part of such
Borrower, (c) the execution and delivery by such Borrower of this Sixth
Amendment and the performance by such Borrower of the Amended Agreement do not
and will not contravene, or constitute a default under, any Applicable Laws
(including an applicable order of the Court) or any provision of its
Organizational Documents, or of any agreement or other instrument binding upon
it or result in or require the imposition of any Liens (other than the Liens
created by the Collateral Documents) on any of its assets, (d) the execution and
delivery by such Borrower of this Sixth Amendment and the performance by such
Borrower of the Amended Agreement do not and will not require any action by or
in respect of, or filing with, any governmental body, agency or official, (e)
this Sixth Amendment and the Amended Agreement have been duly executed and
delivered by such Borrower and constitute the valid and binding obligations of
such Borrower, enforceable in accordance with their respective terms, except as
may be limited by general principles of equity,
2
<PAGE>
(f) for purposes of the Borrowing Order (i) this Sixth Amendment constitutes a
non-material modification of the DIP Credit Agreement and the Financing
Documents, and (ii) notice of this Sixth Amendment has been given to and
received by counsel to the Committee (as defined in the Borrowing Order), and
(g) after giving effect to this Sixth Amendment, no event has occurred and is
continuing or will result from the consummation of the transactions contemplated
by this Sixth Amendment that would constitute a Default.
This Sixth Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. This Sixth Amendment
shall become effective (the date of such effectiveness being the "Sixth
Amendment Effective Date") on April 12, 2000; provided that (a) the Borrowers
--------
and Required Lenders shall have executed counterparts of this Sixth Amendment
and the Borrowers and the Administrative Agent shall have received written or
telephonic notification of such execution and authorization of delivery thereof;
(b) the Administrative Agent shall have received evidence satisfactory to it
that all outstanding statements of O'Melveny & Myers LLP, Davis Polk & Wardwell
and Policano & Manzo that are received by Vencor prior to 12:00 Noon (New York
City time) on April 12, 2000 have been paid in full; and (c) no objections to
this Sixth Amendment have been served on the Administrative Agent by the
Committee.
Pursuant to paragraph 3 of the Borrowing Order, this Sixth Amendment
shall become effective upon the Sixth Amendment Effective Date without the need
for any further order of the Court and upon compliance with the notice
requirement of paragraph 3 of the Borrowing Order and the Committee having
submitted no objection thereto.
THIS SIXTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
[Remainder of page intentionally left blank]
3
<PAGE>
BORROWERS:
Advanced Infusion Systems, Inc.
American X-Rays, Inc.
C.P.C. of Louisiana, Inc.
Community Behavioral Health System, Inc.
Community Psychiatric Centers of Arkansas, Inc.
Community Psychiatric Centers of California
Community Psychiatric Centers of Florida, Inc.
Community Psychiatric Centers of Idaho, Inc.
Community Psychiatric Centers of Indiana, Inc.
Community Psychiatric Centers of Kansas, Inc.
Community Psychiatric Centers of Mississippi, Inc.
Community Psychiatric Centers of Missouri, Inc.
Community Psychiatric Centers of North Carolina, Inc.
Community Psychiatric Centers of Oklahoma, Inc.
Community Psychiatric Centers of Utah, Inc.
Community Psychiatric Centers Properties Incorporated
Community Psychiatric Centers Properties of Oklahoma,
Inc.
Community Psychiatric Centers Properties of Texas, Inc.
Community Psychiatric Centers Properties of Utah, Inc.
Courtland Gardens Health Center, Inc.
CPC Investment Corp.
CPC Managed Care Health Services, Inc.
CPC of Georgia, Inc.
CPC Properties of Arkansas, Inc.
CPC Properties of Illinois, Inc.
CPC Properties of Indiana, Inc.
CPC Properties of Kansas, Inc.
CPC Properties of Louisiana, Inc.
CPC Properties of Mississippi, Inc.
CPC Properties of Missouri, Inc.
CPC Properties of North Carolina, Inc.
First Rehab, Inc.
Florida Hospital Properties, Inc.
Health Care Holdings, Inc.
Health Care Technology, Inc.
Helian ASC of Northridge, Inc.
Helian Health Group, Inc.
Helian Recovery Corporation
Homestead Health Center, Inc.
Horizon Healthcare Services, Inc.
Interamericana Health Care Group
S-1
<PAGE>
J.B. Thomas Hospital, Inc.
Lafayette Health Care Center, Inc.
MedEquities, Inc.
Medisave of Tennessee, Inc.
Medisave Pharmacies, Inc.
Old Orchard Hospital, Inc.
Palo Alto Surgecenter Corporation
Peachtree-Parkwood Hospital, Inc.
PersonaCare, Inc.
PersonaCare Living Center of Clearwater, Inc.
PersonaCare of Bradenton, Inc.
PersonaCare of Clearwater, Inc.
PersonaCare of Connecticut, Inc.
PersonaCare of Georgia, Inc.
PersonaCare of Huntsville, Inc.
PersonaCare of Little Rock, Inc.
PersonaCare of Ohio, Inc.
PersonaCare of Owensboro, Inc.
PersonaCare of Pennsylvania, Inc.
PersonaCare of Pompano East, Inc.
PersonaCare of Pompano West, Inc.
PersonaCare of Reading, Inc.
PersonaCare of San Antonio, Inc.
PersonaCare of San Pedro, Inc.
PersonaCare of Shreveport, Inc.
PersonaCare of St. Petersburg, Inc.
PersonaCare of Warner Robbins, Inc.
PersonaCare of Wisconsin, Inc.
PersonaCare Properties, Inc.
ProData Systems, Inc.
Recovery Inns of America, Inc.
Respiratory Care Services, Inc.
Stamford Health Facilities, Inc.
THC-Chicago, Inc.
THC-Hollywood, Inc.
THC-Houston, Inc.
THC-Minneapolis, Inc.
THC-North Shore, Inc.
THC-Orange County, Inc.
THC-San Diego, Inc.
THC-Seattle, Inc.
TheraTx Healthcare Management, Inc.
TheraTx Health Services, Inc.
TheraTx Management Services, Inc.
TheraTx Medical Supplies, Inc.
TheraTx Rehabilitation Services, Inc.
TheraTx Staffing, Inc.
S-2
<PAGE>
Transitional Hospitals Corporation, a Delaware
Corporation
Transitional Hospitals Corporation, a Nevada
Corporation
Transitional Hospitals Corporation of Indiana, Inc.
Transitional Hospitals Corporation of Louisiana, Inc.
Transitional Hospitals Corporation of Michigan, Inc.
Transitional Hospitals Corporation of Nevada, Inc.
Transitional Hospitals Corporation of New Mexico, Inc.
Transitional Hospitals Corporation of Tampa, Inc.
Transitional Hospitals Corporation of Texas, Inc.
Transitional Hospitals Corporation of Wisconsin, Inc.
Tucker Nursing Center, Inc.
Tunstall Enterprises, Inc.
VC-OIA, Inc.
VC-TOHC, Inc.
VC-WM, Inc.
Vencare, Inc.
Vencare Rehab Services, Inc.
Vencor Facility Services, Inc.
Vencor Holdings, L.L.C.
Vencor Home Care Services, Inc.
Vencor Hospice, Inc.
Vencor Hospitals East, L.L.C.
Vencor Hospitals West, L.L.C.
Vencor, Inc.
Vencor Insurance Holdings, Inc.
Vencor Investment Company
Vencor Nevada, L.L.C.
Vencor Nursing Centers East, L.L.C.
Vencor Nursing Centers Central L.L.C.
Vencor Nursing Centers North, L.L.C.
Vencor Nursing Centers South, L.L.C.
Vencor Nursing Centers West, L.L.C.
Vencor Operating, Inc.
Vencor Pediatric Care, Inc.
Vencor Provider Network, Inc.
Ventech Systems, Inc.
BY: Vencor Operating, Inc., as agent and attorney-in-
fact for each of the foregoing entities
By: ___________________________________
Name:
Title:
S-3
<PAGE>
Stamford Health Associates, L.P.
BY: Stamford Health Facilities, Inc., Its General
Partner
By: __________________________________
Name:
Title:
Vencor Home Care and Hospice Indiana Partnership
BY: Vencor Home Care Services, Inc., Its General
Partner
By: __________________________________
Name:
Title
BY: Vencor Hospice, Inc., Its General Partner
By: __________________________________
Name:
Title:
Vencor Hospitals Limited Partnership
BY: Vencor Operating, Inc., Its General Partner
By: __________________________________
Name:
Title:
BY: Vencor Nursing Centers Limited Partnership, Its
General Partner
BY: Vencor Operating, Inc., Its General
Partner
By: _________________________
Name:
Title:
S-4
<PAGE>
Vencor Nursing Centers Central Limited Partnership
BY: Vencor Operating, Inc., Its General Partner
By: __________________________________
Name:
Title:
BY: Vencor Nursing Centers Limited Partnership, Its
General Partner
BY: Vencor Operating, Inc., Its General Partner
By: _________________________
Name:
Title:
S-5
<PAGE>
Vencor Nursing Centers Limited Partnership
BY: Vencor Operating, Inc., Its General Partner
By: __________________________________
Name:
Title:
BY: Vencor Hospitals Limited Partnership, Its
General Partner
BY: Vencor Operating, Inc., Its General Partner
By: ______________________
Name:
Title:
S-26
<PAGE>
AGENTS AND LENDERS:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Arranger, Collateral Agent and Administrative
Agent and as a Lender
By:_________________________________________
Name:
Title:
S-7
<PAGE>
ABLECO FINANCE LLC, as a Lender
By: _______________________________________
Name:
Title:
S-8
<PAGE>
APPALOOSA INVESTMENT LIMITED
PARTNERSHIP I, as a Lender
By: ______________________________
Name:
Title:
S-9
<PAGE>
BANKERS TRUST COMPANY, as a Lender
By: ______________________________
Name:
Title:
S-10
<PAGE>
CHASE SECURITIES INC, AS AGENT FOR THE
CHASE MANHATTAN BANK, as a Lender
By: _________________________________
Name:
Title:
S-11
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P., as a
Lender
By: ____________________________________
Name:
Title:
S-12
<PAGE>
PARIBAS, as a Lender
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
S-13
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST, as a
Lender
By: VAN KAMPEN INVESTMENT ADVISORY CORP.
By: _______________________________
Name:
Title:
S-14
<PAGE>
FRANKLIN MUTUAL ADVISERS LLC, as a Lender
By: ____________________________________
Name:
Title:
S-15
<PAGE>
FRANKLIN FLOATING RATE TRUST, as a Lender
By: ____________________________________
Name:
Title:
S-16
<PAGE>
FOOTHILL CAPITAL CORPORATION, as a Lender
By: ____________________________________
Name:
Title:
S-17
<PAGE>
FOOTHILL INCOME TRUST II, L.P., as a Lender
By: ______________________________________
Name:
Title:
S-18
<PAGE>
ACKNOWLEDGEMENT AND CONSENT OF SUBSIDIARY GUARANTOR
By its execution of a counterpart of this Sixth Amendment, the
undersigned, as a Subsidiary Guarantor under that certain Guaranty Agreement
dated as of September 13, 1999 (the "Guaranty") for the benefit of Lenders, and
as an Original Lien Grantor under that certain Security Agreement dated as of
September 13, 1999 (the "Security Agreement") between the undersigned, the
Borrowers and Collateral Agent, as Secured Party, hereby acknowledges that it
has read this Sixth Amendment and consents to the terms thereof and further
hereby confirms and agrees that, notwithstanding the effectiveness of this Sixth
Amendment, the obligations of the undersigned under the Guaranty and the
Security Agreement shall not be impaired or affected and each of the Guaranty
and the Security Agreement is, and shall continue to be, in full force and
effect and is hereby confirmed and ratified in all respects.
CARIBBEAN BEHAVIORAL HEALTH
SYSTEMS, INC.
By: _________________________
Name:
Title:
S-19
<PAGE>
EXHIBIT 10.4
EXECUTION
SEVENTH AMENDMENT TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
AND CONSENT
April 26, 2000
Reference is made to that certain Debtor-In-Possession Credit
Agreement dated as of September 13, 1999 (as heretofore amended, supplemented or
otherwise modified, the "DIP Credit Agreement"), by and among Vencor, Inc., a
Delaware corporation ("Vencor"), and Vencor Operating, Inc., a Delaware
corporation ("Vencor Opco"), each as debtor and debtor-in-possession, and each
of Vencor's subsidiaries listed on the signature pages thereof, each as debtor
and debtor-in-possession (each such subsidiary, Vencor and Vencor Opco
individually referred to herein as a "Borrower" and, collectively, on a joint
and several basis, as the "Borrowers"); the Lenders listed on the signature
pages thereof; and Morgan Guaranty Trust Company of New York, as arranger,
collateral agent and administrative agent (in such capacity, "Administrative
Agent") for the Lenders, and as an issuing bank for Letters of Credit
thereunder. Capitalized terms used herein without definition herein shall have
the meanings assigned to such terms in the DIP Credit Agreement and the
Borrowing Order.
Borrowers have (i) requested that Lenders make certain amendments to
the DIP Credit Agreement, as more fully set forth below, and (ii) submitted to
Lenders an amendment and supplement to the Cash Plan, attached hereto as Annex A
-------
(the "Cash Plan Supplement"), setting forth, for May 2000 and June 2000, a
consolidated cash forecast for the Borrowers. Accordingly:
1. The Borrowers and the undersigned Lenders hereby agree that:
(a) Section 1.01 of the DIP Credit Agreement is hereby amended
by inserting the following definition therein in alphabetical order:
"Surplus Property Sale Procedures Order" means the order of
the Court entitled "Order Establishing Procedures for the
Debtors' Sale of Certain Surplus Personal Property Pursuant to
Sections 363(b) and (f) of the Bankruptcy Code Without Further
Court Approval" entered in the Chapter 11 Cases on April 17,
2000, as in effect on its date of entry.
(b) Section 5.10 of the DIP Credit Agreement is hereby amended
by deleting the reference to "May 1, 2000" contained therein and
substituting therefor "June 15, 2000";
(c) Section 7.03(b) of the DIP Credit Agreement is hereby
amended by deleting the first sentence therefrom in its entirety and
substituting therefor the following:
<PAGE>
"No Vencor Company (other than an Excluded Partnership) will make
any Asset Sale without (i) prior written approval of Required
Lenders and (ii) an appropriate approval of the Court, to the
extent such Court approval is required pursuant to the Bankruptcy
Code or any order of the Court; provided that (x) the foregoing
--------
shall not prohibit transactions permitted by Section 7.12; (y)
clause (i) above shall not apply to any Asset Sale of any
Properties Held For Sale so long as (A) the consideration
received from such Asset Sale shall be in an amount at least
equal to the fair market value thereof (or, in the case of the
Cessna Plane, in an amount in excess of the amount expended for
the purchase thereof), (B) the sole consideration received shall
be cash, and (C) the Net Cash Proceeds of such Asset Sale shall
be applied as required by Section 2.08(a)(ii); and (z) after the
date of entry of the Surplus Property Sale Procedures Order,
clause (i) above shall not apply to any sale of Surplus Property
(as defined in the Surplus Property Sale Procedures Order)
consummated in accordance with the Proposed Sale Procedures (as
defined in the Surplus Property Sale Procedures Order), so long
as (A) the gross proceeds of any such sale individually do not
exceed $150,000, and the gross proceeds of all such sales in the
aggregate do not exceed $3,000,000, (B) at the time of such sale,
no Default shall have occurred and be continuing or would result
therefrom, (C) the sole consideration received from any such sale
which is an Asset Sale shall be cash in an amount no less than
the fair market value of the assets sold, and (D) the Net Cash
Proceeds of any such Asset Sale shall be applied to repay
outstanding Loans, if any, and to reduce the Commitments in
accordance with Section 2.08 of the DIP Credit Agreement; and
provided, further, that nothing in this Section 7.03(b) shall
-------- -------
prohibit, after the Fifth Amendment Effective Date, (x) the sale
at auction (or by any other manner approved by the Court) of
approximately 70 vehicles associated with the Borrowers' Vencare
business line and (y) the sale of two durable medical equipment
storefronts (and the assumption and assignment of the related
leases) previously associated with the Borrowers' Vencare
business line to any Person other than a Subsidiary or an
Affiliate of any Borrower, in each case so long as (1) at the
time of such sale, no Default shall have occurred and be
continuing or would result therefrom, (2) the consideration
received by the Borrowers for such assets shall be in cash in an
aggregate amount no less than the aggregate fair market value
thereof, (3) such sale is approved by the Court to the extent
such approvals are required pursuant to the Bankruptcy Code or an
order of the Court, and (4) within five Business Days of
Borrowers' receipt of the Net Cash Proceeds of such Asset Sale,
said Net Cash Proceeds shall be applied to repay outstanding
Loans, if any, and to reduce the Commitments in accordance with
Section 2.08."
(d) Section 2.13 of the DIP Credit Agreement is hereby amended by
deleting clause (v) in its entirety therefrom and substituting
therefor the following:
2
<PAGE>
"(v) the prior written consent of Required Lenders (except
in the case of Asset Sales permitted to be consummated under
Section 7.03(b) without the prior written approval of Required
Lenders) and the approval of the Court (to the extent such Court
approval is required pursuant to the Bankruptcy Code or an order
of the Court) with respect to such Asset Sale shall have been
obtained."
2. Each of the undersigned Lenders hereby (i) acknowledges that the
substance of the Cash Plan Supplement is satisfactory to such Lender and
(ii) consents to supplementing the Cash Plan with the forecast for May 2000
and June 2000 contained in the Cash Plan Supplement.
On and after the Seventh Amendment Effective Date (as defined below),
each reference in the DIP Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the DIP Credit
Agreement, and each reference in the other Financing Documents to the "DIP
Credit Agreement", "thereunder", "thereof" or words of like import referring to
the DIP Credit Agreement, shall mean and be a reference to the DIP Credit
Agreement as amended by this Seventh Amendment to Debtor-In-Possession Credit
Agreement and Consent (this "Seventh Amendment"; the DIP Credit Agreement, as so
amended, being the "Amended Agreement").
Without limiting the generality of the provisions of Section 11.05 of
the DIP Credit Agreement, the amendment and the consent set forth in paragraphs
1 and 2 above shall be limited precisely as written, and nothing in this Seventh
Amendment shall be deemed to (a) constitute a consent to any other supplement to
the Cash Plan or any other document, transaction, occurrence, event or condition
under Section 5.01(m) of the DIP Credit Agreement or any other term, provision
or condition of the DIP Credit Agreement or any of such other Financing
Documents, or (b) prejudice any right or remedy that the Administrative Agent or
any Lender may now have or may have in the future under or in connection with
the DIP Credit Agreement or any of such other Financing Documents. Except as
specifically amended by this Seventh Amendment, the DIP Credit Agreement and
such other Financing Documents shall remain in full force and effect and are
hereby ratified and confirmed.
In order to induce Lenders to enter into this Seventh Amendment, each
Borrower, by its execution of a counterpart of this Seventh Amendment,
represents and warrants that (a) such Borrower has the corporate or other power
and authority and all material Governmental Approvals required to enter into
this Seventh Amendment and to carry out the transactions contemplated by, and
perform its obligations under, the Amended Agreement, (b) the execution and
delivery of this Seventh Amendment and the performance of the Amended Agreement
have been duly authorized by all necessary corporate or other action on the part
of such Borrower, (c) the execution and delivery by such Borrower of this
Seventh Amendment and the performance by such Borrower of the Amended Agreement
do not and will not contravene, or constitute a default under, any Applicable
Laws (including an applicable order of the Court) or any provision of its
Organizational Documents, or of any agreement or other instrument binding upon
it or result in or require the imposition of any Liens (other than the Liens
created by the Collateral Documents) on any of its assets, (d) the execution and
delivery by such Borrower of this Seventh Amendment and the performance by such
Borrower of the Amended Agreement do not and will
3
<PAGE>
not require any action by or in respect of, or filing with, any governmental
body, agency or official, (e) this Seventh Amendment and the Amended Agreement
have been duly executed and delivered by such Borrower and constitute the valid
and binding obligations of such Borrower, enforceable in accordance with their
respective terms, except as may be limited by general principles of equity, (f)
for purposes of the Borrowing Order (i) this Seventh Amendment constitutes a
non-material modification of the DIP Credit Agreement and the Financing
Documents, and (ii) notice of this Seventh Amendment has been given to and
received by counsel to the Committee (as defined in the Borrowing Order), and
(g) after giving effect to this Seventh Amendment, no event has occurred and is
continuing or will result from the consummation of the transactions contemplated
by this Seventh Amendment that would constitute a Default.
This Seventh Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. This Seventh
Amendment shall become effective (the date of such effectiveness being the
"Seventh Amendment Effective Date") on April 30, 2000; provided that (a) the
--------
Borrowers and Required Lenders shall have executed counterparts of this Seventh
Amendment and the Borrowers and the Administrative Agent shall have received
written or telephonic notification of such execution and authorization of
delivery thereof; (b) the Administrative Agent shall have received evidence
satisfactory to it that all outstanding statements of O'Melveny & Myers LLP,
Davis Polk & Wardwell and Policano & Manzo that are received by Vencor prior to
12:00 Noon (New York City time) on April 26, 2000 have been paid in full; and
(c) no objections to this Seventh Amendment shall have been served on the
Administrative Agent by the Committee.
Pursuant to paragraph 3 of the Borrowing Order, this Seventh Amendment
shall become effective upon the Seventh Amendment Effective Date without the
need for any further order of the Court and upon compliance with the notice
requirement of paragraph 3 of the Borrowing Order and the Committee having
submitted no objection thereto.
THIS SEVENTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
[Remainder of page intentionally left blank]
4
<PAGE>
BORROWERS:
Advanced Infusion Systems, Inc.
American X-Rays, Inc.
C.P.C. of Louisiana, Inc.
Community Behavioral Health System, Inc.
Community Psychiatric Centers of Arkansas, Inc.
Community Psychiatric Centers of California
Community Psychiatric Centers of Florida, Inc.
Community Psychiatric Centers of Idaho, Inc.
Community Psychiatric Centers of Indiana, Inc.
Community Psychiatric Centers of Kansas, Inc.
Community Psychiatric Centers of Mississippi, Inc.
Community Psychiatric Centers of Missouri, Inc.
Community Psychiatric Centers of North Carolina, Inc.
Community Psychiatric Centers of Oklahoma, Inc.
Community Psychiatric Centers of Utah, Inc.
Community Psychiatric Centers Properties Incorporated
Community Psychiatric Centers Properties of Oklahoma,
Inc.
Community Psychiatric Centers Properties of Texas, Inc.
Community Psychiatric Centers Properties of Utah, Inc.
Courtland Gardens Health Center, Inc.
CPC Investment Corp.
CPC Managed Care Health Services, Inc.
CPC of Georgia, Inc.
CPC Properties of Arkansas, Inc.
CPC Properties of Illinois, Inc.
CPC Properties of Indiana, Inc.
CPC Properties of Kansas, Inc.
CPC Properties of Louisiana, Inc.
CPC Properties of Mississippi, Inc.
CPC Properties of Missouri, Inc.
CPC Properties of North Carolina, Inc.
First Rehab, Inc.
Florida Hospital Properties, Inc.
Health Care Holdings, Inc.
Health Care Technology, Inc.
Helian ASC of Northridge, Inc.
Helian Health Group, Inc.
Helian Recovery Corporation
Homestead Health Center, Inc.
Horizon Healthcare Services, Inc.
Interamericana Health Care Group
S-1
<PAGE>
J.B. Thomas Hospital, Inc.
Lafayette Health Care Center, Inc.
MedEquities, Inc.
Medisave of Tennessee, Inc.
Medisave Pharmacies, Inc.
Old Orchard Hospital, Inc.
Palo Alto Surgecenter Corporation
Peachtree-Parkwood Hospital, Inc.
PersonaCare, Inc.
PersonaCare Living Center of Clearwater, Inc.
PersonaCare of Bradenton, Inc.
PersonaCare of Clearwater, Inc.
PersonaCare of Connecticut, Inc.
PersonaCare of Georgia, Inc.
PersonaCare of Huntsville, Inc.
PersonaCare of Little Rock, Inc.
PersonaCare of Ohio, Inc.
PersonaCare of Owensboro, Inc.
PersonaCare of Pennsylvania, Inc.
PersonaCare of Pompano East, Inc.
PersonaCare of Pompano West, Inc.
PersonaCare of Reading, Inc.
PersonaCare of San Antonio, Inc.
PersonaCare of San Pedro, Inc.
PersonaCare of Shreveport, Inc.
PersonaCare of St. Petersburg, Inc.
PersonaCare of Warner Robbins, Inc.
PersonaCare of Wisconsin, Inc.
PersonaCare Properties, Inc.
ProData Systems, Inc.
Recovery Inns of America, Inc.
Respiratory Care Services, Inc.
Stamford Health Facilities, Inc.
THC-Chicago, Inc.
THC-Hollywood, Inc.
THC-Houston, Inc.
THC-Minneapolis, Inc.
THC-North Shore, Inc.
THC-Orange County, Inc.
THC-San Diego, Inc.
THC-Seattle, Inc.
TheraTx Healthcare Management, Inc.
TheraTx Health Services, Inc.
TheraTx Management Services, Inc.
TheraTx Medical Supplies, Inc.
TheraTx Rehabilitation Services, Inc.
TheraTx Staffing, Inc.
S-2
<PAGE>
Transitional Hospitals Corporation, a Delaware
Corporation
Transitional Hospitals Corporation, a Nevada
Corporation
Transitional Hospitals Corporation of Indiana, Inc.
Transitional Hospitals Corporation of Louisiana, Inc.
Transitional Hospitals Corporation of Michigan, Inc.
Transitional Hospitals Corporation of Nevada, Inc.
Transitional Hospitals Corporation of New Mexico, Inc.
Transitional Hospitals Corporation of Tampa, Inc.
Transitional Hospitals Corporation of Texas, Inc.
Transitional Hospitals Corporation of Wisconsin, Inc.
Tucker Nursing Center, Inc.
Tunstall Enterprises, Inc.
VC-OIA, Inc.
VC-TOHC, Inc.
VC-WM, Inc.
Vencare, Inc.
Vencare Rehab Services, Inc.
Vencor Facility Services, Inc.
Vencor Holdings, L.L.C.
Vencor Home Care Services, Inc.
Vencor Hospice, Inc.
Vencor Hospitals East, L.L.C.
Vencor Hospitals West, L.L.C.
Vencor, Inc.
Vencor Insurance Holdings, Inc.
Vencor Investment Company
Vencor Nevada, L.L.C.
Vencor Nursing Centers East, L.L.C.
Vencor Nursing Centers Central L.L.C.
Vencor Nursing Centers North, L.L.C.
Vencor Nursing Centers South, L.L.C.
Vencor Nursing Centers West, L.L.C.
Vencor Operating, Inc.
Vencor Pediatric Care, Inc.
Vencor Provider Network, Inc.
Ventech Systems, Inc.
by: Vencor Operating, Inc., as agent and attorney-in-
fact for each of the foregoing entities
By:__________________________
Name:
Title:
S-3
<PAGE>
EXECUTION
Stamford Health Associates, L.P.
BY: Stamford Health Facilities, Inc., Its General
Partner
By:__________________________
Name:
Title:
Vencor Home Care and Hospice Indiana Partnership
BY: Vencor Home Care Services, Inc., Its General
Partner
By:__________________________
Name:
Title:
BY: Vencor Hospice, Inc., Its General Partner
By:__________________________
Name:
Title:
Vencor Hospitals Limited Partnership
BY: Vencor Operating, Inc., Its General Partner
By:_________________________
Name:
Title:
BY: Vencor Nursing Centers Limited Partnership, Its
General Partner
BY: Vencor Operating, Inc., Its General
Partner
By:_____________________
Name:
Title:
<PAGE>
Vencor Nursing Centers Central Limited Partnership
BY: Vencor Operating, Inc., Its General Partner
By:_________________________
Name:
Title:
BY: Vencor Nursing Centers Limited Partnership, Its
General Partner
By: Vencor Operating, Inc., Its General
Partner
By:_____________________
Name:
Title:
<PAGE>
Vencor Nursing Centers Limited Partnership
By: Vencor Operating, Inc., Its General Partner
By:__________________________
Name:
Title:
By: Vencor Hospitals Limited Partnership, Its
General Partner
BY: Vencor Operating, Inc., Its General
Partner
By:______________________
Name:
Title:
AGENTS AND LENDERS:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Arranger,
Collateral Agent and Administrative Agent and as a
Lender
<PAGE>
By:____________________________
Name:
Title:
<PAGE>
ABLECO FINANCE LLC, as a Lender
By:__________________________
Name:
Title:
<PAGE>
APPALOOSA INVESTMENT LIMITED PARTNERSHIP I, as a Lender
By: _______________________________
Name:
Title:
<PAGE>
BANKERS TRUST COMPANY, as a Lender
By: _________________________
Name:
Title:
<PAGE>
CHASE SECURITIES INC, AS AGENT FOR THE CHASE MANHATTAN
BANK, as a Lender
By: ____________________
Name:
Title:
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender
By: ____________________________
Name:
Title:
<PAGE>
PARIBAS, as a Lender
By: ______________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST, as a Lender
By: VAN KAMPEN INVESTMENT ADVISORY CORP.
By: _________________________
Name:
Title:
<PAGE>
FRANKLIN MUTUAL ADVISERS LLC, as a Lender
By: ______________________
Name:
Title:
<PAGE>
FRANKLIN FLOATING RATE TRUST, as a Lender
By: ____________________
Name:
Title:
FOOTHILL CAPITAL CORPORATION, as a Lender
<PAGE>
By: ______________________
Name:
Title:
FOOTHILL INCOME TRUST II, L.P., as a Lender
By: FIT II GP, LLC, its general partner
<PAGE>
By: ______________________
Name:
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT OF SUBSIDIARY GUARANTOR
By its execution of a counterpart of this Seventh Amendment, the
undersigned, as a Subsidiary Guarantor under that certain Guaranty Agreement
dated as of September 13, 1999 (the "Guaranty") for the benefit of Lenders, and
as an Original Lien Grantor under that certain Security Agreement dated as of
September 13, 1999 (the "Security Agreement") between the undersigned, the
Borrowers and Collateral Agent, as Secured Party, hereby acknowledges that it
has read this Seventh Amendment and consents to the terms thereof and further
hereby confirms and agrees that, notwithstanding the effectiveness of this
Seventh Amendment, the obligations of the undersigned under the Guaranty and the
Security Agreement shall not be impaired or affected and each of the Guaranty
and the Security Agreement is, and shall continue to be, in full force and
effect and is hereby confirmed and ratified in all respects.
CARIBBEAN BEHAVIORAL HEALTH
SYSTEMS, INC.
By: ___________________
Name:
Title:
<PAGE>
Annex A
Vencor, Inc
Cash Plan
Period: Weeks Beginning May 1, 2000 to June 26, 2000
Prepared: April 25, 2000
(in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOW FORECAST: (Revised by Company on April 25, 2000)
Week Beginning: 5/1/2000 5/8/2000 5/15/2000 5/22/2000 5/29/2000 6/5/2000 6/12/2000 6/19/2000 6/26/2000
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Projected Receipts:
Facility Receipts $ 22.3 $ 28.3 $ 41.6 $ 38.7 $ 29.6 $ 22.2 $ 32.6 $ 41.5 $ 40.0
Agency Receipts 13.7 15.5 16.6 16.6 10.2 15.1 15.8 15.8 15.1
PIP Receipts - 11.3 - 11.3 - 11.3 - 11.3 -
Misc Receipts - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Subtotal Receipts $ 36.0 $ 55.1 $ 58.2 $ 66.6 $ 39.8 $ 48.6 $ 48.4 $ 68.6 $ 55.1
Projected Disbursements:
Accounts Payable $(24.7) $(23.7) $(21.6) $(20.6) $(18.4) $(25.8) $(25.8) $(22.7) $(22.7)
Ventas (15.2) - - - - (15.2) - - -
Scheduled Medicare Payments - - - - - - - -
Payroll (19.2) (16.8) (19.2) (16.0) (15.8) (22.4) (16.8) (20.2) (17.6)
Taxes (5.9) (8.9) (5.9) (8.7) (5.9) (9.6) (5.9) (9.6) (5.6)
VEBA Funding (1.5) (1.5) (1.5) (1.5) (1.5) (1.2) (1.1) (1.1) (1.1)
Vendor Deposits (2.1) (2.1) (2.1) (2.1) (2.1) (2.1) (2.1) (2.1) (2.1)
Executive Retention - - - - - - - - -
Restructuring Costs (1.0) - - - (0.1) (1.0) - - (0.1)
------ ------ ------ ------ ------ ------ ------ ------ ------
Subtotal Uses of Cash $(69.6) $(53.0) $(50.3) $(48.9) $(43.8) $(77.3) $(51.7) $(55.7) $(49.2)
------ ------ ------ ------ ------ ------ ------ ------ ------
Daily Cash Flow before Next Day
Funding Requirements $(33.6) $ 2.1 $ 7.9 $ 17.7 $ (4.0) $(28.7) $ (3.3) $ 12.9 $ 5.9
Reduce (Borrow) Next Day Funding - - - - - - - - -
Requirement ------ ------ ------ ------ ------ ------ ------ ------ ------
Subtotal Net Sources (Uses) of Cash $(33.6) $ 2.1 $ 7.9 $ 17.7 $ (4.0) $(28.7) $ (3.3) $ 12.9 $ 5.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Forecasted Revolver (Borrowing) $(33.6) $ 2.1 $ 7.9 $ 17.7 $ (4.0) $(28.7) $ (3.3) $ 12.9 $ 5.9
Repayment
Beginning Revolver $ - $ - $ - $ - $ - $ - $ - $ - $ -
Activity - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Ending Revolver $ - $ - $ - $ - $ - $ - $ - $ - $ -
====== ====== ====== ====== ====== ====== ====== ====== ======
Beginning Cash $131.5 $ 97.9 $100.0 $107.9 $125.6 $121.6 $ 92.9 $ 89.6 $102.5
Net Change in Cash (33.6) 2.1 7.9 17.7 (4.0) (28.7) (3.3) 12.9 5.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Ending Cash $ 97.9 $100.0 $107.9 $125.6 $121.6 $ 92.9 $ 89.6 $102.5 $108.4
====== ====== ====== ====== ====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
COVENANT COMPUTATION:
Cumulative Net Cash Flow $(33.6) $(31.5) $(23.6) $ (5.9) $ (9.9) $(38.6) $(41.9) $(29.0) $(23.1)
Permitted Variance (1) (18.0) (18.0) (18.0) (18.0) (18.0) (18.0) (18.0) (18.0) (18.0)
------ ------ ------ ------ ------ ------ ------ ------ ------
Compliance with Cash Plan $(51.6) $(49.5) $(41.6) $(23.9) $(27.9) $(56.6) $(59.9) $(47.0) $(41.1)
====== ====== ====== ====== ====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Borrower is allowed to disburse up to $52,500,000 above the permitted
variance if, and only if, such disbursements are required to be made to
repay obligations owing to Medicare or its agents.
<PAGE>
Exhibit 10.5
MASTER TRUST AGREEMENT
This Trust Agreement is made and entered into as of January 17, 2000 by and
between Vencor, Inc. ("Vencor") and Norwest Bank Minnesota, National
Association, a national banking association, as the Trustee (the "Trustee");
Recitals
--------
A. Vencor maintains Vencor, Inc. Retirement Savings Plan ("VRSP") and the
Retirement Savings Plan for Certain Employees of Vencor and its Affiliates
("RSP"), each of which is intended to qualify under section 401(a) of the
Internal Revenue Code of 1986 (together, the "Plans").
B. Vencor may decide in the future to designate additional defined
contribution plans maintained by Vencor or an affiliate as Plans funded
through this trust.
C. Vencor maintains a master trust fund with Wachovia Bank of North Carolina,
N.A. as trustee (the "Prior Trustee"), and the Prior Trustee has indicated
that it cannot accommodate Vencor's desire to provide daily pricing on all
securities in the Plans.
D. The duties of the Prior Trustee will cease on January 31, 2000 and Vencor
desires to enter into a master trust agreement effective February 1, 2000
which will amend and restate the trust agreement for the Plans.
E. The parties enter into this Agreement for the purpose of continuing the
trust with Norwest Bank Minnesota National Association as successor
Trustee.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties agree as follows:
ARTICLE 1--GENERAL
-------
1.1 Establishment. Vencor hereby continues with Trustee as successor to
-------------
the Prior Trustee, the Vencor Master 401(k) Trust. The Trust will consist of
Investment Funds designated from time to time by the Committee, suitably
distinct in investment characteristics and objectives, from which participants
in the Plans may choose for investment of assets in their accounts. The Trustee
shall allocate to and invest contributions as part of each Investment Fund
pursuant to any investment directives made by the Participants and received from
the Committee. Income from investments in each Investment Fund shall be
reinvested in the same Investment Fund.
<PAGE>
1.2 Acceptance of Trust. The Trustee accepts its appointment as such,
-------------------
effective February 1, 2000 (the "Effective Date").
1.3 Part of Plans. This Trust forms a part of the Plans for which funds
-------------
are held hereunder. Vencor warrants that promptly upon the adoption of any
amendment to a Plan it will furnish the Trustee with a copy of the amendment and
with an appropriate certificate evidencing its due adoption. Vencor further
agrees that no amendment of a Plan shall have the effect of changing the rights,
duties, and liabilities of the Trustee without its written consent. The Trustee
may rely on the latest Plan documents furnished it as above provided without
further inquiry or verification.
1.4 Certification of Fiduciaries and Administrator. The Secretary or an
----------------------------------------------
Assistant Secretary of Vencor will certify to the Trustee the name of the person
or persons who comprise the Retirement Committee or who otherwise have authority
on behalf of Vencor to direct the Trustee as to disbursements from the Trust
Fund for purposes of the Plan and the name of the person or persons who have
authority on behalf of Vencor (including representatives of any plan service
provider which Vencor may use from time to time) to communicate with the Trustee
with respect to any other matters relating to the Trust Fund. The Trustee shall
recognize the Retirement Committee as so certified as the administrator of each
Plan within the meaning of the Plan document unless and until receipt from the
Secretary of Vencor or an Assistant Secretary of Vencor of a certification
evidencing the appointment of some other person or persons as said
administrator. The Secretary or an Assistant Secretary of Vencor shall provide
the Trustee with a specimen signature of each of the persons referred to above.
Action by the Board of Directors of Vencor (or a committee thereof) will be
certified by the Secretary or an Assistant Secretary of Vencor. The Trustee may
rely on the latest relevant certificate without further inquiry or verification.
1.5 Construction and Applicable Law. This Trust is intended to constitute
-------------------------------
a qualified trust under section 401(a) of the Internal Revenue Code and to be
entitled to tax exemption under section 501(a) thereof. The Trustee may assume,
until advised to the contrary, that the Trust is so qualified and is entitled to
said tax exemption. It is also intended that this Trust be in full compliance
with applicable requirements of the Plan. This Trust Agreement shall be
construed and administered consistent with said intent.
1.6 Committee. The Board of Directors of Vencor has, pursuant to the
---------
provisions of the Plans, appointed a Retirement Committee ("Committee") to
administer the Plan, keep records of individual participant benefits, and notify
each Participant of the amount of his benefits periodically. The operation of
the Committee shall be governed by the terms of the Plans. Vencor will notify
the Trustee of the names of the members of the Committee and of any changes in
membership that may take place from time to time. The Committee, or its agent or
designee, shall direct the Trustee in writing to make payments from the Trust
Fund to Participants who qualify for such payments under the terms of the Plan.
Such written order (which may be conveyed by facsimile) to the Trustee shall
specify the name of the Participant,
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<PAGE>
his Social Security number, his address, and the amount and frequency of such
payments. The Trustee may request instructions in writing from the Committee, or
its agent or designee, on other matters and may rely and act thereon. The
Committee may further delegate its authority hereunder to direct the Trustee,
and if it does so shall notify the Trustee in writing of that delegation. The
Committee shall be responsible for the determination of individual accounts, and
the Trustee need not segregate accounts among Participants for investment
purposes, except as indicated in the Plans.
1.7 Defined Terms. All defined words and phrases in Article 1 of the
-------------
VRSP, when used in this Trust Agreement, shall have the same meaning as given in
Article 1 of the VRSP, unless a different meaning is clearly required by the
context.
ARTICLE 2--PARTICIPATING PLANS
-------------------
2.1 Participating Plans. Vencor may direct that plans other than VRSP and
-------------------
RSP participate in the Trust provided that any such other plan:
(a) is created or organized in the United States as a pension or
profit sharing plan established by Vencor, or an affiliate of
Vencor, for the exclusive benefit of employees and their
beneficiaries;
(b) is qualified under Code section 401(a); and
(c) adopts this Trust as a trust for purposes of the plan.
