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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO
SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
TRANSITIONAL HOSPITALS CORPORATION
(NAME OF SUBJECT COMPANY)
VENCOR, INC.
LV ACQUISITION CORP.
(BIDDERS)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
893719104
(CUSIP NUMBER OF CLASS OF SECURITIES)
JILL L. FORCE
SENIOR VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 596-7300
(NAME, ADDRESS, AND TELEPHONE NUMBERS OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
COPY TO:
JOSEPH B. FRUMKIN, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
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<PAGE>
This Amendment No. 1 (this "Amendment") is filed to supplement and
amend the information set forth in the Tender Offer Statement on Schedule 14D-1
filed by Vencor, Inc., a Delaware corporation ("Vencor"), and LV Acquisition
Corp., a Delaware corporation (the" Purchaser"), on May 7, 1997 (the "Schedule
14D-1") with respect to the shares of Common Stock, par value $1.00 per share,
of Transitional Hospitals Corporation, a Nevada corporation (the "Company"),
including the associated rights to purchase Series B Junior Participating
Preferred Stock of the Company. Unless otherwise indicated, the capitalized
terms used herein shall have the meanings specified in the Schedule 14D-1,
including the Offer to Purchase (the "Offer to Purchase") attached as Exhibit
(a)(1) thereto.
ITEM 10. ADDITIONAL INFORMATION.
(c) On May 7, 1997 Vencor and the Purchaser filed a Notification and
Report Form pursuant to the HSR Act with the FTC and the Antitrust Division.
(e) The Complaint in Vencor, Inc., Jill L. Force, and Patrick W.
Mattingly vs. Transitional Hospitals Corporation, Richard L. Conte, Dana L.
Shires, M.D., Robert L. Thomas, Jack H. Lindheimer, M.D., Nigel Petrie, Ralph J.
Watts, Wendy L. Simpson, Carol J. Burt and SM Acquisition Co. (the "Complaint")
was filed in the Nevada Court on May 7, 1997. A copy of the Complaint is
attached hereto as Exhibit (g)(1).
(f) On May 7, 1997 Vencor issued a press release announcing the
commencement of the Offer. A copy of this press release is attached hereto as
Exhibit (a)(8)
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
The list of exhibits in the Schedule 14D-1 is hereby amended and
supplemented by adding the following exhibits:
Exhibit No. Description
(a)(8) Press Release, dated May 7, 1997.
(g)(1) Vencor, Inc., Jill L. Force, and Patrick W. Mattingly vs.
Transitional Hospitals Corporation, Richard L. Conte, Dana L.
Shires, M.D., Robert L. Thomas, Jack H. Lindheimer, M.D.,
Nigel Petrie, Ralph J. Watts, Wendy L. Simpson, Carol J. Burt
and SM Acquisition Co., CV-S-97-00565, Complaint filed in the
Nevada Court on May 7, 1997.
<PAGE>
SIGNATURE
After due inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this Amendment is true, complete and
correct.
Dated: May 7, 1997
VENCOR, INC.
By:/s/ W. Bruce Lunsford
Name: W. Bruce Lunsford
Title: Chairman of the Board, President
and Chief Executive Officer
LV ACQUISITION CORP.
By:/s/ W. Bruce Lunsford
Name: W. Bruce Lunsford
Title: Chairman of the Board, President
and Chief Executive Officer
Exhibit(a)(8)
Contact: Vencor
W. Earl Reed, III
(502) 596-7380
Abernathy/MacGregor Group
Joele Frank/Judy Wilkinson
(212) 371-5999
For Immediate Release
VENCOR BEGINS $639 MILLION CASH TENDER OFFER
FOR TRANSITIONAL HOSPITALS CORPORATION
LOUISVILLE, Kentucky (May 7, 1997) -- Vencor, Inc. (NYSE:VC) announced that it
has commenced today a cash tender offer to acquire all outstanding shares of
Transitional Hospitals Corporation (NYSE:THY) at a price of $16.00 per share, or
a total of approximately $639 million.
In a letter to the board of directors of Transitional delivered today,
Vencor urged the board to recognize the higher and more immediate cash value of
its offer, and therefore to terminate Transitional's previously announced plan
to merge with another company and to commence negotiations with Vencor.
