<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1995.
REGISTRATION NO. 33-59345
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
VENCOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8069 61-1055020
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 569-7300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JILL L. FORCE
GENERAL COUNSEL AND SECRETARY
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 569-7300
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C> <C>
Joseph B. Frumkin Richard P. Adcock Peter Golden
Sullivan & Cromwell Senior Vice President, Fried, Frank, Harris,
125 Broad Street General Counsel and Secretary Shriver & Jacobson
New York, New York 10004 The Hillhaven Corporation One New York Plaza
(212) 558-4000 1148 Broadway Plaza New York, New York 10004
Tacoma, Washington 98402 (212) 859-8000
(206) 572-4901
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(2)(3)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.25 per
share, each with .667 of an 40,046,245 Shares $28.625 $1,146,323,763 $395,284.06
associated participating preferred
stock purchase right................
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-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the amount of Vencor Common Stock estimated to be issuable upon
consummation of the Merger of The Hillhaven Corporation with and into
Vencor, Inc., based upon the number of shares of Hillhaven Common Stock
outstanding on July 31, 1995.
(2) Pursuant to Rules 457(c) and 457(f)(1), and solely for purposes of
calculating the registration fee, the registration fee was computed on the
basis of the high and low prices of a share of Hillhaven Common Stock as
reported on the New York Stock Exchange Composite Tape on July 28, 1995.
(3) A registration fee in the amount of $263,046.40 was previously paid on May
16, 1995.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
VENCOR, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------------------ ----------------------------
<C> <S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus........................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus..... Inside Front and Outside
Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information............................................... Summary; Risk Factors;
Unaudited Pro Forma
Condensed Combined
Financial Information; The
Special Meetings; The
Merger
4. Terms of the Transaction.................................... Summary; The Merger;
Comparison of Certain
Rights of Stockholders of
Vencor and Hillhaven;
Certain Federal Income Tax
Consequences of the Merger
5. Pro Forma Financial Information............................. Summary; Unaudited Pro Forma
Condensed Combined
Financial Information
6. Material Contacts with the Company Being Acquired........... Summary; Operations and
Management After the
Merger; The Merger
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to be Underwriters..................... *
8. Interests of Named Experts and Counsel...................... Experts; Validity of Shares
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................ *
10. Information with Respect to S-3 Registrants................. Incorporation of Certain
Information by Reference;
Summary; Unaudited Pro
Forma Condensed Combined
Financial Information
11. Incorporation of Certain Information by Reference........... Incorporation of Certain
Information by Reference
12. Information with Respect to S-2 or S-3 Registrants.......... *
13. Incorporation of Certain Information by Reference........... *
14. Information with Respect to Registrants Other Than S-2 or
S-3 Registrants........................................... *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------------------ ----------------------------
<C> <S> <C> <C>
15. Information with Respect to S-3 Companies................... Incorporation of Certain
Information by Reference;
Summary; Unaudited Pro
Forma Condensed Combined
Financial Information
16. Information with Respect to S-2 or S-3 Companies............ *
17. Information with Respect to Companies Other than S-2 or S-3
Companies................................................. *
18. Information if Proxies, Consents or Authorizations Are to be
Solicited:
1. Date, Time and Place Information.................... Outside Front Cover Page;
Summary; The Special
Meetings
2. Revocability of Proxy............................... The Special Meetings
3. Dissenters' Rights of Appraisal..................... Summary; The Special
Meetings; The Merger;
Comparison of Certain
Rights of Stockholders of
Vencor and Hillhaven
4. Persons Making the Solicitation..................... Outside Front Cover Page;
Summary; The Special
Meetings; The Merger
5. Interest of Certain Persons in Matters to be Acted
Upon and Voting Securities and Principal Holders
Thereof............................................. Summary; Risk Factors;
Operations and Management
After the Merger; The
Special Meetings; The
Merger; Security Ownership
6. Vote Required for Approval.......................... Summary; The Special
Meetings
7. Directors and Executive Officers, Executive
Compensation,
and Certain Relationships and Related
Transactions........................................... Incorporation of Certain
Information by Reference;
Summary; Operations and
Management After the
Merger; Amendment to the
Vencor 1987 Incentive
Compensation Program
19. Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer................... *
</TABLE>
---------------
* Indicates that Item is not applicable or answer is in the negative.
<PAGE> 4
[LETTERHEAD OF VENCOR, INC.]