A participating Plan may continue to participate so long as it satisfies the
foregoing conditions. It shall be the duty of Vencor to notify the Trustee if
such conditions cease to be satisfied with respect to any participating Plan,
and in the absence of such notification, the Trustee shall be entitled to assume
that a participating Plan continues to satisfy such conditions.
2.2 Interest of Plan In Trust Fund. Vencor may specify that all or a part
------------------------------
of a Plan's interest in the Trust Fund be held in a segregated account for that
Plan and invested separately from the remainder of the Trust Fund. In such
event, assets of such segregated account shall be held and administered solely
for that Plan. Except in cases of such segregation, no participating Plan shall
have any right, title or interest in or to any specific asset of the Trust Fund,
but shall have an undivided beneficial interest in the assets of the Trust Fund
not so segregated.
2.3 Withdrawal on Disqualification. Upon receipt of notice from Vencor of
------------------------------
the disqualification under Code Section 401(a) of any participating Plan, the
Trustee shall determine the value of the interest of such Plan in the Trust Fund
and withdraw and segregate the interest of such Plan. The Trustee shall
continue to hold the interest of a disqualified Plan as a separate trust,
governed by the provisions of this Trust Agreement, until directed by Vencor to
transfer such segregated interest pursuant to Section 2.4.
3
<PAGE>
2.4 Transfer to Alternate Funding Agency. Vencor, by written direction
------------------------------------
delivered to the Trustee, may direct the withdrawal and transfer of assets
constituting all or a part of the interest of a participating Plan in the Trust
Fund to a successor funding agency, which may be the Trustee acting under a
separate trust agreement. The Trustee shall make the transfer as soon as
practicable, either in cash, or in the discretion of the Trustee, in other
property or partly in cash and partly in other property.
2.5 Merger or Split-up of Plans. If two or more Plans are merged into a
---------------------------
single Plan, or if a Plan is divided into two or more Plans, the resulting Plan
or Plans shall continue to participate in this Trust unless Vencor directs the
Trustee to make a transfer of assets with respect to such Plan or Plans to an
alternate funding agency pursuant to Section. 2.4. The Trustee shall make such
adjustments of the accounts maintained for each Plan under Section. 3.3 as are
appropriate to reflect any such merger or split-up of Plans.
ARTICLE 3--TRUST FUND
----------
3.1 Composition. All assets of the trust for the Plan(s) named in the
-----------
recitals to this Trust Agreement, all other sums of money, securities and other
property acceptable to the Trustee and received by it to be held in trust
hereunder, as evidenced by its receipts, from whatever source received, together
with all investments made therewith, the proceeds thereof, and all earnings and
accumulations thereon, and the part thereof from time to time remaining, shall
be held and administered by the Trustee, in trust, in a fund referred to herein
as the "Trust Fund," in accordance with the terms and provisions hereof. The
Trust Fund shall be held, administered, and disbursed by the Trustee without
distinction between principal and income.
3.2 Contributions. The Trustee shall have no duty to require any
-------------
contributions to be made to it, to determine that the contributions received by
it comply with the provisions of the Plans or with any applicable resolution of
the board of directors of any Participating Employer providing therefor, or to
collect any contributions payable to it pursuant to the Plans. The
responsibility of the Trustee shall be limited to the sums of money, securities,
and other property actually received by it.
3.3 Separate Accounting For Each Plan. The Trustee need not maintain
---------------------------------
separate accounts to reflect the interest of each Plan participating in the
Trust Fund.
3.4 Exclusive Benefit of Participants and Beneficiaries. The Trust Fund
---------------------------------------------------
shall be used for the exclusive benefit of the Participants and their
beneficiaries covered by the participating Plans. No assets of any
participating Plan shall be available to pay benefits to participants and their
beneficiaries of any other participating Plan. Nothing herein, however, shall
be construed to prevent any right of return or refund of assets of the Trust
Fund to an employer as authorized under any participating Plan or to restrict
the use of such assets for the payment of taxes,
4
<PAGE>
expenses of administration or other charges properly assessed against the Trust
Fund under any participating Plan or pursuant to this Trust Agreement.
ARTICLE 4--TRUSTEE
-------
4.1 General Responsibility. The general responsibilities of the Trustee
----------------------
shall be as follows:
(a) The Trustee shall hold, administer, invest and reinvest, and
disburse the Trust Fund in accordance with the powers and subject
to the restrictions stated herein.
(b) The Trustee shall disburse monies and other properties from the
Trust Fund on direction of Vencor pursuant to the provisions of
the Plans at the time or times to the payee or payees specified
by Vencor in directions to the Trustee in such form as the
Trustee may reasonably require. The Trustee shall be under no
liability for any distribution made by it pursuant to such
directions and shall be under no duty to make inquiry as to
whether any distribution made by it pursuant to any such
direction is made pursuant to the provisions of the Plans. The
receipt of the payee shall constitute a full acquittance to the
Trustee.
(c) The Trustee shall have the responsibilities, if any, expressly
allocated to it by the Plans. Except as responsibilities may be
expressly so allocated, the Trustee in its capacity as such shall
have no responsibility or authority with respect to the operation
and administration of the Plans, and the rights, powers, and
duties of the Trustee shall be governed solely by the terms of
this Trust Agreement without reference to the provisions of the
Plans.
4.2 Powers of Trustee. The Trustee shall have the right, power, and
-----------------
authority to take any action and to enter into and carry out every agreement
with respect to the Trust Fund that may be necessary or advisable to discharge
its responsibilities hereunder, and without limiting the generality of the
foregoing and in addition to all other powers and authorities herein elsewhere
specifically granted to the Trustee, the Trustee shall have the following powers
and authorities to be exercised in its absolute discretion, except as otherwise
expressly provided herein:
(a) To hold securities and other properties in bearer form or in the
name of a nominee or nominees without disclosing any fiduciary
relationship; provided, however, that on the books and records of
the Trustee such securities and properties shall constantly be
shown to be a part of the Trust Fund, and no such registration or
holding by the Trustee shall relieve it from liability for the
safe custody and proper disposition of such securities and
properties in accordance with the terms and provisions hereof.
5
<PAGE>
(b) To sell, grant options to buy, transfer, assign, convey,
exchange, mortgage, pledge, lease or otherwise dispose of any of
the properties comprising the Trust Fund at such prices and on
such terms and in such manner as it may deem proper, and for
terms within or extending beyond the duration of the Trust.
(c) To manage, administer, operate, lease for any number of years,
regardless of any restrictions on leases made by fiduciaries,
develop, improve, repair, alter, demolish, mortgage, pledge,
grant options with respect to, or otherwise deal with any real
property or interest therein at any time held by it; and to cause
to be formed a corporation or trust to hold title to any such
real property with the aforesaid powers, all upon such terms and
conditions as may be deemed advisable.
(d) To renew or extend or participate in the renewal or extension of
any note, bond or other evidence of indebtedness, or any other
contract or lease, or to exchange the same, or to agree to a
reduction in the rate of interest or rent thereon or to any other
modification or change in the terms thereof, or of the security
therefor, or any guaranty thereof, in any manner and to any
extent that it may deem advisable in its absolute discretion; to
waive any default, whether in the performance of any covenant or
condition of any such note, bond or other evidence of
indebtedness, or any other contract or lease, or of the security
therefor, and to carry the same past due or to enforce any such
default as it may in its absolute discretion deem advisable; to
exercise and enforce any and all rights to foreclose, to bid in
property on foreclosure; to exercise and enforce in any action,
suit, or proceeding at law or in equity any rights or remedies in
respect to any such note, bond or other evidence of indebtedness,
or any other contract or lease, or the security therefor; to pay,
compromise, and discharge with the funds of the Trust Fund any
and all liens, charges, or encumbrances upon the same, in its
absolute discretion, and to make, execute, and deliver any and
all instruments, contracts, or agreements necessary or proper for
the accomplishment of any of the foregoing powers.
(e) To use the assets of the Trust Fund, whether principal or income,
for the purpose of improving, maintaining, or protecting property
acquired by the Trust Fund, and to pay, compromise, and discharge
with the assets of the Trust Fund any and all liens, charges, or
encumbrances at any time upon the same.
(f) To hold uninvested such cash funds as may appear reasonably
necessary to meet the anticipated cash requirements of the
Plan(s) from time to time and to deposit the same or any part
thereof, either separately or together
6
<PAGE>
with other trust funds under the control of the Trustee, in its
own deposit department or to deposit the same in its name as
Trustee in such other depositories as it may select.
(g) To receive, collect, and give receipts for every item of income
or principal of the Trust Fund.
(h) To institute, prosecute, maintain, or defend any proceeding at
law or in equity concerning the Trust Fund or the assets thereof,
at the sole cost and expense of the Trust Fund, and to
compromise, settle, and adjust any claims and liabilities
asserted against or in favor of the Trust Fund or of the Trustee;
but the Trustee shall be under no duty or obligation to
institute, maintain, or defend any action, suit, or other legal
proceeding unless it shall have been indemnified to its
satisfaction against any and all loss, cost, expense, and
liability it may sustain or anticipate by reason thereof.
(i) To vote all stocks and to exercise all rights incident to the
ownership of stocks, bonds, or other securities or properties
held in the Trust Fund and to issue proxies to vote such stocks;
to enter into voting trusts for such period and upon such terms
as it may determine; to give general or special proxies or powers
of attorney, with or without substitution; to sell or exercise
any and all subscription rights and conversion privileges; to
sell or retain any and all stock dividends; to oppose, consent
to, or join in any plan of reorganization, readjustment, merger,
or consolidation in respect to any corporation whose stocks,
bonds, or other securities are a part of the Trust Fund,
including becoming a member of any stockholders' or bondholders'
committee; to accept and hold any new securities issued pursuant
to any plan of reorganization, readjustment, merger,
consolidation, or liquidation; to pay any assessments on stocks
or securities or to relinquish the same; and to otherwise
exercise any and all rights and powers to deal in and with the
securities and properties held in the Trust Fund in the same
manner and to the same extent as any individual owner and holder
thereof might do.
(j) To make application for any contract issued by an insurance
company to be purchased under a Plan, to accept and hold any such
contract, and to assign and deliver any such contract.
(k) To employ such agents, experts, counsel, and other persons (any
of whom may also be employed by or represent the Participating
Employers) deemed by the Trustee to be necessary or proper for
the administration of the Trust; to rely and act on information
and advice furnished by such agents, experts, counsel, and other
persons; and to pay their reasonable
7
<PAGE>
expenses and compensation for services to the Trust from the
Trust Fund. Notwithstanding the foregoing, no person so serving
may receive compensation from the Trust Fund for fiduciary
services if such person, natural or otherwise, is affiliated with
Vencor, and no person so serving who already receives full-time
pay from any Participating Employer shall receive compensation
from the Trust Fund, except for reimbursement of expenses
properly and actually incurred.
(l) To pay out of the Trust Fund all real and personal property
taxes, income taxes, and other taxes of any and all kinds levied
or assessed under existing or future laws against the Trust Fund,
without any approval or direction of Vencor.
(m) To pay any estate, inheritance, income, or other tax, charge, or
assessment attributable to any benefit which, in the Trustee 's
opinion, it shall be or may be required to pay out of such
benefit; and to require, before making any payment, such release
or other document from any taxing authority and such indemnity
from the intended payee as the Trustee shall deem necessary for
its protection.
(n) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make
payment or delivery thereof until final adjudication is made by a
court of competent jurisdiction.
(o) To provide ancillary services to the Trust for not more than
reasonable compensation.
(p) To serve not only as Trustee but also in any other fiduciary
capacity with respect to the Plans pursuant to such agreements or
practices as the Trustee considers necessary or appropriate under
the circumstances.
(q) To participate in and use the Federal Book-entry Account System
(a service provided by the Federal Reserve Bank for its member
banks for deposit of Treasury securities), or to use the
Depository Trust Company, Midwest Trust Company or other
generally accepted central depositories.
(r) To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
granted to the Trustee.
8
<PAGE>
(s) To bring action before any court of competent jurisdiction for
instructions with respect to any matter pertaining to the
interpretation of this Trust Agreement or the administration of
the Trust Fund.
4.3 Compensation and Expenses. The Trustee shall be entitled to receive
-------------------------
such reasonable compensation for its services as Trustee or in any other
capacity in connection with the Plans as may be agreed upon with Vencor. Its
initial fees shall be as set forth on Annex A hereto, which fees may not
increase prior to January 31, 2003. Except for the restriction on changes in
the preceding sentence, the Trustee's fees may be amended at any time by 60 days
advance written notice from the Trustee to the Committee, provided that, if the
Committee objects in writing to the change within that 60 days period, the fees
may not change as so noted, although the Trustee reserves the right to resign if
no change is agreed upon. Such fees shall be deducted by the Trustee from the
earnings or corpus of the Trust Fund, unless first paid by the Employer, with
the exception of any expenses which are specifically indicated on Annex A as
requiring Employer direction before payment from the Trust. The Trustee shall
be entitled to reimbursement for all reasonable and necessary costs, expenses,
and disbursements incurred by it in the performance of such services, including
costs, expenses and disbursements relating to representation of the Trust Fund's
interests in Vencor's bankruptcy proceedings. All necessary expenses that may
arise in connection with the administration of the Plans and Trust will be paid
from the Trust, unless otherwise paid by the Employer.
4.4 Records and Accountings. The Trustee shall keep accurate and detailed
-----------------------
records and accounts of all investments, receipts, and disbursements, and other
transactions hereunder, and all records, books, and accounts relating thereto
shall be open to inspection by any person designated by Vencor at all reasonable
times. Within 30 days following the close of each calendar month, quarter and
year, the Trustee shall file with the Employer a written report setting forth
all investments, receipts and disbursements and other transactions during such
period. Such reports shall contain an exact description of all securities
purchased, exchanged or sold, the cost or net proceeds of sale, and shall show
the securities and investments held at the end of such period, and the cost of
each item, as carried on the books of the Trustee. The accounting shall also
furnish Vencor such other information as the Trustee may possess and as may be
necessary for them to comply with the reporting requirements of the Plan. If
the fair market value of an asset in the Trust Fund is not available, when
necessary for accounting or reporting purposes the fair value of the asset shall
be determined in good faith by the Trustee, assuming an orderly liquidation at
the time of such determination. If there is a disagreement between the Trustee
and anyone as to any act or transaction reported in an accounting, the Trustee
shall have the right to have its account settled by a court of competent
jurisdiction. The Trustee shall make such other reports as may be agreed upon
with Vencor.
4.5 Record Retention. The Trustee shall retain its records relating to
----------------
the Trust as long as necessary for the proper administration thereof and at
least for any period required by the Plan or other applicable law.
9
<PAGE>
ARTICLE 5--INVESTMENTS
-----------
5.1 General. Except as otherwise expressly provided herein, the Trustee
-------
shall invest and reinvest the Trust Fund in such securities or other property
consistent with the investment objectives set forth in the Plans or by the
Committee from time to time, and without limiting the generality of the
foregoing, shall also be subject to the following:
(a) Investments shall be as consistent as reasonably possible with
any funding policy communicated to the Trustee in writing by
Vencor pursuant to the Plan(s). The Trustee may rely on the
latest such communication received by it without further inquiry
or verification.
(b) The Trustee may invest and reinvest principal and income of the
Trust Fund in common, preferred, and other stocks of any
corporation; voting trust certificates; interests in investment
trusts, including, without limiting the generality thereof,
participations issued by an investment company as defined in the
Investment Company Act of 1940, as from time to time amended;
bonds, notes, and debentures, secured or unsecured; mortgages on
real or personal property; conditional sales contracts; real
estate and leases; and limited partnerships.
(c) The Trustee shall have full power and authority to invest money
or assets of this trust in any collective investment fund of a
bank or trust company consisting of assets of employee benefit
trusts and qualifying as a group trust under Section 401 of the
Code. The governing document of any such fund in which assets of
this trust are invested is hereby incorporated and made a part
hereof as if fully set forth at length herein. Assets of this
trust invested in such fund shall be held and administered by the
trustee of the fund in accordance with the terms of and under the
powers granted in said governing document.
(d) The Trustee may invest and reinvest the principal and income of
the Trust Fund by investing in an annuity contract or contracts
(including any agreement or agreements supplemental thereto)
issued by an insurance company.
(e) The Trust is currently invested in the common stock of Vencor and
Ventas, Inc. (which was acquired by the Trust Fund upon a
spinnoff from Vencor) (together, "Company Stock") although future
investments in Company Stock ceased prior to the effective date
of this Agreement, in the case of Ventas, Inc. because it was no
longer affiliated with Vencor, and, in the case of Vencor stock,
due to the loss of market liquidity and declining value of the
stock.
10
<PAGE>
(f) If Company Stock is directed by a Participant to be sold as
allowed by the Plan, and if there is no generally recognized
market for such securities, the sale shall be for not less than
fair market value, as determined in good faith by the Trustee.
In no event may a commission be charged to the Trust Fund for the
private purchase or sale of Company Stock.
(g) The Trustee may invest and reinvest principal and income of the
Trust Fund in deposits (including savings accounts, savings
certificates, and similar interest-bearing instruments or
accounts) in itself or its affiliates, provided such deposits
bear a reasonable rate of interest.
(h) The Trustee may lend any securities or security from time to time
constituting a part of the Trust Fund in exchange for such
consideration and upon such terms and conditions as the Trustee
deems appropriate. In any such transaction the Trustee may
transfer legal title to the securities being loaned to the
obligor, and may permit the obligor to return to the Trust Fund
securities that are identical (but not necessarily evidenced by
the same certificates) to those transferred to it by the Trustee
hereunder.
(i) The Trustee may transfer, at any time and from time to time, all
or any part of the funds of the Trust to any trust which is
qualified under section 401(a) and exempt under section 501(a) of
the Internal Revenue Code and is maintained as a medium for the
pooling of a portion of the funds of pension and profit sharing
trusts for diversifying investments, and may execute such
documents and other instruments as may be necessary in connection
therewith. The terms and provisions of any such trust shall,
upon such transfer and execution, be incorporated by reference
into this Trust Agreement to the extent of the assets so
transferred.
5.2 Appointment of Investment Adviser as Investment Manager. Vencor may
-------------------------------------------------------
appoint one or more parties that are registered as investment advisers under the
Investment Advisers Act of 1940 to serve as an investment manager as specified
in the Plan. The appointment of any such investment manager and investment of
the Trust Fund pursuant to such appointment shall be subject to the following,
notwithstanding any provisions hereof to the contrary:
(a) Written notice of each such appointment shall be given to the
Trustee a reasonable time in advance of the effective date of the
appointment. The notice shall state what portion of the Trust
Fund is to be invested by the investment manager and shall direct
the Trustee to segregate such portion of the Trust Fund into a
separate account for the investment manager. Each such separate
account is referred to in this section as an Investment Account.
11
<PAGE>
(b) The Trustee shall not act on any direction or instruction of the
investment manager until the Trustee has been furnished with an
acknowledgement in writing by the investment manager that it is a
fiduciary with respect to the Investment Account.
(c) There shall be a written agreement between Vencor and each
investment manager. The Trustee shall receive a copy of each
such agreement and all amendments thereto and shall give written
acknowledgement of receipt of same. Each agreement with an
investment manager shall provide that:
(1) All directions given by an investment manager to the Trustee
shall be in writing, signed by an officer or partner of the
investment manager or by such other person as may be
designated in writing by the investment manager; provided
that the Trustee shall accept oral directions for the
purchase or sale of securities, which shall be confirmed by
such authorized personnel of the investment manager in
writing;
(2) All settlements of purchases and sales shall be in the city
where the Trustee is located, or such other place as the
Trustee may direct;
(3) In all events the Trustee is to retain physical custody of
or title to all assets included in an Investment Account;
and
(4) Vencor, by written notice to the investment manager and the
Trustee, may modify or terminate the authority of the
investment manager.
(d) Payment of the cost of the acquisition, sale, or exchange of any
security or other property for an Investment Account shall be
charged to that Investment Account unless the agreement between
Vencor and investment manager provides otherwise.
(e) So long as the appointment of an investment manager is in effect,
the investment manager shall have full power and authority to
direct the Trustee as to, and full responsibility for, investment
of its Investment Account and for the retention and disposition
of any assets in its Investment Account. Subject to any
limitations in the agreement between Vencor and the investment
manager, the investment manager shall have the same investment
discretion as is accorded the Trustee under Sec. 5.1. The
Trustee may invest any portion of an Investment Account that
would otherwise be held in cash but has no obligation to do so.
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<PAGE>
(f) Unless the written agreement between Vencor and investment
manager expressly provides to the contrary, the Trustee shall
have the voting power with respect to all stocks and other
securities in the Investment Account.
(g) The Trustee shall make available to an investment manager copies
of or extracts from such portions of its accounts, books, or
records relating to the Investment Account of such investment
manager as the Trustee may deem necessary or appropriate in
connection with the exercise of the investment manager's
function, or as Vencor may direct.
(h) All charges (other than those covered in subsection (d) above)
against each Investment Account shall be made in such proportions
as Vencor may direct from time to time.
(i) If the authority of an investment manager is terminated and a
successor investment manager is not appointed, the assets held in
its Investment Account may or may not continue to be segregated
as the Trustee may determine. Until receipt of written notice of
the termination of the authority of an investment manager, the
Trustee shall be fully protected in assuming the continuing
authority of such investment manager.
(j) Any direction by an investment manager shall be complete as to
the terms with respect thereto, it being intended that the
Trustee shall have no obligation whatsoever to invest or
otherwise manage any asset of an Investment Account.
(k) Vencor agrees to indemnify the Trustee for and to hold it
harmless against any and all liabilities, losses, costs, or
expenses (including legal fees and expenses) of whatsoever kind
and nature which may be imposed on, incurred by, or asserted
against the Trustee at any time by reason of action taken in
accordance with directions of an investment manager or action
omitted because no such directions are given. However, no such
indemnification shall be required in any case in which such
liabilities, losses, costs, or expenses are incurred by the
Trustee because it participated knowingly in, or knowingly
undertook to conceal, an act or omission of an investment
manager, knowing such act or omission was a breach of fiduciary
duty by said investment manager.
5.3 Committee Directed Investment Funds; Participant Directed Accounts.
------------------------------------------------------------------
The Trustee shall be a directed Trustee only, with no discretionary authority or
responsibility, with respect to the assets of the Plans allocated or allocable
to the accounts of the Participants. The Committee, as a named fiduciary, shall
be solely responsible for the investment of the assets of the Plans allocated or
allocable to the accounts of Participants (except as provided more specifically
in
13
<PAGE>
paragraph (i) immediately below or by Section 5.2 of the Trust). Without
limitation, the Committee, as named fiduciary:
(a) shall be responsible for investing such assets, except to the extent
that such investment responsibility is delegated to one or more
investment managers (other than the Trustee) under Section 403(a)(2)
of ERISA;
(b) shall, to the extent that Participants and their Beneficiaries are
given the right to direct the investment of their accounts, be the
fiduciary to whom Participants and Beneficiaries are entitled to give
such investment directions and the fiduciary responsible for carrying
out such investment directions (by directing the Trustee or
otherwise);
(c) shall be responsible for any loss, or by reason of any breach, which
results from the Participant's or Beneficiary's exercise of control
over his account, except to the extent that Section 404(c) of ERISA
provides otherwise;
(d) shall be responsible for determining whether the documents and
instruments governing the investment of the assets allocated or
allocable to the accounts are consistent with the provisions of Titles
I and IV of ERISA, and if not, investing such assets in accordance
with Titles I and IV of ERISA notwithstanding such documents and
instruments;
(e) all directions given by the Retirement Committee to the Trustee shall
be in writing, signed by the duly authorized person or persons;
provided that the Trustee shall accept oral directions for the
purchase or sale of securities which shall be confirmed by such
authorized personnel in writing; and
(f) any direction by the Retirement Committee shall be complete as to its
terms, it being intended that the Trustee shall have no obligation
whatsoever to invest or otherwise manage any asset of the Trust Fund.
Notwithstanding the above, the Trustee shall be responsible for voting all
securities held by the Trust, including Company Stock, and for making decisions
about tender of Company Stock if a tender offer, reorganization, or other
corporate transaction requires an investment decision, and shall be responsible
for prudently carrying out the investment instructions conveyed to it with care,
skill and diligence normally exercised by prudent persons familiar with like
matters. If a proxy is solicited on mutual fund shares held in the Trust with
regard to an issue that might increase fees within the fund or alter its
investment policy, the Trustee shall promptly notify the Committee in writing,
and shall not vote that proxy unless and until directed by the Committee how to
vote.
14
<PAGE>
ARTICLE 6--CHANGE IN TRUSTEE
-----------------
6.1 Resignation. The Trustee may resign at any time by giving 60 days'
-----------
advance written notice to Vencor.
6.2 Removal. Vencor may remove the Trustee by giving 60 days' advance
-------
written notice to the Trustee.
6.3 Successor. In the event of the resignation or removal of the Trustee,
---------
Vencor shall promptly appoint a successor. If no appointment of a successor is
made by Vencor within a reasonable time after resignation or removal of the
Trustee, any court of competent jurisdiction may appoint a successor, after such
notice, if any, solely to Vencor and the retiring Trustee, as such court may
deem proper and suitable. The retiring Trustee shall be furnished with written
notice from Vencor or the court, as the case may be, of the appointment of the
successor, and shall also be furnished with written evidence of the successor's
acceptance of the trusteeship. Only then shall the retiring Trustee cease to be
such.
6.4 Duties on Succession. Every successor Trustee accepting a trusteeship
--------------------
under this Trust Agreement shall have all the right, title, powers, duties,
exemptions, and limitations of the predecessor Trustee hereunder. No
predecessor Trustee shall have any right, title, or interest in the Trust Fund
except as hereinafter provided. The Trustee shall, upon the appointment and
acceptance of a successor Trustee, transfer and deliver the assets of the Trust
Fund to the successor, after reserving such reasonable amount as it shall deem
necessary to provide for its fees and expenses and any sums chargeable against
the Trust Fund for which it may be liable. Any predecessor Trustee shall do all
acts necessary to vest title of record in the successor Trustee. If any assets
in the Trust Fund have been invested in a common or collective trust fund, the
predecessor shall cause such investment to be liquidated at the earliest
practical time after notice has been given or received by the predecessor of the
resignation or removal. No person becoming a Trustee hereunder shall be in any
way liable or responsible for anything done or omitted to be done by any Trustee
prior to such person's acceptance of the trusteeship, nor shall such person have
any duty to examine the administration of the Trust prior to such acceptance.
6.5 Changes in Organization of Trustee. If any Trustee acting hereunder
----------------------------------
is merged with another corporation or association, or is succeeded by another
corporation or association, through consolidation or otherwise, the acquiring
corporation or association shall thereupon become Trustee hereunder. When
authorized by statute or court order any Trustee acting hereunder may permit
itself to be succeeded as such Trustee by another corporation or association in
which case the acquiring corporation or association shall thereupon become
Trustee hereunder. In each case the acquiring corporation or association shall
be Trustee of the Trust as though specifically so named herein. Notwithstanding
the foregoing provisions of this section, an acquiring corporation or
association shall become Trustee hereunder only if it has trust powers and is
formed under the laws of the United States of America or any subdivision
thereof.
15
<PAGE>
ARTICLE 7--MISCELLANEOUS
-------------
7.1 Benefits May Not Be Assigned or Alienated. None of the benefits under
-----------------------------------------
the Plans are subject to the claims of creditors of Participants, Former
Participants or their Beneficiaries and will not be subject to attachment,
garnishment or any other legal process. Neither a Participant, a Former
Participant, a Beneficiary, a contingent Beneficiary, nor a spouse may assign,
sell borrow on or otherwise encumber any of his beneficial interest in this
Trust nor shall any such benefits be in any manner liable for or subject to the
deeds, contracts, liabilities, engagements, or torts of any Participant,
terminated Participant, Beneficiary, contingent Beneficiary or spouse. The
preceding sentences shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined by the Committee to be
a qualified domestic relations order, as defined in Section 414(p) of the Code.
7.2 Evidence. Evidence required of anyone under this Trust Agreement may
--------
be by certificate, affidavit, document, or other instrument which the person
acting in reliance thereon considers to be pertinent and reliable, and to be
signed, made, or presented by the proper party.
7.3 Dealings of Others With Trustee. No person (corporate or individual)
-------------------------------
dealing with the Trustee shall be required to see to the application of any
money paid or property delivered to the Trustee or to determine whether the
Trustee is acting pursuant to any authority granted to it under this Trust
Agreement.
7.4 Audits. Vencor shall have the right to cause the books, records, and
------
accounts of the Trustee that relate to the Trust to be examined and audited by
independent auditors designated by Vencor at such times as Vencor may determine,
and the Trustee shall make such books, records, and accounts available for such
purposes at all reasonable times.
7.5 Trustee Warranty Against Conviction. A person accepting trusteeship
------------------------------------
hereunder warrants that such person has not been convicted of or imprisoned for
a crime preventing such person from serving as Trustee hereunder.
7.6 Successor Employers. The provisions of this Trust Agreement shall be
-------------------
binding on each Participating Employer and its successors. If a successor to a
Participating Employer or a purchaser of all or substantially all of its assets
elects to continue the Trust, such successor or purchaser shall be substituted
for the Participating Employer under this Trust Agreement.
7.7 Waiver of Notice. Any notice required under this Trust Agreement may
----------------
be waived by the person entitled thereto.
7.8 Headings. Headings at the beginning of articles and sections are for
--------
convenience of reference, shall not be considered a part of this Trust
Agreement, and shall not influence its construction.
16
<PAGE>
7.9 Use of Compounds of Word "Here". Use of the words "hereof",
-------------------------------
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Trust Agreement unless the context clearly indicates
otherwise.
7.10 Construed as a Whole. The provisions of this Trust Agreement shall
--------------------
be construed as a whole in such manner as to carry out the provisions thereof
and shall not be construed separately without relation to the context.
7.11 Counterparts. This Trust Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original. Such counterparts
shall constitute but one and the same instrument, which may be sufficiently
evidenced by any one counterpart.
7.12 Law Controlling. This Trust Agreement is made in contemplation of
---------------
the laws of the State of Minnesota and shall be construed in accordance with
the laws thereof, except where such laws are superseded by Act or the Code, in
which case such Act or law shall control.
ARTICLE 8--AMENDMENT AND TERMINATION
-------------------------
8.1 No Diversion. The Trust Fund shall be for the exclusive purpose of
------------
providing benefits to participants under the Plans and their beneficiaries and
defraying reasonable expenses of administering the Plans. Such expenses may
include premiums for the bonding of Plan officials required by the Plan document
or applicable law. No part of the corpus or income of the Trust Fund may be
used for, or diverted to, purposes other than for the exclusive benefit of
participants under the Plans or their beneficiaries. Notwithstanding the
foregoing, all contributions made by the Employer are expressly conditioned upon
the initial and continued qualification of the Plans under the Code, and upon
the deductibility of contributions made to the Plans under Section 404 of the
Code. Upon the Employer's request, a contribution which is made by a mistake of
fact, or conditioned upon qualification of the Plans, or any amendment thereof,
or upon the deductibility of contributions, shall be refunded to the Employer
within one year after the payment of the contribution, the denial of the
qualification or the disallowance of the deduction (to the extent disallowed),
whichever is applicable. After the termination of a Plan and the satisfaction of
all liabilities of that Plan to participants and their beneficiaries, any
residual assets remaining in the Trust Fund attributable to that Plan shall be
returned to such Participating Employer or Employers as Vencor may specify. In
the case of any such return of contribution Vencor shall cause such adjustment
to be made to the Accounts of Participants as it considers fair and equitable
under the circumstances resulting in the return of such contribution.
8.2 Amendment. Subject to the provisions of Section 8.1 hereof, this
---------
Trust Agreement may be amended at any time or from time to time and in any
manner by written agreement of the Trustee and Vencor, and the provisions of any
such amendment may be made applicable to the Trust Fund as constituted at the
time of the amendment as well as to the part of the Trust Fund subsequently
acquired. No amendment or modification shall operate to deprive any
Participant, Former Participant, Beneficiary, contingent Beneficiary, or spouse
of any vested rights or benefits accrued to him prior to such amendment or
modification, nor shall any amendment or
17
<PAGE>
modification cause or authorize any part of the funds of the Trust to revert to
or be refunded to the Employer, except as indicated in the Plans. Moreover, no
amendment to the Plans or Trust shall decrease the balance of a Participant's
Individual Account or eliminate an optional form of benefit, except as allowed
by ERISA or the Code.
8.3 Termination of Plan. If all the Plans are terminated, this Trust
-------------------
shall nevertheless continue in effect until the Trust Fund has been distributed
in accordance with the provisions of the Plans pursuant to directions under
Section 4.1(c) hereof.
8.4 Transfer to Other Funding Agency. If pursuant to directions under
--------------------------------
Section 4.1(c) hereof the entire Trust Fund is transferred to a funding agency
for the Plans that is not a trustee, this Trust shall thereupon terminate.
ARTICLE 9--LIABILITY OF TRUSTEE
--------------------
9.1 Factual Matters. The Trustee shall be fully protected in relying upon
---------------
the existence of any fact or state of facts represented to it in writing by the
Employer or the Committee.
9.2 Indemnity. Except with respect to fiduciary responsibility for any
---------
error or loss that may result by reason of the exercise or non-exercise of that
fiduciary responsibility which is allocated to the Trustee hereunder which is
determined to be the result of the Trustee's own negligence or willful
misconduct, the Employer shall indemnify the Trustee, directly from the
Employer's own assets (including the proceeds of any insurance policy the
premiums of which are paid from the Employer's own assets), from and against any
and all claims, demands, losses, damages, expenses (including, by way of
illustration and not limitation, reasonable attorneys' fees and other legal and
litigation costs), judgments and liabilities arising from, out of, or in
connection with the administration of the Plans and Trust. The Trustee shall
not be liable for any action taken by the Trustee or any failure to act by the
Trustee if the action taken or the failure to act was directed by the
Administrator, the Committee, the Company, or an Investment Manager or any other
named fiduciary, if the Trustee reasonably relied on such direction and the
Trustee reasonably believed such direction was consistent with the Act.
9.3 Survival. The indemnity provided by Section 9.2 shall survive the
--------
termination of this Trust Agreement.
9.4 Duty of Care. The Trustee shall discharge its duties hereunder with
------------
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims.
9.5 Benefit Payments. The Trustee shall be under no obligation to
----------------
determine the amount of benefits to which Participants or their beneficiaries
will be entitled or to keep any records of the respective interest of any
individual Participant or beneficiary in the Plans. The Trustee,
18
<PAGE>
upon written instructions from the Committee, shall make payments to the
Participants who qualify for such benefits. The Trustee shall have no liability
to the Employer, Committee, or to any other person in making such payments. The
Trustee shall not be required to determine or make any investigation to
determine the identity or mailing address of any person entitled to benefits and
shall have discharged its obligation in that respect when it shall have sent
checks, securities and other papers by ordinary mail to such person or persons
and addresses as may be certified to it in writing by the Committee.
9.6 No Guarantee. It is recognized that the Trustee does not guarantee
------------
the assets of the Trust from loss or depreciation and shall be liable only for
failure to discharge his duties in accordance with this Trust Agreement.
9.7 Prior Trustee. Trustee shall not be liable, responsible, or required
-------------
to account to Vencor for the acts of Prior Trustee under the Trust, shall be
entitled to indemnity pursurant to Section 9.2 hereof therefor, and shall be
liable under the Trust as provided herein and only with respect to the assets of
the Trust and the accounts and records of the Trust when, and if, delivered to
it. Trustee agrees to discharge all the duties, obligations and responsibilities
imposed on the Trustee in accordance with the terms of the Trust.
IN WITNESS WHEREOF, Vencor and the Trustee have caused this Trust
Agreement to be executed by their duly authorized officers as of the day and
year first above written, to be effective on the Effective Date.
NORWEST BANK MINNESOTA, VENCOR, INC.
NATIONAL ASSOCIATION
By:__________________________ By:______________________________
Name:________________________ Name:____________________________
(please print) (please print)
Title:_______________________ Title:___________________________
Date:________________________ Date:____________________________
19
<PAGE>
ANNEX A TO
MASTER TRUST AGREEMENT
Trustee Fee Schedule
--------------------
20
<PAGE>
Exhibit 10.6
VENCOR RETIREMENT SAVINGS PLAN
Amended and Restated Effective
as of
March 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
INTRODUCTION.......................................................... 1
DEFINITIONS........................................................... 2
Section 1.1 Adjustment......................................... 2
Section 1.2 Annual Additions................................... 2
Section 1.3 Beneficiary........................................ 2
Section 1.4 Board.............................................. 2
Section 1.5 Break(s)........................................... 2
Section 1.6 Code............................................... 3
Section 1.7 Committee.......................................... 3
Section 1.8 Company............................................ 3
Section 1.9 Company Stock Fund................................. 3
Section 1.10 Compensation....................................... 3
Section 1.11 Construction....................................... 3
Section 1.12 Defined Benefit Plan............................... 4
Section 1.13 Defined Contribution Plan.......................... 4
Section 1.14 Effective Date..................................... 4
Section 1.15 Employee........................................... 4
Section 1.17 Employer Contributions............................. 5
Section 1.18 Entry Date......................................... 5
Section 1.19 ERISA.............................................. 5
Section 1.20 Fiduciary.......................................... 5
Section 1.21 Former Participant................................. 5
Section 1.22 Highly Compensated Employee........................ 5
Section 1.23 Hour of Service.................................... 6
Section 1.24 Individual Account................................. 8
Section 1.25 Investment Fund.................................... 8
Section 1.26 Key Employee....................................... 8
Section 1.27 Limitation Year.................................... 9
Section 1.28 Matching Contribution Account...................... 9
Section 1.29 Matching Contributions............................. 9
Section 1.30 Non-Highly Compensated Employee.................... 9
Section 1.31 Normal Retirement Date............................. 9
Section 1.32 Participant........................................ 9
Section 1.33 Permissive Aggregation Group....................... 9
Section 1.34 Plan............................................... 9
Section 1.35 Plan Year.......................................... 10
Section 1.36 Prior Plan......................................... 10
Section 1.37 Prior Plan Employer Contribution Account........... 10
Section 1.38 Prior Plan Salary Redirection Account.............. 10
Section 1.39 Profit Sharing Contribution Account................ 10
Section 1.40 Profit Sharing Contributions....................... 10
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 1.41 Required Aggregation Group............................ 10
Section 1.42 Salary Redirection.................................... 10
Section 1.43 Salary Redirection Account............................ 11
Section 1.44 Service............................................... 11
Section 1.45 Top Heavy Plan........................................ 12
Section 1.46 Total and Permanent Disability or Totally and
Permanently Disabled................................. 13
Section 1.47 Trust Agreement....................................... 13
Section 1.48 Trust Fund............................................ 13
Section 1.49 Trustee............................................... 13
Section 1.50 Valuation Date........................................ 13
PARTICIPATION............................................................ 14
Section 2.1 Eligibility Requirements............................... 14
Section 2.2 Plan Binding........................................... 16
Section 2.3 Reemployment and Transfers............................. 16
Section 2.4 Beneficiary Designation................................ 17
Section 2.5 Notification of Individual Account Balance............. 18
CONTRIBUTIONS............................................................ 19
Section 3.1 Salary Redirection..................................... 19
Section 3.2 Matching Contributions................................. 20
Section 3.3 Profit Sharing Contributions........................... 20
Section 3.4 Nondiscrimination Test for Salary Redirection.......... 21
Section 3.5 Nondiscrimination Test for Other Contributions......... 24
Section 3.6 Maximum Individual Deferral............................ 26
Section 3.7 Mistake of Fact........................................ 27
Section 3.8 Qualified Nonelective Contributions.................... 27
Section 3.9 Uniformed Services Employment and Reemployment Rights
Act of 1994 ("USERRA")................................ 27
ALLOCATION TO INDIVIDUAL ACCOUNTS........................................ 29
Section 4.1 Individual Accounts.................................... 29
Section 4.2 Investment of Accounts................................. 29
Section 4.3 Valuation of Accounts.................................. 30
Section 4.4 Trustee and Committee Judgment Controls................ 32
Section 4.5 Maximum Additions...................................... 32
Section 4.6 Corrective Adjustments................................. 32
Section 4.7 Defined Contribution and Defined Benefit Plan Fraction. 33
DISTRIBUTIONS............................................................ 35
Section 5.1 Normal Retirement...................................... 35
Section 5.2 Late Retirement........................................ 35
Section 5.3 Death.................................................. 35
Section 5.4 Disability............................................. 35
Section 5.5 Termination of Employment.............................. 35
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Section 5.6 Commencement of Benefits................................ 38
Section 5.7 Methods of Payment...................................... 39
Section 5.8 Benefits to Minors and Incompetents..................... 40
Section 5.9 Unclaimed Benefits...................................... 41
Section 5.10 Participant Directed Rollovers......................... 42
Section 5.11 Joint and Survivor Options............................. 43
WITHDRAWALS............................................................. 47
Section 6.1 Hardship Withdrawal..................................... 47
Section 6.2 Prior Plan Employer Contribution Account Withdrawals.... 49
Section 6.3 Participant Loans....................................... 49
FUNDING................................................................. 50
Section 7.1 Contributions........................................... 50
Section 7.2 Trustee................................................. 50
FIDUCIARIES............................................................. 51
Section 8.1 General................................................. 51
Section 8.2 Employer................................................ 51
Section 8.3 Trustee................................................. 52
Section 8.4 Retirement Committee.................................... 52
Section 8.5 Claims Procedures....................................... 53
Section 8.6 Records................................................. 55
AMENDMENT AND TERMINATION OF THE PLAN................................... 56
Section 9.1 Amendment of the Plan................................... 56
Section 9.2 Termination of the Plan................................. 56
Section 9.3 Return of Contributions................................. 56
MISCELLANEOUS........................................................... 58
Section 10.1 Governing Law.......................................... 58
Section 10.2 Construction........................................... 58
Section 10.3 Administration Expenses................................ 58
Section 10.4 Participant's Rights................................... 58
Section 10.5 Nonassignability....................................... 58
Section 10.6 Merger, Consolidation or Transfer...................... 59
Section 10.7 Counterparts........................................... 59
Section 10.8 Administrative Mistake................................. 59
TOP HEAVY PLAN PROVISIONS............................................... 61
Section 11.1 General................................................ 61
Section 11.2 Minimum Contribution................................... 61
Section 11.3 Super Top Heavy Plan................................... 61
Section 11.4 Minimum Vesting........................................ 62
Section 11.5 Compensation.......................................... 62
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN.................... 63
Section 12.1 General................................................ 63
Section 12.2 Single Plan............................................ 63
Section 12.3 Sponsoring Employer as Agent........................... 63
Section 12.4 Withdrawal of Employer................................. 64
Section 12.5 Termination of Participation........................... 64
</TABLE>
(iv)
<PAGE>
INTRODUCTION
Effective January 1, 1986, the Board of Directors of Vencor, Inc. (the
"Sponsoring Employer"), formerly Vencare, Inc., adopted the Vencare, Inc.