The combination of Vencor and Transitional, which operates long-term
acute care hospitals, would advance the growth strategy of Vencor, the nation's
largest full-service long-term healthcare provider. The combined company would
have 57 hospitals, 314 skilled nursing centers, 4,000 institutional customers
for contract rehabilitation services, 80,000 employees and pro forma annual
revenues of $3.3 billion.
"The Transitional long-term hospitals will broaden our platform for the
continued development of our fully-integrated long-term healthcare network,"
said W. Bruce Lunsford, Chairman, President and Chief Executive Officer of
Vencor. "The acquisition of Hillhaven in 1995 added over 300 nursing facilities
to our system, and our acquisition of TheraTx earlier this year significantly
enhanced our ability to provide rehabilitation and occupational healthcare
services. Now Transitional will expand the network of long-term acute care
hospitals that provides the foundation for our healthcare continuum. Together,
we can offer payors and patients a full spectrum of high-quality,
outcomes-oriented, cost-efficient healthcare services."
"Transitional has clearly put itself up for sale, and we're offering a
cash price that is superior to the merger to which they have agreed," Lunsford
said. "In our discussions with Transitional, we were impressed with the quality
of their operations and the strategic potential of our combined company. We are
taking our offer directly to Transitional shareholders so
<PAGE>
they can evaluate for themselves the relative merits of our offer and the merger
to which their board has agreed. We think our higher cash price and the speed
with which we can complete the transaction will be compelling to Transitional
shareholders, just as the strategic benefits of our combination should be
equally compelling to other constituencies. In particular, we would expect to
retain essentially the entire Transitional field organization."
Transitional announced Monday that it had signed a cash merger
agreement with Select Medical Corp. at a price of $14.55 per share. That
agreement allows Transitional to terminate the merger if it receives an offer
that its board of directors determines is a more favorable offer, subject to
payment of a $19.4 million termination fee. Vencor is filing a lawsuit in U.S.
District Court in Nevada seeking to invalidate the termination fee. Should the
termination fee be invalidated or reduced, Vencor will increase the purchase
price by two-thirds of the amount by which the termination fee is reduced.
Vencor's tender offer, which is scheduled to expire at midnight on June
4, 1997, is subject to not less than two-thirds of Transitional's fully diluted
common shares and equivalents being tendered, to receipt of normal regulatory
approvals, and to other customary conditions. Vencor's Hart-Scott-Rodino
antitrust filing will be made today. The offer has no financing contingency.
Vencor has completed its due diligence and expects to obtain all necessary
regulatory approvals in approximately 30 to 45 days.
Following completion of the tender offer, Vencor intends to consummate
a merger in which all remaining Transitional shareholders will also receive the
same price paid in the tender offer. The complete terms and conditions of the
tender offer are set forth in the offering documents filed today with the
Securities and Exchange Commission.
Transitional, formerly Community Psychiatric Centers, operates 16
long-term acute care hospitals and three satellite facilities in 13 states, and
also owns a 61 percent interest in Behavioral Healthcare Corp., a provider of
psychiatric and behavioral health services based in Nashville, Tennessee.
Vencor, a $3 billion long-term healthcare company, owns and operates a
national network of hospitals, nursing centers and contract service providers in
46 states.
Credit Suisse First Boston is acting as dealer manager for the offer,
and D.F. King & Co., Inc. is acting as information agent.
-END-
SCHRECK MORRIS Exhibit (g)(1)
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
SULLIVAN & CROMWELL
ROBERT A. SACKS
444 South Flower Street
Los Angeles, California 90071-2901
(213) 955-8000
SULLIVAN & CROMWELL
THOMAS R. LEUBA
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20015
(202) 956-7500
Attorneys for Plaintiffs
Vencor, Inc., Jill L. Force and
Patrick W. Mattingly
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
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)
VENCOR, INC., JILL L. FORCE, )
and PATRICK W. MATTINGLY, )
)
Plaintiffs, )
)
-vs- )
) CV-S-97--00565-LDG (RLH)
TRANSITIONAL HOSPITALS CORPORATION, )
RICHARD L. CONTE, DANA L. SHIRES, M.D., )
ROBERT L. THOMAS, JACK H. )
LINDHEIMER, M.D., NIGEL PETRIE, )
RALPH J. WATTS, WENDY L. SIMPSON, )
CAROL J. BURT, and SM ACQUISITION CO., )
)
Defendants. )
- ------------------------------------------)
COMPLAINT FOR INJUNCTIVE, DECLARATORY AND MONETARY RELIEF
Plaintiffs Vencor, Inc. ("Vencor"), Jill L. Force, and Patrick W.