August , 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Vencor, Inc. ("Vencor") to be held at 1:00 p.m. local time, on September ,
1995 at the [Hyatt Regency, 320 West Jefferson Street, Louisville, Kentucky]. I
hope that you will be present or represented by proxy at this important meeting.
Vencor has entered into an agreement with The Hillhaven Corporation
("Hillhaven") pursuant to which Hillhaven will be merged with and into Vencor.
Vencor believes, based upon net operating revenues and the number of beds in
service, that the merger will create one of the nation's largest providers of
healthcare services primarily focusing on the needs of the elderly. With
operations in 38 states, the merged companies will conduct business in states
containing more than 80% of the nation's population, with 36 long-term intensive
care hospitals and 311 nursing centers with more than 42,000 beds, 56 retail and
institutional pharmacy outlets and 23 retirement housing communities with 3,000
apartments. Healthcare services provided through this network of facilities will
include long-term intensive hospital care, long-term nursing care, contract
respiratory therapy services, acute cardiopulmonary care, subacute and
post-operative care, inpatient and outpatient rehabilitation therapy,
specialized care for Alzheimer's disease, hospice care, pharmacy services and
retirement and assisted living.
The purposes of the Special Meeting are to (a) approve the Amended and
Restated Agreement and Plan of Merger between Vencor and Hillhaven (the "Merger
Agreement") and the transactions contemplated thereby, including the issuance in
the merger of shares of Vencor common stock to holders of Hillhaven common
stock, (b) approve an amendment to Vencor's Certificate of Incorporation to
increase the number of authorized shares of Vencor common stock from 60,000,000
shares to 180,000,000 shares and (c) approve an amendment to Vencor's 1987
Incentive Compensation Program to increase the number of shares of Vencor common
stock which may be issued upon the exercise of stock options and pursuant to
other stock and cash awards granted under the program from 3,162,562 shares to
6,900,000 shares. The merger and other matters, including certain risks
associated with the merger and certain interests of management and the Board of
Directors of Hillhaven in the merger, are described in greater detail in the
accompanying Joint Proxy Statement/Prospectus, which we urge you to read
carefully. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THESE MATTERS.
Approval of the Merger Agreement and the transactions contemplated thereby
and approval of the amendment to Vencor's Certificate of Incorporation to be
voted on at the Special Meeting require a favorable vote of a majority of the
outstanding shares of Vencor common stock. Approval of the amendment to Vencor's
1987 Incentive Compensation Program to be voted on at the Special Meeting
requires a favorable vote of a majority of the shares of Vencor common stock
present, in person or by proxy, at the Special Meeting. Stockholders are
entitled to vote all shares of Vencor common stock held by them on August ,
1995, which is the record date for the Special Meeting.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ENCLOSED JOINT PROXY STATEMENT/PROSPECTUS. In order to ensure
that your vote is represented at the meeting, please indicate your choice on the
proxy form, date and sign it, and return it in the enclosed envelope. A prompt
response will be appreciated. If you are able to attend the Special Meeting, you
may revoke your proxy at any time before its exercise and vote in person if you
wish.
Sincerely,
W. Bruce Lunsford
Chairman of the Board, President and
Chief
Executive Officer
<PAGE> 5
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 1995
---------------------
NOTICE HEREBY IS GIVEN that a Special Meeting of Stockholders (the "Vencor
Special Meeting") of Vencor, Inc., a Delaware corporation ("Vencor"), has been
called by the Board of Directors of Vencor and will be held at the [Hyatt
Regency, 320 West Jefferson Street, Louisville, Kentucky 40202] at 1:00 p.m.
local time on September , 1995 to consider and vote upon the following
matters described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to adopt and approve an
Amended and Restated Agreement and Plan of Merger, dated as of April 23,
1995 and as amended and restated as of July 31, 1995, as it may be further
amended, supplemented or modified from time to time (the "Merger
Agreement"), between Vencor and The Hillhaven Corporation, a Nevada
corporation, and to approve the transactions contemplated by the Merger
Agreement, including the issuance of shares of Vencor common stock, par
value $.25 per share ("Vencor Common Stock"), pursuant to the Merger
Agreement;
2. To consider and vote upon a proposal to amend Vencor's Certificate
of Incorporation to increase the authorized number of shares of Vencor
Common Stock from 60,000,000 shares to 180,000,000 shares;
3. To consider and vote upon a proposal to amend Vencor's 1987
Incentive Compensation Program to increase the number of shares of Vencor
Common Stock which may be issued upon the exercise of stock options and
other stock and cash awards granted under the program from 3,162,562 shares
to 6,900,000 shares; and
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Notwithstanding stockholder approval of the foregoing proposals, Vencor
reserves the right to abandon the merger at any time prior to the consummation
of the merger, subject to the terms and conditions of the Merger Agreement.