Retirement Plan, which was later amended and restated effective January 1, 1989
and further amended various times ("Original Plan").
Effective January 1, 1997, the Employer amended and restated the Prior Plan
in its entirety as the Vencor Retirement Savings Plan ("Plan"), as hereinafter
set forth, in order to provide benefits for certain of its eligible employees.
In connection with the spinoff by Vencor, Inc. of Vencor Healthcare, Inc.
(a wholly-owned subsidiary of Vencor, Inc. to which Vencor, Inc. contributed
substantially all of its assets other than real estate holdings) effected by
means of a distribution by Vencor, Inc. as a dividend to the holders of the
issued and outstanding common shares of Vencor, Inc. all of the issued and
outstanding common shares of Vencor Healthcare, Inc. on the basis of one share
of Vencor Healthcare, Inc. common stock for each share of Vencor, Inc. common
stock (the "Distribution"), Vencor Inc. changed its name to Ventas, Inc. and
Vencor Healthcare, Inc. changed its name to Vencor, Inc. and assumed the role of
Sponsoring Employer under the Plan. Effective May 1, 1998, all references to
"Vencor, Inc." and "Sponsoring Employer" refer to Vencor, Inc. (the entity
formerly named Vencor Healthcare, Inc.).
Effective March 1, 2000, the Employer desires to amend and restate the Plan
in its entirety, as herein set forth, in order to provide benefits for certain
of its eligible employees.
It is intended that this Plan, together with the Trust Agreement, meet all
the pertinent requirements of the Internal Revenue Code of 1986, as amended
("Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be interpreted, wherever possible, to comply with the terms
of said laws, as amended, and all regulations and rulings issued thereunder. It
is also intended that this Plan shall be a profit sharing plan under Code
Section 401(a).
1
<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 Adjustment means the net increases and decreases in the market
value of the Trust Fund during a Plan Year or other period
exclusive of any contribution or distribution during such year or
other period. Such increases and decreases shall include such
items as realized or unrealized investment gains and losses and
investment income, and may include expenses of administering the
Trust Fund and the Plan.
Section 1.2 Annual Additions means for any Employee in any Plan Year, the sum
of Employer Contributions, Salary Redirection and forfeitures
allocated to the Employee's Individual Account. Amounts allocated
to an individual medical account, as defined in Section 415(1) of
the Code, which is part of a pension or annuity plan maintained
by the Company are treated as Annual Additions to a Defined
Contribution Plan. Also, amounts derived from contributions paid
or accrued which are attributable to post-retirement medical
benefits allocated to the separate account of a Key Employee as
required by Section 419(d) of the Code, maintained by the
Company, are treated as Annual Additions to a Defined
Contribution Plan.
Section 1.3 Beneficiary means any person designated by a Participant to
receive such benefits as may become payable hereunder after the
death of such Participant, provided, however, that a married
Participant may not name as a Beneficiary someone other than the
Participant's spouse unless the spouse consents in writing to
such designation, which consent shall be acknowledged by a Plan
representative or by a notary public.
Section 1.4 Board means the Board of Directors of the Sponsoring Employer,
except as otherwise provided.
Section 1.5 Break(s) in Service means a Plan Year during which an Employee
has been credited with fewer than 501 Hours of Service due to
termination of employment. Solely to determine whether a Break in
Service has occurred, an Employee who is absent from work for
maternity or paternity reasons or on a military or Family and
Medical Leave Act leave of absence shall receive credit for the
Hours of Service which would otherwise have been credited to such
Employee but for such absence, or in any case in which Hours of
Service cannot be determined, eight Hours of Service per day of
such absence. In no event will the number of Hours of Service
credited to an Employee pursuant to the immediately preceding
sentence exceed 501. For purposes of this Section, an absence
from work for maternity or paternity reasons means an absence (1)
by reason of the pregnancy of the Employee, (2) by reason of the
birth of a child of the Employee, (3) by reason of the placement
of a child with the Employee in connection with the adoption of
2
<PAGE>
such child by the Employee, or (4) for purposes of caring for
such child for a period beginning immediately following such
birth or placement. The Hours of Service credited under this
paragraph shall be credited (1) in the Plan Year or other
applicable computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that
period, or (2) in all other cases, in the next following Plan
Year or other applicable computation period.
Section 1.6 Code means the Internal Revenue Code of 1986, as amended.
Section 1.7 Committee means the Retirement Committee provided for in Article
8.
Section 1.8 Company means Vencor, Inc. and all of the legal entities which
are part of the controlled group or affiliated service group with
Vencor, Inc. pursuant to the provisions of Code Sections 414(b),
(c), (m) or (o).
Section 1.9 Company Stock Fund means the Investment Fund defined in Section
4.2(d).
Section 1.10 Compensation means, for any Plan Year or portion thereof during
which an Employee is eligible to participate in this Plan (which
shall not include compensation payable for periods after
employment terminates, such as severance pay, but shall include
vacation time earned but not yet paid as of that last date at
work), total compensation paid to an Employee by the Employer
that is includable in the Participant's gross income, including
bonuses, commissions and overtime, but excluding (i)
reimbursements or other expense allowances, (ii) fringe benefits
(cash and noncash), (iii) moving expenses, (iv) deferred
compensation, (v) welfare benefits, and (vi) amounts realized
from the exercise of a nonqualified stock option (or the lifting
of restrictions on restricted stock) or the sale or exchange of
stock acquired under a qualified stock option. Despite the
exclusions in the preceding sentence, Compensation shall include
any amounts deducted pursuant to Code Sections 125 (flexible
benefit plans), 402(a)(8) (salary redirection), 402(h)(1)(B)
(simplified employee plans) and 403(b). Effective for Plan Years
beginning on or after January 1, 1989, Compensation shall be
limited to such amount as determined pursuant to Code Section
401(a)(17). For Plan Years beginning on or after January 1, 1994,
Compensation shall be limited to $150,000, or such higher amount
determined by the Commissioner of Internal Revenue pursuant to
Section 401(a)(17) of the Code.
Section 1.11 Construction. The words and phrases defined in this Article when
used in this Plan with an initial capital letter shall have the
meanings specified in this Article, unless a different meaning is
clearly required by the context. Any words herein used in the
masculine shall be read and construed in the feminine where they
would so apply. Words in the singular shall be read and construed
as though used in the plural in all cases where they would so
apply.
3
<PAGE>
Section 1.12 Defined Benefit Plan means a plan established and qualified under
Section 401 of the Code, except to the extent it is, or is
treated as, a Defined Contribution Plan.
Section 1.13 Defined Contribution Plan means a plan which is established and
qualified under Section 401 of the Code, which provides for an
individual account for each participant therein and for benefits
based solely on the amount contributed to each participant's
account and any income, expenses, gains or losses (both realized
and unrealized) which may be allocated to such account.
Section 1.14 Effective Date means January 1, 1986, the original effective date
of the Plan. The effective date of this amended and restated Plan
is March 1, 2000, except as otherwise provided.
Section 1.15 Employee means any person whom the Employer classifies as a
common law employee of the Employer and who is paid though the
normal payroll system of the Employer, subject to the following:
(a) The term "Employee" shall exclude any person who is a leased
Employee.
(b) The term "Employee" shall exclude any employee who is a part
of a collective bargaining unit for which benefits have been
subject of good faith negotiation unless and until the
Employer and the collective bargaining unit representative
for that unit through the process of good faith bargaining
agree in writing for coverage hereunder.
(c) The term "Employee" shall exclude any employee who is
classified on the payroll records of the Employer as "on
call" or as a per diem employee.
(d) The term "Employee" shall exclude any employee, even if a
common law employee of the Company or an Employer, who works
in a facility which is owned by a partnership, or a facility
that is managed by the Company pursuant to a management
agreement, unless that management agreement provides that
certain employees, such as the facility administrator and
director of nursing, are to be employed by and report to the
Employer, in which case only those employees shall be
eligible Employees hereunder.
For purposes of this Section the term "leased employee" shall
mean any person who is not an employee of the Company and who
provides services to the Employer if (i) such services are
provided pursuant to an agreement between the Employer and any
other person ("leasing organization"); (ii) such person has
performed such services for the Company on a substantially full-
time basis for a
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period of at least one year; and (iii) such services are
performed under the primary direction and control of the Company.
Section 1.16 Employer means (i) Vencor, Inc. (provided that effective May 1,
1998, Employer means the Vencor, Inc. that was formerly known as
Vencor Healthcare, Inc.); and (ii) any entity which becomes part
of the Company after January 1, 1997 that becomes a participating
employer in accordance with the procedure in Article 12; and
(iii) each of the legal entities, or any successor thereto, which
were part of the Company as of January 1, 1997 and which have not
yet ceased participation in accordance with Article 12, with the
exception of the following entity which was part of the Company
on that date but which is instead a participating employer in the
Retirement Savings Plan for Certain Employees of Vencor and its
Affiliates (RSP), also maintained by the Company: San Marcos
Nursing Home Partnership.
Section 1.17 Employer Contributions means Matching Contributions and Profit
Sharing Contributions made to the Trust Fund by the Employer.
Salary Redirection shall not be included in the term Employer
Contribution when used in this Plan.
Section 1.18 Entry Date means the first day of each calendar month.
Section 1.19 ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
Section 1.20 Fiduciary means the Employer, the Trustee, the Committee and any
individual, corporation, firm or other entity which assumes, in
accordance with Article 8, responsibilities of the Employer, the
Trustee or the Committee respecting management of the Plan or the
disposition of its assets.
Section 1.21 Former Participant means a Participant whose participation in the
Plan has terminated but who has not received payment in full of
the balance in his Individual Account to which he is entitled.
Section 1.22 Highly Compensated Employee means any Employee of the Employer
who (i) was a five percent owner of the Company during the
current Plan Year or the preceding Plan Year, or (ii) during the
preceding Plan Year, received Compensation from the Company in
excess of $80,000 (as such amount may be adjusted from time to
time by the Secretary of the Treasury) and, if the Sponsoring
Employer elects, was in the top-paid group of employees for such
Plan Year.
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
employees in the top-paid group and the Compensation that is
considered, shall be made in accordance with section 414(q) of
the Code and the regulations thereunder, taking into account,
when
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appropriate, Code Section 410(b)(6)(C)'s acquisition transition
rule which allows exclusion of certain Employees from
consideration.. The determination of Highly Compensated Employees
shall be determined on a Company-wide basis and shall not be
determined on an Employer by Employer or plan by plan basis.
Section 1.23 Hour of Service means any hour for which an Employee is paid or
entitled to payment by the Company during the Plan Year or other
applicable computation period (1) for the performance of duties
for the Company; (2) on account of a period of time during which
no duties are performed (irrespective of whether the employment
relationship has terminated); and (3) as a result of a back pay
award which has been agreed to or made by the Company,
irrespective of mitigation of damages, to the extent that such
hour has not been previously credited under item (1) or item (2)
preceding.
(a) The number of Hours of Service to be credited on account of
a period of time during which no duties are performed
(including hours resulting form a back pay award) shall be
determined as follows. If the payment which is made or due
is calculated on the basis of units of time, the number of
Hours of Service to be credited shall be the number of
regularly scheduled working hours included in the units of
time on the basis of which the payment is calculated; if an
Employee does not have a regular work schedule, the number
of Hours of Service to be credited shall be calculated on
the basis of an eight hour work day. If the payment which is
made or due is not calculated on the basis of units of time,
the number of Hours of Service to be credited shall be
calculated by dividing the amount of the payment by the
Employee's most recent hourly rate of compensation before
the period during which no duties were performed, determined
as follows:
(1) If the Employee's compensation is determined on the
basis of an hourly rate, such hourly rate shall be the
Employee's most recent hourly rate of compensation.
(2) If the Employee's compensation is determined on the
basis of a fixed rate for a specified period of time
other than hours, his hourly rate of compensation shall
be his most recent rate of compensation for the
specified period of time, divided by the number of
hours regularly scheduled for the performance of duties
during such period of time; if an Employee does not
have a regular work schedule, his hourly rate of
compensation shall be calculated on the basis of an
eight hour work day.
(3) If the Employee's compensation is not determined on the
basis of a fixed rate for a specified period of time,
his hourly rate of compensation shall be the lowest
hourly rate of compensation paid
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to Employees in his job classification, or, if no
Employees in his job classification have an hourly rate
of compensation, the minimum wage in effect under
Section 6(a)(1) of the Fair Labor Standard Act of 1938,
as amended.
(b) In no event shall the application of the terms of Section
1.23(a) result in crediting an Employee with a number of
Hours of Service during the period which is greater than the
number of hours regularly scheduled for the performance of
duties. If an Employee has no regular work schedule, the
number of Hours of Service to be credited to him shall not
exceed the number which would be credited calculated on the
basis of an eight hour work day.
(c) No Employee shall be credited with more than 501 Hours of
Service as a result of the application of Section 1.23(a)
for any single continuous period during which he performs no
duties, regardless of whether such period extends beyond one
Plan Year or other applicable computation period.
(d) The Plan Year or other applicable computation period to
which Hours of Service shall be credited shall be determined
as follows:
(1) Except as hereinafter provided, Hours of Service
credited in accordance with item (1) of the first
paragraph of this Section shall be credited in the Plan
Year or other applicable computation period in which
the duties were performed.
(2) Except as hereinafter provided, Hours of Service
credited in accordance with item (2) of the first
paragraph of this Section shall be credited: if
calculated on the basis of units of time, to the Plan
Year or Plan Years or other applicable computation
periods in which the period during which no duties are
performed occurs, beginning with the first unit of time
to which the payment relates; otherwise to the Plan
Year or other applicable computation period in which
the period during which no duties are performed occurs,
provided that if the period during which no duties are
performed extends beyond one (1) Plan Year or other
applicable computation period, such Hours of Service
shall be allocated between not more than the first two
(2) Plan Years or other applicable computation periods
on any reasonable basis consistently applied.
(3) Except as hereinafter provided, Hours of Service
credited in accordance with item (3) of the first
paragraph of this Section shall be credited to the Plan
Year or other applicable computation period to which
the award or agreement for back pay pertains rather
than
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to the Plan Year or other applicable computation period
in which the award, agreement, or payment is made.
(4) Hours of Service to be credited to an Employee in
connection with a period of no more than 31 days which
extends beyond one Plan Year or other applicable
computation period may be credited to the first or the
second Plan Year or other applicable computation
period, provided that such crediting is done on a
reasonable and nondiscriminatory basis.
(e) Nothing in this Section shall be construed to alter, amend,
modify, invalidate, impair or supersede any law of the
United States or any rule or regulation issued under any
such law, including but not limited to laws regarding
eligibility and benefit accrual during and after a military
leave of absence. The nature and extent of any credit for
Hours of Service under this Section shall be determined
under such law including Department of Labor regulation
Section 2530.200b-2.
Section 1.24 Individual Account means the detailed record kept of the amounts
credited or charged to each Participant in accordance with the
terms hereof. Such Individual Account is comprised of the
following accounts: a Profit Sharing Contribution Account, a
Salary Redirection Account, a Matching Contribution Account, a
Prior Plan Salary Redirection Account, if applicable, and a Prior
Plan Employer Contribution Account, if applicable.
Section 1.25 Investment Fund means an investment fund established pursuant to
Section 4.2.
Section 1.26 Key Employee shall mean any Employee, former Employee or
beneficiary thereof in an Internal Revenue Service qualified plan
adopted by the Company who at any time during the Plan Year or
any of the four preceding Plan Years is
(a) an officer of the Company having an annual compensation from
the Company during the Plan Year greater than 50% of the
amount in effect under Code Section 415(b)(1)(A) for the
calendar year in which such Plan Year ends;
(b) one of the 10 Employees having an annual compensation from
the Company for a Plan Year of more than the limitation in
effect under Code Section 415(c)(1)(A) for the calendar year
in which such Plan Year ends and owning (or considered as
owning within the meaning of Code Section 318) both more
than a 1/2% interest, and the largest interest in the
Company;
(c) a five percent owner of the Company; or
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(d) a one percent owner of the Company having an annual
compensation from the Company for a Plan Year of more than
$150,000.
(e) For purposes of this Section, compensation mean compensation
as defined in Code Section 415.
(f) This definition shall be interpreted consistent with Code
Section 415 and rules and regulations issued thereunder.
Further, such law and regulations shall be controlling in
all determinations under this definition, inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.27 Limitation Year means the 12 month period beginning on January 1
and ending on December 31.
Section 1.28 Matching Contribution Account means that portion of a
Participant's Individual Account attributable to (i) Matching
Contributions allocated to such Participant pursuant to Section
3.2 and (ii) the Participant's proportionate share, attributable
to his Matching Contribution Account, of the Adjustments, reduced
by any distributions from such Account.
Section 1.29 Matching Contributions means contributions made to the Trust Fund
by the Employer pursuant to Section 3.2
Section 1.30 Non-Highly Compensated Employee means, for any Plan Year, a
Participant who is not a Highly Compensated Employee.
Section 1.31 Normal Retirement Date means the first day of the month
coincident with or next following the Participant's 65th
birthday. The Normal Retirement Age shall be age 65, except with
respect to any Prior Plan Employer Contribution Account
transferred to this Plan from The Hillhaven Corporation
Retirement or Deferred Savings Plans, for which the Normal
Retirement Age shall be age 60.
Section 1.32 Participant means any Employee who becomes a Participant as
provided in Article 2 hereof.
Section 1.33 Permissive Aggregation Group means the Required Aggregation Group
and each other plan or plans of the Company that are not required
to be included in the Required Aggregation Group, and which, if
treated as being part of such group, would not cause such group
to fail to meet the requirements of Code Sections 401(a) and 410.
Section 1.34 Plan means the Vencor Retirement Savings Plan.
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Section 1.35 Plan Year means the 12 month period beginning on January 1 and
ending on December 31.
Section 1.36 Prior Plan means the plan of any Employer, the assets of which
are merged, in whole or in part, with the Trust Fund.
Section 1.37 Prior Plan Employer Contribution Account means that portion of a
Participant's Individual Account attributable to (i) any employer
contributions and accumulated earnings allocated to such
Participant under the terms of a plan which has been merged into
this Plan, and (ii) the Participant's proportionate share
attributable to his Prior Plan Employer Contribution Account, of
the Adjustments, reduced by any distributions from such Account.
Section 1.38 Prior Plan Salary Redirection Account means that portion of a
Participant's Individual Account attributable to (i) any pretax
deferrals and accumulated earnings allocated to such Participant
under the terms of a plan which has been merged into this Plan
and (ii) the Participant's proportionate share attributable to
his Prior Plan Salary Redirection Account, of the Adjustments,
reduced by any distributions from such Account.
Section 1.39 Profit Sharing Contribution Account means that portion of a
Participant's Individual Account attributable to (i) Profit
Sharing Contributions allocated to such Participant pursuant to
Section 3.3, and (ii) the Participant's proportionate share
attributable to his Profit Sharing Contribution Account, of the
Adjustments, reduced by any distributions from such account.
Section 1.40 Profit Sharing Contributions mean contributions made to the Trust
Fund by the Employer pursuant to Section 3.3.
Section 1.41 Required Aggregation Group means
(1) each plan of the Company in which a Key Employee is a
participant; and
(2) each other plan of the Company which enables any plan in
subsection (1) to meet the requirements of Code Sections
401(a)(4) or 410, and
(3) each terminated plan maintained by the Company within the
last five years ending on the determination date for the
Plan Year in question and which, but for the fact that it
terminated, would be part of a Required Aggregation Group
for such Plan Year.
Section 1.42 Salary Redirection means contributions made to the Trust Fund by
the Employer pursuant to Section 3.1.
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Section 1.43 Salary Redirection Account means that portion of a Participant's
Individual Account attributable to (i) Salary Redirection amounts
made on his behalf pursuant to Section 3.1, and (ii) the
Participant's proportionate share, attributable to his Salary
Redirection Account, of the Adjustments, reduced by any
distributions or withdrawals from such Account.
Section 1.44 Service means each Plan Year during which a Participant has been
credited with 1000 or more Hours of Service for the Company or
for another employer during a period that employer participates
in the Retirement Savings Plan for Certain Employees of Vencor
and Affiliates or its predecessor plans (whether before or after
participation begins) subject to the following:
(a) Years of Service prior to the date an Employee attains age
18 shall not be taken into account in determining that a
Participant's vesting percentage pursuant to Section 5.5.
(b) Years of Service prior to the January 1, 1986, shall not be
taken into account in determining a Participant's vesting
percentage pursuant to Section 5., except as provided in
Subsections (c) and (g) below.
(c) Service shall include periods of employment with any entity
acquired by the Company or any entity which operates a
facility acquired by the Company, provided that no Employee
shall receive credit for more than seven years of Service as
a result of periods of employment with said entity and
provided that said entity is either listed on Appendix "A"
or maintained a plan that has been merged with this Plan. If
the entity's records are inadequate to determine Hours of
Service for years of employment with the entity, Service
will be credited (subject to the seven year limitation) from
the Employee's most recent date of hire with the acquired
entity, rounded to the nearest whole year.
(d) Years of Service prior to a Break in Service shall not be
taken into account until such time as the Employee has
completed a year of Service after he returns to the employ
of the Company.
(e) If the Employee does not have a nonforfeitable interest in
his Employer-provided benefit, and the Employee incurs
consecutive Breaks in Service, the Employee's Service prior
to the Breaks in Service will be disregarded if the
consecutive Breaks in Service equal or exceed the greater of
(i) five, or (ii) the Employee's Service prior to the Break
in Service.
(f) Years of Service after five or more consecutive Breaks in
Service shall not be taken into account in determining the
vesting percentage of a Participant pursuant to Section 5.5
derived from Employer Contributions
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subject to said vesting schedule made before such five
consecutive Breaks in Service.
(g) Service with a predecessor employer will be credited to an
employee as Service for the Employer as required pursuant to
Code Section 414(a). For purposes of this Subsection, a
predecessor employer is an employer who sponsored a plan
qualified under Code Section 401(a) which is maintained by
the Company.
Section 1.45 Top Heavy Plan means any plan under which, as of any
determination date (the last day of the preceding Plan Year), the
present value of the cumulative accrued benefits under the plan
for Key Employees exceeds 60% of the present value of cumulative
accrued benefits under the Plan for all Employees. For purposes
of this definition the following provisions shall apply:
(a) If such plan is a Defined Contribution Plan, the present
value of cumulative accrued benefits shall be deemed to be
the market value of all Employee accounts under the plan,
other than voluntary deductible Employee contributions. If
such plan is a Defined Benefit Plan, the present value of
cumulative accrued benefits shall be the lump sum present
value determined pursuant to the plan. Moreover, the present
value of the cumulative accrued benefits shall be increased
by the amount of all Plan distributions made with respect to
a current or former employee during the five year period
ending on the determination date, including distributions
under a terminated plan which, if it had not been
terminated, would have been required to be included in a
Required Aggregation Group.
(b) A plan shall be considered to be a Top Heavy Plan for any
Plan Year if, on the last day of the preceding Plan Year,
the above rules were met. For the first Plan Year that the
Plan shall be in effect, the determination of whether the
Plan is a Top Heavy Plan shall be made as of the last day of
such Plan Year.
(c) Each plan of the Company required to be included in a
Required Aggregation Group shall be treated as a Top Heavy
Plan if such group is a top heavy group.
(d) With regard to a Participant or former Participant who (i)
has not performed any service for the Company at any time
during the five year period ending on the determination
date, or (ii) was formerly a Key Employee, but who is not a
Key Employee on the determination date, the present value of
the cumulative Accrued Benefit for such Participant or
former Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top Heavy
Plan.
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(e) This definition shall be interpreted consistent with Code
Section 416 and rules and regulations issued thereunder.
Further, such law and regulation shall be controlling in all
determinations under this definition inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.46 Total and Permanent Disability or Totally and Permanently
Disabled means a physical or mental condition arising after the
original date of employment of the Participant which is expected
to totally and permanently prevent him from substantially
performing his usual duties with the Employer or from performing
like duties for which he is reasonably qualified based upon
education, experience and abilities. The determination by the
Committee as to whether a Participant is totally and permanently
disabled shall be made (i) on medical evidence by a licensed
physician designated by the Committee, (ii) on evidence that the
Participant is eligible for disability benefits under any long-
term disability plan sponsored by the Employer, or (iii) on
evidence that the Participant is eligible for disability benefits
under the Social Security Act in effect at the date of
disability.
Section 1.47 Trust Agreement means the agreement entered into between the
Sponsoring Employer and the Trustee pursuant to Article 7 hereof.
Section 1.48 Trust Fund means the trust fund created in accordance with
Article 7 hereof.
Section 1.49 Trustee means such individual or corporation as shall be
designated in the Trust Agreement to hold in trust any assets of
the plan for the purpose of providing benefits under the Plan,
and shall include any successor trustee designated thereunder.
Section 1.50 Valuation Date means each date on which the U.S. securities
trading markets are open on or after January 1, 1997. As of each
Valuation Date the Trust Fund shall be valued at fair market
value.
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ARTICLE 2
PARTICIPATION
Section 2.1 Eligibility Requirements
(a) Effective January 1, 1997, any Employee who has attained the
age of 21 and has remained an Employee until 12 months
following the first date on which the Employee logged an
Hour of Service, shall be eligible as of that Entry Date,
provided, however, that an Employee who does not meet these
rules shall nonetheless be eligible no later than the Entry
Date coincident with or next following the (1) completion of
1000 Hours of Service in a 12 consecutive month period and
(2) attainment the age of 21. Thereafter, the period shall
be the Plan Year in which occurs the anniversary of the date
the Employee completes his first Hour of Service.
(b) Any employee who was in a class of employees eligible to
participate in The Hillhaven Corporation Retirement Saving
Plan or The Hillhaven Corporation Deferred Saving Plan
("Affiliate Plans") prior to January 1, 1997 shall be
eligible to participate in this Plan on January 1, 1997 if,
at that date, that employee is employed in a capacity
defined as an Employee in this Plan. Any other Employee
hired prior to January 1, 1997 shall become eligible for the
Plan at the next Entry Date coincident with or following the
date they meet the eligibility rule applicable to them at
their hire date under the Affiliate Plan for which they
would have become eligible on their hire date (i.e.
immediately for Deferred Savings Plan participants, and one
year for Retirement Saving Plan participants), except that
the 500 Hour of Service requirement previously applicable
under this Plan, for persons not previously in a class of
employment that would have been eligible to participate in
an Affiliate Plan, shall be waived: those Employees shall be
eligible to participate as of the next Entry Date coincident
with or next following the completion of a six consecutive
month period of employment as an Employee after the
attainment of age 21.
(c) In the case of any person actively employed on January 6,
1990 at Vencor Hospital/Ft. Worth or Mansfield Community
Hospital, said person shall be deemed to have completed his
first Hour of Service on January 1. 1990.
(d) For purposes of this Section, in the event that an employee
of the Company that is not a Participating or Sponsoring
Employer in this Plan, or an employee of any company which
participates in the Retirement Savings Plan for Certain
Vencor Employees and Affiliates ("RSP") also maintained by
the Company, becomes an Employee as defined in Section 1.15
(either because of a change in employment status or adoption
of this
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Plan by the entity by which he is employed), all periods of
service while an employee of the Company or of a company
which participates in the RSP, shall be counted for purposes
of determining eligibility to participate in the Plan. In
all events, this Plan and the RSP shall be construed so
that, at no point in time, does any one Participant have a
right to participate in both this Plan and the RSP.
(e) Notwithstanding the provisions of Section 2.3(d), all Non-
Highly Compensated Employees of Respiratory Care Services,
Inc. ("RCS") as of May 1, 1997 and all Non-Highly
Compensated Employees of PersonaCare, Inc., and all of its
first and second tier subsidiaries ("PersonaCare")as of July
1, 1997, who, in each case is age 21 or older, shall be
eligible to participate in this Plan as of July 1, 1997.
(f) All Highly Compensated Employees of RCS and PersonaCare who
meet the age and service requirements of Section 2.1(a) of
this Plan as of July 1, 1997 (counting service with RCS and
PersonaCare) shall be eligible to participate as of July 1,
1997, or, if later, the Entry Date coinciding with or next
following the date they meet those age and service
requirements.
(g) Any person hired by RCS after April 30, 1997, or by
PersonaCare after June 30, 1997, shall be eligible to
participate in accordance with Section 2.1(a).
(h) Notwithstanding the provisions of Section 2.3(d), all Non-
Highly Compensated Employees of TheraTx, Inc. and all its
subsidiaries, including first and second tier subsidiaries,
other than RCS and PersonaCare (and its subsidiaries),
("TheraTx and its Subsidiaries") who are age 21 or older
shall be eligible to participate in this Plan as of January
1, 1998.
(i) All Highly Compensated Employees of TheraTx and its
Subsidiaries who meet the age and service requirements of
Section 2.1(a) of this Plan as of January 1, 1998 (counting
their service with TheraTx and its Subsidiaries) shall be
eligible to participate as of January 1, 1998, or, if later,
the Entry Date coinciding with or next following the date
they meet those age and service requirements.
(j) Any person hired by TheraTx or its Subsidiaries after
December 31, 1997, shall be eligible to participate in
accordance with Section 2.1(a).
(k) Employees who are members of a collective bargaining unit
shall not be eligible to participate in this Plan unless the
applicable collective bargaining agreement provides
otherwise, and then only with respect to the types of
contributions required by that agreement (i.e., if an
applicable
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collective bargaining agreement provides for participation
only in elective deferrals, the Employees in that unit will
not be (or will cease to be) eligible to share in the
allocation of matching contributions.
Section 2.2 Plan Binding
Upon becoming a Participant, a Participant shall be bound then
and thereafter by the terms of this Plan and the Trust Agreement,
including all amendments to the Plan and the Trust Agreement made
in the manner herein authorized.
Section 2.3 Reemployment and Transfers
Solely for purposes of this Section 2.3, the following rules
shall apply:
(a) Termination of employment shall be deemed to occur when an
Employee has an interruption in continuity of his employment
by the Employer. Such termination may have resulted from
retirement, death, voluntary or involuntary termination of
employment, unauthorized absence, or by failure to return to
active employment with the Employer or to retire by the date
on which an authorized leave of absence expired.
(b) If an Employee who was not eligible to become a Participant
in the Plan during his prior period of employment is
reemployed, he shall be eligible to participate in the Plan
after he has met the requirements of Section 2.1(a),
calculated from his original date of hire, unless he has had
a one-year Break in Service, in which case Service before
such Break in Service shall not be taken into account for
purposes of this Section until the Employee has met the
requirements of Section 2.1(a) calculated from his date of
rehire.
(c) If an Employee who was a Participant in the Plan during his
prior period of employment (or who had met the age and
service requirements of Section 2.1(a) or (b) but did not
remain employed until the applicable Entry Date) is
reemployed, he shall be eligible to again become a
Participant as of the Entry Date first following his date of
rehire.
(d) If an Employee transfers employment from a non-adopting
employer which is a part of the Company or which
participates in the RSP (as defined in Section 2.1(d)) to
the Employer (for purposes of this Section, an "Affiliate"),
the Employee shall become a Participant under this Plan as
of the date of transfer of employment to the Employer,
provided he has been employed by the Affiliate, as of the
date of transfer of employment, for the period required in
Section 2.1(a) or (b), calculated from his original date of
hire with the Affiliate. If the Employee who transfers
employment from an Affiliate to the Employer has not been
employed, as
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of the date of transfer of employment, for the period
required in Section 2.1(a) or (b), he shall become a
Participant under this Plan upon meeting the eligibility
requirements of Section 2.1(a) or (b), counting all past
Service with the Affiliate for that purpose. Notwithstanding
the preceding sentences, if an Employee other than a Highly
Compensated Employee was eligible to participate in TheraTx,
Incorporated 401(k) Plan prior to transferring to the
Employer, the Employee shall be eligible to participate in
this Plan immediately upon such transfer.
(e) The Individual Account in this Plan of an Employee who
transfers to or from an Affiliate shall remain in this Plan
and be eligible for the same Investment Funds as an active
Participant. No distribution shall be made of an Individual
Account (other than on account of hardship or after age 70
1/2) until and unless the former Employee has terminated
service with all Affiliates.
Section 2.4 Beneficiary Designation
Upon commencing participation, each Participant shall designate a
Beneficiary on forms furnished by the Committee. Such Participant
may then from time to time change his Beneficiary designation by
written notice to the Committee and, upon such change, the rights
of all previously designated Beneficiaries to receive any
benefits under this Plan shall cease. A married Participant may
not name as a Beneficiary someone other than the Participant's
spouse unless the spouse consents in writing to such other
designation, which consent shall be acknowledged by a Plan
representative or by a notary public. The consent of the spouse
must be limited to a specific Beneficiary and must be obtained
each time the Beneficiary is changed. If, at the time of a
Participant's death while benefits are still outstanding, his
named Beneficiary does not survive him, the benefits shall be
paid to his named contingent Beneficiary. If a deceased
Participant is not survived by either a named Beneficiary or
contingent Beneficiary (or if no Beneficiary was effectively
named), the benefits shall be paid in a single sum to the person
or in equal parts to the persons in the first of the following
classes of successive preference beneficiaries then surviving:
the Participant's (i) surviving spouse, unless the spouse
disclaims the benefit, (ii) natural and adopted children, (iii)
parents, (iv) brothers and sisters, (v) estate. If the
Beneficiary or contingent Beneficiary is living at the death of
the Participant, but such person dies prior to receiving the
entire death benefit, the remaining portion of such death
benefits shall be paid in a single sum to the estate of such
deceased Beneficiary or contingent Beneficiary.
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Section 2.5 Notification of Individual Account Balance
After the end of each calendar quarter, or more frequently as
determined by the Committee, the Committee shall notify each
Participant of the amount of his share in the Adjustments and
Contributions for the period just completed, and the new balance
of his Individual Account.
18
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ARTICLE 3
CONTRIBUTIONS
Section 3.1 Salary Redirection
Each Participant may elect to have Salary Redirection made on his
behalf by agreeing to salary reduction contributions from cash
wages payable via an identity-secure telephonic enrollment system
(or in writing, if the telephonic system is impracticable)
("IVR"), provided that such enrollment is concluded before 11:59
PM Central Standard Time on the 15th day of the month (the
"enrollment deadline." A new Participant in this Plan who was,
immediately prior to becoming an Employee, a Participant in the
Hillhaven Retirement or Deferred Savings Plans, shall be deemed
to have made a salary reduction agreement for this Plan in the
same amount as was in effect for the other plan, unless and until
the Participant changes his salary reduction agreement by the
IVR, subject to the enrollment deadline.
(a) Salary Redirection each payroll period must equal an whole
percentage from 1% to 16% of a Participant's Compensation.
Salary Redirection shall begin, be increased or revoked
effective with the first pay date after a Participant has
entered into or changed his salary reduction agreement via
IVR. In the event a Participant does not so elect when
initially eligible, he may subsequently elect to have Salary
Redirection made on his behalf at any time effective for the
first pay date after the Participant has entered into a
salary reduction agreement via IVR.
(b) The Employer shall pay to the Trustee any Salary Redirection
made on behalf of any Participant as soon as practicable
following the end of each regular pay period.
(c) The Employer may amend, to the extent it deems appropriate,
a Participant's salary reduction Agreement for any Plan Year
or portion thereof if the Employer determines that such
amendment is necessary to ensure that a Participant's Annual
Additions for any Plan Year might exceed the limitations of
Sections 3.4, 3.5, 3.6 or 4.5 the requirements of Code
Sections 401(k) or (m) or such other requirements prescribed
by law.
(d) In the event the Employer fails to withhold Participant
Salary Redirection Contributions pursuant to a Salary
Redirection election in effect for a Participant for a
payroll period, the Participant shall be considered to have
revoked his Salary Redirection election on the 30th day
after the pay date on which the Salary Redirection election
was first not honored. Such revocation shall not be
considered to be retroactive. The Company shall take such
steps as it deems advisable to correct the failure to
withhold and
19
<PAGE>
make Salary Redirection contributions for a Participant for
the period prior to the effective date of the revocation.
Section 3.2 Matching Contributions
As of the end of each calendar quarter, the Employer may make a
Matching Contribution to the Trust Fund on behalf of eligible
Participants. If Matching Contributions are made prior to the end
of a calendar quarter, they shall nonetheless be left unallocated
until the quarter ends. The Employer shall determine annually the
rate at which the Employer will match net eligible Salary
Redirection of eligible Participants contributed pursuant to
Section 3.1. Net eligible Salary Redirection means Salary
Redirection not to exceed 3% of Compensation, during the period
since the last preceding calendar-quarter end, which Salary
Redirection has not been withdrawn since the preceding calendar-
quarter end. For purposes of calculating net eligible Salary
Redirection, withdrawals shall be deemed to have been made from
the earliest Salary Redirection not yet withdrawn. Any Matching
Contribution shall be allocated to the Matching Contribution
Account of each eligible Participant. For purposes of this
Section, the term "eligible Participant" shall mean a Participant
who is either (i) actively employed by the Company or an employer
which participates in the Retirement Savings Plan for Certain
Employees of Vencor and Affiliates (even if not still an
"Employee") as of the end of each calendar quarter, or (ii) died
since the end of the preceding calendar quarter, or (iii) retired
or became disabled pursuant to Section 5.1, 5.2, or 5.4 since end
of the preceding calendar quarter, or (iv) on a Family and
Medical Leave Act leave of absence at the end of the calendar
quarter.
Section 3.3 Profit Sharing Contributions
As of the last day of each Plan Year, the Employer may make a
Profit Sharing Contribution to the Trust Fund. Any such Profit
Sharing Contribution shall be allocated to the Profit Sharing
Contribution Account of each Participant who (i) has satisfied
the eligibility requirements of Section 2.1 (without regard to
whether the Participant has made an election pursuant to Section
3.1), (ii) is actively employed by the Company on said date and
in a class which is included in the definition of "Employee," and
(iii) has been credited with at least 1000 Hours of Service
during the Plan Year. Any such Profit Sharing Contribution shall
also be allocated to the Profit Sharing Account of each Former
Participant (i) who died since the end of the preceding Plan
Year, or (ii) who retired or became disabled pursuant to Section
5.1, 5.2, or 5.4 since the end of the preceding Plan Year, (iii)
who is on a Family and Medical Leave Act leave of absence on the
last day of the Plan Year. Any such Profit Sharing Contributions
shall be allocated to the Profit Sharing Contribution Accounts of
the Participants described in the two immediately preceding
sentences in the proportion that each such Participant's
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<PAGE>
Compensation during the Plan Year bears to the total Compensation
of all such Participants and Former Participants during such Plan
Year.
Section 3.4 Nondiscrimination Test for Salary Redirection
(a) Periodically as determined by the Committee, the Employer
shall check the actual deferral percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section shall mean all Participants under this Plan who are
eligible to make Salary Redirection contributions during the
Plan Year for which the tests are being made.
(c) The term "actual deferral percentage," means the average of
the percentages (calculated separately for each eligible
Participant) of Salary Redirection and Qualified Nonelective
Contributions on behalf of each eligible Participant divided
by the compensation of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include Compensation is defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any Plan Year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two tests need be satisfied not to
have a reduction in Salary Redirection.