Mattingly (collectively "Plaintiffs"), by their attorneys, allege upon knowledge
with respect to themselves
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and their own acts, and upon information and belief as to all other matters, as
follows:
NATURE OF THE ACTION
1. Vencor has today commenced a cash tender offer to purchase all of
the outstanding stock of defendant Transitional Hospitals Corp. ("Transitional")
at $16 per share (the "Offer" or "Vencor Offer"). As explained below, Vencor has
been treated unfairly and discriminated against by Transitional and its board of
directors in a process that culminated on May 2, 1997 when Transitional entered
into a merger agreement with Select Medical Corporation ("Select") and SM
Acquisition Co. (the "Select Agreement") on terms less favorable to Transitional
and its stockholders than the terms simultaneously being offered by Vencor. In
addition to binding Transitional to a merger agreement that provides
Transitional's stockholders with less consideration per share than Vencor was
then offering and is currently offering to pay in the Offer, the members of
Transitional's board effectively wasted millions of dollars of stockholder's
money by, in a clear breach of their fiduciary duties, agreeing to pay Select a
$19.415 million break-up fee under circumstances where they knew that Vencor was
prepared to top Select's offer and pay more to acquire Transitional. Select,
which was Transitional's favored bidder and the beneficiary of this largesse on
the part of Transitional's board, is being financed by various venture capital
firms which have an existing relationship with Transitional.
2. Plaintiffs bring this action against Transitional, the members of
Transitional's board of directors (the "Board" or the "Individual Defendants"),
and SM Acquisition Co. ("SM") for injunctive, declaratory and monetary relief to
prevent defendants from interfering with the ability of Transitional's
stockholders to realize the substantial benefits of Vencor's Offer.
Specifically, Plaintiffs seek (a) injunctive and declaratory relief (i)
declaring that the Individual Defendants have breached their fiduciary duties,
(ii) requiring Transitional to dismantle its takeover defenses, including its
"poison pill" and its reliance on the Nevada anti-takeover statutes, that would
preclude consummation of the Offer, and (iii) declaring the break-up fee
provision of the Select Agreement to be invalid and unenforceable, and (b) to
the extent the break-up fee is not invalidated, damages from the Individual
Defendants for wasting
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Transitional's assets in breach of their fiduciary duties.
PARTIES
3. Plaintiff Vencor is a Delaware corporation with its principal
executive offices located at 3300 Providian Center, 400 West Market Street,
Louisville, Kentucky 40202. Vencor is one of the nation's largest providers of
healthcare services primarily focusing on the needs of the elderly.
4. Plaintiff Jill L. Force ("Force"), a resident of Kentucky, is Senior
Vice President and General Counsel of Vencor. Force, together with her husband
Patrick W. Mattingly, also a resident of Kentucky, owns 243 shares of
Transitional common stock, which they have owned since the late 1970s.
5. Defendant Transitional Hospitals Corp. is a Nevada corporation with
its principal executive offices at 5110 W. Sahara Avenue, Las Vegas, Nevada
89102.
6. Defendant Richard L. Conte has been a director of Transitional since
1991. Conte currently serves as Chairman and Chief Executive Officer of
Transitional and is a resident of a state other than Kentucky or Delaware.
7. Defendant Dana L. Shires, M.D., has been a director of Transitional
since 1989. Shires is a physician in private practice and is a resident of a
state other than Kentucky or Delaware.
8. Defendant Robert L. Thomas has been a director of Transitional since
1993. Thomas is retired and is a resident of a state other than Kentucky or
Delaware.
9. Defendant Jack H. Lindheimer, M.D., has been a director of
Transitional since 1983. Lindheimer currently serves as Corporate Medical
Director of U.S. Psychiatric Services and is a resident of a state other than
Kentucky or Delaware.
10. Defendant Nigel Petrie has been a director of Transitional since
1995. Petrie currently serves as Managing Director of Edison Mission Energy and
is a resident of a state other than Kentucky or Delaware.
