<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Vencor, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[VENCOR LOGO]
3300 Providian Center
400 West Market Street
Louisville, Kentucky 40202
March 30, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at 9:00 a.m. on Tuesday, May 9, 1995, at the Hyatt Regency, 320 West
Jefferson Street, Louisville, Kentucky.
The Board of Directors appreciates your interest in the Company. Regardless
of whether you plan to attend the meeting, it is important that your shares be
represented. Please sign, date and mail the enclosed proxy in the envelope
provided at your earliest convenience.
Sincerely,
W. Bruce Lunsford
W. Bruce Lunsford
Chairman of the Board,
President and Chief Executive
Officer
<PAGE> 3
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 9:00 A.M., MAY 9, 1995
To the Stockholders of VENCOR, INC.:
The Annual Meeting of Stockholders of Vencor, Inc. will be held on Tuesday,
May 9, 1995 at the Hyatt Regency, 320 West Jefferson Street, Louisville,
Kentucky, at 9:00 a.m. (EDT), for the following purposes:
(1) To fix the number of directors at eight and to elect a board of eight
directors;
and
(2) To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 21, 1995,
will be entitled to vote at the meeting and any adjournments thereof.
IT IS IMPORTANT THAT YOU VOTE YOUR SHARES. PLEASE SIGN AND DATE YOUR PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
W. Bruce Lunsford
Chairman of the Board,
President and Chief Executive
Officer
<PAGE> 4
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 569-7300
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1995
GENERAL INFORMATION
The Annual Meeting of Stockholders (the "Annual Meeting") of Vencor, Inc.
(the "Company") will be held at 9:00 a.m., EDT on Tuesday, May 9, 1995, at the
Hyatt Regency, 320 West Jefferson Street, Louisville, Kentucky. This Proxy
Statement is being furnished in connection with the solicitation of proxies by
the Board of Directors of the Company to be used at the Annual Meeting and at
any adjournments thereof.
Only stockholders of record at the close of business on March 21, 1995, are
entitled to vote at the meeting or any adjournments thereof. A list of all
stockholders entitled to vote at the Annual Meeting will be available for
inspection by any stockholder for any purpose reasonably related to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the Company's principal executive offices at 3300 Providian
Center, 400 West Market Street, Louisville, Kentucky. At the record date,
27,856,497 shares of the Company's common stock, par value $.25 per share
("Common Stock") were outstanding. Each share of Common Stock entitles the owner
to one vote. A majority of the outstanding shares present in person or by proxy
is required to constitute a quorum to transact business at the meeting.
Abstentions and broker non-votes will be counted as present for purposes of
determining whether a quorum exists, but as not voted for purposes of
determining the approval of any matter submitted to the stockholders for a vote.
If the proxy is properly signed, returned to the Company and not revoked,
it will be voted in accordance with the instructions contained therein. Unless
contrary instructions are given, the proxy will be voted in favor of the
nominees for director named in the Proxy Statement and in the discretion of the
proxy holders on such other business as may properly come before the Annual
Meeting.
A person giving the enclosed proxy has the power to revoke it at any time
before it is exercised. However, such revocation must be made in writing and
received by the General Counsel of the Company at its principal executive
offices at 3300 Providian Center, 400 West Market Street, Louisville, Kentucky
40202 at or before the time and date of the Annual Meeting. A stockholder may
also attend the Annual Meeting and vote in person, in which event any prior
proxy given by the stockholder will be automatically revoked.
The cost of soliciting proxies by the Board of Directors will be borne by
the Company. Such solicitation will be made by mail and in addition may be made
personally or by telephone by directors, officers and employees of the Company,
none of whom will receive additional compensation for these services. The
Company's regularly retained investor relations firm, Corporate Communications,
Inc., may also solicit proxies by telephone and mail. Forms of proxies and proxy
materials will also be distributed through brokers, custodians and other like
parties to the beneficial owners of Common Stock. The Company will reimburse
such parties for their reasonable out-of-pocket expenses incurred in connection
with the distribution.
The Company intends to first distribute this Proxy Statement and the
materials accompanying it on or about March 30, 1995. The Annual Report of the
Company for the fiscal year ended December 31, 1994, including consolidated
financial statements, accompanies this Proxy Statement.