Holders of Vencor Common Stock will not be entitled to appraisal rights in
connection with the merger.
Only holders of Vencor Common Stock of record at the close of business on
August , 1995, are entitled to notice of and to vote at such meeting or any
adjournments or postponements thereof.
Approval of the Merger Agreement and the transactions contemplated thereby
and approval of the amendment to Vencor's Certificate of Incorporation require
the affirmative vote of a majority of the outstanding shares of Vencor Common
Stock. Approval of the amendment to Vencor's 1987 Incentive Compensation Program
requires the affirmative vote of a majority of the shares of Vencor Common
Stock, present, in person or by proxy, at the Vencor Special Meeting.
A form of Proxy and a Joint Proxy Statement/Prospectus containing more
detailed information with respect to the matters to be considered at the Vencor
Special Meeting (including the Merger Agreement attached as Appendix A thereto)
accompany and form a part of this notice.
By Order of the Board of Directors
JILL L. FORCE
General Counsel and Secretary
<PAGE> 6
Louisville, Kentucky
August , 1995
---------------------
THE BOARD OF DIRECTORS OF VENCOR UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
TO APPROVE THE MATTERS TO BE VOTED UPON AT THE VENCOR SPECIAL MEETING.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY FORM PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE VENCOR SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER
IN WRITING OR BY VOTING IN PERSON AT THE VENCOR SPECIAL MEETING, AT ANY TIME
PRIOR TO ITS EXERCISE.
---------------------
The Proxy Solicitor For Vencor:
Georgeson & Company, Inc.
Call Toll Free [ ]
[ ]
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 7
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA
TACOMA, WA 98402
August , 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Hillhaven Special Meeting") of The Hillhaven Corporation ("Hillhaven") to be
held on September , 1995, at 10:00 a.m., local time, at the corporate
headquarters of Hillhaven, 1148 Broadway Plaza, First Floor, Tacoma, Washington.
At the Hillhaven Special Meeting, you will be asked to consider and vote on
a proposal to approve and adopt an Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Hillhaven will be merged with
and into Vencor, Inc. (the "Merger"). The Merger will create what Vencor and
Hillhaven believe, based upon net operating revenues and the number of beds in
service, will be one of the nation's largest providers of healthcare services
primarily focusing on the needs of the elderly. With operations in 38 states,
the merged company will conduct business in states containing more than 80% of
the nation's population, with 36 long-term intensive care hospitals and 311
nursing centers with more than 42,000 beds, 56 retail and institutional pharmacy
outlets and 23 retirement housing communities with 3,000 apartments. Healthcare
services provided through this network of facilities will include long-term
intensive hospital care, long-term nursing care, contract respiratory therapy
services, acute cardiopulmonary care, subacute and post-operative care,
inpatient and outpatient rehabilitation therapy, specialized care for
Alzheimer's disease, hospice care, pharmacy services and retirement and assisted
living.
The Board of Directors of Hillhaven has carefully reviewed and considered
the terms and conditions of the proposed Merger. In addition, the Board of
Directors of Hillhaven has received written opinions from its financial advisor,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to the effect that, as of
April 23, 1995, and as of the date hereof, and based upon the assumptions made,
matters considered and limits of review as set forth in such opinions, the
consideration to be received by the holders of Hillhaven Common Stock (other
than Tenet Healthcare Corporation) pursuant to the Merger Agreement is fair to
such holders from a financial point of view.
HILLHAVEN'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, HILLHAVEN AND ITS STOCKHOLDERS. ACCORDINGLY, THE
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS
THAT ALL STOCKHOLDERS VOTE FOR ITS APPROVAL AND ADOPTION.
I urge you to review and consider carefully the accompanying Notice of
Special Meeting of Stockholders and Joint Proxy Statement/Prospectus, which
contain information about Hillhaven and Vencor and describe the proposed Merger
and certain other matters, including certain risks associated with the Merger
and the interests of management and the Board of Directors of Hillhaven in the
Merger.
The affirmative vote of the holders of not less than a majority of the
outstanding shares of Hillhaven Common Stock and two-thirds of each class of
Hillhaven Preferred Stock, each voting separately as a class, and of a majority,
voting as a single class, of the outstanding shares of Hillhaven Common Stock
and Hillhaven Preferred Stock, will be necessary for approval and adoption of
the Merger Agreement.