Test I - The actual deferral percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual deferral
percentage for the preceding Plan Year of all
Non-Highly Compensated Employees, multiplied by
1.25.
Test II - The excess of the actual deferral percentage for
the current Plan Year of the group of Highly
Compensate Employees over the actual deferral
percentage for the preceding Plan Year of all
Non-Highly Compensated Employees is not more
than two percentage points, and the actual
deferral percentage for the current Plan Year of
the group of Highly Compensated Employees is not
more than the actual deferral percentage for the
preceding Plan Year of all Non-Highly
Compensated Employees, multiplied by two. If
Test II in Subsection 3.5(e) is used in testing
other
21
<PAGE>
contributions pursuant to that Section, Test II
under this Section shall be limited as provided
for in Code Section 401(m)(9) and the
regulations issued by the Secretary of the
Treasury of notices issued by the Internal
Revenue Service. If a multiple use of Test II
occurs, such multiple use shall be corrected by
reducing either the actual deferral percentage
or actual contribution percentage of the Highly
Compensated Employee in an amount calculated in
the manner provided in Section 3.4(f) or Section
3.5(f).
Notwithstanding the above, the Sponsoring Employer may elect to
perform the tests using the Average Actual Deferral Percentage
for the current Plan Year for Participants who are Non-Highly
Compensated Employees for the current Plan Year rather than using
prior Plan Year data, provided that if such election is made for
the 1998 or a later Plan Year, the test must continue to be
performed based on current Plan Year data until the election is
changed in a manner prescribed by the Secretary of the Treasury.
Unless the Sponsoring Employer elects to use current Plan Year
data, the Participants taken into account in determining the
prior Plan Year's Average Actual Deferral Percentage for Non-
Highly Compensated Employees are those individuals who were Non-
Highly Compensated Employees during the preceding Plan Year,
without regard to the Participants' status during the current
Plan Year (i.e., a Participant who was a Non-Highly Compensated
Employee for the preceding Plan Year is included in the
calculation as a Non-Highly Compensated Employee even if the
Participant is no longer employed by the Employer or has become
a Highly Compensated Employee for the current Plan Year). For
the 1997 Plan Year, the determination of who was a Non-Highly
Compensated Employee for the 1996 Plan Year shall be made using
the definition of Non-Highly Compensated Employee in effect prior
to this restatement.
For purposes of these tests, the actual deferral percentage for
any Participant who is a Highly Compensated Employee for the Plan
Year and who is eligible to have Salary Redirection allocated to
his accounts under two or more arrangements described in Code
Section 401(k) that are maintained by the Company, shall be
determined as if such Salary Redirection were made under a single
arrangement.
(f) If neither Test I nor Test II is initially satisfied for any Plan
Year, the Plan shall nevertheless be deemed to comply with the
requirements of Section 401(k)(3)(A)(ii) of the Code for such
Plan Year if, before the last day of the following Plan Year, the
amount of any excess contribution (and any income thereon) is
distributed to Participants who are Highly
22
<PAGE>
Compensated Employees. The amount to be returned shall be
determined as follows:
(i) Calculate the dollar amount that would be returned to each
Highly Compensated Employee if the Average Deferral
Percentage of Highly Compensated Employees were reduced by
returning Salary Redirection contributions to such
Participants, beginning with those Highly Compensated
Employees' with the highest Actual Deferral Percentage and
only to the extent necessary to meet either test above.
(ii) Determine the total of the dollar amounts calculated in
Step (i), and return that amount to Highly Compensated
Employees in accordance with Steps (iii) and (iv) below by
distributing Salary Redirection contributions as Excess
Contributions. Excess Contributions, adjusted for any
income or loss allocable thereto, may be distributed
before the end of the following Plan Year to Participants
on whose behalf such Excess Contributions were made for
such preceding Plan Year. Excess Contributions shall be
adjusted for income or loss, and the income or loss
allocable to Excess Contributions shall be determined by
multiplying the income or loss allocable to the
Participant's Salary Redirection contributions for the
Plan Year by a fraction, the numerator of which is the
Excess Contribution on behalf of the Participant for the
preceding Plan Year and the denominator of which is the
value of the Participant's Salary Redirection Account on
the last day of the preceding Plan Year.
(iii) Reduce the Salary Redirection contributions of the Highly
Compensated Employee with the highest dollar amount of
Salary Redirection contributions by the amount required to
cause that Highly Compensated Employee's Salary
Redirection contributions to equal the dollar amount of
the Salary Redirection contributions of the Highly
Compensated Employee with the next highest dollar amount
of Salary Redirection Contributions. However, if a lesser
reduction would equal the total remaining excess
contributions to be distributed, the lesser reduction
amount is distributed.
(iv) If the total amount distributed is less than the total
excess contributions from Step (ii), Step (iii) is
repeated.
If it is necessary to reduce the matched Salary Redirection, the
Participant shall nevertheless receive from the Plan a
distribution equal to the vested portion of the Employer Matching
Contribution plus any income thereon that would have been
allocated to him had such reduction in contribution
23
<PAGE>
not been necessary. Any remaining portion of the Matching
Contribution shall be forfeited in accordance with the
provisions of Section 5.5.
Section 3.5 Nondiscrimination Test for Other Contributions
(a) Periodically as determined by the Committee, the Employer
shall check the actual contribution percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section, shall mean all Participants under this Plan who are
eligible to make Salary Redirection contributions, and
receive Matching Contributions during the Plan Year for
which the tests are being made.
(c) The term "actual contribution percentage," means the average
of the following percentages (calculated separately for each
eligible Participant): Matching Contributions (and Salary
Redirection to the extent elected by the Employer and
permitted by Regulations under Code Section 401(m)) on
behalf of each eligible Participant divided by compensation
of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include compensation as defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any plan year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two test need be satisfied not to
have a reduction in contribution tested pursuant to this
Section.
Test I - The actual contribution percentage for the
current Plan Year of the group of Highly
Compensated Employees is not more than the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees,
multiplied by 1.25.
Test II - The excess of the actual contribution percentage
for the current Plan Year of the group of Highly
Compensated Employees over the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees is
not more than two percentage points, and the
actual contribution percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees,
24
<PAGE>
multiplied by two. If Test II in Subsection 3.4(e)
is used in testing Salary Redirection pursuant to
that Section, Test II under this Section shall be
limited as provided for in Code Section 401(m)(9)
and the regulations issued by the Secretary of the
Treasury of notices issued by the Internal Revenue
Service. If a multiple use of Test II occurs, such
multiple use shall be corrected by reducing either
the actual deferral percentage or actual
contribution percentage of the Highly Compensated
Employee in an amount calculated in the manner
provided in Section 3.4(f) or Section 3.5(f).
Notwithstanding the above, the Sponsoring Employer may elect to
perform the tests using the Average Contribution Percentage for
the current Plan Year for Participants who are Non-Highly
Compensated Employees for the current Plan Year rather than using
prior Plan Year data, provided that if such election is made for
the 1998 or a later Plan Year, the test must continue to be
performed based on current Plan Year data until the election is
changed in a manner prescribed by the Secretary of the Treasury.
Unless the Sponsoring Employer elects to use current Plan Year
data, the Participants taken into account in determining the
prior Plan Year's Average Contribution Percentage for Non-Highly
Compensated Employees are those individuals who were Non-Highly
Compensated Employees during the preceding Plan Year, without
regard to the Participants' status during the current Plan Year
(i.e., a Participant who was a Non-Highly Compensated Employee
for the preceding Plan Year is included in the calculation as a
Non-Highly Compensated Employee even if the Participant is no
longer employed by the Employer or has become a Highly
Compensated Employee for the current Plan Year). For the 1997
Plan Year, the determination of who was a Non-Highly Compensated
Employee for the 1996 Plan Year shall be made using the
definition of Non-Highly Compensated Employee in effect prior to
this restatement.
For purposes of these tests, the actual contribution percentage
for any Participant who is a Highly Compensated Employee for the
Plan Year and who is eligible to have Matching Contributions
allocated to his accounts under two or more arrangements
described in Code Section 401(k) that are maintained by the
Company, shall be determined as if such Matching Contributions
were made under a single arrangement.
(f) If neither Test I nor Test II is initially satisfied for any Plan
Year, the Plan shall nevertheless be deemed to comply with the
requirements of Section 401(m) of the Code for such Plan Year if,
before the last day of the following Plan Year, the amount of any
excess contribution (and any income thereon) is distributed to
Participants who are Highly
25
<PAGE>
Compensated Employees or if forfeitable, is forfeited. The
amount to be reduced shall be determined as follows:
(i) Calculate the dollar amount by which each Highly
Compensated Employee's Employer Matching contributions
must be reduced to pass wither test, beginning with
those Highly Compensated Employees with the highest
Contribution Percentage and only to the extent
necessary to meet either test above.
(ii) Determine the total of the dollar amounts calculated
in Step (i), and reduce Highly Compensated Employees'
Employer Matching contributions in accordance with
Steps (iii) and (iv) below.
(iii) Reduce the Employer Matching contributions of the
Highly Compensated Employee with the highest dollar
amount of Employer Matching contributions by the
amount required to cause that Highly Compensated
Employee's Employer Matching contributions to equal
the dollar amount of the Employer Matching
contributions of the Highly Compensated Employee with
the next highest dollar amount of Employer Matching
contributions. However, if a lesser reduction would
equal the total remaining excess contributions to be
distributed, the lesser reduction amount is
distributed.
(iv) If the total amount distributed is less than the total
excess contributions from Step (ii), Step (iii) is
repeated.
If it is necessary to reduce the Employer Matching
Contribution, the Participant shall nevertheless receive
from the Plan a distribution equal to the vested portion of
the Employer Matching Contribution plus any income thereon
that would have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
(g) This Section shall be governed by Code Section 401(m) and
any rules or regulations issued pursuant thereto, which may
include coordination and/or combination with allocations
subject to Section 401(k) in accordance with Treasury
Regulation Section 1.401(m)-2.
Section 3.6 Maximum Individual Deferral
A Participant shall not be permitted to have his Employer
redirect an amount in excess of $9,500 in any calendar year
pursuant to the provisions of Section 3.1, including
contributions to any other plan of the Company which are made
26
<PAGE>
pursuant to Code Section 402(a)(8). The $9,500 limitation shall
be adjusted in accordance with cost-of-living adjustments made by
the Secretary of the Treasury pursuant to Code Section 402(g)(5).
If any amount is redirected pursuant to Section 3.1 in excess of
this limit (as adjusted), or if a Participant notifies the
Committee, in writing, by March 1 following the close of the
taxable year of the amount contributed in excess of this limit
(as adjusted) to all plans pursuant to Code Section 402(a)(8),
such amount shall be deemed an "excess deferral" and the
Committee shall direct the Trustee to distribute to the
Participant (not later than the April 15 following the calendar
year in which the excess deferral was made) the amount of the
excess deferral plus any income allocable to such amount.
Section 3.7 Mistake of Fact
If due to a mistake of fact, Employer Contributions to the Trust
Fund for any Plan Year exceed the amount intended to be
contributed, notwithstanding any provision to the contrary, the
Employer, as soon as such mistake of fact is discovered, shall
notify the Trustee. The Employer shall direct that the Trustee
return such excess to the Employer, provided such return is made
within one year of the date on which the Employer made the
contribution.
Section 3.8 Qualified Nonelective Contributions
The Employer may, as of the end of any calendar quarter, make a
Qualified Nonelective Contribution to the Trust Fund on behalf of
any Participant with a Prior Plan Employer Contribution Account
or Prior Plan Salary Redirection Account in an amount equal to
the surrender charges assessed by the insurer which held the
assets in those accounts in the plan which was merged into this
Plan. Such Qualified Nonelective Contributions shall be added to
the Salary Redirection Accounts of those Participants in amounts
equal to the allocation of the surrender charges to the
Participant's combined Prior Plan Employer and Prior Plan Salary
Redirection Accounts, shall be 100% vested when made, subject to
the same distribution rules as Salary Redirection Contribution,
and shall be tested for nondiscrimination as Salary Redirection
Contributions in accordance with the provisions of Section 3.4.
Section 3.9 Uniformed Services Employment and Reemployment Rights Act of 1994
("USERRA")
Effective December 12, 1994, notwithstanding any provision of
this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
Section 414(u) generally provides that an employer maintaining a
plan shall be treated as meeting the requirements of USERRA only
if an employee reemployed
27
<PAGE>
under USERRA is treated as not having incurred a break in service
because of the period of military service, the employee's
military service is treated as service with the employer for
vesting and benefit accrual purposes, the employee is permitted
to make additional elective deferrals and employee contributions
in an amount not exceeding the maximum amount the employee would
have been permitted or required to contribute during the period
of military service if the employee had actually been employed by
the employer during that period ("make-up contributions"), and
the employee is entitled to any accrued benefits that are
contingent on employee contributions or elective deferrals to the
extent the employee pays the contributions or elective deferrals
to the plan. Make-up contributions must be permitted during the
period that begins on the date of reemployment and continues for
five years or, if less, three times the period of military
service. With respect to make-up contributions, the employer must
make matching contributions that would have been required if the
make-up contributions had actually been made during the period of
military service.
Section 414(u) provides that an employee is treated as receiving
compensation from the employer during the period of military
service equal to the compensation the employee otherwise would
have received from the employer during that period, or, if the
compensation the employee otherwise would have received is not
reasonably certain, the employee's average compensation from the
employer during the period immediately preceding the period of
military service. For purpose of (S) 414(u), USERRA is not
treated as requiring the crediting of earnings to an employee
with respect to any contribution before the contribution is
actually made or requiring any allocation of forfeitures to the
employee for the period of military service.
Section 414(u) generally provides that a contribution that is
made by an employer or employee to an individual account plan or
by an employee to a contributory defined benefit plan, and that
is required under USERRA, is taken into account for purposes of
the limitations of (S) 402(g), 402(h), 403(b), 404(a), 404(h),
408, 415 or 457 in the year to which the contribution relates,
not the year in which the contribution is made. In addition, (S)
414(u) provides that a plan is not treated as failing to meet the
requirements of (S) 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),
401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p),
410(b), or 416 because of the contribution (or the right to make
the contribution).
28
<PAGE>
ARTICLE 4
ALLOCATION TO INDIVIDUAL ACCOUNTS
Section 4.1 Individual Accounts
The Committee shall establish and maintain an Individual Account
in the name of each Participant to which the Committee shall
credit all amounts allocated to each such Participant pursuant to
Article 3 and the following Sections of this Article.
Section 4.2 Investment of Accounts
(a) Each Participant shall have the right to direct the
Committee how to invest the cumulative balance in his
Individual Account attributable to Salary Redirection, Prior
Plan Salary Redirection Contributions, Prior Plan Employer
Contributions and current Salary Redirection, and, effective
April 1, 1999, Employer Contributions, and, effective March
1, 2000, certain portions of the Company Stock Fund (derived
from Matching Contributions) as set forth in subsection (d)
below, in any whole percentage (25% increments if elections
made prior to January 1, 1997, in which case they continue
until a change is made by the Participant) as among the
Investment Funds designated by the Committee from time to
time (the "Investment Funds"). Effective April 1, 1999, no
portion of an Individual Account may be transferred to the
Company Stock Fund and no new contributions to Individual
Accounts may be directed for investment to the Company Stock
Fund. Investment directions shall be effected as soon as
practicable, provided the Participant gives the direction by
identity-secured telephonic instructions (or in writing if
telephonic instructions are impracticable) and further
provided that the Investment Fund has not become illiquid or
a value not readily ascertainable. All elections shall
control until a new election is filed. Neither the Trustee
nor any other Fiduciary shall be responsible for investment
losses resulting from a Participant's exercise of investment
discretion, in accordance with ERISA Section 404(c).
(b) A Participant who does not make any election under this
Section shall have his Individual Account invested in an
interest income fund or a similar investment vehicle
designated by the Committee from time to time.
(c) Prior to April 1, 1999, all cumulative and current
contributions attributable to Employer Contributions (other
than contributions in a Prior Plan Employer Contribution
Account) and the Profit Sharing Contribution Account were
required to be invested in the Company Stock Fund.
29
<PAGE>
(d) The Company Stock Fund is a fund consisting primarily of
shares of common stock of the sponsoring Employer and
dividends and distributions attributable to said common
stock, plus temporary investments held pending purchase of
additional shares of common stock of the Sponsoring
Employer. Effective May 1, 1998, as a result of the
Distribution, the Company Stock Fund also holds shares of
Ventas, Inc. common stock and dividends and distributions
attributable to said common stock (which were reinvested in
additional shares of said common stock until on or about
April 1, 1999). Effective March 1, 2000, all Ventas stock
investments in the Company Stock Fund shall be segregated
into a separate fund over which Participants have investment
control, but to which no additional funds can be added. Also
effective March 1, 2000, all other non-Vencor stock
investments in the Company Stock Fund, and any future such
assets derived from dividends, shall be transferred, as
allocable, to the other Investment Fund(s) in which each
Participant is then directing investments of future
contributions, or, if no such designation is in effect, into
the interest income fund.
(e) If a Participant's investment direction is not implemented
and the Participant does not notify the Committee, in
writing, within 45 days of the date the direction is filed
that the direction has not been implemented, then the
investment direction shall be void and treated as if never
made.
Section 4.3 Valuation of Accounts
(a) Individual Account. As of each Valuation Date, the Committee
shall determine the fair market value of the Individual
Account of each Participant for each Investment Fund in
which the Individual Account is invested as follows:
(1) The value of the Individual Account of each Participant
as of the last Valuation Date;
(2) Minus the amount of any withdrawals and distributions
-----
made from such account since the last Valuation Date;
(3) Plus any contributions to the Participant's Salary
----
Redirection Account since the last Valuation Date;
(4) Plus any allocation to the Participant's Matching
----
Contribution Account since the last Valuation Date;
(5) Plus any allocation to the Participant's Profit Sharing
----
Account since the last Valuation Date;
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<PAGE>
(6) Plus the Individual Account's proportionate share of
----
any investment earnings allocated to each Investment
Fund held within the Individual Account since the last
Valuation Date;
(7) Minus the Individual Account's proportionate share of
-----
any investment losses allocated to each Investment Fund
held within the Individual Account since the last
Valuation Date.
(b) Investment Earnings or Losses. The investment earnings (or
losses, if such computation is negative) from the Investment
Funds shall mean the difference between the unit price of
any Investment Fund (other than the Company Stock Fund) from
one business day to the next, and any net gain or loss on
non-mutual fund investments in an Investment Fund, as
reflected by interest payments, dividends, realized and
unrealized gains and losses on securities, other investment
transactions and expenses paid from the fund.
(c) Allocation of Investment Earnings or Losses. Except as
provided in Section 4.3(e), on each Valuation Date the
investment earnings or losses from the Trust Fund shall be
allocated to the Individual Account of each Participant
invested in the respective Investment Fund in the ratio of
"A" divided by "B" where "A" is an amount determined
pursuant to Section 4.3(d) for the portion of the Individual
Account of each Participant invested in the respective
Investment Fund and "B" is an amount determined pursuant to
Section 4.3(d) for the portion of the Individual Account of
all Participants invested in the respective Investment Fund.
(d) Determination of Ratio. For purposes of determining the
ratio in Section 4.3(c), the amounts shall be determined as
follows:
(1) the value of the portion of such Individual Account(s)
in the Investment Fund on such Valuation Date;
(2) Minus withdrawals and benefit payments to or on behalf
-----
of Participants from the portion of such Individual
Account(s) in the Investment Fund on such Valuation
Date.
(e) Company Stock Fund. As of each Valuation Date with respect
to the portion of a Participant's Individual Account
invested in the Company Stock Fund, dividends paid since the
preceding Valuation Date on the number of shares of
Sponsoring Employer common stock or Ventas, Inc. common
stock, respectively, determined in the ratio that the number
of said shares of stock held in each Participant's
Individual Accounts as of the preceding Valuation Date (as
adjusted for any distributions or withdrawals since that
date) bears to the total number of said shares of
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<PAGE>
stock held in all Participants' Individual Accounts as of
the preceding Valuation Date as so adjusted, shall be
invested in the Investment Fund(s) designated for investment
of future contributions by the Participant, or, if there is
no such designation, in the interest income fund.
Section 4.4 Trustee and Committee Judgment Controls
In determining the fair market value of the Trust Fund and of
Individual Accounts, the Trustee shall exercise its best
judgment, and all such determinations of value (in the absence of
bad faith) shall be binding upon all Participants and their
beneficiaries.
Section 4.5 Maximum Additions
Effective for Plan Years beginning after December 31, 1994,
notwithstanding any other provisions of the Plan, contributions
and other additions with respect to a Participant exceed the
limitation of Section 415(c) of the Code if, when expressed as an
annual addition (within the meaning of Section 415(c)(2) of the
Code to the Participant's Account, such annual addition is
greater than the lesser of:
(a) $30,000; or
(b) 25% of the Participant's compensation (as defined in
Section 415(c)(3) of the Code).
(c) In the event a Participant is covered by one or more
Defined Contribution Plans maintained by the Company,
the maximum annual additions as noted above shall be
decreased in the last Defined Contribution Plan
maintained by the Company in which he participated to
ensure that all such plans will remain qualified under
the Code.
Section 4.6 Corrective Adjustments
In the event that corrective adjustments in the Annual Addition
to any Participant's Individual Account are required as the
result of a reasonable error in estimating a Participant's
compensation, the corrective adjustments shall be made pursuant
to and in the order of the subsections in this Section.
(a) The portion of the Participant's unmatched Salary
Redirection made pursuant to Subsection 3.1(a) shall be
returned by distribution to the Participant, with earnings
thereon. Any amount so returned shall be disregarded for
purposes of the tests in Sections 3.4 and 3.5.
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(b) The portion of the Participant's matched Salary Redirection
made pursuant to Subsection 3.1(a) and his Matching
Contributions shall be proportionally reduced to insure
compliance with Section 4.5. Any affected Salary Redirection
will be distributed to the Participant and shall not be
considered for purposes of the tests in Sections 3.4 and
3.5. Any affected Matching Contributions shall be used to
reduce future Matching Contributions.
(c) The Participant's Profit Sharing Contribution shall be
reduced to insure compliance with Section 4.5. Any such
amount reduced shall be allocated as of the end of the next
Plan Year among the Profit Sharing Contribution Accounts of
all other Participants in the same manner as is indicated in
Section 3.3.
Section 4.7 Defined Contribution and Defined Benefit Plan Fraction
If a Participant is a participant in a Defined Benefit Plan
maintained by the Company, the sum of his defined benefit plan
fraction and his defined contribution plan fraction for any
Limitation Year may not exceed 1.0.
(a) For purposes of this Section, the term "defined contribution
plan fraction" shall mean a fraction the numerator of which
is the sum of all of the Annual Additions of the Participant
under this Plan and any other Defined Contribution Plan
maintained by the Company as of the close of the Limitation
Year and the denominator of which is the sum of the lesser
of the following amounts determined for such Limitation Year
and for each prior Limitation Year of employment with the
Company:
(1) the product of 1.25 multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Code; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account under Code Section 415(c)(1)(B)
with respect to each individual under the Plan for such
Limitation Year.
(b) For purposes of this Section, the term "defined benefit plan
fraction" shall mean a fraction, the numerator of which is
the Participant's projected annual benefit (as defined in
the Defined Benefit Plan) determined as of the close of the
Limitation Year and the denominator of which is the lesser
of:
(1) the product of 1.25 multiplied by the dollar limitation
in effect pursuant to Section 415(b)(1)(A) of the Code
for such Limitation year; or
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(2) the product of 1.4 multiplied by the amount which may
be taken into account pursuant to Section 415(b)(1)(B)
of the Code with respect to each individual under the
Plan for such Limitation year.
(c) The limitation on aggregate benefits from a Defined Benefit
Plan and a Defined Contribution Plan which is contained in
Section 2004 of ERISA, as amended, shall be complied with by
a reduction (if necessary) in the Participant's benefits
under the Defined Benefit Plan.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 Normal Retirement
When a Participant lives to his Normal Retirement Date and retires,
he shall become entitled to the full value of his Individual
Account as soon as practicable after the distribution forms are
completed (or their time for completion has elapsed), at a value
determined as of the date the distribution check is prepared.
Section 5.2 Late Retirement
A Participant may continue his employment past his Normal
Retirement Date on a year to year basis. He shall continue to be an
active Participant under the Plan. Upon his actual retirement, he
shall become entitled to the full value of his Individual Account
as soon as practicable after the distribution forms are completed
(or their time for completion has elapsed), at a value determined
as of the date of distribution check is prepared.
Section 5.3 Death
If a Participant dies while an active Participant under the Plan,
his Beneficiary shall be entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed), at
a value determined as of the date of distribution check is
prepared.
Section 5.4 Disability
When it is determined that a Participant is Totally and Permanently
Disabled, the Committee shall certify such fact to the Trustee and
such Disabled Participant shall be entitled to receive the full
value of his Individual Account as soon as practicable after the
distribution forms are completed, at a value determined as of the
date of distribution check is prepared.
Section 5.5 Termination of Employment
(a) Subject to Section 5.5(l) below, upon termination of
employment for any reason (other than Normal Retirement, Late
Retirement, Disability Retirement or Death), a Participant
shall be entitled to a benefit equal to the vested portion (as
determined in this Section) of the balance of his Individual
Account as soon as practicable after the distribution forms
are completed, at a value determined as of the date of
distribution check is prepared.
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(b) A Participant shall always be 100% vested in the balance of
his Salary Redirection Account, and Prior Plan Salary
Redirection Account.
(c) Effective for Participants who terminate employment on or
after July 1, 1990, a Participant shall be vested in the
balance attributable to his Prior Plan Employer Contribution
Account, Matching Contribution Account and Profit Sharing
Contribution Account based on years of Service as of his date
of termination, in accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 years or more 100%
(d) Notwithstanding the above, a Participant who has a Prior Plan
Employer Contribution Account from The Hillhaven Corporation
Retirement Savings Plans, shall be vested in the balance
attributable to such account based on years of Service as of
his date of termination, in accordance with the following
schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
(e) Notwithstanding the above, a Participant who has a Prior Plan
Employer Contribution Account from The Hillhaven Corporation
Deferred Savings Plans, shall be vested in the balance
attributable to such account based on years of Service as of
his date of termination, in accordance with the following
schedule:
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Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
(f) For purposes of calculating years of Service for purposes of
vesting in the Prior Plan accounts from The Hillhaven
Corporation Retirement Savings and Deferred Savings Plans as
provided in subsections 5.5(d) and (e) above, in which plans
elapsed time was used to determine years of Service,
Participants in this Plan shall be credited with one year of
Service if they remain employed by the Company, or a Company
which participates in the RSP (as defined in Section 2.1(d)),
until the anniversary of their employment commencement date in
1997, and shall receive another year of Service if the
Participant logs 1000 Hours of Service for the Company or a
company which participates in the RSP during the Plan year
ending on December 31, 1997.
(g) Notwithstanding the above, a Participant who attains Normal
Retirement Age or dies or becomes Totally and Permanently
Disabled, while employed by the Company, shall be fully vested
in his Individual Account under the Plan.
(h) A Participant who terminates employment pursuant to this
Section with a zero percent vested percentage shall be deemed
to have received a distribution on the date he terminates
employment. If a Former Participant receives a distribution of
the vested portion of his Individual Account prior to
incurring five consecutive Breaks in Service or said Former
Participant is zero percent vested in his Individual Account,
the non-vested balance of such terminated Participant's
Individual Account shall be forfeited as of the date he
receives or is deemed to receive said distribution. If a
Participant who has received a distribution (or deemed
distribution) is later rehired before the period described in
subsection 5.5(j) below, the Participant need not repay the
distributed amount, but his Account shall automatically have
the forfeited amount restored to it at the earlier of (1) the
last day of the Plan Year in which rehired, or (2) the date of
a subsequent termination of employment. Restoration of a
forfeiture will come from forfeitures in the year in which he
is reemployed and, to the extent such forfeitures are not
sufficient, from a special Employer Contribution. Upon a
subsequent termination of employment prior the Participant
becoming 100% vested, the gross distribution shall be
determined by multiplying the vested percentage at the
subsequent
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termination by the account balance then actually restored to
the Plan, plus the distribution previously received. The
amount to be distributed to the Participant shall be the
vested percentage of the adjusted account, minus the amount
previously distributed.
(i) The non-vested balance of the Individual Account of a
terminated Participant shall be forfeited as of the last day
of the Plan Year in which such terminated Participant incurs
five consecutive Breaks in Service if the Participant is
vested in any portion of his Individual Account and does not
receive a distribution prior to incurring five consecutive
Breaks in Service.
(j) A terminated Participant who is reemployed and again becomes a
Participant after incurring five or more consecutive Breaks in
Service shall not have any amount forfeited pursuant to this
Section restored to his Individual Account.
(k) Any Matching Contributions and Profit Sharing Contributions
forfeited will be first used to reduce Matching Contributions
pursuant to Section 3.2.
(l) Notwithstanding anything to the contrary in this Section 5.5
or in Section 5.6(a), no portion of a Participant's Individual
Account shall be distributed to him until the Participant has
separated from service within the meaning of Code Section
401(k)(2)(B), unless the distribution is in connection with an
event described in Code Section 401(k)(10) and the Treasury
Regulations under that Section.
Section 5.6 Commencement of Benefits
(a) Any benefits payable under this Article shall be paid as soon
as reasonably possible following the actual date of severance,
at the value determined as of the Valuation Date coincident
with or immediately preceding receipt of properly completed
distribution forms from the Participant, subject to the
Participant's consent if his actual date of severance is prior
to Normal Retirement Age and subject to Subsection 5.7(a). In
no event, however, shall payment begin beyond 60 days after
the last day of the Plan Year in which occurs the latest of
(i) the Participant's reaching Normal Retirement Age; (ii) the
10th anniversary of the date the Employee became a
Participant; or (iii) termination of the Participant's
employment. Notwithstanding anything in the Plan to the
contrary and notwithstanding the Participant's lack of
consent, benefits under this Plan shall be paid as soon as
reasonably possible following the later of the Participant's
actual date of severance or his Normal Retirement Date.
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(b) Except as required in this Section for a Participant who has
an Individual Account to which Section 5.7(b) or Section
5.6(c) applies, a Participant may defer distribution to a
subsequent date. If the Participant does not consent to a
distribution as provided above, such distribution shall be
made based on the value of the Individual Account as of the
date the check for the distribution is prepared and shall be
delivered as soon as reasonably practical after notice to the
Committee of the election to receive a distribution.
(c) Notwithstanding any other provisions of the Plan, the payment
of a Participant's benefits hereunder shall begin by payment
of a lump sum of the entire Accounts of the Participant no
later than the April 1 following the calendar year in which
the Participant has both attained age 70 1/2 and has retired,
provided that for 5% owners as defined in Section 416 of the
Code, distribution must begin by April 1 following the
calendar year in which the Participant attains age 70 1/2,
regardless of whether the Participant has retired; and further
provided that a Participant who had attained age 70 1/2 on or
before December 31, 1998 shall have the option to take a lump
sum distribution even while employed, at the April 1 following
attainment of age 70 1/2, if the Participant so elects in
writing, and, if so elected, shall receive a distribution on
or before December 31 of the year after attainment of age 70
1/2, and again each year thereafter while still employed,
shall receive a similar distribution of all amounts accrued in
Accounts of the Participant since the last such distribution.
(d) Notwithstanding anything in the Plan to the contrary, any
benefit payable to an alternate payee pursuant to a qualified
domestic relations order, as defined in Section 414(p) of the
Code, shall be paid as soon as administratively possible
following the determination that the order meets the
requirements of Section 414(p) of the Code.
(e) Notwithstanding anything in the Plan to the contrary, in the
event a Participant terminates employment for any reason and
recommences employment prior to distribution of his entire
vested account in the Plan, the undistributed portion of his
vested account shall remain in the Plan until his account
again becomes distributable due to a subsequent termination.
Section 5.7 Methods of Payment
(a) A Participant or Beneficiary shall elect a distribution of the
Individual Account in a single lump sum payment in cash as
provided hereinafter. Notwithstanding the preceding sentence,
a Participant may request that the Company Stock Fund be
distributed in kind provided that the Participant has at least
100 shares of Sponsoring Employer common stock or Ventas,
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Inc. common stock, respectively, in his Individual Account at
the date of distribution. Any non-stock balance in his Company
Stock Fund will be paid in cash and fractional shares will be
paid in cash based on the fair market value of such fractional
shares as of the day those shares liquidated or valued for
distribution. In the event a Participant elects to receive his
Company Stock Fund in cash, the shares of Sponsoring Employer
stock as of the date of the distribution check is prepared
will be converted to cash based on the fair market value of
such shares (if a market value is ascertainable thereon) as of
such date. Except as provided in Section 5.7(c) or Section
5.11, no other manner of distribution shall be provided. The
request by the Participant or the Beneficiary shall be in
writing and shall be filed with the Committee. The Committee
may not require a distribution without the consent of the
Participant prior to his reaching Normal Retirement Age or, if
the Participant is deceased, without the consent of his
spouse, if the spouse is living and if the spouse is his
Beneficiary, unless the vested value of the Individual Account
is $5,000 or less. If the vested value of the Participant's
Individual Account is $5,000 or less, the benefits payable
will be paid as soon as reasonably possible following the
actual date of severance, notwithstanding lack of consent. If
the vested value of the Participant's Individual Account has
been more than $5,000 at the time of any distribution, the
value the Participant's Individual Account will be deemed to
be more than $5,000 at the time of any subsequent distribution
for purposes of the consent requirements of this Section.
(b) If the Participant dies before distribution occurs, the
Participant's entire interest will be distributed no later
than five years after the Participant's death, except, if the
designated Beneficiary is the Participant's surviving spouse,
the distribution must be made no later than the date on which
the Participant would have attained age 65.
(c) Notwithstanding anything in this Section to the contrary, in
the case of a Participant who has a Prior Plan Salary
Redirection Account or a Prior Plan Employer Contribution
Account, the Participant may take distribution of his Prior
Plan Salary Redirection Account or Prior Plan Employer
Contribution Account at such time or in such other form as was
provided in the plan (as in effect as of the date of transfer)
from which the Prior Plan Salary Redirection Account or Prior
Plan Employer Contribution Account was transferred.
Section 5.8 Benefits to Minors and Incompetents
If any person entitled to receive payment under the Plan shall be a
minor, the Committee, in its discretion, may dispose of such amount
in any one or more of the ways specified in Subsections (a) through
(c) of this Section.
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(a) By payment thereof directly to such minor;
(b) By application thereof for benefit of such minor;
(c) By payment thereof to either parent of such minor or to any
adult person with whom such minor may at the time be living or
to any person who shall be legally qualified and shall be
acting as guardian of the person or the property of such
minor; provided only that the parent or adult person to whom
any amount shall be paid shall have advised the Committee in
writing that he will hold or use such amount for the benefit
of such minor.
In the event that it shall be found that person entitled to receive
payment under the Plan is physically or mentally incapable of
personally receiving and giving a valid receipt for any payment due
(unless prior claim therefor shall have been made by a duly
qualified committee or other legal representative), such payment
may be made to the spouse, son, daughter, parent, brother, sister
or other person deemed by the Committee to have incurred expense
for such person otherwise entitled to payment.
Section 5.9 Unclaimed Benefits
(a) The Plan does not require either the Trustee or the Committee
to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Committee, by certified mail
addressed to his last known address of record with the
Committee or the Employer, shall notify any Participant, or
Beneficiary, that he is entitled to a distribution under this
Plan. If the Participant, or Beneficiary, fails to claim his
distributive share or make his whereabouts known in writing to
the Committee within six months from the date of mailing of
the notice, or before the termination or discontinuance of
this Plan, whichever should first occur, the Committee shall
thereafter treat the Participant's or Beneficiary's unclaimed
payable Account as a Forfeiture. A Forfeiture under this
Section shall occur when the Committee determines that the
Participant or Beneficiary cannot be located, but not earlier
than the end of the notice period, or if later, the earliest
date applicable Treasury regulations would permit the
Forfeiture.
(b) If a Participant or Beneficiary who has incurred a forfeiture
of his Account under this Section makes a claim, at any time,
for his forfeited Account, the Committee shall restore the
Participant's or Beneficiary's forfeited Account to the same
dollar amount as the dollar amount of the Account forfeited,
unadjusted for any gains or losses occurring subsequent to the
date of the forfeiture. The Committee shall make the
restoration during the Plan Year in which the Participant or
Beneficiary makes the claim, first from the amount, if any, of
forfeitures the Administrator otherwise
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would allocate for the Plan Year, then from the amount, if
any, of the Trust net income or gain for the Plan Year and
then from the amount, or additional amount, the Employer
shall contribute to enable the Committee to make the
required restoration. The Committee shall direct the Trustee
to distribute the Participant's or Beneficiary's restored
Account to him not later than 60 days after the close of the
Plan Year in which the Committee restores the forfeited
Account. The forfeiture provisions of this Section shall
apply solely to the Participant's or to the Beneficiary's
Account derived from Employer contributions.
Section 5.10 Participant Directed Rollovers
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) For purposes of this Section, an eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a
specified period of 10 years or more; any distribution to
the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution
that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(c) For purposes of this Section, an eligible retirement plan is
an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described
in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
For purposes of this Section, a distributee includes an
Employee or former Employee. In addition, the Employee's or
former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order,
as
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defined in Section 414(p) of the Code, are distributees
with regard to the interest of the spouse or former spouse.
(d) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
Section 5.11 Joint and Survivor Options
This Section shall only apply to a Participant who has a Prior
Plan Employer Contribution Account and/or a Prior Plan Salary
Redirection Account that was transferred as a result of a plan
merger from a plan that provided for an annuity form of
distribution.
(a) Qualified Joint and Survivor Annuity. Except as otherwise
provided below, unless an optional form of benefit is
selected pursuant to a qualified election within the 90 day
period ending on the date benefit payments would commence, a
Participant's vested Prior Plan Employer Contribution
Account and Prior Plan Salary Redirection Account will be
paid in the form of a qualified joint and survivor annuity,
and an unmarried Participant's benefit shall be paid in the
form of a life annuity unless otherwise elected by the
Participant. A qualified joint survivor annuity will not be
applicable and this Section shall not apply if the following
conditions are met:
(1) The Participant's vested Individual Account is payable
in full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-spouse
Beneficiary in the manner prescribed under this
Section, and
(2) Such Participant does not elect a payment of benefits
in the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is
described in clause (i) or (ii) of Code Section
401(a)(11)(B), or
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $5,000 or
less.
(b) Qualified Preretirement Survivor Annuity. Except as
otherwise provided in this Subsection, unless an optional
form of benefit has been selected within the election period
pursuant to a qualified election, if a Participant dies
before benefits have commenced, then the Participant's
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vested Prior Plan Employer Contribution Account and Prior
Plan Salary Redirection Account shall be applied toward the
purchase of an annuity for the life of the surviving spouse.
Benefits will not be required to be paid in the form of a
preretirement survivor annuity if the following conditions
are met:
(1) The Participant's vested Individual Account is payable
in full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-spouse
Beneficiary in the manner prescribed under this
Section, and
(2) Such Participant does not elect a payment of benefits
in the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is
described in clause (i) or (ii) of Section
401(a)(11)(b) of the Code, and
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $5,000 or
less.
(c) Election Period shall mean, for purposes of this Section,
the period which begins on the first day of the Plan Year in
which the Participant attains age 35 and ends on the date of
the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age
35 is attained, with respect to the Individual Account
Balance as of the date of separation, the election period
shall begin on the date of separation.
(d) Early Retirement Age shall mean, for purposes of this
Section, the earliest date on which, under the Plan, the
Participant could elect to receive retirement benefits.
(e) Qualified Election shall mean, for purposes of this Section,
an election pursuant to this Subsection. A waiver of a
qualified joint and survivor annuity or a qualified
preretirement survivor annuity is permitted. The waiver must
be in writing, must be executed by the Participant, must
specify the Beneficiary and the optional form of benefit and
must be consented to by the Participant's spouse. The
spouse's consent to a waiver must be witnessed by a Plan
representative or a notary public. Notwithstanding this
consent requirement, if the Participant establishes to the
satisfaction of a Plan representative that such written
consent may not be obtained because there is no spouse or
the spouse cannot be located, a waiver will be deemed a
qualified election. Any consent necessary under
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this provision will be valid only with respect to the spouse
who signs the consent, or in the event of a deemed qualified
election, the designated spouse. Additionally a revocation
of a prior waiver may be made by a Participant without the
consent of the spouse at any time before the commencement of
benefits. The number of revocations shall not be limited.
(f) Qualified Joint and Survivor Annuity shall mean, for
purposes of this Section, an annuity for the life of the
Participant with a survivor annuity for the life of the
spouse which is not less than 50% and not more than 100% of
the amount of the annuity which is payable during the joint
lives of the Participant and the spouse and which is the
amount of benefit which can be purchased with the
Participant's vested Prior Plan Employer Contribution
Account and Prior Plan Salary Redirection Account.