<PAGE> 5
ELECTION OF DIRECTORS
Management recommends that the number of directors be set at eight and that
eight directors be elected at the Annual Meeting. Each director elected at the
Annual Meeting will serve, subject to the provisions of the By-laws, until his
or her successor is duly elected and qualified. The names of the nominees
proposed for election as directors, all of whom are presently directors of the
Company, together with certain information concerning the nominees, are set
forth below:
NOMINEES FOR DIRECTORS
WILLIAM C. BALLARD JR. (age 54) has been a director of the Company since
1988. From 1981 to 1992, he served as Executive Vice President -- Finance and
Administration of Humana Inc., a provider of healthcare services. Since 1992,
Mr. Ballard has been of counsel to the law firm of Greenebaum Doll & McDonald.
Mr. Ballard is a director of Mid-America Bancorp, United HealthCare Corp., LG&E
Energy Corp., American Safety Razor Inc., and Arjo AB (a medical products
manufacturer).(1)(3)
MICHAEL R. BARR (age 46), a founder of the Company, physical therapist and
certified respiratory therapist, has served as Vice President, Operations and a
director of the Company since 1985. Mr. Barr is a director of Colorado MEDtech,
Inc., a medical products and equipment company.
DONNA R. ECTON (age 47) has served as a director of the Company since 1992.
She has been a business consultant since 1994. From 1991 to 1994, she was
President and Chief Executive Officer of Van Houten North America, Inc. and
Andes Candies Inc., confectionery products businesses. From 1989 to 1991, she
was Senior Vice President of Nutri/System, Inc., a weight loss business. Ms.
Ecton is a director of Barnes Group, Inc., a diversified manufacturing,
aerospace and distribution company, PETsMART, Inc., a pet supplies retailer, and
H&R Block, Inc.(3)
GREG D. HUDSON (age 46) has served as a director of the Company since 1991.
He has been President of Hudson Chevrolet-Oldsmobile, Inc. since 1988.(2)
WILLIAM H. LOMICKA (age 57) has served as a director of the Company since
1987. Since 1989, he has served as President of Mayfair Capital Inc., a private
investment firm. Mr. Lomicka serves as a director of Regal Cinemas Inc., a
regional motion picture exhibitor, and Advocat, Inc., an operator of nursing
facilities and retirement centers.(1)(2)(3)
W. BRUCE LUNSFORD (age 47), a founder of the Company, certified public
accountant and attorney, has served as Chairman of the Board, President and
Chief Executive Officer of the Company since the Company commenced operations in
1985. Mr. Lunsford is a director of Res-Care, Inc., a provider of residential
training and support services for persons with developmental disabilities and
certain vocational training services.(1)
W. EARL REED, III (age 43), a certified public accountant, has served as a
director and Vice President, Finance and Development of the Company since 1987.
R. GENE SMITH (age 60), a founder of the Company, has served as a director
of the Company since 1985 and Vice Chairman of the Board since 1987. From 1988
to 1994, Mr. Smith was Chairman of the Board and President of Commonwealth
Investment Group, Inc., a holding company for a broker-dealer firm and an
investment advisor firm. Since 1988, Mr. Smith has been Chairman of the Board of
Taco Tico, Inc., an operator of Mexican fast food restaurants. Since 1993, Mr.
Smith has been Managing and General Partner of Direct Programming Services, a
digital satellite system company.(1)(2)
The information given in this Proxy Statement concerning the nominees is
based upon statements made or confirmed to the Company by or on behalf of such
nominees, except to the extent certain information appears in its records.
Directors' ages are given as of February 1, 1995.
---------------
(1) Member of the Executive Committee, of which W. Bruce Lunsford is Chairman.
(2) Member of the Executive Compensation Committee, of which R. Gene Smith is
Chairman.
(3) Member of the Audit Committee, of which William H. Lomicka is Chairman.
2
<PAGE> 6
SHARES OF COMMON STOCK OF THE COMPANY COVERED BY PROXIES EXECUTED AND
RECEIVED IN THE ACCOMPANYING FORM WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF
ALL OF THE NOMINEES, UNLESS OTHERWISE SPECIFIED ON THE PROXY. The Board of
Directors does not contemplate that any of the nominees will be unable to accept
election as a director. However, in the event that one or more nominees is
unable or unwilling to accept or is unavailable to serve, the persons named in
the proxies or their substitutes will have authority, according to their
judgment, to vote or refrain from voting for other individuals as directors.
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
During 1994, the Board of Directors of the Company held five regular
meetings. The Company has an Executive Compensation Committee and an Audit
Committee. The Company does not have a nominating or similar committee.
The Executive Compensation Committee held one meeting in 1994. The
functions of the Executive Compensation Committee are to: (1) establish annual
salary levels, approve fringe benefits and administer any special compensation
plans or programs for officers of the Company, and (2) review and approve the
salary administration program for the Company.