11. Defendant Ralph J. Watts has been a director of Transitional since
1996.
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Watts is President and Chief Executive Officer of Cardiovascular Venturers, Inc.
and is a resident of a state other than Kentucky or Delaware.
12. Defendant Wendy L. Simpson has been a director of Transitional
since 1995. Simpson currently serves as Chief Operating Officer of Transitional
and is a resident of a state other than Kentucky or Delaware.
13. Defendant Carol J. Burt has been a director of Transitional since
1996. Burt is currently Senior Vice President of Finance and Treasurer of
American Medical Response and is a resident of a state other than Kentucky or
Delaware.
14. Defendant SM Acquisition Co. is a Nevada corporation that was
formed on May 1, 1997 for purposes of carrying out an acquisition of Transition.
It is a wholly-owned subsidiary of Select and is a party to the Select
Agreement.
JURISDICTION AND VENUE
15. This Court has jurisdiction over this action pursuant to 28
U.S.C.ss.ss. 1332(a) and 2201. The amount in controversy is in excess of
$75,000.
16. Venue is proper in this District under 28 U.S.C.ss. 1391(a) and
(c).
FACTUAL BACKGROUND
I. Unfair Treatment of Vencor
17. A representative of Vencor first contacted Transitional during the
fall of 1996 to inquire whether Transitional might be interested in selling its
hospital business to Vencor. Following that contact on October 28, 1996, Vencor
signed, at Transitional's request, a confidentiality agreement (the
"Confidentiality Agreement") in connection with what it understood would be the
good faith consideration by Transitional of a potential transaction with Vencor.
The Confidentiality Agreement contained, among other things, various
restrictions of Vencor's use of information it obtained and on its acquisition
of Transitional shares.
18. Notwithstanding its agreement to provide Vencor with access to
business and financial information from which Vencor would be able to evaluate a
potential transaction, Transitional initially provided Vencor with little, if
any, meaningful information. In early 1997,
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Vencor expressed its dissatisfaction with Transitional's failure to provide it
with information, as a result of which Transitional permitted Vencor to conduct
a limited due diligence investigation.
19. While that process was ongoing, Vencor was informed that several
other potential bidders might have an interest in acquiring Transitional and
would be visiting its headquarters to conduct due diligence. Vencor was also
advised by Transitional that the highest bidder would be able to conduct a more
thorough due diligence review prior to the execution of a definitive agreement.
20. In late April 1997, Vencor submitted three alternative proposals to
Transitional. The first proposal involved Vencor's acquisition of all the
outstanding shares of Transitional (the "Shares") in a tender offer at a price
that excluded consideration for Transitional's investment in Behavioral Health
Corporation (the "Psych Business"), and contemplated that the Psych Business
would be put in a liquidating trust and sold by Transitional with the proceeds
going to existing Transitional stockholders. The second proposal contemplated
that Vencor would purchase Transitional, including the Psych Business, based on
certain contingencies. In a third alternative proposal, Vencor offered to pay
$14.25 in cash per Share pursuant to a tender offer to acquire all of
Transitional's outstanding shares. None of Vencor's three proposals was subject
to any financing contingency.
21. On April 28, 1997, Transitional informed Vencor that it had
submitted the highest bid and that Transitional wanted Vencor to conduct a more
detailed due diligence review and be in a position to enter into a definitive
merger agreement within one week. Vencor confirmed to Transitional that it could
meet this time frame and promptly commenced detailed due diligence. It also
prepared to participate in what it had been led to believe would be the good
faith negotiation of a definitive merger agreement.
22. Beginning on Thursday, April 30, 1997, Vencor conducted detailed
due diligence at Transitional's headquarters in Las Vegas. On the evening of May
1, 1997, Transitional informed Vencor that it had tentatively scheduled a
meeting of the Transitional Board for the upcoming Saturday or Sunday with the
expectation that its Board would approve
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the merger agreement to be finalized between Vencor and Transitional.