(g) Qualified Preretirement Survivor Annuity shall mean, for
purposes of this Section, a survivor annuity for the life of
the surviving spouse, the actuarial equivalent of which is
not less than 50% of the vested Prior Plan Employer
Contribution Account and Prior Plan Salary Redirection
Account of the Participant as of the date of death, which
may become payable as a result of the Participant's death
prior to his Normal Retirement Date.
(h) Notice Requirements.
(1) In the case of a qualified joint and survivor annuity
the Committee shall provide each Participant no less
than 30 days and no more than 90 day prior to the
annuity starting date (or such other time as provided
by regulations or other pronouncements), a written
explanation of (i) the terms and conditions of a
qualified joint and survivor annuity; (ii) the
Participant's right to make and the effect of an
election to waive the qualified joint and survivor
annuity form of benefit; (iii) the rights of a
Participant's spouse; and (iv) the right to make and
the effect of a revocation of a previous election to
waive the qualified joint and survivor annuity.
(2) In the case of a qualified preretirement survivor
annuity the Committee shall provide each Participant
within the period beginning on the first day of the
Plan Year in which the Participant attains age 32 and
ending with the close of the Plan Year preceding the
Plan Year in which the Participant attains age 35, a
written explanation of the qualified preretirement
survivor annuity in such terms and in such manner as
would be comparable to the explanation provided for
meeting the requirement of a qualified joint and
survivor annuity. If a Participant enters the Plan
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after the first day of the Plan Year in which the
Participant attained age 32, the Committee shall
provide notice no later than the close of the third
Plan Year succeeding the entry of the Participant in
the Plan.
(3) Notwithstanding the other requirements of this Section,
the respective notices prescribed by this Section need
not be given to a Participant if the Plan "fully
subsidizes" the costs of a qualified joint and survivor
annuity or qualified preretirement survivor annuity,
and the Participant cannot elect another form of
benefit. For purposes of this Section, the Plan fully
subsidizes the costs of a benefit if under the Plan the
failure to waive such benefit by a Participant would
not result in a decrease in any plan benefits with
respect to such Participant and would not result in
increased contributions from the Participant.
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ARTICLE 6
WITHDRAWALS
Section 6.1 Hardship Withdrawal
(a) Except as otherwise provided in this Section, and upon
proper written application of a Participant made at least 30
days in advance of the withdrawal date, in such form as the
Committee may specify, the Committee in its sole discretion
may permit the Participant to withdraw a portion or all of
the balance of his Salary Redirection Account and Prior Plan
Salary Redirection Account, provided that earnings allocated
to said account may not be withdrawn. Such withdrawal shall
be based on the Valuation Date coincident with or
immediately preceding the date of distribution and may not
be less than $500, or if the amount of hardship exceeds $500
but the amount available for distribution is lower, the
total amount available for distribution as a hardship
withdrawal.
(b) The reason for a withdrawal pursuant to this Section must be
to enable the Participant to meet unusual or special
situations in his financial affairs resulting in immediate
and heavy financial needs of the Participant. Such
situations shall be limited to:
(1) uninsured medical expenses (described in Code Section
213(d)) incurred by or needed to procure services for
the Participant, the Participant's spouse or any
dependents of the Participant (as defined in Code
Section 152);
(2) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) payment of tuition for the next 12 months of post-
secondary education for the Participant, his or her
spouse, children, or dependents;
(4) the need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence; or
(5) any additional items which may be added to the list of
deemed immediate and heavy financial needs by the
Commissioner of Internal Revenue through the
publication of revenue rulings, notices, and other
documents of general applicability.
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Any withdrawal hereunder may not exceed the amount
required to meet the immediate financial need created,
and provided further that such amount must not be
reasonably available from other resources of the
Participant.
(c) The Committee may shorten the notice period if it finds
it is administratively feasible. In granting or
refusing any request for withdrawal or in shortening
the notice period, the Committee shall apply uniform
standards consistently and such discretionary power
shall not be applied so as to discriminate in favor of
Highly Compensated Employees.
(d) The withdrawals under this Section shall in no way
affect said Participant's continued participation in
this Plan except by the reduction in account balances
caused by such withdrawal.
(e) A Participant shall present evidence to the Committee
that the requested withdrawal is not in excess of the
amount necessary to relieve the financial need of the
Participant and that the need can not be satisfied from
other resources that are reasonably available to the
Participant. The determination by the Committee that
the distribution will be necessary to satisfy an
immediate and heavy financial need will be made on the
basis of all relevant facts and circumstances, which
may include written statements from a Participant which
the Administrator has no reason to doubt, supported by
cancelled checks, invoices or other written materials
generated by third parties. A distribution generally
will be treated as necessary to satisfy a financial
need if the Committee relies, without actual knowledge
to the contrary, on the Participant's representation
that the need cannot be relieved:
(1) through reimbursement of compensation by insurance
or otherwise;
(2) by reasonable liquidation of the Participant's
assets, to the extent such liquidation would not
itself cause an immediate and heavy financial
need;
(3) by cessation of Salary Redirection under the Plan;
or
(4) by other distributions or non-taxable loans from
the plans maintained by the Employer or by any
other employer, or by borrowing from commercial
sources on reasonable commercial terms.
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For purposes of this Subsection, the Participant's resources
shall be deemed to include those of his spouse and minor children
that are reasonably available to the Participant.
Section 6.2 Prior Plan Employer Contribution Account Withdrawals
Upon proper written application in such manner and in such form
as the Committee may specify, a Participant shall be permitted to
withdraw a portion or all of the balance of his Prior Plan
Employer Contribution Account and Prior Plan Salary Redirection
Account while employed, determined as of the Valuation Date
coincident with or immediately preceding the date of application
but only to the extent that he would have been permitted to
withdraw the funds in the account if they had not been
transferred from the prior plan which was merged into this Plan.
Section 6.3 Participant Loans
No Participant loans are permitted under this Plan. However, to
the extent that a plan that is merged into this Plan has loans
outstanding, the outstanding loan balance and accrued interest
may be transferred to this Plan and segregated in the
Participant's Individual Account until repaid. The loan shall be
repaid and subject to the terms of the loan agreement, including
the provisions of the merged plan.
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ARTICLE 7
FUNDING
Section 7.1 Contributions
Contributions by the Employer and by the Participants as provided
for in Article 3 shall be paid over to the Trustee. All
contributions by the Employer shall be irrevocable, except as
herein provided, and may be used only for the exclusive benefit
of the Participants, Former Participants and their Beneficiaries.
Section 7.2 Trustee
The Sponsoring Employer has entered into an agreement with the
Trustee whereunder the Trustee will receive, invest and
administer trust fund contributions made under this Plan in
accordance with the Trust Agreement.
Such Trust Agreement is incorporated by reference as a part of
the Plan, and the rights of all persons hereunder are subject to
the terms of the Trust Agreement. The Trust Agreement
specifically provides, among other things, for the investment and
reinvestment of the Fund and the income thereof, the management
of the Trust Fund, the responsibilities and immunities of the
Trustee, removal of the Trustee and appointment of a successor,
accounting by the Trustee and the disbursement of the Trust Fund.
The Trustee shall, in accordance with the terms of such Trust
Agreement, accept and receive all sums of money paid to it from
time to time by the Employer, and shall hold, invest, reinvest,
manage and administer such moneys and the increment, increase,
earnings and income thereof as a trust fund for the exclusive
benefit of the Participants, Former Participants and their
Beneficiaries or the payment of reasonable expenses of
administering the Plan.
In the event that affiliated or subsidiary Employers become
signatory hereto, completely independent records, allocations,
and contributions shall be maintained for each Employer. The
Trustee may invest all funds without segregating assets between
or among signatory Employers.
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ARTICLE 8
FIDUCIARIES
Section 8.1 General
(a) Each Fiduciary who is allocated specific duties or
responsibilities under the Plan or any Fiduciary who assumes
such a position with the Plan shall discharge his duties
solely in the interest of the Participants, Former
Participants and Beneficiaries and for the exclusive purpose
of providing such benefits as stipulated herein to such
Participants, Former Participants and Beneficiaries, or
defraying reasonable expenses of administering the Plan.
Each Fiduciary, in carrying out such duties and
responsibilities, shall act with the care, skill, prudence,
and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such
matters would use in exercising such authority or duties.
(b) A Fiduciary may serve in more than one Fiduciary capacity
and may employ one or more persons to render advice with
regard to his Fiduciary responsibilities. If the Fiduciary
is serving as such without compensation, all expenses
reasonably incurred by such Fiduciary shall be paid from the
Trust Fund or by the Employer.
(c) A Fiduciary may allocate any of his responsibilities for the
operation and administration of the Plan. In limitation of
this right, a Fiduciary may not allocate any
responsibilities as contained herein relating to the
management or control of the Trust Fund except through the
employment of an investment manager as provided in Section
8.3 of this Article and in the Trust Agreement relating to
the Fund.
Section 8.2 Employer
(a) The Sponsoring Employer established and maintains the Plan
for the benefit of its Employees and for Employees of
Participating Employers and of necessity retains control of
the operation and administration of the Plan. The Sponsoring
Employer, in accordance with specific provisions of the
Plan, has as herein indicated, delegated certain of these
rights and obligations to the Trustee, and the Committee and
these parties shall be solely responsible for these, and
only these, delegated rights and obligations.
(b) The Employer shall supply such full and timely information
for all matters relating to the Plan as (a) the Committee,
(b) the Trustee, and (c) the
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accountant engaged on behalf of the Plan by the Sponsoring
Employer may require for the effective discharge of their
respective duties.
Section 8.3 Trustee
The Trustee, in accordance with the Trust Agreement, shall be a
directed Trustee with respect to Trust Fund, except that the
Committee may in its discretion employ the Trustee any time and
from time to time as an investment manager (as defined in Section
3(38) of ERISA) with respect to all or a designated portion of the
assets comprising the Trust Fund. The committee or an investment
manager so appointed shall have the exclusive authority or
discretion to manage the Trust Fund.
Section 8.4 Retirement Committee
(a) The Board of the Sponsoring Employer shall appoint a Committee
of one or more persons to hold office at the pleasure of the
Board, such committee to be known as the Retirement Committee
or Committee. No compensation shall be paid members of the
Committee from the Trust Fund for service on such Committee.
The Committee shall choose from among its members a chairman
and a secretary. Any action of the Committee shall be
determined by the vote of a majority of its members. Either
the chairman or the secretary may execute any certificate or
written direction on behalf of the Committee.
(b) Every decision and action of the Committee shall be valid if
concurrence is by a majority of the members then in office,
which concurrence may be had without a formal meeting.
(c) In accordance with the provisions hereof, the Committee has
been delegated certain administrative functions relating to
the Plan with all powers necessary to enable it to properly
carry out such duties. The Committee shall have no power in
any way to modify, alter, add to or subtract from, any
provisions of the Plan, except as provided in Section 9.1. The
Committee shall have the power and authority in its sole,
absolute and uncontrolled discretion to control and manage the
operation and administration of the Plan and its investment
and shall have all powers necessary to accomplish these
purposes, and to make factual determinations regarding
Participants and their accounts. The responsibility and
authority of the Committee shall include, but shall not be
limited to, (i) determining all questions relating to the
eligibility of employees to participate; (ii) determining the
amount and kind of benefits payable to any Participant, spouse
or Beneficiary; (iii) establishing and reducing to writing and
distributing to any Participant or Beneficiary a claims
procedure and administering that procedure, including the
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processing and determination of all appeals thereunder and
(iv) interpreting the provisions of the Plan including the
publication of rules for the regulation of the Plan as in its
sole, absolute and uncontrolled discretion are deemed
necessary or advisable and which are not inconsistent with the
express terms hereof or the Code or ERISA, as amended. All
disbursements by the Trustee, except for the ordinary expenses
of administration of the Trust Fund or the reimbursement of
reasonable expenses at the direction of the Sponsoring
Employer, as provided herein, shall be made upon, and in
accordance with, the written directions of the Committee. When
the Committee is required in the performance of its duties
hereunder to administer or construe, or to reach a
determination, under any of the provisions of the Plan, it
shall do so on a uniform, equitable and nondiscriminatory
basis.
(d) The Committee shall establish rules and procedures to be
followed by the Participants, Former Participants and
Beneficiaries in filing applications for benefits and for
furnishing and verifying proofs necessary to establish age,
Service, and any other matters required in order to establish
their rights to benefits in accordance with the Plan.
Additionally, the Committee shall establish accounting
procedures for the purpose of making all allocations,
valuations and adjustments to Participants' accounts. Should
the Committee determine that the strict application of its
accounting procedures will not result in an equitable and
nondiscriminatory allocation among the accounts of
Participants, it may modify its procedures for the purpose of
achieving an equitable and non-discriminatory allocation in
accordance with the general concepts of the Plan, provided
however that such adjustments to achieve equity shall not
reduce the vested portion of a Participant's interest.
(e) The Committee may employ such counsel, accountants, and other
agents as it shall deem advisable. The Sponsoring Employer
shall pay, or cause to be paid from the Trust Fund, the
compensation of such counsel, accountants, and other agents
and any other expenses incurred by the Committee in the
administration of the Plan and Trust.
Section 8.5 Claims Procedures
The Committee has delegated to the Human Resources Department (the
"Claims Coordinator") the processing of all applications for
benefits. Upon receipt by the Claims Coordinator of such an
application, it shall determine all facts which are necessary to
establish the right of an applicant to benefits under the
provisions of the Plan and the amount thereof as herein provided.
Upon request, the Claims Coordinator will afford the applicant the
right of a hearing with respect to any finding of fact or
determination. The applicant shall be notified in writing of any
adverse decision with respect to his claim within 90 days after its
submission.
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The notice shall be written in a manner calculated to be understood
by the applicant and shall include the items specified in Section
8.5(a) through (d).
(a) The specific reason or reasons for the denial;
(b) Specific references to the pertinent Plan provisions on which
the denial is based;
(c) A description of any additional material or information
necessary for the applicant to perfect the claim and an
explanation why such material or information is necessary; and
(d) An explanation of the Plan's claim review procedures.
(e) If special circumstances require an extension of time for
processing the initial claim, a written notice of the
extension and the reason therefor shall be furnished to the
claimant before the end of the initial 90 day period. In no
event shall such extension exceed 90 days.
(f) In the event a claim for benefits is denied or if the
applicant has had no response to such claim within 90 days of
its submission (in which case the claim for benefits shall be
deemed to have been denied), the applicant or his duly
authorized representative, at the applicant's sole expense,
may appeal the denial to the Committee within 60 days of the
receipt of written notice of denial or 60 days from the date
such claim is deemed to be denied. In pursuing such appeal the
applicant or his duly authorized representative:
(1) May request in writing that the Committee review the
denial;
(2) May review pertinent documents; and
(3) May submit issues and comments in writing.
(g) The decision on review shall be made within 60 days of receipt
of the request for review, unless special circumstances
require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later
than 120 days after receipt of a request for review. If such
an extension of time is required, written notice of the
extension shall be furnished to the claimant before the end of
the original 60 day period. The decision on review shall be
made in writing, shall be written in a manner calculated to be
understood by the claimant, and shall include specific
references to the provisions of the Plan on which such denial
is based. If the decision on review is not furnished within
the time specified above, the claim shall be deemed denied on
review.
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Section 8.6 Records
All acts and determinations of the Claims Coordinator or the
Committee shall be duly recorded by the Claims Coordinator or the
secretary of the Committee thereof and all such records together
with such other documents as may be necessary in exercising their
duties under the Plan shall be preserved in the custody of such
secretary. Such records and documents shall at all times be open
for inspection and for the purpose of making copies by any person
designated by the Sponsoring Employer. The Committee shall provide
such timely information, resulting from the application of its
responsibilities under the Plan, as needed by the Trustee and the
accountant engaged on behalf of the Plan by the Sponsoring
Employer, for the effective discharge of their respective duties.
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ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
Section 9.1 Amendment of the Plan
The Sponsoring Employer shall have the right at any time by action
of the Board (or, in the case of amendments to the eligibility,
vesting and service-counting provisions of the Plan with respect
to participating Employers, or to make changes required by
amendments to the Code or ERISA, or to clarify the Plan's terms as
construed by the Committee, then by either the Board or the
Committee) to modify, alter or amend the Plan in whole or in part;
provided, however, that the duties, powers and liability of the
Trustee hereunder shall not be increased without its written
consent; and provided, further, that the amount of benefits which,
at the time of any such modification, alteration or amendment,
shall have accrued for any Participant, Former Participant or
Beneficiary hereunder shall not be adversely affected thereby; and
provided, further, that no such amendments shall have the effect
of reverting to the Employer any part of the principal or income
of the Trust Fund. No amendment to the Plan shall decrease the
balance of a Participant's Individual Account or eliminate an
optional form of distribution.
Section 9.2 Termination of the Plan
The Sponsoring Employer expects to continue the Plan indefinitely,
but continuance is not assumed as a contractual obligation and the
Sponsoring Employer reserves the right at any time by action of
the Board to terminate its participation in the Plan. If the
Sponsoring Employer terminates or partially terminates its
participation in the Plan or permanently discontinues its
Contributions at any time, each Participant affected thereby shall
be then vested with the amount allocated to his Individual
Account.
In the event of termination or partial termination of the Plan by
the Sponsoring Employer, the Committee shall value the Trust Fund
as of the date of termination. That portion of the Trust Fund for
which the Plan has not been terminated shall be unaffected.
Section 9.3 Return of Contributions
It is intended that this Plan shall be approved and qualified
under the Code and Regulations issued thereunder with respect to
Employees' Plans and Trusts (1) so as to permit the Employers to
deduct for federal income tax purposes the amounts of
contributions to the Trust; (2) so that contributions so made and
the income of the Trust Fund will not be taxable to Participants
as income until received; (3) so that the income of the Trust Fund
shall be exempt from federal income tax. In the event the
Commissioner of Internal Revenue or his delegate rules that the
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deduction for all or a part of any Employer Contribution (or
Salary Redirection) is not allowed, the Employers reserve the
right to recover that portion or all of their contributions for
which no deduction is allowed, provided such recovery is made
within one year of the disallowance.
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ARTICLE 10
MISCELLANEOUS
Section 10.1 Governing Law
The Plan shall be construed, regulated and administered according
to the laws of the Commonwealth of Kentucky, except in those areas
preempted by the laws of the United States of America.
Section 10.2 Construction
The headings and subheadings in the Plan have been inserted for
convenience of reference only and shall not affect the
construction of the provisions hereof. In any necessary
construction the masculine shall include the feminine and the
singular the plural, and vice versa.
Section 10.3 Administration Expenses
The expenses of administering the Trust Fund and the Plan shall be
paid from the Trust Fund, unless they are paid by the Employer.
Section 10.4 Participant's Rights
No Participant in the Plan shall acquire any right to be retained
in the Employer's employ by virtue of the Plan, nor, upon his
dismissal, or upon his voluntary termination of employment, shall
he have any right or interest in and to the Trust Fund other than
as specifically provided herein. The Employer shall not be liable
for the payment of any benefit provided for herein; all benefits
hereunder shall be payable only from the Trust Fund.
Section 10.5 Nonassignability
(a) The benefit or interest under the Plan and Trust of any
person shall not be assignable or alienable by that person
and shall not be subject to alienation by operation of law or
legal process. The preceding sentence shall apply to the
creation, assignment or recognition of any right to any
benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined to
be a qualified domestic relations order, as defined in
Section 414(p) of the Code. A domestic relations order
entered before January 1, 1985, shall be treated as a
qualified domestic relations order if payment of benefits
pursuant to the order has commenced as of such date, and may
be treated as a qualified domestic relations order if payment
of benefits is not commenced as of such date,
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even though the order does not satisfy the requirements of
Section 414(p) of the Code.
(b) This Plan specifically permits a distribution to an
alternate payee under a qualified domestic relations order
at any time, irrespective of whether the Participant has
attained his earliest retirement age (as defined under Code
Section 414(p)) under the Plan. A distribution to an
alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (a) the order
specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an
earlier distribution; and (b) if the present value of the
alternate payee's benefits under the Plan exceeds $5,000,
and the order requires, the alternate payee consents to any
distribution occurring prior to the Participant's attainment
of earliest retirement age. Nothing in this Section 10.5
gives a Participant a right to receive distribution at a
time otherwise not permitted under the Plan nor does it
permit the alternate payee to receive a form of payment not
permitted under the Plan.
Section 10.6 Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with
another plan or transfer of assets or liabilities from the Plan to
another plan, each then Participant, Former Participant or
Beneficiary shall not, as a result of such event, be entitled on
the day following such merger, consolidation or transfer under the
termination of the Plan provisions to a lesser benefit than the
benefit he was entitled to on the date prior to the merger,
consolidation or transfer if the Plan had then terminated.
Section 10.7 Counterparts
The Plan and the Trust Agreement may be executed in any number of
counterparts, each of which shall constitute but one and the same
instrument and may be sufficiently evidenced by any one
counterpart.
Section 10.8 Administrative Mistake
If the Committee discovers that a mistake has been made in
crediting Salary Redirection Contributions or Employer
Contributions, withholding Salary Redirection Contributions from a
Participant's compensation, or crediting earnings to the account
of any Participant, the Committee shall take any administrative
action which it deems necessary or appropriate to remedy the
mistake in question, and may request the Employer to make a
special contribution to the account of the Participant where
appropriate. If the Committee discovers that a mistake has been
made in calculating the amount of any excess Salary Redirection or
other contribution under Sections 3.4, 3.5 or 4.6, or earnings on
such excess amount, which amount is required to be distributed to
a Participant,
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the Committee shall take such administrative action as it deems
necessary or appropriate to remedy the mistake in question.
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ARTICLE 11
TOP HEAVY PLAN PROVISIONS
Section 11.1 General
Notwithstanding anything in the Plan to the contrary, if this Plan
when combined with all other plans required to be aggregated
pursuant to Code Section 416(g) is deemed to be a top-heavy plan
for any Plan Year, the provisions of this Article shall apply to
such Plan Year.
Section 11.2 Minimum Contribution
Regardless of hours worked, each active Participant who is not a
Key Employee shall be entitled to a minimum allocation of
contributions and forfeitures equal to the lesser of (i) three
percent (3%) of the Participant's Compensation for the Plan Year;
and (ii) provided that the Plan is not part of a Required
Aggregation Group with a Defined Benefit Plan because the Plan
enables the Defined Benefit Plan to meet the requirements of Code
Section 401(a)(4) or 410, the highest percentage of Compensation
contributed on behalf of, plus forfeitures allocated to, a Key
Employee. In the case of a Participant who is also a participant
in a defined benefit plan maintained by the Employer, the minimum
accrued benefit provided in the defined benefit plan pursuant to
Code Section 416(c)(1) equal to two percent of the Participant's
average monthly compensation for the five consecutive years when
his aggregate compensation was highest multiplied by his years of
credited service up to ten years for each plan year in which the
Plan is top heavy, shall be the only minimum benefit for both that
plan and this Plan, and the minimum allocation described above
shall not apply.
Section 11.3 Super Top Heavy Plan
The multiplier of 1.25 in Section 4.7 shall be reduced to 1.0
unless (i) all plans of the Required Aggregation Group or the
Permissive Aggregation Group, when aggregated, are 90% or less top
heavy, and (ii) the minimum accrued benefit referenced in clause
(i) of Section 11.2 is modified by substituting three percent with
four percent. In the case of each Participant who is also a
participant in a defined benefit plan maintained by the Employer,
the minimum accrued benefit provided in the defined benefit plan
pursuant to Code Sections 416(c)(1) and 416(h) equal to three
percent of the Participant's average monthly compensation for the
five highest consecutive years when his aggregate compensation was
highest multiplied by his years of credited service up to ten
years for each plan year in which the Plan is top heavy shall be
the only minimum benefit for both that plan and this Plan, and the
minimum allocation described above shall not apply.
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Section 11.4 Minimum Vesting
In the event that the regular vesting schedule in Article 5 is
less liberal than the vesting schedule hereinafter provided, then
such vesting schedule shall be substituted with the following to
the extent that the following schedule is more favorable:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 years or more 100%
Should the Plan cease to be a Top Heavy Plan, the regular vesting
schedule in Article 5 shall be put back into effect. However, the
vested percentage of any Participant cannot be decreased as a
result of the return to the prior vesting schedule and any
Participant with three or more years of Service may elect within
the later of: (1) 60 days after the Plan ceases to be a Top Heavy
Plan or (2) 60 days after the date the Participant is issued
written notification of the change in the vesting schedules, to
remain under the special vesting rules described in this Section.
Section 11.5 Compensation
For purposes of this Article, compensation shall have the same
meaning as assigned to it by Code Section 415 and shall be
limited to such amount as required by Code Section 401(a)(17).
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ARTICLE 12
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN
Section 12.1 General. Any Employer that, with the Committee's consent, adopts
this Plan and becomes a party to the Trust Agreement shall be a
"Participating Employer." Participating Employers as of January
1, 1999 are listed on Appendix B to the Plan, and any
Participating Employers added in the future shall be so listed as
soon as reasonably practicable after the Committee consents to
their adoption of this Plan. Each Participating Employer shall be
subject to the terms and conditions of this Plan as in effect at
the effective date of adoption by the Participating Employer and
as subsequently amended from time to time by the Vencor, Inc.
(for purposes of this section, the "Sponsoring Employer"),
subject to such modifications as are set forth in the document
evidencing the Participating Employer's adoption of the Plan.
Unless the context of the Plan clearly indicates to the contrary,
the terms "Company" and "Employer" shall be deemed to include
each Participating Employer as relates to its adoption of the
Plan. When an entity ceases to be an "Employer" because it is no
longer part of the Company, the entity shall cease to be a
Participating Employer. Section 12.4 shall not apply to such
cessation.
Section 12.2 Single Plan. This Plan shall be deemed to be a single plan of all
Employers that have adopted this Plan. Employer contributions
shall not be accounted for separately, and all Plan assets shall
be available to pay benefits to all Participants and their
Beneficiaries. Employees may be transferred among Participating
Employer or employed simultaneously by more than one
Participating Employer, and no such transfer or simultaneous
employment shall effect a termination of employment, be deemed
retirement or be the cause of a Forfeiture or a loss of years of
Service under this Plan. For purposes of determining years of
Service and the payment of benefits upon death or other
termination of employment, all Participating Employers shall be
deemed one Employer. Any Participant employed by a Participating
Employer during a Plan Year who receives any Compensation from a
Participating Employer during that Plan Year shall receive an
allocation of any Employer Contributions and Forfeitures for the
Plan Year in accordance with Article 3 based on his Compensation
during that Plan Year.
Section 12.3 Sponsoring Employer as Agent. Each Participating Employer shall
be deemed to have designated irrevocably the Sponsoring Employer
as its sole agent (1) for all purposes under Section 8 (including
fixing the number of members of, and the appointment and removal
of, the Committee); (2) with respect to all its relations with
the Trustee (including the Trustee's appointment and removal, and
fixing the number of Trustees); and (3) for the purpose of
amending this Plan. The Committee shall make any and all rules
and regulations which it shall deem necessary or appropriate to
effectuate the purpose of this Article 12, and such
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rules and regulations shall be binding upon the Sponsoring
Employer, the Participating Employers, the Participants and
Beneficiaries.
Section 12.4 Withdrawal of Employer. Any Participating Employer may withdraw
its participation in the Plan by giving written notice to the
Administrator stating that it has adopted a separate plan. The
notice shall be given at least six months prior to a designated
Valuation Date, unless the Committee shall accept a shorter
period of notification. Upon request of the withdrawing
Participating Employer, the Committee may, but shall not be
obligated to, instruct the Trustee to transfer the withdrawing
Participating Employer's interest in the Fund to the
Participating Employer's separate plan in accordance with the
following rules: Promptly after the Valuation Date as of which
the transfer is to occur, the Committee, shall establish the
withdrawing Participating Employer's interest in the Trust Fund,
after a reduction for fees and other expenses related to the
Participating Employer's withdrawal. The Trustee shall then, in
accordance with the Committee's instructions, transfer the
withdrawing Participating Employer's interest in the Fund to the
trustee or other funding agent of the Participating Employer's
separate plan. Neither the Trustee nor the Committee shall be
obligated to transfer or direct the transfer of assets under this
Article until they are satisfied as to all matters pertaining to
the transfer, including, but not limited to, the tax
qualification of the plan into which the transfer will be made.
The Committee and the Trustee may rely fully on the
representations and instructions of the withdrawing Participating
Employer and shall be fully protected and discharged with respect
to any transfer made in accordance with such representations or
instructions. Any transfer of assets in accordance with this
Article shall constitute a complete discharge of responsibility
of the Sponsoring Employer, the remaining Participating Employer,
their Boards of Directors and officers, and the Trustee without
any responsibility on their part collectively or individually to
see to the application thereof. The Committee in its sole
discretion shall have the right to transfer the withdrawing
Participating Employer's interest in the Fund to the new plan in
the form of installments, in cash, or in cash and kind and over a
period of time not to exceed one year following the designated
Valuation Date as of which the transfer is to occur. Any assets
which are invested in accordance with an investment contract or
agreement which by its terms precludes the realization upon and
distribution of such assets for a stated period of time shall
continue to be held by the Trustee under the terms and conditions
of this Plan until the expiration of such period, subject to the
Committee's instructions. The Committee may in its sole
discretion direct the Trustee to segregate the Accounts of all
affected Participants into a separate fund to facilitate
transfer, and the Administrator may in its sole discretion direct
the Trustee to invest the separate fund only in cash equivalent
investments.
Section 12.5 Termination of Participation. The Board of Directors of a
Participating Employer may at any time terminate this Plan with
respect to its Employees by adopting a resolution to that effect
and delivering a certified copy to the
64
<PAGE>
Committee. Section 9.2 shall not apply to vest the Individual
Accounts of a Participating Company's Employees upon such
termination (unless the termination results in a partial
termination of the entire Plan), and the continuation of the Plan
by the Sponsoring Employer and other Participating Employers
shall not be affected. The termination of the Plan with respect
to a Participating Employer's Employees shall not effect a
termination with respect to an Employee of the Sponsoring
Employer or another Participating Employer if such Employee was
not employed by the terminating Participating Employer on the
effective date of the termination, even though he may have been
employed by the terminating Participating Employer at an earlier
date, and shall not entitle a Participant to a distribution until
an actual separation from service with the meaning prescribed
under Code Section 401(k)(2)(B) has occurred, unless the
distribution follows an event in Code Section 401(k)(10) and the
Treasury Regulations thereunder. Any fees and other expenses
related to a Participating Employer's termination shall be
charged against the Accounts of the affected Participants, if not
paid by the terminating Participating Employer.
65
<PAGE>
SIGNATURES
----------
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Plan to be
executed this _____ day of _______________, 2000, but effective March 1, 2000.
VENCOR, INC.
By____________________________
Title:________________________
66
<PAGE>
APPENDIX "A"
PAST SERVICE PURSUANT TO SECTION 1.44(c)
(for companies acquired but plans not merged)
---
Location Date of Acquisition
-------- -------------------
Vencor Dallas 2/27/89
Vencor Ft. Lauderdale 12/20/89
Vencor Sycamore 10/10/86
Vencor LaGrange 9/4/85
Vencor So. Texas 9/9/88
Vencor Tampa 10/19/88
Vencor So. Louisiana 8/30/88
Nationwide Care, Inc.--Service for all periods from date of hire with this
company
Any company for which past service was granted for purposes of the Hillhaven
Retirement or Deferred Savings Plan, as determined by that plan as in effect
prior to January 1, 1997
Effective July 1, 1997, all past service with the following companies shall be
credited for vesting purposes under this Plan:
Respiratory Care Services, Inc.
PersonaCare, Inc.
PersonaCare of San Antonio, Inc.
PersonaCare of Wisconsin, Inc.
PersonaCare of Huntsville, Inc.
PersonaCare of Pompano West, Inc.
PersonaCare of Rhode Island, Inc.
PersonaCare of San Pedro, Inc.
Tucker Nursing Center, Inc.
PersonaCare of Pennsylvania, Inc.
PersonaCare of Owensboro, Inc.
PersonaCare of Georgia, Inc.
PersonaCare of Connecticut, Inc.
Stamford Health Facilities, Inc.
Homestead Health Center, Inc.
Courtland Gardens Residence, Inc.
Courtland Gardens Health Care Center, Inc.
PersonaCare of Shreveport, Inc.
PersonaCare of Bradenton, Inc.
PersonaCare of Reading, Inc.
PersonaCare of Warner Robbins, Inc.
Lafayette Health Care Center, Inc.
A-1
<PAGE>
PersonaCare of St. Petersburg, Inc.
PersonaCare of Clearwater, Inc.
PersonaCare of Pompano East, Inc.
PersonaCare of Ohio, Inc.
PersonaCare Living Center of Clearwater, Inc.
THTX, Inc.
Health Care Holdings, Inc.
Health Care Technology, Inc.
NFM, Inc.
PersonaCare Properties, Inc.
Effective January 1, 1998, all past service with the following companies shall
be credited for vesting purposes under this Plan:
TheraTx, Inc.
TheraTx Medical Supplies, Inc.
TheraTx Staffing, Inc.
TheraTx Management Services, Inc.
TheraTx Health Services, Inc.
TheraTx Rehabilitation Services, Inc.
TheraTx Healthcare Management, Inc.
WorkNet, Inc.
HORA Acquisition, Inc.
Horizon Healthcare Services, Inc.
Tunstall Enterprises, Inc.
Community Psychiatric Centers
Community Psychiatric Centers of Indiana, Inc.
Community Psychiatric Centers of Kansas, Inc.
Community Psychiatric Centers of Mississippi, Inc.
Community Psychiatric Centers of Arkansas, Inc.
Community Psychiatric Centers of Florida, Inc.
Community Psychiatric Centers of Idaho, Inc.
Community Psychiatric Centers of Missouri, Inc.
Community Psychiatric Centers of North Carolina, Inc.
Community Psychiatric Centers of Oklahoma, Inc.
Community Psychiatric Centers of Oregon, Inc.
Community Psychiatric Centers of Texas, Inc.
Cottonwood Hill, Inc.
Old Orchard Hospital, Inc.
Peachtree-Parkwood Hospital, Inc.
Community Psychiatric Centers of Utah, Inc.
Community Psychiatric Centers of Wisconsin, Inc.
C.P.C. of Louisiana, Inc.
Community Residential Centers of San Antonio, Inc.
CPC Properties of Oklahoma, Inc.
A-2
<PAGE>
CPC Properties of Texas, Inc.
CPC Properties of Utah, Inc.
CPC Properties of Arkansas, Inc.
CPC Properties of Illinois, Inc.
CPC Properties of Kansas, Inc.
Florida Hospital Properties
CPC Properties of Louisiana, Inc.
CPC of Georgia, Inc.
CPC Properties of Mississippi, Inc.
CPC Properties of Indiana, Inc.
CPC Properties of Missouri, Inc.
CPC Properties of Wisconsin, Inc.
CPC Properties of N. Carolina, Inc.
Community Psychiatric Centers of California
Community Psychiatric Centers Properties Incorporated
CPC Investment Corporation
Transitional Hospitals Corporation
THC Chicago, Inc.
THC Orange County, Inc.
THC of Massachusetts, Inc.
THC of Florida, Inc.
THC Hollywood, Inc.
THC San Diego, Inc.
J.B. King Hospital, Inc.
THC Houston, Inc.
THC Seattle, Inc.
THC of Nevada, Inc.
THC Minneapolis, Inc.
THC St. Petersburg, Inc.
THC of New Mexico, Inc.
THC of Wisconsin, Inc.
THC of Indiana, Inc.
THC of Tampa, Inc.
THC North Shore, Inc.
THC of Louisiana, Inc.
THC of Texas, Inc.
Belmedco
CPC Managed Care Health Services, Inc.
Community Behavioral Health System, Inc.
CPC Pharmacy, Inc.
CPC Laboratories, Inc.
Miami Valley Community Centers, Inc.
Solutions Counseling and Treatment Centers, Inc.
P.P.P, Inc.
A-3
<PAGE>
Transitional Family Services of Georgia, Inc.
Atlantic Psychiatric Centers, Inc.
Interamericana Health Care Group, Inc.
Caribbean Behavioural Health Systems, Inc.
CPC-PHP, Inc.
Effective January 1, 1999, all past service with the following company shall be
credited for vesting purposes under this Plan:
ProData Systems, Inc
* * * * * *
A-4
<PAGE>
APPENDIX "B"
PARTICIPATING EMPLOYERS
As of January 1, 1997:
Advanced Infusion Systems, Inc.
Brim of Massachusetts, Inc.
BORA Acquisition, Inc.
Cornerstone Insurance Company
First Healthcare Corporation
First Rehab, Inc.
Hahnemann Hospital, Inc.
Healthcare Rehabilitation Inc.
Hillhaven Home Care, Inc.
Hillhaven of Central Florida, Inc.
and the partnership which it and First Healthcare own 100% Carrollwood
Care Center
LV Acquisition Corp.
Meadowvale Skilled Care Center, Inc.
Medisave of Florida, Inc.
Medisave of Tennessee, Inc.
Nationwide Care, Inc.
and the partnerships which it and First Healthcare own 100% -
Hillhaven/Indiana Partnership, New Pond Village Associates, St. George
Nursing Home Limited Partnership and Stickton Healthcare Center, Ltd.
NFM, Inc.
Northwest Health Care, Inc.
Pasatiempo Development Corp.
Peach Acquisition Corp.
Twenty-Nine Hundred Corporation
VCI Specialty Services, Inc.
Vencare Hospice, Inc.
Vencare, Inc.
Vencor Home Health Services, Inc.
Vencor Hospitals of California, Inc.
Vencor Hospitals East, Inc.
Vencor Hospitals Illinois, Inc.
Vencor Hospitals South, Inc.
Vencor Investments, Inc.
Vencor Kentucky, Inc.
Vencor Properties, Inc.
and the partnership which it and VCI Specialty Services, Inc. own 100% -
Vencor Hospitals Texas, Ltd.
B-1
<PAGE>
Vencor, Inc.
Ventech Systems, Inc.
Added as of July 1, 1997:
Respiratory Care Services, Inc.
PersonaCare, Inc.
PersonaCare of San Antonio, Inc.
PersonaCare of Wisconsin, Inc.
PersonaCare of Huntsville, Inc.
PersonaCare of Pompano West, Inc.
PersonaCare of Rhode Island, Inc.
PersonaCare of San Pedro, Inc.
Tucker Nursing Center, Inc.
PersonaCare of Pennsylvania, Inc.
PersonaCare of Owensboro, Inc.
PersonaCare of Georgia, Inc.
PersonaCare of Connecticut, Inc.
Stamford Health Facilities, Inc.
Homestead Health Center, Inc.
Courtland Gardens Residence, Inc.
Courtland Gardens Health Care Center, Inc.
PersonaCare of Shreveport, Inc.
PersonaCare of Bradenton, Inc.
PersonaCare of Reading, Inc.
PersonaCare of Warner Robbins, Inc.
Lafayette Health Care Center, Inc.
PersonaCare of St. Petersburg, Inc.
PersonaCare of Clearwater, Inc.
PersonaCare of Pompano East, Inc.
PersonaCare of Ohio, Inc.
PersonaCare Living Center of Clearwater, Inc.
THTX, Inc.
Health Care Holdings, Inc.
Health Care Technology, Inc.
NFM, Inc.
PersonaCare Properties, Inc.
Added as of January 1, 1998:
TheraTx, Inc.
TheraTx Medical Supplies, Inc.
TheraTx Staffing, Inc.
TheraTx Management Services, Inc.
TheraTx Health Services, Inc.
TheraTx Rehabilitation Services, Inc.
B-2
<PAGE>
TheraTx Healthcare Management, Inc.
WorkNet, Inc.
HORA Acquisition, Inc.
Horizon Healthcare Services, Inc.
Tunstall Enterprises, Inc.
Community Psychiatric Centers
Community Psychiatric Centers of Indiana, Inc.
Community Psychiatric Centers of Kansas, Inc.
Community Psychiatric Centers of Mississippi, Inc.
Community Psychiatric Centers of Arkansas, Inc.
Community Psychiatric Centers of Florida, Inc.
Community Psychiatric Centers of Idaho, Inc.
Community Psychiatric Centers of Missouri, Inc.
Community Psychiatric Centers of North Carolina, Inc.
Community Psychiatric Centers of Oklahoma, Inc.
Community Psychiatric Centers of Oregon, Inc.
Community Psychiatric Centers of Texas, Inc.
Cottonwood Hill, Inc.
Old Orchard Hospital, Inc.
Peachtree-Parkwood Hospital, Inc.
Community Psychiatric Centers of Utah, Inc.
Community Psychiatric Centers of Wisconsin, Inc.
C.P.C. of Louisiana, Inc.
Community Residential Centers of San Antonio, Inc.
CPC Properties of Oklahoma, Inc.
CPC Properties of Texas, Inc.
CPC Properties of Utah, Inc.