The Audit Committee held three meetings during 1994. The Audit Committee
reviews the adequacy of the Company's system of internal controls and accounting
practices. In addition, the Audit Committee reviews the scope of the annual
audit of the Company's auditors, Ernst & Young LLP, prior to its commencement,
and reviews the types of services for which the Company retains Ernst & Young
LLP.
3
<PAGE> 7
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND OFFICERS
The following table sets forth, as of March 6, 1995, certain information
with respect to the beneficial ownership of the Company's Common Stock by (a)
each person known to the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (b) each director or nominee for
director of the Company, (c) each executive officer of the Company and (d) the
Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
NAME OF INDIVIDUAL OR BENEFICIALLY OWNED AS OF PERCENT
NUMBER IN GROUP MARCH 6, 1995(1)(2) OF CLASS
--------------------------------------------------------- ------------------------ --------
<S> <C> <C>
W. Bruce Lunsford(3)..................................... 2,282,534(4) 8.1%
R. Gene Smith(3)......................................... 1,727,299(5) 6.2%
William C. Ballard Jr.................................... 26,094(6) *
Michael R. Barr.......................................... 385,816(7) 1.4%
Donna R. Ecton........................................... 5,259(8) *
Greg D. Hudson........................................... 193,016(9) *
Thomas T. Ladt........................................... 69,183(10) *
William H. Lomicka....................................... 52,881 *
W. Earl Reed, III........................................ 275,627 1.0%
All executive officers and directors as a group (9
persons)............................................... 5,017,709 17.6%
Manning & Napier Advisors, Inc.(3)....................... 1,466,797(11) 5.3%
Pilgrim Baxter & Associates(3)........................... 1,601,269(12) 5.7%
Putnam Investments, Inc.(3).............................. 2,604,867(13) 9.4%
</TABLE>
---------------
(*) Less than 1%
(1) Beneficial ownership of shares, for purposes of this proxy statement, as
determined in accordance with applicable Securities and Exchange Commission
rules, includes shares as to which a person has or shares voting power
and/or investment power.
(2) Except as set forth in the accompanying footnotes, the named persons have
sole voting power and sole investment power over the shares beneficially
owned by them. The number of shares shown does not include the interest of
certain persons in shares held by family members in their own right, or in
shares held for their benefit in the Company's 401(k) Plan. The numbers
shown include the shares which may be acquired by them through the exercise
of options, which are exercisable currently or within 60 days after March
6, 1995, under the Company's stock option plans as follows: Mr.
Lunsford -- 185,066 shares; Mr. Smith -- 21,094 shares; Mr. Barr -- 44,329
shares; Mr. Reed -- 273,752 shares; Mr. Lomicka -- 21,094 shares; Mr.
Ballard -- 21,094 shares; Mr. Hudson -- 4,218 shares; Ms. Ecton -- 3,609
shares; and Mr. Ladt -- 18,656 shares.
(3) The addresses of the persons believed by the Company to be the beneficial
owners of more than five percent of the outstanding Common Stock are as
follows: W. Bruce Lunsford -- 3300 Providian Center, 400 West Market
Street, Louisville, Kentucky 40202; R. Gene Smith -- Suite 500, 133 South
Third Street, Louisville, Kentucky 40202; Manning & Napier Advisors,
Inc. -- 1100 Chase Square, Rochester, New York 14604; Pilgrim Baxter &
Associates -- 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087; and
Putnam Investments, Inc. -- One Post Office Square, Boston, Massachusetts
02109.
(4) Includes 71,412 shares held by a private foundation with respect to which
Mr. Lunsford has sole voting power and shared investment power. Also
includes 3,076 shares which may be obtained by Mr. Lunsford upon conversion
of $80,000 principal amount of the Company's 6% Convertible Subordinated
Notes due 2002. Includes 15,465 shares held in trust for the benefit of his
children. Mr. Lunsford disclaims beneficial ownership of the shares held by
his children's trust.
(5) Includes 36,250 shares held by a private foundation with respect to which
Mr. Smith shares voting and investment power, and 140,625 shares held by a
limited partnership with respect to which he has sole voting and investment
power.
4
<PAGE> 8
(6) Includes an aggregate of 3,000 shares held by charitable remainder trusts
for the benefit of family members.
(7) Excludes 44,744 shares held in trust for his minor daughters and 4,000
shares held in trust for his nieces and nephews.