23. Much to Vencor's surprise, on the morning of Friday, May 2, 1997,
Transitional's Chairman and CEO, Richard L. Conte, revealed to Vencor that he
would be meeting that day with Russ Carson, who is a principal of the primary
investment firm which is providing equity and debt financing to Select, and that
a special Board meeting had been scheduled for 1:00 p.m. that same day. Conte,
who already benefits from an existing business relationship involving Carson and
his firm, claimed that he had not arranged to meet with Carson, but that Carson
had called from an airplane and said he would be at Transitional's headquarters
at noon that day. In that same conversation with Vencor, Conte also claimed that
he did not know what Carson wanted to discuss, but speculated that Carson might
want to submit a new bid for Transitional.
24. At the same time as Conte revealed that a meeting of the
Transitional Board had been scheduled for 1:00 p.m. that same day to discuss the
status of the auction for Transitional, he asked whether Vencor would be willing
to pay more. He nonetheless assured Vencor that Transitional did not have
another deal, and that Vencor should continue its ongoing, final extended due
diligence review. The Vencor representative with whom Conte spoke indicated that
he needed to speak to Vencor's CEO, but left open the possibility that Vencor
might increase its $14.25 per share offer if appropriate. Conte informed the
Vencor representative that he would get back to him to report on the results of
his meeting with Carson prior to the scheduled Transitional Board meeting.
25. Pending his discussion with Vencor's CEO and prior to the
Transitional Board meeting on May 2, the Vencor representative delivered a
letter to Conte reaffirming that Vencor had substantially completed its due
diligence review, had not encountered any reason to reduce the $14.25 in cash
per Share it had offered to pay to acquire Transitional, and would be prepared
to negotiate and execute a definitive merger agreement by the evening of Sunday,
May 4, 1997.
26. Later on May 2, 1997, Vencor became aware that Transitional was
engaged in
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<PAGE>
some sort of a negotiation with Carson, who had arrived at Transitional's
headquarters with his legal advisors. Vencor expressed immediate concern as to
the fairness of the process being conducted by Transitional, and at the same
time made it clear that Vencor was prepared to participate in any further
bidding process.
27. Shortly after 2:00 p.m. that afternoon, Vencor was informed that
Select had offered to acquire Transitional at a price of $14.55 per Share.
Immediately thereafter, Vencor verbally informed Conte that Vencor was prepared
to increase its offer and within 30 minutes submitted a written offer to acquire
Transitional for $15.00 per Share in cash, with no financing contingency, and to
commence negotiations in order to execute a definitive merger agreement as soon
as possible.
28. Notwithstanding Vencor's offer, just minutes later Conte informed
Vencor that the Transitional Board had approved a merger agreement with Select
at a price of $14.55 per share -- $.45 per Share less than Vencor's then
existing offer. Vencor was also informed that not only did the Transitional
Board accept a lower price from Select than Vencor had offered to pay to
Transitional stockholders in an all-cash offer, but that Transitional had also
agreed to pay Select a "break-up" fee, which subsequent disclosure of the Select
Agreement has revealed exceeds $19.4 million.
29. Having been treated unfairly and discriminated against by the
Transitional Board, on May 7, 1997, Vencor commenced the Offer directly to
Transitional's stockholders at a price of $16 per share.
II. Transitional's Poison Pill
30. Transitional has in place an arrangement -- commonly known as a
Poison Pill -- that effectively allows Transitional's Board unilaterally to
block acquisitions by third parties, even those, such as the Vencor Offer, that
are non-coercive and provide substantial benefits to Transitional stockholders.
Unless the rights issued pursuant to the Poison Pill (the "Rights") are redeemed
or the Poison Pill is declared inapplicable to the Offer, Vencor will be
precluded from proceeding with the Offer and be deprived of the opportunity to
acquire
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Transitional even though it is offering to pay all cash and has made the highest
offer for the Shares. At the same time, Transitional stockholders will be denied
the opportunity to receive the $1.45 per Share additional consideration being
offered to them by Vencor.
31. On June 21, 1996, Transitional declared a dividend of one
Right with respect to each outstanding Share, payable to stockholders of record
on July 16, 1996. Each Right entitles the holder to purchase one one-hundredth
of a share of Series B Junior Participating Preferred Stock at an exercise price
of $45.00, subject to adjustment. In the event that a person becomes the
beneficial owner of 15% or more of the outstanding shares of Transitional common
stock (except pursuant to certain cash offers approved by the Transitional
Board), proper provision will be made so that each holder of a Right, other than
Rights beneficially owned by the acquiring person, will thereafter have the
right to receive upon exercise that number of common stock having a market value
of two times the then-current exercise price of one Right. Further, in the event
that, at any time following such acquisition of 15% or more of the outstanding
Transition common stock, Transitional is acquired in a merger or other business
combination transaction or 50% or more of its assets or earning power are sold,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon exercise thereof, that number of shares of
common stock of the acquiring company which at the time of such transaction
would have the a market value of two times the then-current exercise price of
one Right. The Rights are redeemable at $0.01 per Right prior to the first date
of public announcement that a person or group has become an acquiring person,
and Transitional has the power, under certain circumstances, to extend the
redemption period.