CPC Properties of Arkansas, Inc.
CPC Properties of Illinois, Inc.
CPC Properties of Kansas, Inc.
Florida Hospital Properties
CPC Properties of Louisiana, Inc.
CPC of Georgia, Inc.
CPC Properties of Mississippi, Inc.
CPC Properties of Indiana, Inc.
CPC Properties of Missouri, Inc.
CPC Properties of Wisconsin, Inc.
CPC Properties of N. Carolina, Inc.
Community Psychiatric Centers of California
Community Psychiatric Centers Properties Incorporated
CPC Investment Corporation
Transitional Hospitals Corporation
THC Chicago, Inc.
THC Orange County, Inc.
B-3
<PAGE>
THC of Massachusetts, Inc.
THC of Florida, Inc.
THC Hollywood, Inc.
THC San Diego, Inc.
J.B. King Hospital, Inc.
THC Houston, Inc.
THC Seattle, Inc.
THC of Nevada, Inc.
THC Minneapolis, Inc.
THC St. Petersburg, Inc.
THC of New Mexico, Inc.
THC of Wisconsin, Inc.
THC of Indiana, Inc.
THC of Tampa, Inc.
THC North Shore, Inc.
THC of Louisiana, Inc.
THC of Texas, Inc.
Belmedco
CPC Managed Care Health Services, Inc.
Community Behavioral Health System, Inc.
CPC Pharmacy, Inc.
CPC Laboratories, Inc.
Miami Valley Community Centers, Inc.
Solutions Counseling and Treatment Centers, Inc.
P.P.P, Inc.
Transitional Family Services of Georgia, Inc.
Atlantic Psychiatric Centers, Inc.
Interamericana Health Care Group, Inc.
Caribbean Behavioural Health Systems, Inc.
CPC-PHP, Inc.
Added as of January 1, 1999:
ProData Systems, Inc
B-4
<PAGE>
Exhibit 10.7
RETIREMENT SAVINGS PLAN
FOR CERTAIN EMPLOYEES OF VENCOR
AND ITS AFFILIATES
Amended and Restated Effective
as of
March 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
INTRODUCTION............................................................. 1
DEFINITIONS.............................................................. 2
Section 1.1 Adjustment................................................. 2
Section 1.2 Annual Additions........................................... 2
Section 1.3 Beneficiary................................................ 2
Section 1.4 Board...................................................... 2
Section 1.5 Break(s)................................................... 2
Section 1.6 Code....................................................... 3
Section 1.7 Committee.................................................. 3
Section 1.8 Company.................................................... 3
Section 1.9 Compensation............................................... 3
Section 1.10 Construction............................................... 3
Section 1.11 Defined Benefit Plan....................................... 3
Section 1.12 Defined Contribution Plan.................................. 3
Section 1.13 Effective Date............................................. 4
Section 1.14 Employee................................................... 4
Section 1.15 Employer................................................... 4
Section 1.16 Employer Contributions..................................... 5
Section 1.17 Entry Date................................................. 5
Section 1.18 ERISA...................................................... 5
Section 1.19 Fiduciary.................................................. 5
Section 1.20 Former Participant......................................... 5
Section 1.21 Highly Compensated Employee................................ 5
Section 1.22 Hour of Service............................................ 5
Section 1.23 Individual Account......................................... 8
Section 1.24 Investment Fund............................................ 8
Section 1.25 Key Employee............................................... 8
Section 1.26 Limitation Year............................................ 8
Section 1.27 Matching Contribution Account.............................. 8
Section 1.28 Matching Contributions..................................... 9
Section 1.30 Normal Retirement Date..................................... 9
Section 1.31 Participant................................................ 9
Section 1.32 Permissive Aggregation Group............................... 9
Section 1.33 Plan....................................................... 9
Section 1.34 Plan Year.................................................. 9
Section 1.35 Prior Plan................................................. 9
Section 1.36 Prior Plan Employer Contribution Account................... 9
Section 1.37 Prior Plan Salary Redirection Account...................... 9
Section 1.38 Profit Sharing Contribution Account........................ 9
Section 1.39 Profit Sharing Contributions............................... 10
Section 1.40 Required Aggregation Group................................. 10
Section 1.41 Salary Redirection......................................... 10
Section 1.42 Salary Redirection Account................................. 10
Section 1.43 Service.................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 1.44 Top Heavy Plan............................................. 11
Section 1.45 Total and Permanent Disability or Totally and Permanently
Disabled................................................... 12
Section 1.46 Trust Agreement............................................ 13
Section 1.47 Trust Fund................................................. 13
Section 1.48 Trustee.................................................... 13
Section 1.49 Valuation Date............................................. 13
PARTICIPATION............................................................ 14
Section 2.1 Eligibility Requirements................................... 14
Section 2.2 Plan Binding............................................... 15
Section 2.3 Reemployment and Transfers................................. 15
Section 2.4 Beneficiary Designation.................................... 16
Section 2.5 Notification of Individual Account Balance................. 16
CONTRIBUTIONS............................................................ 17
Section 3.1 Salary Redirection......................................... 17
Section 3.2 Matching Contributions..................................... 18
Section 3.3 Profit Sharing Contributions............................... 19
Section 3.4 Nondiscrimination Test for Salary Redirection.............. 19
Section 3.5 Nondiscrimination Test for Other Contributions............. 22
Section 3.6 Maximum Individual Deferral................................ 25
Section 3.7 Mistake of Fact............................................ 25
Section 3.8 Qualified Nonelective Contributions........................ 25
Section 3.9 Uniformed Services Employment and Reemployment Rights Act
of 1994 ("USERRA")......................................... 25
ACCOUNTS................................................................. 27
Section 4.1 Individual Accounts........................................ 27
Section 4.2 Investment of Accounts..................................... 27
Section 4.3 Valuation of Accounts...................................... 27
Section 4.4 Trustee and Committee Judgment Controls.................... 29
Section 4.5 Maximum Additions.......................................... 29
Section 4.6 Corrective Adjustments..................................... 29
Section 4.7 Defined Contribution and Defined Benefit Plan Fraction..... 30
DISTRIBUTIONS............................................................ 31
Section 5.1 Normal Retirement.......................................... 31
Section 5.2 Late Retirement............................................ 31
Section 5.3 Death...................................................... 31
Section 5.4 Disability................................................. 31
Section 5.5 Termination of Employment.................................. 31
Section 5.6 Commencement of Benefits................................... 34
Section 5.7 Methods of Payment......................................... 35
Section 5.8 Benefits to Minors and Incompetents........................ 36
Section 5.9 Unclaimed Benefits......................................... 36
Section 5.10 Participant Directed Rollovers............................. 37
Section 5.11 Joint and Survivor Options................................. 38
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
WITHDRAWALS.............................................................. 42
Section 6.1 Hardship Withdrawal........................................ 42
Section 6.2 Prior Plan Employer Contribution Account Withdrawals....... 44
FUNDING.................................................................. 45
Section 7.1 Contributions.............................................. 45
Section 7.2 Trustee.................................................... 45
FIDUCIARIES.............................................................. 46
Section 8.1 General.................................................... 46
Section 8.2 Employer................................................... 46
Section 8.3 Trustee.................................................... 47
Section 8.4 Retirement Committee....................................... 47
Section 8.5 Claims Procedures.......................................... 48
Section 8.6 Records.................................................... 49
AMENDMENT AND TERMINATION OF THE PLAN.................................... 51
Section 9.1 Amendment of the Plan...................................... 51
Section 9.2 Termination of the Plan.................................... 51
Section 9.3 Return of Contributions.................................... 51
MISCELLANEOUS............................................................ 53
Section 10.1 Governing Law.............................................. 53
Section 10.2 Construction............................................... 53
Section 10.3 Administration Expenses.................................... 53
Section 10.4 Participant's Rights....................................... 53
Section 10.5 Nonassignability........................................... 53
Section 10.6 Merger, Consolidation or Transfer.......................... 54
Section 10.7 Counterparts............................................... 54
TOP HEAVY PLAN PROVISIONS................................................ 55
Section 11.1 General.................................................... 55
Section 11.2 Minimum Contribution....................................... 55
Section 11.3 Super Top Heavy Plan....................................... 55
Section 11.4 Minimum Vesting............................................ 56
Section 11.5 Compensation............................................... 56
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN..................... 57
Section 12.2 Single Plan................................................ 57
Section 12.3 Sponsoring Employer as Agent............................... 57
Section 12.4 Withdrawal of Employer..................................... 58
Section 12.5 Termination of Participation............................... 58
</TABLE>
iii
<PAGE>
INTRODUCTION
Effective January 1, 1997 except as otherwise provided herein, the Board of
Directors of Vencor, Inc., successor by merger to the Hillhaven Corporation (the
"Sponsoring Employer"), amended and restated in its entirety the Plan formerly
known as The Retirement Savings Plan of The Hillhaven Corporation and originally
effective as of January 1, 1991 to be called the Retirement Savings Plan for
Certain Employees of Vencor and Its Affiliates, as hereinafter set forth.
In connection with the spinoff by Vencor, Inc. of Vencor Healthcare, Inc.
(a wholly-owned subsidiary of Vencor, Inc. to which Vencor, Inc. contributed
substantially all of its assets other than real estate holdings) effected by
means of a distribution by Vencor, Inc. as a dividend to the holders of the
issued and outstanding common shares of Vencor, Inc., all of the issued and
outstanding common shares of Vencor Healthcare, Inc. on the basis of one share
of Vencor Healthcare, Inc. common stock for each share of Vencor, Inc. common
stock (the "Distribution"), Vencor Inc. changed its name to Ventas, Inc. and
Vencor Healthcare, Inc. changed its name to Vencor, Inc. and assumed the role of
Sponsoring Employer under the Plan. Effective May 1, 1998, all references to
"Vencor, Inc." and "Sponsoring Employer" refer to Vencor, Inc. (the entity
formerly named Vencor Healthcare, Inc.), and Ventas, Inc. became a Participating
Employer under the Plan.
Effective March 1, 2000, the Employer desires to amend and restate the Plan
in its entirety, as herein set forth, in order to provide benefits for certain
of its eligible employees.
It is intended that this Plan, together with the Trust Agreement, meet all
the pertinent requirements of the Internal Revenue Code of 1986, as amended
("Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be interpreted, wherever possible, to comply with the terms
of said laws, as amended, and all formal regulations and rulings issued
thereunder. It is also intended that this Plan shall be a profit sharing plan
under Code Section 401(a).
<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 Adjustment means the net increases and decreases in the market
value of the Trust Fund during a Plan Year or other period
exclusive of any contribution or distribution during such year or
other period. Such increases and decreases shall include such
items as realized or unrealized investment gains and losses and
investment income, and may include expenses of administering the
Trust Fund and the Plan.
Section 1.2 Annual Additions means for any Employee in any Plan Year, the sum
of Employer Contributions, Salary Redirection and forfeitures
allocated to the Employee's Individual Account. Amounts allocated
to an individual medical account, as defined in Section 415(1) of
the Code, which is part of a pension or annuity plan maintained
by the Company are treated as Annual Additions to a Defined
Contribution Plan. Also, amounts derived from contributions paid
or accrued which are attributable to post-retirement medical
benefits allocated to the separate account of a Key Employee as
required by Section 419(d) of the Code, maintained by the
Company, are treated as Annual Additions to a Defined
Contribution Plan.
Section 1.3 Beneficiary means any person designated by a Participant to
receive such benefits as may become payable hereunder after the
death of such Participant, provided, however, that a married
Participant may not name as a Beneficiary someone other than the
Participant's spouse unless the spouse consents in writing to
such designation, which consent shall be acknowledged by a Plan
representative or by a notary public.
Section 1.4 Board means the Board of Directors of the Sponsoring Employer,
except as otherwise provided.
Section 1.5 Break(s) in Service means a Plan Year during which an Employee
has been credited with fewer than 501 Hours of Service due to
termination of employment. Solely to determine whether a Break in
Service has occurred, an Employee who is absent from work for
maternity or paternity reasons or on a military or Family and
Medical Leave Act leave of absence shall receive credit for the
Hours of Service which would otherwise have been credited to such
Employee but for such absence, or in any case in which Hours of
Service cannot be determined, eight Hours of Service per day of
such absence. In no event will the number of Hours of Service
credited to an Employee pursuant to the immediately preceding
sentence exceed 501. For purposes of this Section, an absence
from work for maternity or paternity reasons means an absence (1)
by reason of the pregnancy of the Employee, (2) by reason of the
birth of a child of the Employee, (3) by reason of the placement
of a child with the Employee in connection with the adoption of
such child by the Employee, or (4) for purposes of caring for
such child for a period beginning immediately following such
birth or placement. The Hours of Service credited under this
paragraph shall be credited (1) in the Plan Year or
2
<PAGE>
other applicable computation period in which the absence begins
if the crediting is necessary to prevent a Break in Service in
that period, or (2) in all other cases, in the next following
Plan Year or other applicable computation period.
Section 1.6 Code means the Internal Revenue Code of 1986, as amended.
Section 1.7 Committee means the Retirement Committee provided for in Article
8.
Section 1.8 Company means Vencor, Inc. and all of the legal entities which
are part of the controlled group or affiliated service group with
Vencor, Inc. pursuant to the provisions of Code Sections 414(b),
(c), (m) or (o).
Section 1.9 Compensation means, for any Plan Year or portion thereof during
which an Employee is eligible to participate in this Plan (which
shall not include compensation payable for periods after
employment terminates, such as severance pay, but shall include
vacation time earned but not yet paid as of that last date at
work), total compensation paid to an Employee by the Employer
that is includable in the Participant's gross income, including
bonuses, commissions and overtime, but excluding (i)
reimbursements or other expense allowances, (ii) fringe benefits
(cash and noncash), (iii) moving expenses, (iv) deferred
compensation, (v) welfare benefits, and (vi) amounts realized
from the exercise of a nonqualified stock option (or the lifting
of restrictions on restricted stock) or the sale or exchange of
stock acquired under a qualified stock option. Despite the
exclusions in the preceding sentence, Compensation shall include
any amounts deducted pursuant to Code Sections 125 (flexible
benefit plans), 402(a)(8) (salary redirection), 402(h)(1)(B)
(simplified employee plans) and 403(b). Effective for Plan Years
beginning on or after January 1, 1989, Compensation shall be
limited to such amount as determined pursuant to Code Section
401(a)(17). For Plan Years beginning on or after January 1, 1994,
Compensation shall be limited to $150,000, or such higher amount
determined by the Commissioner of Internal Revenue pursuant to
Section 401(a)(17) of the Code.
Section 1.10 Construction. The words and phrases defined in this Article when
used in this Plan with an initial capital letter shall have the
meanings specified in this Article, unless a different meaning is
clearly required by the context. Any words herein used in the
masculine shall be read and construed in the feminine where they
would so apply. Words in the singular shall be read and construed
as though used in the plural in all cases where they would so
apply.
Section 1.11 Defined Benefit Plan means a plan established and qualified under
Section 401 of the Code, except to the extent it is, or is
treated as, a Defined Contribution Plan.
Section 1.12 Defined Contribution Plan means a plan which is established and
qualified under Section 401 of the Code, which provides for an
individual account for each participant therein and for benefits
based solely on the amount contributed to each participant's
account and any income, expenses, gains or losses (both realized
and unrealized) which may be allocated to such account.
3
<PAGE>
Section 1.13 Effective Date means January 1, 1991, the original effective date
of the Plan. The effective date of this amended and restated Plan
is March 1, 2000, except as otherwise provided.
Section 1.14 Employee means any person whom the Employer classifies as a
common law employee of the Employer and who is paid though the
normal payroll system of the Employer, which person is also
either:
(a) a member of a collective bargaining unit for which benefits
have been the subject of good faith negotiation, unless and
until the Company and the collective bargaining unit
representative for that unit through the process of good
faith bargaining agree in writing for coverage under the
VRSP;
(b) working in a facility managed by the Employer pursuant to a
management agreement, except to the extent that the
management agreement specifies that certain employees will
report to and be provided benefits by a member of the
Vencor, Inc. group of Companies, in which event the
specified employee(s) shall be eligible to participate in
the VRSP rather than this Plan.
The term "Employee" shall exclude any person who is classified on
the payroll records of the Employer as "on call" or as a per diem
employee. The term "Employee" shall also exclude any person who
is a leased Employee.
For purposes of this Section the term "leased employee" shall
mean any person who is not an employee of the Employer and who
provides services to the Employer if (i) such services are
provided pursuant to an agreement between the Employer and any
other person ("leasing organization"); (ii) such person has
performed such services for the Employer on a substantially full-
time basis for a period of at least one year; and (iii) such
services are performed under the primary direction and control of
the Employer.
Section 1.15 Employer means (i) Vencor, Inc. (provided that effective May 1,
1998, Employer means Vencor, Inc. (formerly Vencor Healthcare,
Inc.); and (ii) each of the legal entities, or any successor
thereto, which participates in the VRSP as of January 1, 1997 or
which thereafter is a part of the Company and adopts the VRSP for
its eligible Employees with the consent of the Sponsoring
Employer; and (iii) any entity that is managed by the Company
pursuant to a management agreement, provided that the entity
which provides management services has adopted this Plan for the
benefit of its employees (as evidenced as of January 1, 1999 by
their name being listed on Appendix B); and which has adopted the
Plan for its eligible Employees with the consent of the
Sponsoring Employer (as evidenced as of January 1, 1999 by their
name being listed on Appendix B); and (vi) the partnerships
listed on Appendix B hereto or which thereafter become
participating employers pursuant to the procedure in Article 12
hereof. The Sponsoring Employer shall be Vencor, Inc. For
application of various provisions of the Internal Revenue Code to
this Plan, the rules apply to each entity included as an
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Employer which is a member of a controlled group or a group under
common control within the meaning of Code Sections 414(b), (c),
(m) or (o). Reference to "an Employer" herein shall refer
separately to each such employer group. References to "the
Employer" shall apply to all Employers set out above as a group.
Section 1.16 Employer Contributions means Matching Contributions and Profit
Sharing Contributions made to the Trust Fund by the Employer.
Salary Redirection shall not be included in the term Employer
Contribution when used in this Plan.
Section 1.17 Entry Date means the first day of each calendar month.
Section 1.18 ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
Section 1.19 Fiduciary means the Employer, the Trustee, the Committee and any
individual, corporation, firm or other entity which assumes, in
accordance with Article 8, responsibilities of the Employer, the
Trustee or the Committee respecting management of the Plan or the
disposition of its assets.
Section 1.20 Former Participant means a Participant whose participation in the
Plan has terminated but who has not received payment in full of
the balance in his Individual Account to which he is entitled.
Section 1.21 Highly Compensated Employee means any Employee of an Employer who
(i) was a five percent owner of the Employer during the current
Plan Year or the preceding Plan Year, or (ii) during the
preceding Plan Year, received Compensation from an Employer in
excess of $80,000 (as such amount may be adjusted from time to
time by the Secretary of the Treasury) and, if the Sponsoring
Employer elects, was in the top-paid group of employees for such
Plan Year.
The determination of who is a Highly Compensated Employee,
including the determination of the number and identity of
employees in the top-paid group and the Compensation that is
considered, shall be made in accordance with section 414(q) of
the Code and the regulations thereunder, taking into account,
when appropriate, Code Section 410(b)(6)(C)'s acquisition
transition rule which allows exclusion of certain Employees from
consideration. The determination of Highly Compensated Employees
shall be determined on an aggregate basis for each Employer that
is treated as a controlled group under Code Sections 414(b), (c),
(m) and (o), except as otherwise provided in applicable Treasury
Regulations.
Section 1.22 Hour of Service means any hour for which an Employee is paid or
entitled to payment by an Employer during the Plan Year or other
applicable computation period (1) for the performance of duties
for an Employer; (2) on account of a period of time during which
no duties are performed (irrespective of whether the employment
relationship has terminated); and (3) as a result of a back pay
award which has been agreed to or made by an Employer,
irrespective of mitigation of
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damages, to the extent that such hour has not been previously
credited under item (1) or item (2) preceding.
(a) The number of Hours of Service to be credited on account of
a period of time during which no duties are performed
(including hours resulting form a back pay award) shall be
determined as follows. If the payment which is made or due
is calculated on the basis of units of time, the number of
Hours of Service to be credited shall be the number of
regularly scheduled working hours included in the units of
time on the basis of which the payment is calculated; if an
Employee does not have a regular work schedule, the number
of Hours of Service to be credited shall be calculated on
the basis of an eight hour work day. If the payment which is
made or due is not calculated on the basis of units of time,
the number of Hours of Service to be credited shall be
calculated by dividing the amount of the payment by the
Employee's most recent hourly rate of compensation before
the period during which no duties were performed, determined
as follows:
(1) If the Employee's compensation is determined on the
basis of an hourly rate, such hourly rate shall be the
Employee's most recent hourly rate of compensation.
(2) If the Employee's compensation is determined on the
basis of a fixed rate for a specified period of time
other than hours, his hourly rate of compensation shall
be his most recent rate of compensation for the
specified period of time, divided by the number of
hours regularly scheduled for the performance of duties
during such period of time; if an Employee does not
have a regular work schedule, his hourly rate of
compensation shall be calculated on the basis of an
eight hour work day.
(3) If the Employee's compensation is not determined on the
basis of a fixed rate for a specified period of time,
his hourly rate of compensation shall be the lowest
hourly rate of compensation paid to Employees in his
job classification, or, if no Employees in his job
classification have an hourly rate of compensation, the
minimum wage in effect under Section 6(a)(1) of the
Fair Labor Standard Act of 1938, as amended.
(b) In no event shall the application of the terms of Section
1.23(a) result in crediting an Employee with a number of
Hours of Service during the period which is greater than the
number of hours regularly scheduled for the performance of
duties. If an Employee has no regular work schedule, the
number of Hours of Service to be credited to him shall not
exceed the number which would be credited calculated on the
basis of an eight hour work day.
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(c) No Employee shall be credited with more than 501 Hours of
Service as a result of the application of Section 1.22(a)
for any single continuous period during which he performs no
duties, regardless of whether such period extends beyond one
Plan Year or other applicable computation period.
(d) The Plan Year or other applicable computation period to
which Hours of Service shall be credited shall be determined
as follows:
(1) Except as hereinafter provided, Hours of Service
credited in accordance with item (1) of the first
paragraph of this Section shall be credited in the Plan
Year or other applicable computation period in which
the duties were performed.
(2) Except as hereinafter provided, Hours of Service
credited in accordance with item (2) of the first
paragraph of this Section shall be credited: if
calculated on the basis of units of time, to the Plan
Year or Plan Years or other applicable computation
periods in which the period during which no duties are
performed occurs, beginning with the first unit of time
to which the payment relates; otherwise to the Plan
Year or other applicable computation period in which
the period during which no duties are performed occurs,
provided that if the period during which no duties are
performed extends beyond one (1) Plan Year or other
applicable computation period, such Hours of Service
shall be allocated between not more than the first two
(2) Plan Years or other applicable computation periods
on any reasonable basis consistently applied.
(3) Except as hereinafter provided, Hours of Service
credited in accordance with item (3) of the first
paragraph of this Section shall be credited to the Plan
Year or other applicable computation period to which
the award or agreement for back pay pertains rather
than to the Plan Year or other applicable computation
period in which the award, agreement, or payment is
made.
(4) Hours of Service to be credited to an Employee in
connection with a period of no more than 31 days which
extends beyond one Plan Year or other applicable
computation period may be credited to the first or the
second Plan Year or other applicable computation
period, provided that such crediting is done on a
reasonable and nondiscriminatory basis.
(e) Nothing in this Section shall be construed to alter, amend,
modify, invalidate, impair or supersede any law of the
United States or any rule or regulation issued under any
such law, including but not limited to laws regarding
eligibility and benefit accrual during and after a military
leave of absence. The nature and extent of any credit for
Hours of Service
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under this Section shall be determined under such law
including Department of Labor regulation Section 2530.200b-
2.
Section 1.23 Individual Account means the detailed record kept of the amounts
credited or charged to each Participant in accordance with the
terms hereof. Such Individual Account is comprised of the
following accounts: a Profit Sharing Contribution Account, a
Salary Redirection Account, a Matching Contribution Account, a
Prior Plan Salary Redirection Account, if applicable, and a Prior
Plan Employer Contribution Account, if applicable.
Section 1.24 Investment Fund means an investment fund established pursuant to
Section 4.2.
Section 1.25 Key Employee shall mean any Employee, former Employee or
beneficiary thereof in an Internal Revenue Service qualified plan
adopted by an Employer who at any time during the Plan Year or
any of the four preceding Plan Years is
(a) an officer of an Employer having an annual compensation from
an Employer during the Plan Year greater than 50% of the
amount in effect under Code Section 415(b)(1)(A) for the
calendar year in which such Plan Year ends;
(b) one of the 10 Employees having an annual compensation from
an Employer for a Plan Year of more than the limitation in
effect under Code Section 415(c)(1)(A) for the calendar year
in which such Plan Year ends and owning (or considered as
owning within the meaning of Code Section 318) both more
than a 1/2% interest, and the largest interest in an
Employer;
(c) a five percent owner of an Employer; or
(d) a one percent owner of an Employer having an annual
compensation from an Employer for a Plan Year of more than
$150,000.
(e) For purposes of this Section, compensation mean compensation
as defined in Code Section 415.
(f) This definition shall be interpreted consistent with Code
Section 415 and rules and regulations issued thereunder.
Further, such law and regulations shall be controlling in
all determinations under this definition, inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.26 Limitation Year means the 12 month period beginning on January 1
and ending on December 31.
Section 1.27 Matching Contribution Account means that portion of a
Participant's Individual Account attributable to (i) Matching
Contributions allocated to such Participant pursuant to Section
3.2 and (ii) the Participant's proportionate share, attributable
8
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to his Matching Contribution Account, of the Adjustments, reduced
by any distributions from such Account.
Section 1.28 Matching Contributions means contributions made to the Trust Fund
by the Employer pursuant to Section 3.2
Section 1.29 Non-Highly Compensated Employee means, for any Plan Year, a
Participant who is not a Highly Compensated Employee.
Section 1.30 Normal Retirement Date means the first day of the month
coincident with or next following the Participant's 60th
birthday.
Section 1.31 Participant means any Employee who becomes a Participant as
provided in Article 2 hereof.
Section 1.32 Permissive Aggregation Group means the Required Aggregation Group
and each other plan or plans of an Employer that are not required
to be included in the Required Aggregation Group, and which, if
treated as being part of such group, would not cause such group
to fail to meet the requirements of Code Sections 401(a) and 410.
Section 1.33 Plan means this Retirement Savings Plan for Certain Employees of
Vencor and Its Affiliates.
Section 1.34 Plan Year means the 12 month period beginning on January 1 and
ending on December 31.
Section 1.35 Prior Plan means the plan of any Employer, the assets of which
are merged, in whole or in part, with the Trust Fund.
Section 1.36 Prior Plan Employer Contribution Account means that portion of a
Participant's Individual Account attributable to (i) any employer
contributions and accumulated earnings allocated to such
Participant under the terms of a plan which has been merged into
this Plan, and (ii) the Participant's proportionate share
attributable to his Prior Plan Employer Contribution Account, of
the Adjustments, reduced by any distributions from such Account.
Section 1.37 Prior Plan Salary Redirection Account means that portion of a
Participant's Individual Account attributable to (i) any pretax
deferrals and accumulated earnings allocated to such Participant
under the terms of a plan which has been merged into this Plan
and (ii) the Participant's proportionate share attributable to
his Prior Plan Salary Redirection Account, of the Adjustments,
reduced by any distributions from such Account.
Section 1.38 Profit Sharing Contribution Account means that portion of a
Participant's Individual Account attributable to (i) Profit
Sharing Contributions allocated to such Participant pursuant to
Section 3.3, and (ii) the Participant's proportionate
9
<PAGE>
share attributable to his Profit Sharing Contribution Account, of
the Adjustments, reduced by any distributions from such account.
Section 1.39 Profit Sharing Contributions mean contributions made to the Trust
Fund by the Employer pursuant to Section 3.3.
Section 1.40 Required Aggregation Group means
(a) each plan of an Employer in which a Key Employee is a
participant; and
(b) each other plan of an Employer which enables any plan in
subsection (1) to meet the requirements of Code Sections
401(a)(4) or 410, and
(c) each terminated plan maintained by an Employer within the
last five years ending on the determination date for the
Plan Year in question and which, but for the fact that it
terminated, would be part of a Required Aggregation Group
for such Plan Year.
Section 1.41 Salary Redirection means contributions made to the Trust Fund by
the Employer pursuant to Section 3.1.
Section 1.42 Salary Redirection Account means that portion of a Participant's
Individual Account attributable to (i) Salary Redirection amounts
made on his behalf pursuant to Section 3.1, and (ii) the
Participant's proportionate share, attributable to his Salary
Redirection Account, of the Adjustments, reduced by any
distributions or withdrawals from such Account.
Section 1.43 Service shall be accumulated as follows: (1) prior to January 1,
1997, a year of Service shall be credited for each 12 month
period of service from the Employee's date of hire, subject to
the rules and limitations set forth in this Plan prior to this
restatement, (2) for the service year of an Employee which ends
in calendar year 1997, one year of Service shall be credited, and
(3) after January 1, 1997, a year of Service shall be credited
for each Plan Year during which a Participant has been credited
with 1000 or more Hours of Service for the Company or an Employer
(whether before or after participation begins) subject to the
following:
(a) Years of Service for periods beginning after January 1, 1997
prior to the date an Employee attains age 18 shall not be
taken into account in determining that a Participant's
vesting percentage pursuant to Section 5.5.
(b) Service for periods beginning after January 1, 1997 shall
include periods of employment with any entity acquired by
the Company or an Employer, or any entity which operates a
facility acquired by the Company or an Employer, provided
that no Employee shall receive credit for more than seven
years of Service as a result of periods of employment with
said entity and provided that said entity is either listed
on Appendix "A" or maintained a plan that has been merged
with this Plan. If the entity's
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<PAGE>
records are inadequate to determine Hours of Service for
years of employment with the entity, Service will be
credited (subject to the seven year limitation) from the
Employee's most recent date of hire with the acquired
entity, rounded to the nearest whole year.
(c) Years of Service for periods beginning after January 1, 1997
prior to a Break in Service shall not be taken into account
until such time as the Employee has completed a year of
Service after he returns to the employ of the Employer.
(d) Effective January 1, 1997, if the Employee does not have a
nonforfeitable interest in his Employer-provided benefit,
and the Employee incurs consecutive Breaks in Service, the
Employee's Service prior to the Breaks in Service will be
disregarded if the consecutive Breaks in Service equal or
exceed the greater of (i) five, or (ii) the Employee's
Service prior to the Break in Service.
(e) Years of Service after five or more consecutive Breaks in
Service shall not be taken into account in determining the
vesting percentage of a Participant pursuant to Section 5.5
derived from Employer Contributions subject to said vesting
schedule made before such five consecutive Breaks in
Service.
(f) Service with a predecessor employer will be credited to an
employee as Service for the Employer as required pursuant to
Code Section 414(a). For purposes of this Subsection, a
predecessor employer is an employer who sponsored a plan
qualified under Code Section 401(a) which is maintained by
the Employer.
(g) An Employee shall be credited with a year of Service for
each 12 month period of service prior to December 31, 1997
from the Employee's most recent date of hire with
Convalescent Pharmaceutical Services, Inc. or any other
employer participating in the CKP Savings and Retirement
Plan at the time some of its assets were merged into this
Plan, or with Nationwide Care, Inc., for purposes of
eligibility under Section 2.1 and vesting under Section 5.5,
provided that no Employee shall be credited with more than 5
Years of Service under this Paragraph 1.43(g). For purposes
of this Section 1.43(g), if an Employee transferred
employment from a partner of a partnership employer
participating in the CKP Savings and Retirement Plan to that
partnership, his most recent date of hire shall be his most
recent date of hire with the partner.
Section 1.44 Top Heavy Plan means any plan under which, as of any
determination date (the last day of the preceding Plan Year), the
present value of the cumulative accrued benefits under the plan
for Key Employees exceeds 60% of the present value of cumulative
accrued benefits under the Plan for all Employees. For purposes
of this definition the following provisions shall apply:
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<PAGE>
(a) If such plan is a Defined Contribution Plan, the present
value of cumulative accrued benefits shall be deemed to be
the market value of all Employee accounts under the plan,
other than voluntary deductible Employee contributions. If
such plan is a Defined Benefit Plan, the present value of
cumulative accrued benefits shall be the lump sum present
value determined pursuant to the plan. Moreover, the present
value of the cumulative accrued benefits shall be increased
by the amount of all Plan distributions made with respect to
a current or former employee during the five year period
ending on the determination date, including distributions
under a terminated plan which, if it had not been
terminated, would have been required to be included in a
Required Aggregation Group.
(b) A plan shall be considered to be a Top Heavy Plan for any
Plan Year if, on the last day of the preceding Plan Year,
the above rules were met. For the first Plan Year that the
Plan shall be in effect, the determination of whether the
Plan is a Top Heavy Plan shall be made as of the last day of
such Plan Year.
(c) Each plan of an Employer required to be included in a
Required Aggregation Group shall be treated as a Top Heavy
Plan if such group is a top heavy group.
(d) With regard to a Participant or former Participant who (i)
has not performed any service for an Employer at any time
during the five year period ending on the determination
date, or (ii) was formerly a Key Employee, but who is not a
Key Employee on the determination date, the present value of
the cumulative Accrued Benefit for such Participant or
former Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top Heavy
Plan.
(e) This definition shall be interpreted consistent with Code
Section 416 and rules and regulations issued thereunder.
Further, such law and regulation shall be controlling in all
determinations under this definition inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.45 Total and Permanent Disability or Totally and Permanently
Disabled means a physical or mental condition arising after the
original date of employment of the Participant which is expected
to totally and permanently prevent him from substantially
performing his usual duties with the Employer or from performing
like duties for which he is reasonably qualified based upon
education, experience and abilities. The determination by the
Committee as to whether a Participant is totally and permanently
disabled shall be made (i) on medical evidence by a licensed
physician designated by the Committee, (ii) on evidence that the
Participant is eligible for disability benefits under any long-
term disability plan sponsored by the Employer, or (iii) on
evidence that the Participant is eligible for disability benefits
under the Social Security Act in effect at the date of
disability.
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Section 1.46 Trust Agreement means the agreement entered into between the
Sponsoring Employer and the Trustee pursuant to Article 7 hereof.
Section 1.47 Trust Fund means the trust fund created in accordance with
Article 7 hereof.
Section 1.48 Trustee means such individual or corporation as shall be
designated in the Trust Agreement to hold in trust any assets of
the plan for the purpose of providing benefits under the Plan,
and shall include any successor trustee designated thereunder.
Section 1.49 Valuation Date means each date on which the U.S. securities
trading markets are open on or after January 1, 1997. As of each
Valuation Date the Trust Fund shall be valued at fair market
value.
Section 1.50 VRSP means the Vencor Retirement Savings Plan as amended from
time to time.
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ARTICLE 2
PARTICIPATION
Section 2.1 Eligibility Requirements
(a) Effective January 1, 1997, any Employee who has attained the
age of 21 and has remained an Employee until 12 months
following the first date on which the Employee logged an
Hour of Service, shall be eligible as of the next Entry
Date, provided, however, that an Employee who does not meet
these rules shall nonetheless be eligible no later than the
Entry Date coincident with or next following the (1)
completion of 1000 Hours of Service in a 12 consecutive
month period and (2) attainment the age of 21. Thereafter,
the period shall be the Plan Year in which occurs the
anniversary of the date the Employee completes his first
Hour of Service.
(b) Any employee in a class of employees that was eligible to
participate in The Hillhaven Corporation Deferred Savings
Plan ("Affiliate Plan") prior to January 1, 1997 and who was
hired prior to January 1, 1997 shall be eligible to
participate in this Plan on January 1, 1997 if, at that
date, that employee is employed in a capacity defined as an
Employee in this Plan. Any Employee hired prior to January
1, 1997 in a class of employees eligible to participate in
this Plan prior to January 1, 1997 shall become eligible for
the Plan at the next Entry Date coincident with or following
the date they meet the eligibility rule applicable to them
at their hire date under the Plan (e.g., no age 21
requirement shall apply to those hired prior to January 1,
1997).
(c) For purposes of this Section, in the event that an employee
of an entity that is or would be an Employer if the entity
adopted this Plan for its employees or of an entity that is
a participating employer in the VRSP becomes an Employee as
defined in Section 1.14 (either because of a change in
employment status or adoption of this Plan by the entity by
which he is employed), all periods of service while an
employee of the Employer or of an entity which participates
in the VRSP, shall be counted for purposes of determining
eligibility to participate in the Plan. In all events, this
Plan and the VRSP shall be construed so that, at no point in
time, does any one Participant have a right to participate
in both this Plan and the VRSP.
(d) Employees who are members of a collective bargaining unit
shall not be eligible to participate in this Plan unless the
applicable collective bargaining agreement provides
otherwise, and then only with respect to the types of
contributions required by that agreement (i.e., if an
applicable collective bargaining agreement provides for
participation only in elective deferrals, the Employees in
that unit will not be (or will cease to be) eligible to
share in the allocation of matching contributions.
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Section 2.2 Plan Binding
Upon becoming a Participant, a Participant shall be bound then
and thereafter by the terms of this Plan and the Trust Agreement,
including all amendments to the Plan and the Trust Agreement made
in the manner herein authorized.
Section 2.3 Reemployment and Transfers
Solely for purposes of this Section 2.3, the following rules
shall apply:
(a) Termination of employment shall be deemed to occur when an
Employee has an interruption in continuity of his employment
by the Employer. Such termination may have resulted from
retirement, death, voluntary or involuntary termination of
employment, unauthorized absence, or by failure to return to
active employment with the Employer or to retire by the date
on which an authorized leave of absence expired.
(b) If an Employee who was not eligible to become a Participant
in the Plan during his prior period of employment is
reemployed, he shall be eligible to participate in the Plan
after he has met the requirements of Section 2.1(a),
calculated from his original date of hire, unless he has had
a one-year Break in Service, in which case Service before
such Break in Service shall not be taken into account for
purposes of this Section until the Employee has met the
requirements of Section 2.1(a) calculated from his date of
rehire.
(c) If an Employee who was a Participant in the Plan during his
prior period of employment (or who had met the age and
service requirements of Section 2.1(a) or (b) but did not
remain employed until the applicable Entry Date) is
reemployed, he shall be eligible to again become a
Participant as of the Entry Date first following his date of
rehire.
(d) If an Employee transfers employment from an entity that
would be an Employer if it adopted this Plan for the benefit
of its employees or from an entity which participates in the
VRSP to the Employer (for purposes of this Section, an
"Affiliate"), the Employee shall become a Participant under
this Plan as of the date of transfer of employment to the
Employer, provided he has been employed by the Affiliate, as
of the date of transfer of employment, for the period
required in Section 2.1(a) or (b), calculated from his
original date of hire with the Affiliate. If the Employee
who transfers employment from an Affiliate to the Employer
has not been employed, as of the date of transfer of
employment, for the period required in Section 2.1(a) or
(b), he shall become a Participant under this Plan upon
meeting the eligibility requirements of Section 2.1(a) or
(b), counting all past Service with the Affiliate for that
purpose.
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<PAGE>
(e) The Individual Account in this Plan of an Employee who
transfers to or from an Affiliate shall remain in this Plan
and be eligible for the same Investment Funds as an active
Participant. No distribution shall be made of an Individual
Account (other than on account of hardship or after age 70
1/2) until and unless the former Employee has terminated
service with all Affiliates.
Section 2.4 Beneficiary Designation
Upon commencing participation, each Participant shall designate a
Beneficiary on forms furnished by the Committee. Such Participant
may then from time to time change his Beneficiary designation by
written notice to the Committee and, upon such change, the rights
of all previously designated Beneficiaries to receive any
benefits under this Plan shall cease. A married Participant may
not name as a Beneficiary someone other than the Participant's
spouse unless the spouse consents in writing to such other
designation, which consent shall be acknowledged by a Plan
representative or by a notary public. The consent of the spouse
must be limited to a specific Beneficiary and must be obtained
each time the Beneficiary is changed. If, at the time of a
Participant's death while benefits are still outstanding, his
named Beneficiary does not survive him, the benefits shall be
paid to his named contingent Beneficiary. If a deceased
Participant is not survived by either a named Beneficiary or
contingent Beneficiary (or if no Beneficiary was effectively
named), the benefits shall be paid in a single sum to the person
or in equal parts to the persons in the first of the following
classes of successive preference beneficiaries then surviving:
the Participant's (i) surviving spouse, unless the spouse
disclaims the benefit, (ii) natural and adopted children, (iii)
parents, (iv) brothers and sisters, (v) estate. If the
Beneficiary or contingent Beneficiary is living at the death of
the Participant, but such person dies prior to receiving the
entire death benefit, the remaining portion of such death
benefits shall be paid in a single sum to the estate of such
deceased Beneficiary or contingent Beneficiary.