(8) Includes 333 shares with respect to which Ms. Ecton has sole voting power
but no investment power. Excludes 455 phantom stock units held under the
Company's Non-Employee Directors Deferred Compensation Plan.
(9) Includes 160,422 shares with respect to which Mr. Hudson shares voting and
investment power with his wife, 562 shares held by a trust of which Mr.
Hudson is a co-trustee, 4,959 shares held by his gift trust and 20,932
shares held in trusts with respect to which Mr. Hudson has the power to
withdraw the shares from the trusts. Also includes 1,923 shares which may
be acquired by Mr. Hudson upon conversion of $50,000 principal amount of
the Company's 6% Convertible Subordinated Notes Due 2002. Excludes 841
phantom stock units held under the Company's Non-Employee Directors
Deferred Compensation Plan.
(10) Includes 7,029 shares held by his spouse as custodian for his children and
20,058 shares held by his spouse. With respect to these 27,087 shares, Mr.
Ladt shares voting and investment power with his spouse.
(11) The number of shares shown as beneficially owned by Manning & Napier
Advisors, Inc. is based on information contained in the Schedule 13G as of
December 31, 1994, filed by Manning & Napier Advisors, Inc. with the
Securities and Exchange Commission. The percent of shares is based on the
Company's outstanding shares as of March 6, 1995.
(12) The number of shares shown as beneficially owned by Pilgrim Baxter &
Associates is based on information contained in the Schedule 13G as of
December 31, 1994, filed by Pilgrim Baxter & Associates with the Securities
and Exchange Commission. The percent of shares is based on the Company's
outstanding shares as of March 6, 1995.
(13) The number of shares shown as beneficially owned by Putnam Investments,
Inc. is based on information contained in the Schedule 13G as of December
31, 1994, filed by Putnam Investments, Inc. on behalf of itself and Putnam
Investment Management, Inc. and the Putnam Advisory Company, Inc. The
percent of shares is based on the Company's outstanding shares as of March
6, 1995.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION PHILOSOPHY
The Executive Compensation Committee of the Board of Directors is composed
entirely of outside directors. The Committee is responsible for setting and
administering the policies and programs that govern both annual compensation and
stock ownership programs for the executive officers of the Company. The
Company's executive compensation policy is based on principles designed to
ensure that an appropriate relationship exists between executive pay and
corporate performance, while at the same time motivating and retaining executive
officers.
EXECUTIVE COMPENSATION COMPONENTS
The key components of the Company's compensation program are base salary,
an annual incentive award and equity participation. These components are
administered with the goal of providing total compensation that is competitive
in the marketplace, rewards successful financial performance and aligns
executive officers' interests with those of stockholders. The Executive
Compensation Committee reviews each component of executive compensation on an
annual basis.
BASE SALARY. Base salaries for executive officers are set near the minimum
levels believed by the Executive Compensation Committee to be sufficient to
attract and retain qualified executive officers. Base pay increases are provided
to executive officers based on an evaluation of each executive's performance, as
well as the performance of the corporation as a whole. While the Committee does
not establish a specific formula or target to determine base salaries, the
Committee considers the financial performance of the Company as
5
<PAGE> 9
compared to companies included in the Standard & Poor's Hospital Management
Composite Index ("Hospital Index"). In this regard, the Committee primarily
considers earnings growth and to a lesser degree asset growth. The Committee
also considers the success of the executive officers in developing and executing
the Company's strategic plans, developing management employees and exercising
leadership. The Executive Compensation Committee believes that executive officer
base salaries for 1994 were lower than the average base salaries paid by
companies included in the Hospital Index, lower than the average base salaries
paid by comparable publicly traded healthcare companies, and comparable to the
median base salaries paid by service industry companies with similar earnings.
ANNUAL INCENTIVE. The Executive Compensation Committee believes that a
significant proportion of total cash compensation for executive officers should
be subject to attainment of specific Company earnings criteria. This approach
creates a direct incentive for executive officers to achieve desired performance
goals and places a significant percentage of each executive officer's
compensation at risk. Consequently, at the beginning of each year, the Executive
Compensation Committee establishes potential bonuses for executive officers
based on the Company's achievement of certain earnings per share criteria. The
Executive Compensation Committee established annual bonuses for 1994 equal to
50% of base salaries contingent upon the Company's full achievement of such
predetermined earnings per share criteria. The Committee established the
potential bonuses and earnings per share criteria based on the Committee's
judgment as to desirable financial results for the Company and the appropriate
percentage of compensation which should be based on the attainment of such
results.