32. The effect of Transitional's Poison Pill is to preclude
any offer to acquire Transitional's Shares -- including an all-cash offer at the
highest price being offered, such as Vencor's Offer -- unless the Transitional
Board redeems the rights or otherwise renders the Poison Pill inapplicable to
the offer. In connection with the Select Agreement, the Transitional Board
agreed to take all steps necessary to ensure that the Select merger would not
trigger the Poison Pill. However, the Transitional Board has not redeemed the
Rights to permit the Vencor Offer to proceed.
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III. Transitional's Statutory Anti-Takeover Defenses
33. Transitional is also subject to the anti-takeover protections of
Nevada Rev. Statutes ss.ss. 78.378 et seq. (the "Control Share Acquisition
Statute") and Nevada Rev. Statutes ss.ss. 78.411 et seq. (the "Business
Combination Statute").
34. Under the Control Share Acquisition Statute, a third-party like
Vencor which acquires a "controlling interest" in the shares of Transitional
cannot vote those shares unless: (a) such voting rights are conferred by a
majority vote of the disinterested shareholders of the corporation; or (b) the
Transitional Board adopts a by-law or amends the corporation's charter opting
out of the coverage of the Statute, something that the Transitional Board has
not done with respect to Vencor.
35. Under the Business Combination Statute, a third-party like Vencor
which acquires 10% or more of the voting power of Transitional's stock cannot
engage in a business combination with Transitional for three years unless the
acquisition of the shares or the business combination is approved by the
Transitional Board in advance. Application of this provision to Vencor's Offer,
which is neither coercive nor inadequate, would delay the acquisition of
Transitional by Vencor for at least three years and, as a practical matter,
prevent the Vencor Offer altogether.
36. In the Select Agreement, Transitional has undertaken to render the
Control Share Acquisition Statute and the Business Combination Statute
inapplicable to the $14.55 per share transaction between Select and Transitional
contemplated by the Select Agreement. However, the Transitional Board has not
exempted the Vencor Offer from the application of those sections. There is
simply no legitimate reason for the Transitional Board to apply either of these
anti-takeover devices to obstruct the Vencor Offer, which is non-coercive and
non-discriminatory, offers Transitional stockholders a substantial premium for
their shares, provides superior value over the Select merger and poses no threat
to the interests of Transitional stockholders or Transitional, which has been
put up for sale by the Board.
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DECLARATORY RELIEF
37. The Court may grant the declaratory relief sought herein pursuant
to 28 U.S.C. ss. 2201. Transitional has failed to create a level playing field
by favoring Select to the exclusion of Vencor and by entering into the Select
Agreement at a time when it knew that Vencor was prepared to and had actually
offered to pay a higher price for the Shares in cash without any financing
contingency. Moreover, Transitional has been unwilling to redeem the Rights or
to amend the Poison Pill to make it inapplicable to the Vencor Offer, or to
approve the Vencor Offer for purposes of the Nevada anti-takeover provisions,
even though it has done so in connection with the less-advantageous Select
Agreement.
38. Such actions (or inactions) of Transitional and its Board
demonstrate that there is a substantial controversy among the parties. The
refusal by the Transitional Board to redeem Transitional's Poison Pill and to
take steps to render the Control Share Acquisition Statute and the Business
Combination Statute inapplicable to the Vencor Offer will interfere with and
preclude that Offer from proceeding.
IRREPARABLE INJURY
39. The unlawful actions of Transitional in discriminatorily shopping
itself without creating a level playing field and agreeing to the Select merger
will irreparably harm Vencor by depriving it of the unique opportunity to
acquire Transitional. The unwillingness of Transitional to redeem the Rights, to
amend the Poison Pill to make it inapplicable to the Vencor Offer and to approve
the Offer for purposes of the Nevada anti-takeover provisions will prevent
Vencor from proceeding with its Offer. Vencor's resulting injury will not be
compensable by money damages, and it has no adequate remedy at law.