Section 2.5 Notification of Individual Account Balance
After the end of each calendar quarter, or more frequently as
determined by the Committee, the Committee shall notify each
Participant of the amount of his share in the Adjustments and
Contributions for the period just completed, and the new balance
of his Individual Account.
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ARTICLE 3
CONTRIBUTIONS
Section 3.1 Salary Redirection
Each Participant may elect to have Salary Redirection made on his
behalf by agreeing to salary reduction contributions from cash
wages payable via an identity-secure telephonic enrollment system
(or in writing, if the telephonic system is impracticable)
("IVR"), provided that such enrollment is concluded before 11:59
p.m. Central Standard Time on the 15th day of the month (the
"enrollment deadline"). A new Participant in this Plan who was,
immediately prior to becoming an Employee, a Participant in the
VRSP or The Hillhaven Deferred Savings Plan, shall be deemed to
have made a salary reduction agreement for this Plan in the same
amount as was in effect for that other plan, unless and until the
Participant changes his salary reduction agreement by the IVR,
subject to the enrollment deadline.
(a) Salary Redirection each payroll period must equal an whole
percentage from 1% to 16% of a Participant's Compensation.
Salary Redirection shall begin, be increased or revoked
effective with the first pay date processed in the month
after a Participant has entered into or changed his salary
reduction agreement via IVR. In the event a Participant does
not so elect when initially eligible, he may subsequently
elect to have Salary Redirection made on his behalf at any
time effective for the first pay date in the month after the
Participant has entered into a salary reduction agreement
via IVR.
(b) The Employer shall pay to the Trustee any Salary Redirection
made on behalf of any Participant as soon as practicable
following the end of each regular pay period.
(c) The Employer may amend, to the extent it deems appropriate,
a Participant's salary reduction Agreement for any Plan Year
or portion thereof if the Employer determines that such
amendment is necessary to ensure that a Participant's Annual
Additions for any Plan Year might exceed the limitations of
Sections 3.4, 3.5, 3.6 or 4.5 the requirements of Code
Sections 401(k) or (m) or such other requirements prescribed
by law.
(d) In the event the Employer fails to withhold Participant
Salary Redirection Contributions pursuant to a Salary
Redirection election in effect for a Participant for a
payroll period, the Participant shall be considered to have
revoked his Salary Redirection election on the 30th day
after the pay date on which the Salary Redirection election
was first not honored. Such revocation shall not be
considered to be retroactive. The Company shall take such
steps as it deems advisable to correct the failure to
withhold and
17
<PAGE>
make Salary Redirection contributions for a Participant for
the period prior to the effective date of the revocation.
Section 3.2 Matching Contributions
(a) As of the end of each calendar quarter, the Employer shall
make a Matching Contribution to the Trust Fund on behalf of
eligible Participants. If Matching Contributions are made
prior to the end of a calendar quarter, they shall
nonetheless be left unallocated until the quarter ends.
Matching contributions will be equal to the "applicable
percentage" of the eligible Participant's net eligible
Salary Redirection.
(b) Net eligible Salary Redirection means Salary Redirection of
up to 4% of Compensation, during the period since the last
preceding calendar-quarter end, which Salary Redirection has
not been withdrawn since the preceding calendar-quarter end.
For purposes of calculating net eligible Salary Redirection,
withdrawals shall be deemed to have been made from the
earliest Salary Redirection not yet withdrawn. Any Matching
Contribution shall be allocated to the Matching Contribution
Account of each eligible Participant.
(c) For purposes of this Section, the term "eligible
Participant" shall mean a Participant who is either (i)
actively employed by the Employer or an employer which
participates in the VRSP (even if not still an "Employee")
as of the end of each calendar quarter, or (ii) died since
the end of the preceding calendar quarter, or (iii) retired
or became disabled pursuant to Section 5.1, 5.2, or 5.4
since end of the preceding calendar quarter, or (iv) on a
Family and Medical Leave Act leave of absence at the end of
the calendar quarter.
(d) The "applicable percentage" for each calendar quarter shall
be determined based on the number of the Participant's
completed years of Service as of March 31 of the Plan Year
in which the last day of the quarter occurs, as follows:
Percentage of net eligible
Salary Redirection
Years of Service as of Contributions up to
March 31 of Plan Year first 4% of Compensation
At least 1, but less than 2 12 1/2%
At least 2, but less than 3 25%
At least 3, but less than 4 37 1/2%
4 or more 50%
18
<PAGE>
Section 3.3 Profit Sharing Contributions
As of the last day of each Plan Year, the Employer may make a
Profit Sharing Contribution to the Trust Fund. Any such Profit
Sharing Contribution shall be allocated to the Profit Sharing
Contribution Account of each Participant who (i) has satisfied
the eligibility requirements of Section 2.1 (without regard to
whether the Participant has made an election pursuant to Section
3.1), (ii) is actively employed by the Company on said date and
in a class which is included in the definition of "Employee," and
(iii) has been credited with at least 1000 Hours of Service
during the Plan Year. Any such Profit Sharing Contribution shall
also be allocated to the Profit Sharing Account of each Former
Participant (i) who died since the end of the preceding Plan
Year, or (ii) who retired or became disabled pursuant to Section
5.1, 5.2, or 5.4 since the end of the preceding Plan Year, (iii)
who is on a Family and Medical Leave Act leave of absence on the
last day of the Plan Year. Any such Profit Sharing Contributions
shall be allocated to the Profit Sharing Contribution Accounts of
the Participants described in the two immediately preceding
sentences in the proportion that each such Participant's
Compensation during the Plan Year bears to the total Compensation
of all such Participants and Former Participants during such Plan
Year.
Section 3.4 Nondiscrimination Test for Salary Redirection
(a) Periodically as determined by the Committee, the Employer
shall check the actual deferral percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section shall mean all Participants under this Plan who are
eligible to make Salary Redirection contributions during the
Plan Year for which the tests are being made.
(c) The term "actual deferral percentage," means the average of
the percentages (calculated separately for each eligible
Participant) of Salary Redirection and Qualified Nonelective
Contributions on behalf of each eligible Participant divided
by the compensation of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include Compensation is defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any Plan Year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two tests need be satisfied not to
have a reduction in Salary Redirection.
Test I - The actual deferral percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more
19
<PAGE>
than the actual deferral percentage for the
preceding Plan Year of all Non-Highly Compensated
Employees, multiplied by 1.25.
Test II - The excess of the actual deferral percentage for
the current Plan Year of the group of Highly
Compensate Employees over the actual deferral
percentage for the preceding Plan Year of all Non-
Highly Compensated Employees is not more than two
percentage points, and the actual deferral
percentage for the current Plan Year of the group
of Highly Compensated Employees is not more than
the actual deferral percentage for the preceding
Plan Year of all Non-Highly Compensated Employees,
multiplied by two. If Test II in Subsection 3.5(e)
is used in testing other contributions pursuant to
that Section, Test II under this Section shall be
limited as provided for in Code Section 401(m)(9)
and the regulations issued by the Secretary of the
Treasury of notices issued by the Internal Revenue
Service. If a multiple use of Test II occurs, such
multiple use shall be corrected by reducing either
the actual deferral percentage or actual
contribution percentage of the Highly Compensated
Employee in an amount calculated in the manner
provided in Section 3.4(f) or Section 3.5(f).
Notwithstanding the above, the Sponsoring Employer may elect
to perform the tests using the Average Actual Deferral
Percentage for the current Plan Year for Participants who
are Non-Highly Compensated Employees for the current Plan
Year rather than using prior Plan Year data, provided that
if such election is made for the 1998 or a later Plan Year,
the test must continue to be performed based on current Plan
Year data until the election is changed in a manner
prescribed by the Secretary of the Treasury. Unless the
Sponsoring Employer elects to use current Plan Year data,
the Participants taken into account in determining the prior
Plan Year's Average Actual Deferral Percentage for Non-
Highly Compensated Employees are those individuals who were
Non-Highly Compensated Employees during the preceding Plan
Year, without regard to the Participants' status during the
current Plan Year (i.e., a Participant who was a Non-Highly
Compensated Employee for the preceding Plan Year is included
in the calculation as a Non-Highly Compensated Employee even
if the Participant is no longer employed by the Employer or
has become a Highly Compensated Employee for the current
Plan Year). For the 1997 Plan Year, the determination of who
was a Non-Highly Compensated Employee for the 1996 Plan Year
shall be made using the definition of Non-Highly Compensated
Employee in effect prior to this restatement.
For purposes of these tests, the actual deferral percentage
for any Participant who is a Highly Compensated Employee for
the Plan Year
20
<PAGE>
and who is eligible to have Salary Redirection allocated to
his accounts under two or more arrangements described in
Code Section 401(k) that are maintained by the Company,
shall be determined as if such Salary Redirection were made
under a single arrangement.
(f) If neither Test I nor Test II is initially satisfied for any
Plan Year, the Plan shall nevertheless be deemed to comply
with the requirements of Section 401(k)(3)(A)(ii) of the
Code for such Plan Year if, before the last day of the
following Plan Year, the amount of any excess contribution
(and any income thereon) is distributed to Participants who
are Highly Compensated Employees. The amount to be returned
shall be determined as follows:
(i) Calculate the dollar amount that would be returned to
each Highly Compensated Employee if the Average
Deferral Percentage of Highly Compensated Employees
were reduced by returning Salary Redirection
contributions to such Participants, beginning with
those Highly Compensated Employees' with the highest
Actual Deferral Percentage and only to the extent
necessary to meet either test above.
(ii) Determine the total of the dollar amounts calculated
in Step (i), and return that amount to Highly
Compensated Employees in accordance with Steps (iii)
and (iv) below by distributing Salary Redirection
contributions as Excess Contributions. Excess
Contributions, adjusted for any income or loss
allocable thereto, may be distributed before the end
of the following Plan Year to Participants on whose
behalf such Excess Contributions were made for such
preceding Plan Year. Excess Contributions shall be
adjusted for income or loss, and the income or loss
allocable to Excess Contributions shall be determined
by multiplying the income or loss allocable to the
Participant's Salary Redirection contributions for the
Plan Year by a fraction, the numerator of which is the
Excess Contribution on behalf of the Participant for
the preceding Plan Year and the denominator of which
is the value of the Participant's Salary Redirection
Account on the last day of the preceding Plan Year.
(iii) Reduce the Salary Redirection contributions of the
Highly Compensated Employee with the highest dollar
amount of Salary Redirection contributions by the
amount required to cause that Highly Compensated
Employee's Salary Redirection contributions to equal
the dollar amount of the Salary Redirection
contributions of the Highly Compensated Employee with
the next highest dollar amount of Salary Redirection
Contributions. However, if a lesser reduction would
equal the total remaining excess contributions to be
distributed, the lesser reduction amount is
distributed.
21
<PAGE>
(iv) If the total amount distributed is less than the total
excess contributions from Step (ii), Step (iii) is
repeated.
If it is necessary to reduce the matched Salary Redirection,
the Participant shall nevertheless receive from the Plan a
distribution equal to the vested portion of the Employer
Matching Contribution plus any income thereon that would
have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
Section 3.5 Nondiscrimination Test for Other Contributions
(a) Periodically as determined by the Committee, the Employer
shall check the actual contribution percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section, shall mean all Participants under this Plan who are
eligible to make Salary Redirection contributions, and
receive Matching Contributions during the Plan Year for
which the tests are being made.
(c) The term "actual contribution percentage," means the average
of the following percentages (calculated separately for each
eligible Participant): Matching Contributions (and Salary
Redirection to the extent elected by the Employer and
permitted by Regulations under Code Section 401(m)) on
behalf of each eligible Participant divided by compensation
of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include compensation as defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any plan year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two test need be satisfied not to
have a reduction in contribution tested pursuant to this
Section.
Test I - The actual contribution percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual contribution
percentage for the preceding Plan Year of all Non-
Highly Compensated Employees, multiplied by 1.25.
Test II - The excess of the actual contribution percentage
for the current Plan Year of the group of Highly
Compensated Employees over the actual contribution
percentage for the preceding Plan Year of all Non-
Highly Compensated Employees is not more than two
percentage points, and the
22
<PAGE>
actual contribution percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual contribution
percentage for the preceding Plan Year of all Non-
Highly Compensated Employees, multiplied by two.
If Test II in Subsection 3.4(e) is used in testing
Salary Redirection pursuant to that Section, Test
II under this Section shall be limited as provided
for in Code Section 401(m)(9) and the regulations
issued by the Secretary of the Treasury of notices
issued by the Internal Revenue Service. If a
multiple use of Test II occurs, such multiple use
shall be corrected by reducing either the actual
deferral percentage or actual contribution
percentage of the Highly Compensated Employee in
an amount calculated in the manner provided in
Section 3.4(f) or Section 3.5(f).
Notwithstanding the above, the Sponsoring Employer may elect
to perform the tests using the Average Contribution
Percentage for the current Plan Year for Participants who
are Non-Highly Compensated Employees for the current Plan
Year rather than using prior Plan Year data, provided that
if such election is made for the 1998 or a later Plan Year,
the test must continue to be performed based on current Plan
Year data until the election is changed in a manner
prescribed by the Secretary of the Treasury. Unless the
Sponsoring Employer elects to use current Plan Year data,
the Participants taken into account in determining the prior
Plan Year's Average Contribution Percentage for Non-Highly
Compensated Employees are those individuals who were Non-
Highly Compensated Employees during the preceding Plan Year,
without regard to the Participants' status during the
current Plan Year (i.e., a Participant who was a Non-Highly
Compensated Employee for the preceding Plan Year is included
in the calculation as a Non-Highly Compensated Employee even
if the Participant is no longer employed by the Employer or
has become a Highly Compensated Employee for the current
Plan Year). For the 1997 Plan Year, the determination of who
was a Non-Highly Compensated Employee for the 1996 Plan Year
shall be made using the definition of Non-Highly Compensated
Employee in effect prior to this restatement.
For purposes of these tests, the actual contribution
percentage for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have
Matching Contributions allocated to his accounts under two
or more arrangements described in Code Section 401(k) that
are maintained by the Company, shall be determined as if
such Matching Contributions were made under a single
arrangement.
(f) If neither Test I nor Test II is initially satisfied for any
Plan Year, the Plan shall nevertheless be deemed to comply
with the requirements of Section 401(m) of the Code for such
Plan Year if, before the last day of the following Plan
Year, the amount of any excess contribution (and any
23
<PAGE>
income thereon) is distributed to Participants who are
Highly Compensated Employees or if forfeitable, is
forfeited. The amount to be reduced shall be determined as
follows:
(i) Calculate the dollar amount by which each Highly
Compensated Employee's Employer Matching contributions
must be reduced to pass wither test, beginning with
those Highly Compensated Employees with the highest
Contribution Percentage and only to the extent
necessary to meet either test above.
(ii) Determine the total of the dollar amounts calculated
in Step (i), and reduce Highly Compensated Employees'
Employer Matching contributions in accordance with
Steps (iii) and (iv) below.
(iii) Reduce the Employer Matching contributions of the
Highly Compensated Employee with the highest dollar
amount of Employer Matching contributions by the
amount required to cause that Highly Compensated
Employee's Employer Matching contributions to equal
the dollar amount of the Employer Matching
contributions of the Highly Compensated Employee with
the next highest dollar amount of Employer Matching
contributions. However, if a lesser reduction would
equal the total remaining excess contributions to be
distributed, the lesser reduction amount is
distributed.
(iv) If the total amount distributed is less than the total
excess contributions from Step (ii), Step (iii) is
repeated.
If it is necessary to reduce the Employer Matching
Contribution, the Participant shall nevertheless receive
from the Plan a distribution equal to the vested portion of
the Employer Matching Contribution plus any income thereon
that would have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
(g) This Section shall be governed by Code Section 401(m) and
any rules or regulations issued pursuant thereto, which may
include coordination and/or combination with allocations
subject to Section 401(k) in accordance with Treasury
Regulation Section 1.401(m)-2.
24
<PAGE>
Section 3.6 Maximum Individual Deferral
A Participant shall not be permitted to have his Employer
redirect an amount in excess of $9,500 in any calendar year
pursuant to the provisions of Section 3.1, including
contributions to any other plan of an Employer which are made
pursuant to Code Section 402(a)(8). The $9,500 limitation shall
be adjusted in accordance with cost-of-living adjustments made by
the Secretary of the Treasury pursuant to Code Section 402(g)(5).
If any amount is redirected pursuant to Section 3.1 in excess of
this limit (as adjusted), or if a Participant notifies the
Committee, in writing, by March 1 following the close of the
taxable year of the amount contributed in excess of this limit
(as adjusted) to all plans pursuant to Code Section 402(a)(8),
such amount shall be deemed an "excess deferral" and the
Committee shall direct the Trustee to distribute to the
Participant (not later than the April 15 following the calendar
year in which the excess deferral was made) the amount of the
excess deferral plus any income allocable to such amount.
Section 3.7 Mistake of Fact
If due to a mistake of fact, Employer Contributions to the Trust
Fund for any Plan Year exceed the amount intended to be
contributed, notwithstanding any provision to the contrary, the
Employer, as soon as such mistake of fact is discovered, shall
notify the Trustee. The Employer shall direct that the Trustee
return such excess to the Employer, provided such return is made
within one year of the date on which the Employer made the
contribution.
Section 3.8 Qualified Nonelective Contributions
The Employer may, as of the end of any calendar quarter, make a
Qualified Nonelective Contribution to the Trust Fund on behalf of
any Participant with a Prior Plan Employer Contribution Account
or Prior Plan Salary Redirection Account in an amount equal to
the surrender charges assessed by the insurer which held the
assets in those accounts in the plan which was merged into this
Plan. Such Qualified Nonelective Contributions shall be added to
the Salary Redirection Accounts of those Participants in amounts
equal to the allocation of the surrender charges to the
Participant's combined Prior Plan Employer and Prior Plan Salary
Redirection Accounts, shall be 100% vested when made, subject to
the same distribution rules as Salary Redirection Contribution,
and shall be tested for nondiscrimination as Salary Redirection
Contributions in accordance with the provisions of Section 3.4.
Section 3.9 Uniformed Services Employment and Reemployment Rights Act of 1994
("USERRA")
Effective December 12, 1994, notwithstanding any provision of
this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
25
<PAGE>
Section 414(u) generally provides that an employer maintaining a
plan shall be treated as meeting the requirements of USERRA only
if an employee reemployed under USERRA is treated as not having
incurred a break in service because of the period of military
service, the employee's military service is treated as service
with the employer for vesting and benefit accrual purposes, the
employee is permitted to make additional elective deferrals and
employee contributions in an amount not exceeding the maximum
amount the employee would have been permitted or required to
contribute during the period of military service if the employee
had actually been employed by the employer during that period
("make-up contributions"), and the employee is entitled to any
accrued benefits that are contingent on employee contributions or
elective deferrals to the extent the employee pays the
contributions or elective deferrals to the plan. Make-up
contributions must be permitted during the period that begins on
the date of reemployment and continues for five years or, if
less, three times the period of military service. With respect to
make-up contributions, the employer must make matching
contributions that would have been required if the make-up
contributions had actually been made during the period of
military service.
Section 414(u) provides that an employee is treated as receiving
compensation from the employer during the period of military
service equal to the compensation the employee otherwise would
have received from the employer during that period, or, if the
compensation the employee otherwise would have received is not
reasonably certain, the employee's average compensation from the
employer during the period immediately preceding the period of
military service. For purpose of (S) 414(u), USERRA is not
treated as requiring the crediting of earnings to an employee
with respect to any contribution before the contribution is
actually made or requiring any allocation of forfeitures to the
employee for the period of military service.
Section 414(u) generally provides that a contribution that is
made by an employer or employee to an individual account plan or
by an employee to a contributory defined benefit plan, and that
is required under USERRA, is taken into account for purposes of
the limitations of (S) 402(g), 402(h), 403(b), 404(a), 404(h),
408, 415 or 457 in the year to which the contribution relates,
not the year in which the contribution is made. In addition, (S)
414(u) provides that a plan is not treated as failing to meet the
requirements of (S) 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),
401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p),
410(b), or 416 because of the contribution (or the right to make
the contribution).
26
<PAGE>
ARTICLE 4
ALLOCATION TO INDIVIDUAL ACCOUNTS
Section 4.1 Individual Accounts
The Committee shall establish and maintain an Individual Account
in the name of each Participant to which the Committee shall
credit all amounts allocated to each such Participant pursuant to
Article 3 and the following Sections of this Article.
Section 4.2 Investment of Accounts
(a) Each Participant shall have the right to direct the
Committee how to invest the cumulative balance in his
Individual Account attributable to Salary Redirection, Prior
Plan Salary Redirection Contributions, Prior Plan Employer
Contributions and current Salary Redirection, in any whole
percentage (25% increments if elections made prior to
January 1, 1997, in which case they continue until a change
is made by the Participant) as among the Investment Funds
designated by the Committee from time to time (the
"Investment Funds"). Investment directions shall be effected
as soon as practicable, provided the Participant gives the
direction by identity-secured telephonic instructions (or in
writing if telephonic instructions are impracticable). All
elections shall control until a new election is filed.
Neither the Trustee nor any other Fiduciary shall be
responsible for investment losses resulting from a
Participant's exercise of investment discretion, in
accordance with ERISA Section 404(c).
(b) A Participant who does not make any election under this
Section shall have his Individual Account invested in an
interest income fund or a similar investment vehicle
designated by the Committee from time to time.
(c) If a Participant's investment direction is not implemented
and the Participant does not notify the Committee, in
writing, within 45 days of the date the direction is filed
that the direction has not been implemented, then the
investment direction shall be void and treated as if never
made.
Section 4.3 Valuation of Accounts
(a) Individual Account. As of each Valuation Date, the Committee
shall determine the fair market value of the Individual
Account of each Participant for each Investment Fund in
which the Individual Account is invested as follows:
(1) The value of the Individual Account of each Participant
as of the last Valuation Date;
27
<PAGE>
(2) Minus the amount of any withdrawals and distributions
-----
made from such account since the last Valuation Date;
(3) Plus any contributions to the Participant's Salary
----
Redirection Account since the last Valuation Date;
(4) Plus any allocation to the Participant's Matching
----
Contribution Account since the last Valuation Date;
(5) Plus any allocation to the Participant's Profit Sharing
----
Account since the last Valuation Date;
(6) Plus the Individual Account's proportionate share of
----
any investment earnings allocated to each Investment
Fund held within the Individual Account since the last
Valuation Date;
(7) Minus the Individual Account's proportionate share of
-----
any investment losses allocated to each Investment Fund
held within the Individual Account since the last
Valuation Date.
(b) Investment Earnings or Losses. The investment earnings (or
losses, if such computation is negative) from the Investment
Funds shall mean the difference between the unit price of
any Investment Fund from one business day to the next, and
any net gain or loss on non-mutual fund investments in an
Investment Fund, as reflected by interest payments,
dividends, realized and unrealized gains and losses on
securities, other investment transactions and expenses paid
from the fund.
(c) Allocation of Investment Earnings or Losses. On each
Valuation Date the investment earnings or losses from the
Trust Fund shall be allocated to the Individual Account of
each Participant invested in the respective Investment Fund
in the ratio of "A" divided by "B" where "A" is an amount
determined pursuant to Section 4.3(d) for the portion of the
Individual Account of each Participant invested in the
respective Investment Fund and "B" is an amount determined
pursuant to Section 4.3(d) for the portion of the Individual
Account of all Participants invested in the respective
Investment Fund.
(d) Determination of Ratio. For purposes of determining the
ratio in Section 4.3(c), the amounts shall be determined as
follows:
(1) the value of the portion of such Individual Account(s)
in the Investment Fund on such Valuation Date;
(2) Minus withdrawals and benefit payments to or on behalf
-----
of Participants from the portion of such Individual
Account(s) in the Investment Fund on such Valuation
Date.
28
<PAGE>
Section 4.4 Trustee and Committee Judgment Controls
In determining the fair market value of the Trust Fund and of
Individual Accounts, the Trustee shall exercise its best
judgment, and all such determinations of value (in the absence of
bad faith) shall be binding upon all Participants and their
beneficiaries.
Section 4.5 Maximum Additions
Effective for Plan Years beginning after December 31, 1994,
notwithstanding any other provisions of the Plan, contributions
and other additions with respect to a Participant exceed the
limitation of Section 415(c) of the Code if, when expressed as an
annual addition (within the meaning of Section 415(c)(2) of the
Code to the Participant's Account, such annual addition is
greater than the lesser of:
(a) $30,000; or
(b) 25% of the Participant's compensation (as defined in Section
415(c)(3) of the Code).
(c) In the event a Participant is covered by one or more Defined
Contribution Plans maintained by an Employer, the maximum
annual additions as noted above shall be decreased in the
last Defined Contribution Plan maintained by an Employer in
which he participated to ensure that all such plans will
remain qualified under the Code.
Section 4.6 Corrective Adjustments
In the event that corrective adjustments in the Annual Addition
to any Participant's Individual Account are required as the
result of a reasonable error in estimating a Participant's
compensation, the corrective adjustments shall be made pursuant
to and in the order of the subsections in this Section.
(a) The portion of the Participant's unmatched Salary
Redirection made pursuant to Subsection 3.1(a) shall be
returned by distribution to the Participant, with earnings
thereon. Any amount so returned shall be disregarded for
purposes of the tests in Sections 3.4 and 3.5.
(b) The portion of the Participant's matched Salary Redirection
made pursuant to Subsection 3.1(a) and his Matching
Contributions shall be proportionally reduced to insure
compliance with Section 4.5. Any affected Salary Redirection
will be distributed to the Participant and shall not be
considered for purposes of the tests in Sections 3.4 and
3.5. Any affected Matching Contributions shall be used to
reduce future Matching Contributions.
29
<PAGE>
(c) The Participant's Profit Sharing Contribution shall be
reduced to insure compliance with Section 4.5. Any such
amount reduced shall be allocated as of the end of the next
Plan Year among the Profit Sharing Contribution Accounts of
all other Participants in the same manner as is indicated in
Section 3.3.
Section 4.7 Defined Contribution and Defined Benefit Plan Fraction
If a Participant is a participant in a Defined Benefit Plan
maintained by an Employer, the sum of his defined benefit plan
fraction and his defined contribution plan fraction for any
Limitation Year may not exceed 1.0.
(a) For purposes of this Section, the term "defined contribution
plan fraction" shall mean a fraction the numerator of which
is the sum of all of the Annual Additions of the Participant
under this Plan and any other Defined Contribution Plan
maintained by an Employer as of the close of the Limitation
Year and the denominator of which is the sum of the lesser
of the following amounts determined for such Limitation Year
and for each prior Limitation Year of employment with an
Employer:
(1) the product of 1.25 multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Code; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account under Code Section 415(c)(1)(B)
with respect to each individual under the Plan for such
Limitation Year.
(b) For purposes of this Section, the term "defined benefit plan
fraction" shall mean a fraction, the numerator of which is
the Participant's projected annual benefit (as defined in
the Defined Benefit Plan) determined as of the close of the
Limitation Year and the denominator of which is the lesser
of:
(1) the product of 1.25 multiplied by the dollar limitation
in effect pursuant to Section 415(b)(1)(A) of the Code
for such Limitation year; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account pursuant to Section 415(b)(1)(B)
of the Code with respect to each individual under the
Plan for such Limitation year.
(c) The limitation on aggregate benefits from a Defined Benefit
Plan and a Defined Contribution Plan which is contained in
Section 2004 of ERISA, as amended, shall be complied with by
a reduction (if necessary) in the Participant's benefits
under the Defined Benefit Plan.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 Normal Retirement
When a Participant lives to his Normal Retirement Date and
retires, he shall become entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date the distribution check is
prepared.
Section 5.2 Late Retirement
A Participant may continue his employment past his Normal
Retirement Date on a year to year basis. He shall continue to be
an active Participant under the Plan. Upon his actual retirement,
he shall become entitled to the full value of his Individual
Account as soon as practicable after the distribution forms are
completed (or their time for completion has elapsed), at a value
determined as of the date of distribution check is prepared.
Section 5.3 Death
If a Participant dies while an active Participant under the Plan,
his Beneficiary shall be entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date of distribution check is
prepared.
Section 5.4 Disability
When it is determined that a Participant is Totally and
Permanently Disabled, the Committee shall certify such fact to
the Trustee and such Disabled Participant shall be entitled to
receive the full value of his Individual Account as soon as
practicable after the distribution forms are completed, at a
value determined as of the date of distribution check is
prepared.
Section 5.5 Termination of Employment
(a) Subject to Section 5.5(j) below, upon termination of
employment for any reason (other than Normal Retirement,
Late Retirement, Disability Retirement or Death), a
Participant shall be entitled to a benefit equal to the
vested portion (as determined in this Section) of the
balance of his Individual Account as soon as practicable
after the distribution forms are completed, at a value
determined as of the date of distribution check is prepared.
(b) A Participant shall always be 100% vested in the balance of
his Salary Redirection Account, and Prior Plan Salary
Redirection Account. A Participant shall be 100% vested in
all amounts in his Prior Plan
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Employer Contribution Account that were transferred from the
CKP Savings and Retirement Plan (the "CKP Plan"). A
Participant who had three years of service under the CKP
Plan and whose plan benefit was transferred from that plan
to this Plan shall be 100% immediately vested in all
accounts under this Plan. All participants in the CKP Plan
who do not have three Years of Service on the date a portion
of the CKP Plan was merged into this Plan, and all
participants employed by Nationwide Care, Inc., regardless
of their Years of Service, shall be subject to the vesting
schedule contained in Section 5.5 of this Plan for purposes
of Employer Contributions made to this Plan.
(c) A Participant shall be vested in the balance attributable to
his Matching and Profit Sharing Contribution Accounts based
on years of Service as of his date of termination, in
accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
(d) Notwithstanding the above, a Participant who has a Prior
Plan Employer Contribution Account from The Hillhaven
Corporation Deferred Savings Plans, shall be vested in the
balance attributable to such account based on years of
Service as of his date of termination, in accordance with
the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
In addition, any Participant who had an account in The
Hillhaven Corporation Deferred Savings Plan and who
terminated employment during the 1996 calendar year shall be
100% vested in the Participant's Individual Account
transferred to this Plan from The Hillhaven Corporation
Deferred Savings Plan.
(e) Notwithstanding the above, a Participant who attains Normal
Retirement Age or dies or becomes Totally and Permanently
Disabled, while
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employed by an Employer, shall be fully vested in his
Individual Account under the Plan.
(f) A Participant who terminates employment pursuant to this
Section with a zero percent vested percentage shall be
deemed to have received a distribution on the date he
terminates employment. If a Former Participant receives a
distribution of the vested portion of his Individual Account
prior to incurring five consecutive Breaks in Service or
said Former Participant is zero percent vested in his
Individual Account, the non-vested balance of such
terminated Participant's Individual Account shall be
forfeited as of the date he receives or is deemed to receive
said distribution. If a Participant who has received a
distribution (or deemed distribution) is later rehired
before the period described in subsection 5.5(h) below, the
Participant need not repay the distributed amount, but his
Account shall automatically have the forfeited amount
restored to it at the earlier of (1) the last day of the
Plan Year in which rehired, or (2) the date of a subsequent
termination of employment. Restoration of a forfeiture will
come from forfeitures in the year in which he is reemployed
and, to the extent such forfeitures are not sufficient, from
a special Employer Contribution. Upon a subsequent
termination of employment prior to the Participant becoming
100% vested, the gross distribution shall be determined by
multiplying the vested percentage at the subsequent
termination by the account balance then actually restored to
the Plan, plus the distribution previously received. The
amount to be distributed to the Participant shall be the
vested percentage of the adjusted account, minus the amount
previously distributed.
(g) The non-vested balance of the Individual Account of a
terminated Participant shall be forfeited as of the last day
of the Plan Year in which such terminated Participant incurs
five consecutive Breaks in Service if the Participant is
vested in any portion of his Individual Account and does not
receive a distribution prior to incurring five consecutive
Breaks in Service.
(h) A terminated Participant who is reemployed and again becomes
a Participant after incurring five or more consecutive
Breaks in Service shall not have any amount forfeited
pursuant to this Section restored to his Individual Account.
(i) Any Matching Contributions and Profit Sharing Contributions
forfeited will be first used to reduce Matching
Contributions pursuant to Section 3.2.
(j) Notwithstanding anything to the contrary in this Section 5.5
or in Section 5.6(a), no portion of a Participant's
Individual Account shall be distributed to him until the
participant has separated from service within the meaning of
Code Section 401(k)(2)(B), unless the distribution is in
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connection with an event described in Code Section
401(k)(10) and the Treasury Regulations under that Section.
Section 5.6 Commencement of Benefits
(a) Any benefits payable under this Article shall be paid as
soon as reasonably possible following the actual date of
severance, at the value determined as of the Valuation Date
coincident with or immediately preceding receipt of properly
completed distribution forms from the Participant, subject
to the Participant's consent if his actual date of severance
is prior to Normal Retirement Age and subject to Subsection
5.7(a). In no event, however, shall payment begin beyond 60
days after the last day of the Plan Year in which occurs the
latest of (i) the Participant's reaching Normal Retirement
Age; (ii) the 10th anniversary of the date the Employee
became a Participant; or (iii) termination of the
Participant's employment. Notwithstanding anything in the
Plan to the contrary and notwithstanding the Participant's
lack of consent, benefits under this Plan shall be paid as
soon as reasonably possible following the later of the
Participant's actual date of severance or his Normal
Retirement Date.
(b) Except as required in this Section for a Participant who has
an Individual Account to which Section 5.7(b) or Section
5.6(c) applies, a Participant may defer distribution to a
subsequent date. If the Participant does not consent to a
distribution as provided above, such distribution shall be
made based on the value of the Individual Account as of the
date the check for the distribution is prepared and shall be
delivered as soon as reasonably practical after notice to
the Committee of the election to receive a distribution.
(c) Notwithstanding any other provisions of the Plan, the
payment of a Participant's benefits hereunder shall begin by
payment of a lump sum of the entire Accounts of the
Participant no later than the April 1 following the calendar
year in which the Participant has both attained age 70 1/2
and has retired, provided that for 5% owners as defined in
Section 416 of the Code, distribution must begin by April 1
following the calendar year in which the Participant attains
age 70 1/2, regardless of whether the Participant has
retired; and further provided that a Participant who had
attained age 70 1/2 on or before December 31, 1998 shall
have the option to take a lump sum distribution even while
employed, at the April 1 following attainment of age 70 1/2,
if the Participant so elects in writing, and, if so elected,
shall receive a distribution on or before December 31 of the
year after attainment of age 70 1/2, and again each year
thereafter while still employed, shall receive a similar
distribution of all amounts accrued in Accounts of the
Participant since the last such distribution.
(d) Notwithstanding anything in the Plan to the contrary, any
benefit payable to an alternate payee pursuant to a
qualified domestic relations order, as
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defined in Section 414(p) of the Code, shall be paid as soon
as administratively possible following the determination
that the order meets the requirements of Section 414(p) of
the Code.
(e) Notwithstanding anything in the Plan to the contrary, in the
event a Participant terminates employment for any reason and
recommences employment prior to distribution of his entire
vested account in the Plan, the undistributed portion of his
vested account shall remain in the Plan until his account
again becomes distributable due to a subsequent termination.
Section 5.7 Methods of Payment
(a) A Participant or Beneficiary shall elect a distribution of
the Individual Account in a single lump sum payment in cash
as provided hereinafter. Except as provided in Section
5.7(c) or Section 5.11, no other manner of distribution
shall be provided. The request by the Participant or the
Beneficiary shall be in writing and shall be filed with the
Committee. The Committee may not require a distribution
without the consent of the Participant prior to his reaching
Normal Retirement Age or, if the Participant is deceased,
without the consent of his spouse, if the spouse is living
and if the spouse is his Beneficiary, unless the vested
value of the Individual Account is $5,000 or less. If the
vested value of the Participant's Individual Account is
$5,000 or less, the benefits payable will be paid as soon as
reasonably possible following the actual date of severance,
notwithstanding lack of consent. If the vested value of the
Participant's Individual Account has been more than $5,000
at the time of any distribution, the value the Participant's
Individual Account will be deemed to be more than $5,000 at
the time of any subsequent distribution for purposes of the
consent requirements of this Section.
(b) If the Participant dies before distribution occurs, the
Participant's entire interest will be distributed no later
than five years after the Participant's death, except, if
the designated Beneficiary is the Participant's surviving
spouse, the distribution must be made no later than the date
on which the Participant would have attained age 65.
(c) Notwithstanding anything in this Section to the contrary, in
the case of a Participant who has a Prior Plan Salary
Redirection Account or a Prior Plan Employer Contribution
Account, the Participant may take distribution of his Prior
Plan Salary Redirection Account or Prior Plan Employer
Contribution Account at such time or in such other form as
was provided in the plan (as in effect as of the date of
transfer) from which the Prior Plan Salary Redirection
Account or Prior Plan Employer Contribution Account was
transferred.
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Section 5.8 Benefits to Minors and Incompetents
If any person entitled to receive payment under the Plan shall be
a minor, the Committee, in its discretion, may dispose of such
amount in any one or more of the ways specified in Subsections
(a) through (c) of this Section.
(a) By payment thereof directly to such minor;
(b) By application thereof for benefit of such minor;
(c) By payment thereof to either parent of such minor or to any
adult person with whom such minor may at the time be living
or to any person who shall be legally qualified and shall be
acting as guardian of the person or the property of such
minor; provided only that the parent or adult person to whom
any amount shall be paid shall have advised the Committee in
writing that he will hold or use such amount for the benefit
of such minor.
In the event that it shall be found that person entitled to
receive payment under the Plan is physically or mentally
incapable of personally receiving and giving a valid receipt for
any payment due (unless prior claim therefor shall have been made
by a duly qualified committee or other legal representative),
such payment may be made to the spouse, son, daughter, parent,
brother, sister or other person deemed by the Committee to have
incurred expense for such person otherwise entitled to payment.
Section 5.9 Unclaimed Benefits
(a) The Plan does not require either the Trustee or the
Committee to search for, or ascertain the whereabouts of,
any Participant or Beneficiary. The Committee, by certified
mail addressed to his last known address of record with the
Committee or the Employer, shall notify any Participant, or
Beneficiary, that he is entitled to a distribution under
this Plan. If the Participant, or Beneficiary, fails to
claim his distributive share or make his whereabouts known
in writing to the Committee within six months from the date
of mailing of the notice, or before the termination or
discontinuance of this Plan, whichever should first occur,
the Committee shall thereafter treat the Participant's or
Beneficiary's unclaimed payable Account as a Forfeiture. A
Forfeiture under this Section shall occur when the Committee
determines that the Participant or Beneficiary cannot be
located, but not earlier than the end of the notice period,
or if later, the earliest date applicable Treasury
regulations would permit the Forfeiture.
(b) If a Participant or Beneficiary who has incurred a
forfeiture of his Account under this Section makes a claim,
at any time, for his forfeited Account, the Committee shall
restore the Participant's or Beneficiary's forfeited Account
to the same dollar amount as the dollar amount of the
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<PAGE>
Account forfeited, unadjusted for any gains or losses
occurring subsequent to the date of the forfeiture. The
Committee shall make the restoration during the Plan Year in
which the Participant or Beneficiary makes the claim, first
from the amount, if any, of forfeitures the Administrator
otherwise would allocate for the Plan Year, then from the
amount, if any, of the Trust net income or gain for the Plan
Year and then from the amount, or additional amount, the
Employer shall contribute to enable the Committee to make
the required restoration. The Committee shall direct the
Trustee to distribute the Participant's or Beneficiary's
restored Account to him not later than 60 days after the
close of the Plan Year in which the Committee restores the
forfeited Account. The forfeiture provisions of this Section
shall apply solely to the Participant's or to the
Beneficiary's Account derived from Employer contributions.
Section 5.10 Participant Directed Rollovers
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) For purposes of this Section, an eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a
specified period of 10 years or more; any distribution to
the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution
that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(c) For purposes of this Section, an eligible retirement plan is
an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described
in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
For purposes of this Section, a distributee includes an
Employee or former Employee. In addition, the Employee's or
former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse
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<PAGE>
who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code,
are distributees with regard to the interest of the spouse
or former spouse.
(d) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
Section 5.11 Joint and Survivor Options
This Section shall only apply to a Participant who has a Prior
Plan Employer Contribution Account and/or a Prior Plan Salary
Redirection Account that was transferred as a result of a plan
merger from a plan that provided for an annuity form of
distribution.
(a) Qualified Joint and Survivor Annuity. Except as otherwise
provided below, unless an optional form of benefit is
selected pursuant to a qualified election within the 90 day
period ending on the date benefit payments would commence, a
Participant's vested Prior Plan Employer Contribution
Account and Prior Plan Salary Redirection Account will be
paid in the form of a qualified joint and survivor annuity,
and an unmarried Participant's benefit shall be paid in the
form of a life annuity unless otherwise elected by the
Participant. A qualified joint survivor annuity will not be
applicable and this Section shall not apply if the following
conditions are met:
(1) The Participant's vested Individual Account is payable
in full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-spouse
Beneficiary in the manner prescribed under this
Section, and
(2) Such Participant does not elect a payment of benefits
in the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is
described in clause (i) or (ii) of Code Section
401(a)(11)(B), or
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $5,000 or
less.