STOCK OPTIONS. The Executive Compensation Committee believes that equity
participation is a key component of its executive compensation program. Stock
options are granted to executive officers primarily based on the officer's
actual and potential contribution to the Company's growth and profitability and
the practices of companies such as those included in the Hospital Index. Option
grants are designed to retain executive officers and motivate them to enhance
stockholder value by aligning the financial interests of executive officers with
those of stockholders. Stock options also provide an effective incentive for
management to create shareholder value over the long term since the full benefit
of the compensation package cannot be realized unless an appreciation in the
price of the Company's Common Stock occurs over a number of years.
Options to purchase 115,500 shares of the Company's Common Stock were
granted to the Company's executive officers (including the Company's chief
executive officer) in 1994 with an exercise price equal to the fair market value
of the underlying Common Stock on the date of grant ($21.33). These options vest
cumulatively in four annual installments of 25% and expire ten years from the
date of grant. In addition, options to purchase 218,000 shares of Ventech
Systems, Inc. ("Ventech") Common Stock were granted to the Company's executive
officers in 1994 with an exercise price equal to the fair market value of the
underlying Common Stock on the date of grant ($2.44). These options vest
cumulatively in five annual installments of 20% and expire in ten years. Ventech
is a wholly-owned subsidiary of the Company. The Committee granted this number
of options based on its judgment that this number is appropriate and desirable
considering the executive officers' actual and potential contribution to the
Company, as well as the number of options granted in previous years. The
assessment of actual and potential contribution was based on the Committee's
subjective evaluation of each executive officer's ability, skills, efforts and
leadership. The Committee believes that the amount of options granted to each of
its executive officers was below the average amount of options granted to
executive officers of companies included in the Hospital Index.
SPECIAL BONUS. During the last quarter of 1993, the Company completed a
self-tender offer. Pursuant to this offer, the Company repurchased 1,987,533
shares of its Common Stock for $16 per share. In 1994, the Executive
Compensation Committee determined that a special bonus should be awarded to
Messrs. Lunsford, Barr and Reed in recognition of the senior management team's
completion of this successful offer. The following special bonuses were awarded:
Mr. Lunsford -- $500,000; Mr. Barr -- $50,000; and Mr. Reed -- $50,000.
6
<PAGE> 10
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Consistent with the executive compensation policy and components described
above, the Executive Compensation Committee determined the salary, bonus and
stock options received by W. Bruce Lunsford, Chairman of the Board, President
and Chief Executive Officer of the Company, for services rendered in 1994. Mr.
Lunsford received a base salary of $368,000 for 1994. The Committee did not
establish a specific target or formula to determine Mr. Lunsford's salary. The
Committee believes that this base salary was comparable to median base salaries
for other chief executive officers of service corporations with similar earnings
and below average base salaries paid to chief executive officers of companies
included in the Hospital Index and comparable publicly traded healthcare
companies. Mr. Lunsford earned a $184,000 bonus under the Company's 1987
Incentive Compensation Program. Mr. Lunsford received the bonus payable for the
Company's surpassing the maximum earnings per share goal specified in advance by
the Executive Compensation Committee. Mr. Lunsford received a special bonus of
$500,000. This special bonus was awarded to Mr. Lunsford in recognition of the
success of the Company's self-tender offer which was completed during the last
quarter of 1993. Mr. Lunsford also received options to purchase 60,000 shares of
the Company's Common Stock and 120,000 shares of Ventech's Common Stock. The
Committee determined the number of options granted to Mr. Lunsford based on its
judgment that this number is appropriate and desirable in light of his actual
and potential contribution to the Company. The assessment of actual and
potential contribution was based on the Committee's subjective evaluation of Mr.
Lunsford's abilities, skills, efforts and leadership. The Committee believes
that the amount of options granted to Mr. Lunsford is below the average amount
of options granted to the chief executive officers of companies included in the
Hospital Index.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
Under the Omnibus Budget Reconciliation Act of 1993 ("OBRA"), subject to
certain exceptions and transition provisions, the allowable deduction for
compensation paid or accrued with respect to the chief executive officer and
each of the four most highly compensated employees of a publicly held
corporation is limited to $1 million per year for fiscal years beginning on or
after January 1, 1994. In 1994, the Company's Board of Directors and
stockholders approved amendments to the Company's 1987 Incentive Compensation
Program intended to preserve the deductibility of most incentives available for
award under the plan to the Company's executive officers. However, salaries and
bonuses are not exempt from the $1 million limit. Mr. Lunsford's special bonus
of $500,000 will cause his compensation to exceed the limit for one year. While
the Committee anticipates that it will not normally award cash compensation in
excess of $1 million per year to any executive officer, the Committee reserves
the right to grant special bonuses in recognition of outstanding performance.