FIRST CLAIM FOR RELIEF
(Declaratory and Injunctive Relief: The Poison Pill and Anti-Takeover Statutes)
40. Plaintiffs repeat and reallege each of the allegations set forth in
paragraphs 1 through 39 as if fully set forth herein.
41. The Individual Defendants stand in a fiduciary relationship with
plaintiffs
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Force and Mattingly in their capacity as a Transitional shareholder. As
fiduciaries, the Individual Defendants owe Force and Mattingly the highest
duties of care, loyalty and good faith.
42. The Vencor Offer is non-coercive and non-discriminatory; it is fair
to Transitional stockholders and poses no threat to Transitional's corporate
policy and effectiveness; and it exceeds the market price of Transitional common
stock and the value of the Select merger.
43. Refusal by the Transitional Board to (i) redeem the Rights or to
amend the Poison Pill to make it inapplicable to the Vencor Offer and (ii)
approve the Offer for purposes of the Control Share Acquisition Statute and the
Business Combination Statute is not proportionate to any threat posed by, or
within the range of reasonable responses to, the Vencor Offer. Vencor will be
precluded from consummating the Offer by virtue of this conduct.
44. Plaintiffs seek (i) a declaration that Transitional's failure to
redeem the Rights or to otherwise amend the Poison Pill to make it inapplicable
to the Vencor Offer and to approve the Offer for purposes of the Nevada
anti-takeover provisions is a breach of the Individual Defendants' fiduciary
duties and (ii) an injunction compelling Transitional and the Individual
Defendants to redeem the Rights or to otherwise amend the Poison Pill to make it
inapplicable to the Vencor Offer and to approve the Offer for purposes of the
Control Share Acquisition Statute and the Business Combination Statute.
45. Plaintiffs have no adequate remedy at law.
SECOND CLAIM FOR RELIEF
(Declaratory and Injunctive Relief: Breach of Fiduciary Duty
and Discriminatory Treatment of Competing Bidders)
46. Plaintiffs repeat and reallege each of the allegations set forth in
paragraphs 1 through 45 as if fully set forth herein.
47. The Individual Defendants made a decision to put Transitional up
for sale. Even ignoring that express decision, the actions of Transitional,
including, but not limited to, encouraging prospective bidders to make
acquisition proposals for Transitional, and sharing confidential Transitional
information with potential bidders in order to encourage them to make
such proposals, constitute a determination to sell Transitional.
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48. Having determined to put Transitional up for sale,
Transitional has discriminatorily favored other potential bidders over Vencor.
Indeed, the decision by the Individual Defendants to cause Transitional to enter
into the Select Agreement in the face of a higher, all-cash offer from Vencor is
inexplicable, cannot be based upon any legitimate business reason and
constitutes a clear violation of the Individual Defendants' fiduciary duties,
including their duty to secure the best value reasonably available to the
corporation's shareholders.
49. In furtherance of its efforts to preclude Vencor from
allowing the stockholders of Transitional to consider the Vencor Offer, the
Transitional Board agreed to pay Select a $19.4 million break-up fee in the
event Transitional were to receive and accept a higher offer. Given that Vencor
had already made an all-cash offer to purchase the Transitional Shares at a
price above the $14.55 per share being offered by Select, this provision was
gratuitous and almost certain to be implicated. In the context of the foregoing
events, the sole function of this break-up fee provision is to take more than
$19.4 million out of the pockets of Transitional's stockholders and shift it to
the pockets of Select and its financial backers.
50. Indeed, notwithstanding that the break-up fee is payable
by Transitional in the event of a higher bid and without any breach of the
Select Agreement, the break-up fee is described in the Select Agreement as
"liquidated damages" and further described as not being a penalty. In fact, the
break-up fee does not constitute damages at all given the circumstances of its
payment; any actual expenses incurred by Select would be capable of precise
calculation and could not legitimately be the basis of what is undeniably a
"punitive" clause if measured on the basis of actual damages, and the fee cannot
be justified on the basis that it was needed to induce Select to commit to a
merger proposal given that a higher offer was already available to Transitional.