(b) Qualified Preretirement Survivor Annuity. Except as
otherwise provided in this Subsection, unless an optional
form of benefit has been selected within the election period
pursuant to a qualified election, if a Participant dies
before benefits have commenced, then the Participant's
vested Prior Plan Employer Contribution Account and Prior
Plan Salary Redirection Account shall be applied toward the
purchase of an annuity
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<PAGE>
for the life of the surviving spouse. Benefits will not be
required to be paid in the form of a preretirement survivor
annuity if the following conditions are met:
(1) The Participant's vested Individual Account is payable
in full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-spouse
Beneficiary in the manner prescribed under this
Section, and
(2) Such Participant does not elect a payment of benefits
in the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is
described in clause (i) or (ii) of Section
401(a)(11)(b) of the Code, and
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $5,000 or
less.
(c) Election Period shall mean, for purposes of this Section,
the period which begins on the first day of the Plan Year in
which the Participant attains age 35 and ends on the date of
the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age
35 is attained, with respect to the Individual Account
Balance as of the date of separation, the election period
shall begin on the date of separation.
(d) Early Retirement Age shall mean, for purposes of this
Section, the earliest date on which, under the Plan, the
Participant could elect to receive retirement benefits.
(e) Qualified Election shall mean, for purposes of this Section,
an election pursuant to this Subsection. A waiver of a
qualified joint and survivor annuity or a qualified
preretirement survivor annuity is permitted. The waiver must
be in writing, must be executed by the Participant, must
specify the Beneficiary and the optional form of benefit and
must be consented to by the Participant's spouse. The
spouse's consent to a waiver must be witnessed by a Plan
representative or a notary public. Notwithstanding this
consent requirement, if the Participant establishes to the
satisfaction of a Plan representative that such written
consent may not be obtained because there is no spouse or
the spouse cannot be located, a waiver will be deemed a
qualified election. Any consent necessary under this
provision will be valid only with respect to the spouse who
signs the consent, or in the event of a deemed qualified
election, the designated spouse. Additionally a revocation
of a prior waiver may be made by a Participant without the
consent of the spouse at any time before the
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commencement of benefits. The number of revocations shall
not be limited.
(f) Qualified Joint and Survivor Annuity shall mean, for
purposes of this Section, an annuity for the life of the
Participant with a survivor annuity for the life of the
spouse which is not less than 50% and not more than 100% of
the amount of the annuity which is payable during the joint
lives of the Participant and the spouse and which is the
amount of benefit which can be purchased with the
Participant's vested Prior Plan Employer Contribution
Account and Prior Plan Salary Redirection Account.
(g) Qualified Preretirement Survivor Annuity shall mean, for
purposes of this Section, a survivor annuity for the life of
the surviving spouse, the actuarial equivalent of which is
not less than 50% of the vested Prior Plan Employer
Contribution Account and Prior Plan Salary Redirection
Account of the Participant as of the date of death, which
may become payable as a result of the Participant's death
prior to his Normal Retirement Date.
(h) Notice Requirements.
(1) In the case of a qualified joint and survivor annuity
the Committee shall provide each Participant no less
than 30 days and no more than 90 day prior to the
annuity starting date (or such other time as provided
by regulations or other pronouncements), a written
explanation of (i) the terms and conditions of a
qualified joint and survivor annuity; (ii) the
Participant's right to make and the effect of an
election to waive the qualified joint and survivor
annuity form of benefit; (iii) the rights of a
Participant's spouse; and (iv) the right to make and
the effect of a revocation of a previous election to
waive the qualified joint and survivor annuity.
(2) In the case of a qualified preretirement survivor
annuity the Committee shall provide each Participant
within the period beginning on the first day of the
Plan Year in which the Participant attains age 32 and
ending with the close of the Plan Year preceding the
Plan Year in which the Participant attains age 35, a
written explanation of the qualified preretirement
survivor annuity in such terms and in such manner as
would be comparable to the explanation provided for
meeting the requirement of a qualified joint and
survivor annuity. If a Participant enters the Plan
after the first day of the Plan Year in which the
Participant attained age 32, the Committee shall
provide notice no later than the close of the third
Plan Year succeeding the entry of the Participant in
the Plan.
(3) Notwithstanding the other requirements of this Section,
the respective notices prescribed by this Section need
not be given to a
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Participant if the Plan "fully subsidizes" the costs of
a qualified joint and survivor annuity or qualified
preretirement survivor annuity, and the Participant
cannot elect another form of benefit. For purposes of
this Section, the Plan fully subsidizes the costs of a
benefit if under the Plan the failure to waive such
benefit by a Participant would not result in a decrease
in any plan benefits with respect to such Participant
and would not result in increased contributions from
the Participant.
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ARTICLE 6
WITHDRAWALS
Section 6.1 Hardship Withdrawal
(a) Except as otherwise provided in this Section, and upon
proper written application of a Participant made at least 30
days in advance of the withdrawal date, in such form as the
Committee may specify, the Committee in its sole discretion
may permit the Participant to withdraw a portion or all of
the balance of his Salary Redirection Account and Prior Plan
Salary Redirection Account, provided that earnings allocated
to said account may not be withdrawn. Such withdrawal shall
be based on the Valuation Date coincident with or
immediately preceding the date of distribution and may not
be less than $500, or if the amount of hardship exceeds $500
but the amount available for distribution is lower, the
total amount available for distribution as a hardship
withdrawal.
(b) The reason for a withdrawal pursuant to this Section must be
to enable the Participant to meet unusual or special
situations in his financial affairs resulting in immediate
and heavy financial needs of the Participant. Such
situations shall be limited to:
(1) uninsured medical expenses (described in Code Section
213(d)) incurred by or needed to procure services for
the Participant, the Participant's spouse or any
dependents of the Participant (as defined in Code
Section 152);
(2) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) payment of tuition for the next 12 months of post-
secondary education for the Participant, his or her
spouse, children, or dependents;
(4) the need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence; or
(5) any additional items which may be added to the list of
deemed immediate and heavy financial needs by the
Commissioner of Internal Revenue through the
publication of revenue rulings, notices, and other
documents of general applicability.
Any withdrawal hereunder may not exceed the amount required
to meet the immediate financial need created, and provided
further that such amount must not be reasonably available
from other resources of the Participant.
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<PAGE>
(c) The Committee may shorten the notice period if it finds it
is administratively feasible. In granting or refusing any
request for withdrawal or in shortening the notice period,
the Committee shall apply uniform standards consistently and
such discretionary power shall not be applied so as to
discriminate in favor of Highly Compensated Employees.
(d) The withdrawals under this Section shall in no way affect
said Participant's continued participation in this Plan
except by the reduction in account balances caused by such
withdrawal.
(e) A Participant shall present evidence to the Committee that
the requested withdrawal is not in excess of the amount
necessary to relieve the financial need of the Participant
and that the need can not be satisfied from other resources
that are reasonably available to the Participant. The
determination by the Committee that the distribution will be
necessary to satisfy an immediate and heavy financial need
will be made on the basis of all relevant facts and
circumstances, which may include written statements from a
Participant which the Administrator has no reason to doubt,
supported by cancelled checks, invoices or other written
materials generated by third parties. A distribution
generally will be treated as necessary to satisfy a
financial need if the Committee relies, without actual
knowledge to the contrary, on the Participant's
representation that the need cannot be relieved:
(1) through reimbursement of compensation by insurance or
otherwise;
(2) by reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself cause
an immediate and heavy financial need;
(3) by cessation of Salary Redirection under the Plan; or
(4) by other distributions or non-taxable loans from the
plans maintained by the Employer or by any other
employer, or by borrowing from commercial sources on
reasonable commercial terms.
For purposes of this Subsection, the Participant's resources
shall be deemed to include those of his spouse and minor children
that are reasonably available to the Participant.
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Section 6.2 Prior Plan Employer Contribution Account Withdrawals
Upon proper written application in such manner and in such form
as the Committee may specify, a Participant shall be permitted to
withdraw a portion or all of the balance of his Prior Plan
Employer Contribution Account and Prior Plan Salary Redirection
Account while employed, determined as of the Valuation Date
coincident with or immediately preceding the date of application
but only to the extent that he would have been permitted to
withdraw the funds in the account if they had not been
transferred from the prior plan which was merged into this Plan.
Section 6.3 Participant Loans
No Participant loans are permitted under this Plan. However, to
the extent that a plan that is merged into this Plan has loans
outstanding, the outstanding loan balance and accrued interest
may be transferred to this Plan and segregated in the
Participant's Individual Account until repaid. The loan shall be
repaid and subject to the terms of the loan agreement, including
the provisions of the merged plan.
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ARTICLE 7
FUNDING
Section 7.1 Contributions
Contributions by the Employer and by the Participants as provided
for in Article 3 shall be paid over to the Trustee. All
contributions by the Employer shall be irrevocable, except as
herein provided, and may be used only for the exclusive benefit
of the Participants, Former Participants and their Beneficiaries.
Section 7.2 Trustee
The Sponsoring Employer has entered into an agreement with the
Trustee whereunder the Trustee will receive, invest and
administer trust fund contributions made under this Plan in
accordance with the Trust Agreement.
Such Trust Agreement is incorporated by reference as a part of
the Plan, and the rights of all persons hereunder are subject to
the terms of the Trust Agreement. The Trust Agreement
specifically provides, among other things, for the investment and
reinvestment of the Fund and the income thereof, the management
of the Trust Fund, the responsibilities and immunities of the
Trustee, removal of the Trustee and appointment of a successor,
accounting by the Trustee and the disbursement of the Trust Fund.
The Trustee shall, in accordance with the terms of such Trust
Agreement, accept and receive all sums of money paid to it from
time to time by the Employer, and shall hold, invest, reinvest,
manage and administer such moneys and the increment, increase,
earnings and income thereof as a trust fund for the exclusive
benefit of the Participants, Former Participants and their
Beneficiaries or the payment of reasonable expenses of
administering the Plan.
In the event that affiliated or subsidiary Employers become
signatory hereto, completely independent records, allocations,
and contributions shall be maintained for each Employer. The
Trustee may invest all funds without segregating assets between
or among signatory Employers.
45
<PAGE>
ARTICLE 8
FIDUCIARIES
Section 8.1 General
(a) Each Fiduciary who is allocated specific duties or
responsibilities under the Plan or any Fiduciary who assumes
such a position with the Plan shall discharge his duties
solely in the interest of the Participants, Former
Participants and Beneficiaries and for the exclusive purpose
of providing such benefits as stipulated herein to such
Participants, Former Participants and Beneficiaries, or
defraying reasonable expenses of administering the Plan.
Each Fiduciary, in carrying out such duties and
responsibilities, shall act with the care, skill, prudence,
and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such
matters would use in exercising such authority or duties.
(b) A Fiduciary may serve in more than one Fiduciary capacity
and may employ one or more persons to render advice with
regard to his Fiduciary responsibilities. If the Fiduciary
is serving as such without compensation, all expenses
reasonably incurred by such Fiduciary shall be paid from the
Trust Fund or by the Employer.
(c) A Fiduciary may allocate any of his responsibilities for the
operation and administration of the Plan. In limitation of
this right, a Fiduciary may not allocate any
responsibilities as contained herein relating to the
management or control of the Trust Fund except through the
employment of an investment manager as provided in Section
8.3 of this Article and in the Trust Agreement relating to
the Fund.
Section 8.2 Employer
(a) The Sponsoring Employer established and maintains the Plan
for the benefit of its Employees and for Employees of
Participating Employers and of necessity retains control of
the operation and administration of the Plan. The Sponsoring
Employer, in accordance with specific provisions of the
Plan, has as herein indicated, delegated certain of these
rights and obligations to the Trustee, and the Committee and
these parties shall be solely responsible for these, and
only these, delegated rights and obligations.
(b) The Employer shall supply such full and timely information
for all matters relating to the Plan as (a) the Committee,
(b) the Trustee, and (c) the accountant engaged on behalf of
the Plan by the Sponsoring Employer may require for the
effective discharge of their respective duties.
46
<PAGE>
Section 8.3 Trustee
The Trustee, in accordance with the Trust Agreement, shall be a
directed Trustee with respect to Trust Fund, except that the
Committee may in its discretion employ the Trustee any time and
from time to time as an investment manager (as defined in Section
3(38) of ERISA) with respect to all or a designated portion of
the assets comprising the Trust Fund. The committee or an
investment manager so appointed shall have the exclusive
authority or discretion to manage the Trust Fund.
Section 8.4 Retirement Committee
(a) The Board of the Sponsoring Employer shall appoint a
Committee of one or more persons to hold office at the
pleasure of the Board, such committee to be known as the
Retirement Committee or Committee. No compensation shall be
paid members of the Committee from the Trust Fund for
service on such Committee. The Committee shall choose from
among its members a chairman and a secretary. Any action of
the Committee shall be determined by the vote of a majority
of its members. Either the chairman or the secretary may
execute any certificate or written direction on behalf of
the Committee.
(b) Every decision and action of the Committee shall be valid if
concurrence is by a majority of the members then in office,
which concurrence may be had without a formal meeting.
(c) In accordance with the provisions hereof, the Committee has
been delegated certain administrative functions relating to
the Plan with all powers necessary to enable it to properly
carry out such duties. The Committee shall have no power in
any way to modify, alter, add to or subtract from, any
provisions of the Plan, except as provided in Section 9.1.
The Committee shall have the power and authority in its
sole, absolute and uncontrolled discretion to control and
manage the operation and administration of the Plan and its
investment and shall have all powers necessary to accomplish
these purposes, and to make factual determinations regarding
Participants and their accounts. The responsibility and
authority of the Committee shall include, but shall not be
limited to, (i) determining all questions relating to the
eligibility of employees to participate; (ii) determining
the amount and kind of benefits payable to any Participant,
spouse or Beneficiary; (iii) establishing and reducing to
writing and distributing to any Participant or Beneficiary a
claims procedure and administering that procedure, including
the processing and determination of all appeals thereunder
and (iv) interpreting the provisions of the Plan including
the publication of rules for the regulation of the Plan as
in its sole, absolute and uncontrolled discretion are deemed
necessary or advisable and which are not inconsistent with
the express terms hereof or the Code or ERISA, as amended.
All disbursements by the Trustee, except for the ordinary
47
<PAGE>
expenses of administration of the Trust Fund or the
reimbursement of reasonable expenses at the direction of the
Sponsoring Employer, as provided herein, shall be made upon,
and in accordance with, the written directions of the
Committee. When the Committee is required in the performance
of its duties hereunder to administer or construe, or to
reach a determination, under any of the provisions of the
Plan, it shall do so on a uniform, equitable and
nondiscriminatory basis.
(d) The Committee shall establish rules and procedures to be
followed by the Participants, Former Participants and
Beneficiaries in filing applications for benefits and for
furnishing and verifying proofs necessary to establish age,
Service, and any other matters required in order to
establish their rights to benefits in accordance with the
Plan. Additionally, the Committee shall establish accounting
procedures for the purpose of making all allocations,
valuations and adjustments to Participants' accounts. Should
the Committee determine that the strict application of its
accounting procedures will not result in an equitable and
nondiscriminatory allocation among the accounts of
Participants, it may modify its procedures for the purpose
of achieving an equitable and non-discriminatory allocation
in accordance with the general concepts of the Plan,
provided however that such adjustments to achieve equity
shall not reduce the vested portion of a Participant's
interest.
(e) The Committee may employ such counsel, accountants, and
other agents as it shall deem advisable. The Sponsoring
Employer shall pay, or cause to be paid from the Trust Fund,
the compensation of such counsel, accountants, and other
agents and any other expenses incurred by the Committee in
the administration of the Plan and Trust.
Section 8.5 Claims Procedures
The Committee has delegated to the Human Resources Department
(the "Claims Coordinator") the processing of all applications for
benefits. Upon receipt by the Claims Coordinator of such an
application, it shall determine all facts which are necessary to
establish the right of an applicant to benefits under the
provisions of the Plan and the amount thereof as herein provided.
Upon request, the Claims Coordinator will afford the applicant
the right of a hearing with respect to any finding of fact or
determination. The applicant shall be notified in writing of any
adverse decision with respect to his claim within 90 days after
its submission. The notice shall be written in a manner
calculated to be understood by the applicant and shall include
the items specified in Section 8.5(a) through (d).
(a) The specific reason or reasons for the denial;
(b) Specific references to the pertinent Plan provisions on
which the denial is based;
48
<PAGE>
(c) A description of any additional material or information
necessary for the applicant to perfect the claim and an
explanation why such material or information is necessary;
and
(d) An explanation of the Plan's claim review procedures.
(e) If special circumstances require an extension of time for
processing the initial claim, a written notice of the
extension and the reason therefor shall be furnished to the
claimant before the end of the initial 90 day period. In no
event shall such extension exceed 90 days.
(f) In the event a claim for benefits is denied or if the
applicant has had no response to such claim within 90 days
of its submission (in which case the claim for benefits
shall be deemed to have been denied), the applicant or his
duly authorized representative, at the applicant's sole
expense, may appeal the denial to the Committee within 60
days of the receipt of written notice of denial or 60 days
from the date such claim is deemed to be denied. In pursuing
such appeal the applicant or his duly authorized
representative:
(1) May request in writing that the Committee review the
denial;
(2) May review pertinent documents; and
(3) May submit issues and comments in writing.
(g) The decision on review shall be made within 60 days of
receipt of the request for review, unless special
circumstances require an extension of time for processing,
in which case a decision shall be rendered as soon as
possible, but not later than 120 days after receipt of a
request for review. If such an extension of time is
required, written notice of the extension shall be furnished
to the claimant before the end of the original 60 day
period. The decision on review shall be made in writing,
shall be written in a manner calculated to be understood by
the claimant, and shall include specific references to the
provisions of the Plan on which such denial is based. If the
decision on review is not furnished within the time
specified above, the claim shall be deemed denied on review.
Section 8.6 Records
All acts and determinations of the Claims Coordinator or the
Committee shall be duly recorded by the Claims Coordinator or the
secretary of the Committee and all such records together with
such other documents as may be necessary in exercising their
duties under the Plan shall be preserved in the custody of such
secretary. Such records and documents shall at all times be open
for inspection and for the purpose of making copies by any person
designated by the Sponsoring Employer. The Committee shall
provide such timely information, resulting from the application
of its responsibilities under the Plan, as needed by the Trustee
and the accountant engaged on behalf of the Plan by the
Sponsoring Employer, for the effective discharge of their
respective duties.
49
<PAGE>
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
Section 9.1 Amendment of the Plan
The Sponsoring Employer shall have the right at any time by
action of the Board (or, in the case of amendments to the
eligibility, vesting and service-counting provisions of the Plan
with respect to participating Employers, or to make changes
required by amendments to the Code or ERISA, or to clarify the
Plan's terms as construed by the Committee, then by either the
Board or the Committee) to modify alter, or amend the Plan in
whole or in part; provided, however, that the duties, powers and
liability of the Trustee hereunder shall not be increased without
its written consent; and provided, further, that the amount of
benefits which, at the time of any such modification, alteration
or amendment, shall have accrued for any Participant, Former
Participant or Beneficiary hereunder shall not be adversely
affected thereby; and provided, further, that no such amendments
shall have the effect of reverting to the Employer any part of
the principal or income of the Trust Fund. No amendment to the
Plan shall decrease the balance of a Participant's Individual
Account or eliminate an optional form of distribution.
Section 9.2 Termination of the Plan
The Sponsoring Employer expects to continue the Plan
indefinitely, but continuance is not assumed as a contractual
obligation and the Sponsoring Employer reserves the right at any
time by action of the Board to terminate its participation in the
Plan. If the Sponsoring Employer terminates or partially
terminates its participation in the Plan or permanently
discontinues its Contributions at any time, each Participant
affected thereby shall be then vested with the amount allocated
to his Individual Account.
In the event of termination or partial termination of the Plan by
the Sponsoring Employer, the Committee shall value the Trust Fund
as of the date of termination. That portion of the Trust Fund for
which the Plan has not been terminated shall be unaffected.
Section 9.3 Return of Contributions
It is intended that this Plan shall be approved and qualified
under the Code and Regulations issued thereunder with respect to
Employees' Plans and Trusts (1) so as to permit the Employers to
deduct for federal income tax purposes the amounts of
contributions to the Trust; (2) so that contributions so made and
the income of the Trust Fund will not be taxable to Participants
as income until received; (3) so that the income of the Trust
Fund shall be exempt from federal income tax. In the event the
Commissioner of Internal Revenue or his delegate rules that the
deduction for all or a part of any Employer Contribution (or
Salary Redirection) is not allowed, the Employers reserve the
right to recover that portion or all of their contributions for
which no deduction is allowed, provided such recovery is made
within one year of the disallowance.
50
<PAGE>
ARTICLE 10
MISCELLANEOUS
Section 10.1 Governing Law
The Plan shall be construed, regulated and administered according
to the laws of the Commonwealth of Kentucky, except in those
areas preempted by the laws of the United States of America.
Section 10.2 Construction
The headings and subheadings in the Plan have been inserted for
convenience of reference only and shall not affect the
construction of the provisions hereof. In any necessary
construction the masculine shall include the feminine and the
singular the plural, and vice versa.
Section 10.3 Administration Expenses
The expenses of administering the Trust Fund and the Plan shall
be paid from the Trust Fund, unless they are paid by the
Employer.
Section 10.4 Participant's Rights
No Participant in the Plan shall acquire any right to be retained
in the Employer's employ by virtue of the Plan, nor, upon his
dismissal, or upon his voluntary termination of employment, shall
he have any right or interest in and to the Trust Fund other than
as specifically provided herein. The Employer shall not be liable
for the payment of any benefit provided for herein; all benefits
hereunder shall be payable only from the Trust Fund.
Section 10.5 Nonassignability
(a) The benefit or interest under the Plan and Trust of any
person shall not be assignable or alienable by that person
and shall not be subject to alienation by operation of law
or legal process. The preceding sentence shall apply to the
creation, assignment or recognition of any right to any
benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined to
be a qualified domestic relations order, as defined in
Section 414(p) of the Code. A domestic relations order
entered before January 1, 1985, shall be treated as a
qualified domestic relations order if payment of benefits
pursuant to the order has commenced as of such date, and may
be treated as a qualified domestic relations order if
payment of benefits is not commenced as of such date, even
though the order does not satisfy the requirements of
Section 414(p) of the Code.
51
<PAGE>
(b) This Plan specifically permits a distribution to an
alternate payee under a qualified domestic relations order
at any time, irrespective of whether the Participant has
attained his earliest retirement age (as defined under Code
Section 414(p)) under the Plan. A distribution to an
alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (a) the order
specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an
earlier distribution; and (b) if the present value of the
alternate payee's benefits under the Plan exceeds $5,000,
and the order requires, the alternate payee consents to any
distribution occurring prior to the Participant's attainment
of earliest retirement age. Nothing in this Section 10.5
gives a Participant a right to receive distribution at a
time otherwise not permitted under the Plan nor does it
permit the alternate payee to receive a form of payment not
permitted under the Plan.
Section 10.6 Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with
another plan or transfer of assets or liabilities from the Plan
to another plan, each then Participant, Former Participant or
Beneficiary shall not, as a result of such event, be entitled on
the day following such merger, consolidation or transfer under
the termination of the Plan provisions to a lesser benefit than
the benefit he was entitled to on the date prior to the merger,
consolidation or transfer if the Plan had then terminated.
Section 10.7 Counterparts
The Plan and the Trust Agreement may be executed in any number of
counterparts, each of which shall constitute but one and the same
instrument and may be sufficiently evidenced by any one
counterpart.
Section 10.8 Administrative Mistake
If the Committee discovers that a mistake has been made in
crediting Salary Redirection contributions or Employer
contributions, withholding Salary Redirection Contributions from
a Participant's Compensation, or crediting earnings to the
account of any Participant, the Committee shall take any
administrative action which it deems necessary or appropriate to
remedy the mistake in question, and may request the Employer to
make a special contribution to the account of the Participant
where appropriate. If the Committee discovers that a mistake has
been made in calculating the amount of any excess Salary
Redirection or other contribution under Sections 3.4, 3.5 or 4.6,
or earnings on such excess amount, which amount is required to be
distributed to a Participant, the Committee shall take such
administrative action as it deems necessary or appropriate to
remedy the mistake in question.
52
<PAGE>
ARTICLE 11
TOP HEAVY PLAN PROVISIONS
Section 11.1 General
Notwithstanding anything in the Plan to the contrary, if this
Plan when combined with all other plans required to be aggregated
pursuant to Code Section 416(g) is deemed to be a top-heavy plan
for any Plan Year, the provisions of this Article shall apply to
such Plan Year.
Section 11.2 Minimum Contribution
Regardless of hours worked, each active Participant who is not a
Key Employee shall be entitled to a minimum allocation of
contributions and forfeitures equal to the lesser of (i) three
percent (3%) of the Participant's Compensation for the Plan Year;
and (ii) provided that the Plan is not part of a Required
Aggregation Group with a Defined Benefit Plan because the Plan
enables the Defined Benefit Plan to meet the requirements of Code
Section 401(a)(4) or 410, the highest percentage of Compensation
contributed on behalf of, plus forfeitures allocated to, a Key
Employee. In the case of a Participant who is also a participant
in a defined benefit plan maintained by the Employer, the minimum
accrued benefit provided in the defined benefit plan pursuant to
Code Section 416(c)(1) equal to two percent of the Participant's
average monthly compensation for the five consecutive years when
his aggregate compensation was highest multiplied by his years of
credited service up to ten years for each plan year in which the
Plan is top heavy, shall be the only minimum benefit for both
that plan and this Plan, and the minimum allocation described
above shall not apply.
Section 11.3 Super Top Heavy Plan
The multiplier of 1.25 in Section 4.7 shall be reduced to 1.0
unless (i) all plans of the Required Aggregation Group or the
Permissive Aggregation Group, when aggregated, are 90% or less
top heavy, and (ii) the minimum accrued benefit referenced in
clause (i) of Section 11.2 is modified by substituting three
percent with four percent. In the case of each Participant who is
also a participant in a defined benefit plan maintained by the
Employer, the minimum accrued benefit provided in the defined
benefit plan pursuant to Code Sections 416(c)(1) and 416(h) equal
to three percent of the Participant's average monthly
compensation for the five highest consecutive years when his
aggregate compensation was highest multiplied by his years of
credited service up to ten years for each plan year in which the
Plan is top heavy shall be the only minimum benefit for both that
plan and this Plan, and the minimum allocation described above
shall not apply.
53
<PAGE>
Section 11.4 Minimum Vesting
In the event that the regular vesting schedule in Article 5 is
less liberal than the vesting schedule hereinafter provided, then
such vesting schedule shall be substituted with the following to
the extent that the following schedule is more favorable:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 years or more 100%
Should the Plan cease to be a Top Heavy Plan, the regular vesting
schedule in Article 5 shall be put back into effect. However, the
vested percentage of any Participant cannot be decreased as a
result of the return to the prior vesting schedule and any
Participant with three or more years of Service may elect within
the later of: (1) 60 days after the Plan ceases to be a Top Heavy
Plan or (2) 60 days after the date the Participant is issued
written notification of the change in the vesting schedules, to
remain under the special vesting rules described in this Section.
Section 11.5 Compensation
For purposes of this Article, compensation shall have the same
meaning as assigned to it by Code Section 415 and shall be
limited to such amount as required by Code Section 401(a)(17).
54
<PAGE>
ARTICLE 12
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN
Section 12.1 General. Any Employer that, with the Committee's consent, adopts
this Plan and becomes a party to the Trust Agreement shall be a
"Participating Employer." Participating Employers as of January
1, 1999 are listed on Appendix B to the Plan, and any
Participating Employers added in the future shall be so listed as
soon as reasonably practicable after the Committee consents to
their adoption of this Plan. Each Participating Employer shall be
subject to the terms and conditions of this Plan as in effect at
the effective date of adoption by the Participating Employer and
as subsequently amended from time to time by the Vencor, Inc.
(for purposes of this section, the "Sponsoring Employer"),
subject to such modifications as are set forth in the document
evidencing the Participating Employer's adoption of the Plan.
Unless the context of the Plan clearly indicates to the contrary,
the terms "Company" and "Employer" shall be deemed to include
each Participating Employer as relates to its adoption of the
Plan. When an entity ceases to be an "Employer" because it is no
longer a part of the Company, or ceases to be managed by an
entity in the Vencor, Inc. controlled group, the entity shall
cease to be a Participating Employer. Section 12.4 shall not
apply to such cessation.
Section 12.2 Single Plan. This Plan shall be deemed to be a single plan of all
Employers that have adopted this Plan. Employer contributions
shall not be accounted for separately, and all Plan assets shall
be available to pay benefits to all Participants and their
Beneficiaries. Forfeitures shall not be specially allocated to
reduce the Matching Contribution obligation of the Employer whose
employees suffered the forfeiture. Employees may be transferred
among Participating Employer or employed simultaneously by more
than one Participating Employer, and no such transfer or
simultaneous employment shall effect a termination of employment,
be deemed retirement or be the cause of a Forfeiture or a loss of
years of Service under this Plan. For purposes of determining
years of Service and the payment of benefits upon death or other
termination of employment, all Participating Employers shall be
deemed one Employer. Any Participant employed by a Participating
Employer during a Plan Year who receives any Compensation from a
Participating Employer during that Plan Year shall receive an
allocation of any Employer Contributions and Forfeitures for the
Plan Year in accordance with Article 3 based on his Compensation
during that Plan Year.
Section 12.3 Sponsoring Employer as Agent. Each Participating Employer shall
be deemed to have designated irrevocably the Sponsoring Employer
as its sole agent (1) for all purposes under Section 8 (including
fixing the number of members of, and the appointment and removal
of, the Committee); (2) with respect to all its relations with
the Trustee (including the Trustee's appointment and removal, and
fixing the number of Trustees); and (3) for the purpose of
amending this Plan. The Committee shall make any and all rules
and regulations which it shall deem necessary or appropriate to
effectuate the purpose of this Article 12, and such
55
<PAGE>
rules and regulations shall be binding upon the Sponsoring
Employer, the Participating Employers, the Participants and
Beneficiaries.
Section 12.4 Withdrawal of Employer. Any Participating Employer may withdraw
its participation in the Plan by giving written notice to the
Administrator stating that it has adopted a separate plan. The
notice shall be given at least six months prior to a designated
Valuation Date, unless the Committee shall accept a shorter
period of notification. Upon request of the withdrawing
Participating Employer, the Committee may, but shall not be
obligated to, instruct the Trustee to transfer the withdrawing
Participating Employer's interest in the Plan to the
Participating Employer's separate plan in accordance with the
following rules: Promptly after the Valuation Date as of which
the transfer is to occur, the Committee shall establish the
withdrawing Participating Employer's interest in the Trust Fund,
after a reduction for fees and other expenses related to the
Participating Employer's withdrawal. The Trustee shall then, in
accordance with the Committee's instructions, transfer the
withdrawing Participating Employer's interest in the Fund to the
trustee or other funding agent of the Participating Employer's
separate plan. Neither the Trustee nor the Committee shall be
obligated to transfer or direct the transfer of assets under this
Article until they are satisfied as to all matters pertaining to
the transfer, including, but not limited to, the tax
qualification of the plan into which the transfer will be made.
The Committee and the Trustee may rely fully on the
representations and instructions of the withdrawing Participating
Employer and shall be fully protected and discharged with respect
to any transfer made in accordance with such representations or
instructions. Any transfer of assets in accordance with this
Article shall constitute a complete discharge of responsibility
of the Sponsoring Employer, the remaining Participating Employer,
their Boards of Directors and officers, and the Trustee without
any responsibility on their part collectively or individually to
see to the application thereof. The Committee in its sole
discretion shall have the right to transfer the withdrawing
Participating Employer's interest in the Fund to the new plan in
the form of installments, in cash, or in cash and kind and over a
period of time not to exceed one year following the designated
Valuation Date as of which the transfer is to occur. Any assets
which are invested in accordance with an investment contract or
agreement which by its terms precludes the realization upon and
distribution of such assets for a stated period of time shall
continue to be held by the Trustee under the terms and conditions
of this Plan until the expiration of such period, subject to the
Committee's instructions. The Committee may in its sole
discretion direct the Trustee to segregate the Accounts of all
affected Participants into a separate fund to facilitate
transfer, and the Administrator may in its sole discretion direct
the Trustee to invest the separate fund only in cash equivalent
investments.
Section 12.5 Termination of Participation. The Board of Directors of a
Participating Employer may at any time terminate this Plan with
respect to its Employees by adopting a resolution to that effect
and delivering a certified copy to the Committee. Section 9.2
shall not apply to vest the Individual Accounts of a
Participating Company's Employees upon such termination (unless
the termination results in a partial termination of the entire
Plan), and the continuation
56
<PAGE>
of the Plan by the Sponsoring Employer and other Participating
Employers shall not be affected. The termination of the Plan with
respect to a Participating Employer's Employees shall not effect
a termination with respect to an Employee of the Sponsoring
Employer or another Participating Employer if such Employee was
not employed by the terminating Participating Employer on the
effective date of the termination, even though he may have been
employed by the terminating Participating Employer at an earlier
date, and shall not entitle a Participant to a distribution until
an actual separation from service with the meaning prescribed
under Code Section 401(k)(2)(B) has occurred, unless distribution
follows an event in Code Section 401(k)(10) and the Treasury
Regulations thereunder. Any fees and other expenses related to a
Participating Employer's termination shall be charged against the
Accounts of the affected Participants, if not paid by the
terminating Participating Employer.
Section 12.6 Multiple Employer Plan Testing. This Plan covers the employees of
employers not considered a controlled group under Code Section
414. Each of the discrimination tests and limitations on
contributions in the Plan shall be applied on a controlled group
by controlled group basis where required by the Code and
applicable Treasury Regulations.
57
<PAGE>
SIGNATURES
----------
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Plan to be
executed this _____ day of _______________, 2000, but effective March 1, 2000.
VENCOR, INC.
By _________________________________
Title: _____________________________
58
<PAGE>
APPENDIX "A"
PAST SERVICE PURSUANT TO SECTION 1.43(b)
Nationwide Care, Inc.--service for all periods from date of hire with this
company. Any company for which past service was granted prior to January 1,
1997 under this Plan prior to its restatement, or under The Hillhaven
Corporation Deferred Savings Plan
A-1
<PAGE>
APPENDIX "B"
PARTICIPATING EMPLOYERS
(as of January 1, 1999)
Partnerships:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Total Direct or Indirect
Name of Partnership Partners Vencor Ownership
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Respiratory Care Advanced Infusion System, 51%
d/b/a California Respiratory Inc.--51%
Care Partnership Alta Bates Medical Center--49%
- ----------------------------------------------------------------------------------------
Bartlesville Nursing Home First Healthcare 50%
Partnership Corporation--50%
LIC-HHE Limited
Partnership--50%
- ----------------------------------------------------------------------------------------
CPS Sacramento Advanced Infusion Systems, 60%
Inc.--60%
Western Hospital Equipment &
Supply Co.--40%
- ----------------------------------------------------------------------------------------
Foothill Nursing Company First Healthcare 50%
Partnership Corporation--50%
Foothill Skilled Nursing,
Inc.--50%
- ----------------------------------------------------------------------------------------
Hillhaven-MSC Partnership First Healthcare Corporation 50%
--50%
Mercy Services corporation--50%
- ----------------------------------------------------------------------------------------
Medlife Pharmacy Network Medsave of Tennessee, Inc.--50% 50%
Partnership Life Care Pharmacy Services,
Inc.--50%
- ----------------------------------------------------------------------------------------
Pharmaceutical Infusion Visiting Nurse Assoc. & 50.99%
Therapy Partnership Hospice of No. CA--49.01%
Advanced Infusion Therapy,
Inc.--50.99%
- ----------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Total Direct or Indirect
Name of Partnership Partners Vencor Ownership
- ----------------------------------------------------------------------------------------
<S> <C> <C>
San Marcos Nursing Home First Healthcare 100%
Partnership Corporation--50%
Nationwide Care, Inc.--50%
- ----------------------------------------------------------------------------------------
Starr Farm Partnership First Healthcare 50%
Corporation--50%
Vermont Health Ventures,
Inc.--50%
- ----------------------------------------------------------------------------------------
Visiting Nurse Advanced Advanced Infusion Systems, 50.010%
Infusion Systems-Anaheim Inc.--50.010%
Partnership Strategic Health Technologies,
Inc.--24.995%
Valley Support Services of
VNA, Inc.--24.995%
- ----------------------------------------------------------------------------------------
Visiting Nurse Advanced Advanced Infusion Systems, 51.01%
Infusion Systems-Colton Inc.--51.01%
Partnership Inland Empire roadrunners,
Inc.--16.33%
Visiting Nurse Association
Pomona-Pharmacy, Inc.--16.33%
RVNA Comprehensive Health
Services, Inc.--16.33%
- ----------------------------------------------------------------------------------------
Visiting Nurse Advanced Advanced Infusion Systems, 51.01%
Infusion Systems-Newbury Park Inc.--51.01%
Partnership Livingston Memorial
VNA-Pharmacy--16.33%
Verdugo Hills
VNA-Pharmacy--16.33%
The Visiting Nurse Service,
Inc.--16.33%
- ----------------------------------------------------------------------------------------
VNA/CPS Partnership Visiting Nurse Association, 46.2875%
Inc.--46.2875%
MISCO Investments, Inc.--7.425%
Advanced Infusion Systems,
Inc.--46.2875%
- ----------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
Managed Entities:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Facility Owner Manager
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marietta Convalescent #920 Jackson Browne Enterprises, Inc. Nationwide Care, Inc.
- ------------------------------------------------------------------------------------------------------
Salemhaven #950 Salemhaven, Inc. First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
Foothill #981 Foothill Nursing Home Partnership Hillhaven, Inc.
- ------------------------------------------------------------------------------------------------------
San Marcos Healthcare Center
#982 San Marcos Nursing Home Partnership Hillhaven Holding Company
- ------------------------------------------------------------------------------------------------------
Starr Farm #995 Starr Farm Partnership First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
Brookhaven Nursing Center #226 Hillhaven Corp./Tenet First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
Holladay Healthcare Center #992 Paul Randle Assoc. Hillhaven, Inc.
- ------------------------------------------------------------------------------------------------------
Ledgewood #949 Ledgewood Healthcare Corp. Hillhaven Corp.
- ------------------------------------------------------------------------------------------------------
Heritage Village Nursing
Center - #955 Bartlesville Nursing Home Partnership Hillhaven Inc.
- ------------------------------------------------------------------------------------------------------
Windsor Woods Convalescent
Center - #922 Windsor Woods Nursing Home Partnership Hillhaven Inc.
- ------------------------------------------------------------------------------------------------------
Carrollwood Care Center - #972 Carrollwood Care Center Hillhaven Corp.
- ------------------------------------------------------------------------------------------------------
19th Ave. Healthcare Center -
#926 Hillhaven MS Partnership Hillhaven Corp.
- ------------------------------------------------------------------------------------------------------
Convalescent Center - #918 Hillhaven Community Health Partnership Hillhaven Corp.
- ------------------------------------------------------------------------------------------------------
The French Quarter - #974 NME Hospitals Inc./Tenet First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
The Menorah House - #169 Hillhaven Inc./Tenet First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
The North Shore Living Center
- - #978 Hillhaven Corp./Tenet First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
The Healthcare Center of Palm
Bay - #815 Tenet Healthcare Corp. First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
Jo Ellen Smith Convalescent
Center - #990 Hillhaven Corp./Tenet First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Facility Owner Manager
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alvarado Convalescent & Rehab
Hospital - #902 Hillhaven West, Inc./Tenet First Healthcare Corp.
- ------------------------------------------------------------------------------------------------------
</TABLE>
B-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Vencor, Inc.'s
unaudited condensed consolidated financial statements for the three months ended
March 31, 2000 and is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 141,906
<SECURITIES> 0
<RECEIVABLES> 498,102
<ALLOWANCES> (180,917)
<INVENTORY> 29,817
<CURRENT-ASSETS> 606,786
<PP&E> 611,560
<DEPRECIATION> (250,089)
<TOTAL-ASSETS> 1,237,073
<CURRENT-LIABILITIES> 389,831
<BONDS> 0
1,743
0
<COMMON> 17,557
<OTHER-SE> (411,899)
<TOTAL-LIABILITY-AND-EQUITY> 1,237,073
<SALES> 0
<TOTAL-REVENUES> 715,456
<CGS> 0
<TOTAL-COSTS> 574,931
<OTHER-EXPENSES> 110,995
<LOSS-PROVISION> 8,801
<INTEREST-EXPENSE> 16,239
<INCOME-PRETAX> (15,271)
<INCOME-TAX> 500
<INCOME-CONTINUING> (15,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,771)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