EXECUTIVE COMPENSATION COMMITTEE
R. Gene Smith, Chairman
Greg D. Hudson
William H. Lomicka
7
<PAGE> 11
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by the Company to each
of the Company's four executive officers, including the Chairman of the Board,
President and Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
--------------------- OPTIONS (NO. OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) SHARES)(2) COMPENSATION(3)
---------------------------------- ----- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
W. Bruce Lunsford................. 1994 $368,000 $684,000(4) 60,000(5) $ 4,500
Chairman of the Board, President 1993 350,000 175,000 60,000 7,075
and Chief Executive Officer 1992 350,000 175,000 57,000 8,728
Michael R. Barr................... 1994 $189,000 $144,500(4) 22,500(5) $ 4,500
1993 180,000 90,000 22,500 5,399
Vice President, Operations 1992 180,000 90,000 22,500 5,349
W. Earl Reed, III................. 1994 $189,000 $144,500(4) 22,500(5) $ 4,500
Vice President, Finance and 1993 180,000 90,000 22,500 5,399
Development 1992 180,000 90,000 22,500 5,349
Thomas T. Ladt(6)................. 1994 $120,000 $ 60,000 10,500(5) $ 1,800
1993 110,000 58,000 6,000 3,185
Vice President, Hospital Division 1992 95,000 50,500 6,000 2,885
</TABLE>
---------------
(1) Except as otherwise specified below, the amounts shown represent cash
bonuses awarded under the Company's Incentive Compensation Program which
were based on the Company's profitability.
(2) All amounts have been adjusted to reflect the Company's 3-for-2 stock split
distributed on October 25, 1994.
(3) Amounts in this column represent contributions by the Company for the
benefit of the named persons pursuant to the Company's Retirement Savings
Plan.
(4) Includes a special bonus paid as follows in recognition of management's
completion of a self-tender offer in the last quarter of 1993: Mr.
Lunsford -- $500,000; Mr. Barr -- $50,000; and Mr. Reed -- $50,000.
(5) In addition, options were granted to purchase shares of a wholly-owned
subsidiary, Ventech Systems, Inc., as follows: Mr. Lunsford -- 120,000
shares; Mr. Barr -- 40,000 shares; Mr. Reed -- 40,000 shares; and Mr.
Ladt -- 18,000 shares.
(6) Mr. Ladt first became an executive officer of the Company in December 1993.
8
<PAGE> 12
COMPENSATION OF DIRECTORS
Directors not employed by the Company receive $1,500 for each board meeting
they attend. Non-employee directors also receive $500 for each committee meeting
they personally attend which is scheduled in conjunction with a board meeting
and $1,000 for each committee meeting independently scheduled. In addition,
non-employee directors receive $1,500 for each calendar quarter they serve as a
director.
Pursuant to the Company's Non-Employee Directors Deferred Compensation
Plan, a non-employee director may defer in stock or cash the receipt of fees
which would otherwise be paid to the director for services on the Board and its
committees. Directors who choose to defer fees may elect to have the deferred
amounts invested 100% in shares of the Company's Common Stock ("Share Election")
or to accumulate and earn interest ("Cash Election"). If a Share Election is
made, the director's deferral account is credited with 110% of the compensation
otherwise payable to the director. As of the end of each calendar quarter, such
deferred amounts are converted into share equivalents of the Company's Common
Stock based on the fair market value of the Common Stock on that date. If a Cash
Election is made, the deferred amounts earn interest at a floating rate of
interest, compounded annually.
Directors not employed by the Company receive options pursuant to the Stock
Option Plan for Non-Employee Directors (the "Directors Plan"). The Company
issues, on each January 1, to each of the Company's non-employee directors an
option to purchase 2,813 shares of Common Stock with an exercise price equal to
the fair market value of Common Stock on the date the option is granted.