51. The inclusion of the break-up fee in the Select Agreement serves no
legitimate purpose, constitutes a breach of the Individual Defendants' fiduciary
duties, and violates public policy. The break-up fee provision of the Select
Agreement is invalid as a matter of law and is unenforceable.
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52. Plaintiffs seek (i) a declaration that the actions taken by the
Individual Defendants to tilt the playing field against Vencor, including but
not limited to, entering in the Select Agreement, are unlawfully discriminatory
and constitute breaches of fiduciary duty, (ii) an injunction compelling
Transitional and the Individual Defendants to create a level playing field,
treating Vencor and all prospective bidders for the acquisition of Transitional
equally and fairly, and (iii) an injunction prohibiting enforcement of the
break-up fee in the Select Agreement.
53. Defendant SM is added as a defendant on this claim because it is a
party to the Select Agreement through which the merger is to be consummated and
is a wholly-owned subsidiary of Select.
54. Plaintiffs have no adequate remedy at law.
THIRD CLAIM FOR RELIEF
(Monetary Damages: Waste of Corporate Assets)
55. Plaintiffs repeat and reallege each of the allegations set forth in
paragraphs 1 through 54 as if fully set forth herein.
56. Plaintiffs Force and Mattingly bring this claim individually and
derivatively on behalf of Transitional.
57. Under the foregoing circumstances, the break-up fee included in the
Select Agreement is a waste of Transitional's assets. No reasonable director
exercising his or her ordinary sound business judgment would have agreed to pay
a multi-million dollar break-up fee for a transaction that was less favorable to
another simultaneously being offered and, at the same time, would short-circuit
a competitive bidding process. The Individual Defendants, who authorized and
approved the Select Agreement, are liable for that waste to the extent
Transitional is obligated to pay the break-up fee.
58. Plaintiffs have not made any efforts to have Transitional's
directors pursue this claim on Transitional's behalf because the Individual
Defendants constitute all of those directors and all of them were involved in
and themselves liable for the unlawful conduct being
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alleged. The Individual Defendants were not disinterested and independent due to
their relationships with Select and its financial backers. The actions by
Transitional were not the results of a valid exercise of business judgment in
light of the Individual Defendants' disparate treatment of Select and Vencor in
the bidding process and their preexisting relationship with Select and its
backers.
59. There is no collusion between Plaintiffs and defendants for
purposes of seeking federal jurisdiction.
WHEREFORE, Plaintiffs respectfully request that this Court enter an
Order;
(1) Declaring that the Individual Defendants have breached their
fiduciary duties;
(2) Declaring that the failure of the Individual Defendants to redeem
the Rights or to otherwise amend the Poison Pill to make it inapplicable to the
Vencor Offer and to approve the Offer for purposes of the Nevada anti-takeover
provisions is a breach of their fiduciary duties;
(3) Directing Transitional and the Individual Defendants to redeem the
Rights or otherwise to amend the Poison Pill to make it inapplicable to the
Vencor Offer and to approve the offer for purposes of the Nevada anti-takeover
provisions;
(4) Declaring the break-up fee provision of the Select Agreement to be
unenforceable and enjoining its enforcement;
(5) To the extent the break-up fee is payable, awarding monetary
damages, payable by the Individual Defendants, in the amount of any break-up fee
which Transitional is required to pay pursuant to the Select Agreement;
(6) Awarding Plaintiffs their costs and expenses in this action,
including reasonable attorneys' fees;
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(7) Granting such other and further relief as the Court deems just and
proper.
Dated: May 7, 1997 SCHRECK MORRIS
By: /s/ Steve Morris
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
ROBERT A. SACKS
SULLIVAN & CROMWELL
444 South Flower Street
Los Angeles, California 90071-2901
(213) 955-8000
THOMAS R. LEUBA
SULLIVAN & CROMWELL
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20015
(202) 956-7500
Attorneys for Plaintiffs Vencor, Inc.,
Jill L. Force and Patrick W. Mattingly
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VERIFICATION
I, Jill L. Force, declare under penalty of perjury of the laws of the
United States that I have read the foregoing Complaint and believe it to be true
to the best of my knowledge, information and belief.
Dated: May 6, 1997
/s/ Jill L. Force
Jill L. Force
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