Accordingly, in 1994, the Company issued options with respect to an aggregate of
14,065 shares to its five non-employee directors. All options become exercisable
in four equal annual installments, beginning on the first anniversary of the
date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of the Company's Common Stock granted in 1994 to the Company's executive
officers.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) IN 1994 PER SHARE(2) DATE PRESENT VALUE(3)
---------------------------- ---------- ------------ -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
W. Bruce Lunsford........... 60,000 19.3% $21.33 6/27/04 $721,200
Michael R. Barr............. 22,500 7.3% 21.33 6/27/04 270,450
W. Earl Reed, III........... 22,500 7.3% 21.33 6/27/04 270,450
Thomas T. Ladt.............. 10,500 3.4% 21.33 6/27/04 126,210
</TABLE>
---------------
(1) All options shown in the above table were granted on June 27, 1994, and
become exercisable in four equal annual installments, beginning on the
first anniversary of the date of grant. The options may become fully
exercisable upon a change in control of the Company.
(2) All options were granted at fair market value (closing price on the New York
Stock Exchange on the date of grant). The exercise price and any tax
withholding obligations related to exercise may be paid by delivery of
shares of Common Stock.
(3) The Company used the Black-Scholes model of option valuation to determine
grant date present value. The present value calculation is based on, among
other things, the following assumptions: (a) a .38 expected volatility
factor; (b) a 7.57% risk-free interest rate; (c) no dividend yield; (d)
expected term of 10 years; (e) a 10% adjustment for non-transferability;
and (f) a 1% adjustment based on risk of forfeiture. The Company does not
advocate or necessarily agree that the Black-Scholes model can properly
determine the value of an option. There is no assurance that the value, if
any, realized by the option holder will be at or near the value estimated
under the Black-Scholes Model.
9
<PAGE> 13
The following table sets forth information concerning options to purchase
shares of Ventech Systems, Inc. Common Stock granted to the Company's executive
officers. Ventech Systems, Inc. is a wholly-owned subsidiary of the Company.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED(1) 1994(2) PER SHARE(3) DATE 5% 10%
------------------------- ---------- ------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford........ 120,000 9.8% $ 2.44 1/1/04 $184,140 $466,648
Michael R. Barr.......... 40,000 3.3% 2.44 1/1/04 61,380 155,549
W. Earl Reed, III........ 40,000 3.3% 2.44 1/1/04 61,380 155,549
Thomas T. Ladt........... 18,000 1.5% 2.44 1/1/04 27,621 69,997
</TABLE>
---------------
(1) All options shown in the above table were granted on January 1, 1994, and
become exercisable in five equal annual installments, beginning on the
first anniversary of the date of grant. The options may become fully
exercisable upon a change in control of the Company.
(2) This percentage relates to the options granted to employees of the Company
and Ventech Systems, Inc.
(3) All options were granted at fair market value. The Ventech Systems, Inc.
Board of Directors determined fair market value based on the purchase price
paid for this company in 1993 and the financial position of Ventech
Systems, Inc. The exercise price and any tax withholding obligations
related to exercise may be paid by delivery of shares of Ventech Systems,
Inc.'s Common Stock.
(4) Because there is no market for Ventech Systems, Inc. Common Stock, the
Company chose to include potential realizable value at assumed annual rates
of stock price appreciation rather than a value based on the Black-Scholes
model. There is no assurance that any market will develop for Ventech
Systems, Inc. Common Stock.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Company's
executive officers concerning the exercise of options during 1994 and
unexercised options held as of December 31, 1994.
AGGREGATE OPTION EXERCISES IN 1994
AND YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
SHARES OPTIONS AT 12/31/94 12/31/94(3)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------- ----------- -------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford.......... 0 0 212,254 147,562 $3,776,318 $ 1,330,034
Michael R. Barr............ 0 0 48,704 55,311 712,608 495,513
W. Earl Reed, III.......... 18,750 $495,075 268,127 55,311 6,615,592 495,513
Thomas T. Ladt............. 0 0 17,156 19,407 285,129 163,333
</TABLE>
---------------
(1) None of the options to purchase shares of Ventech Systems, Inc. Common Stock
held by the Company's executive officers were exercisable in 1994. In
addition, there is no market for shares of Ventech Systems, Inc.
Accordingly, Ventech Systems, Inc. options are not included in the above
table. See "Option Grants in Last Fiscal Year."
(2) These amounts represent the market value of the underlying Common Stock on
the date of exercise, minus the exercise price. The actual sale price was
used in this calculation where the underlying Common Stock was sold on the
exercise date.
(3) These amounts were calculated by subtracting the exercise price from the
market value of the underlying Common Stock as of year-end. The market
value of the Common Stock was $27.875 per share as of December 31, 1994,
based on the closing price per share on the New York Stock Exchange.
10
<PAGE> 14
PERFORMANCE GRAPH
The following graph summarizes the cumulative total return to holders of
the Company's Common Stock from December 31, 1989 to December 31, 1994, compared
to the cumulative total return on the Standard & Poor's 500 Stock Index and the
Standard & Poor's Hospital Management Composite Index.
[GRAPH]
<TABLE>
<CAPTION>
Measurement Period S&P 500 S&P Hospital
(Fiscal Year Covered) Vencor, Inc. Index Management
<S> <C> <C> <C>
1989 100 100 100
1990 203 97 100
1991 823 126 89
1992 827 136 69
1993 679 150 104
1994 950 152 111
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the following persons served on the Executive Compensation
Committee of the Company's Board of Directors: R. Gene Smith, Greg D. Hudson and
William H. Lomicka. Although R. Gene Smith serves as Vice Chairman of the Board,
none of the Executive Compensation Committee members are employees of the
Company.
During 1994, Commonwealth Investment Advisors Inc., an affiliate of R. Gene
Smith, subleased the Company's former corporate headquarters. The primary lease
to which the Company was a party was cancelled as of January 1, 1995. In
addition to the lease payment made directly to the landlord under the primary
lease, Commonwealth Investment Advisors Inc. paid the Company $9,600 during 1994
as lease payments under the sublease. The Company believes the terms of the
sublease were no less favorable than the terms the Company could have obtained
from unaffiliated third parties.
William C. Ballard Jr. is of counsel to the firm of Greenebaum Doll &
McDonald, which provided legal services to the Company in 1994 and will provide
legal services to the Company in 1995.
In 1989, the Company adopted a policy which provides that any transaction
between the Company and any of its officers, directors or affiliates must be
approved by the disinterested members of the Company's Board of Directors and
must be on terms no less favorable to the Company than those available from
unaffiliated parties.
11
<PAGE> 15
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of the
Company's Common Stock to file initial stock ownership reports and reports of
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Based on a review of these reports and on written
representations from the reporting persons that no other reports were required,
the Company believes that applicable Section 16(a) reporting requirements were
complied with for all transactions which occurred in 1994.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP, Louisville, Kentucky, has been retained by
the Company as independent certified public accountants to audit the financial
statements of the Company. Representatives of Ernst & Young LLP will be present
at the Annual Meeting and will be afforded the opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the next Annual
Meeting of Stockholders must be received by the Company by November 30, 1995 in
order to be considered for inclusion in the Company's proxy material for such
meeting.
OTHER MATTERS
The only matters to be considered at the Annual Meeting or any adjournment
thereof, so far as known to the Board of Directors, are those set forth in the
Notice of Meeting and routine matters incident to the conduct of the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, it is the intention of the persons named in
the accompanying form of proxy, or their substitutes, to vote said proxy in
accordance with their judgment in such matters.
By Order of the Board of Directors,
W. Bruce Lunsford
Chairman of the Board,
President and Chief
Executive Officer
Louisville, Kentucky
March 30, 1995
12
<PAGE> 16
APPENDIX A
VENCOR, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 9, 1995
The undersigned hereby appoints W. Bruce Lunsford and W. Earl Reed, III, and
each of them, his or her attorneys and agents, with full power of substitution
to vote as Proxy for the undersigned, as herein stated, at the Annual Meeting of
Stockholders of Vencor, Inc. to be held at the Hyatt Regency, 320 West Jefferson
Street, Louisville, Kentucky, on Tuesday, May 9, 1995, at 9:00 a.m. (EDT), and
at any adjournments thereof, according to the number of votes the undersigned
would be entitled to vote if personally present on the proposal set forth below
and in accordance with their discretion on any other matters that may properly
come before the meeting or any adjournments thereof.
The Board of Directors recommends a vote FOR the following proposal:
ELECTION OF DIRECTORS
FOR / / the election of William C. Ballard Jr., Michael R. Barr, Donna R.
Ecton, Greg D. Hudson, William H. Lomicka, W. Bruce Lunsford, W. Earl Reed, III
and R. Gene Smith as directors, or WITHHOLD AUTHORITY / / to vote for all
nominees in such election.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME ABOVE.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE PROXY WILL BE VOTED IN FAVOR OF THE FOREGOING
PROPOSAL.
PLEASE FILL IN, DATE, SIGN AND
RETURN THIS PROXY IN THE
ACCOMPANYING ENVELOPE.
Dated: , 1995
Signature
Signature
(if held jointly)
Signatures of stockholders
should correspond exactly with
the names shown on the proxy
card. Attorneys, trustees,
executors, administrators,
guardians and others signing in
a representative capacity should
designate their full titles.