If the Merger Agreement is approved and the Merger is consummated, you will
be sent a letter of transmittal with instructions for surrendering your
certificates representing shares of Hillhaven Common Stock. Please do not send
your share certificates until you receive these materials.
<PAGE> 8
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE HILLHAVEN SPECIAL
MEETING, YOU ARE URGED PROMPTLY TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND
THE HILLHAVEN SPECIAL MEETING. If you attend the Hillhaven Special Meeting in
person, you may, if you wish, vote personally on all matters brought before the
Hillhaven Special Meeting even if you have previously returned your Proxy. Your
prompt cooperation will be appreciated.
Sincerely,
Bruce L. Busby
Chairman of the Board
and Chief Executive Officer
<PAGE> 9
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA
TACOMA, WA 98402
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 1995
To the Stockholders of The Hillhaven Corporation:
Notice is hereby given that a Special Meeting of Stockholders (the
"Hillhaven Special Meeting") of The Hillhaven Corporation, a Nevada corporation
("Hillhaven"), will be held on September , 1995, at 10:00 a.m., local time, at
the corporate headquarters of Hillhaven, 1148 Broadway Plaza, First Floor,
Tacoma, Washington, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger, dated as of April 23,
1995 and as amended and restated as of July 31, 1995 (the "Merger
Agreement"), between Vencor, Inc., a Delaware corporation ("Vencor") and
Hillhaven and to approve the transactions contemplated thereby; and
2. To transact such other business as may properly come before the
Hillhaven Special Meeting or any adjournments or postponements thereof.
The Board of Directors of Hillhaven has fixed the close of business on
August , 1995, as the record date for the determination of stockholders
entitled to notice of and to vote at the Hillhaven Special Meeting, and only
stockholders of record at such time will be entitled to notice of, and to vote
at, the Hillhaven Special Meeting.
A form of Proxy and a Joint Proxy Statement/Prospectus containing more
detailed information with respect to the matters to be considered at the
Hillhaven Special Meeting accompany this notice.
You are invited to attend the Hillhaven Special Meeting in person. Whether
or not you plan to attend, please complete, sign, date and promptly return the
enclosed Proxy in the enclosed self-addressed, stamped envelope. If you attend
the Hillhaven Special Meeting and desire to revoke your Proxy and vote in
person, you may do so. In any event, a Proxy may be revoked at any time before
it is voted.
THE BOARD OF DIRECTORS OF HILLHAVEN UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE HILLHAVEN SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS OF HILLHAVEN, WHETHER OR NOT YOU PLAN TO
ATTEND THE HILLHAVEN SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
YOUR PROMPT COOPERATION WILL BE GREATLY APPRECIATED.
By Order of the Board of Directors,
Richard P. Adcock
Secretary
Tacoma, Washington
August , 1995
The Proxy Solicitor For Hillhaven:
D.F. King & Co., Inc.
Call Toll Free [ ]
[ ]
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 10
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BY ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 1, 1995
VENCOR, INC. THE HILLHAVEN
CORPORATION
JOINT PROXY STATEMENT
---------------------
VENCOR, INC.
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Vencor, Inc., a Delaware corporation ("Vencor"), in connection
with the solicitation of proxies by Vencor's Board of Directors (the "Vencor
Board") from holders of outstanding shares of Vencor common stock, par value
$.25 per share ("Vencor Common Stock"), for use at a Special Meeting of
Stockholders of Vencor to be held on September , 1995 and at any adjournments
or postponements thereof (the "Vencor Meeting"). This Joint Proxy
Statement/Prospectus is also being furnished to the stockholders of The
Hillhaven Corporation, a Nevada corporation ("Hillhaven"), in connection with
the solicitation of proxies by Hillhaven's Board of Directors (the "Hillhaven
Board") from holders of outstanding shares of Hillhaven's common stock, par
value $.75 per share ("Hillhaven Common Stock"), from the holder of outstanding
shares of Hillhaven's Series C Preferred Stock, par value $.15 per share
("Hillhaven Series C Preferred Stock"), and from the holder of outstanding
shares of Hillhaven's Series D Preferred Stock, par value $.15 per share
("Hillhaven Series D Preferred Stock" and, together with the Hillhaven Series C
Preferred Stock, the "Hillhaven Preferred Stock"), for use at a Special Meeting
of Stockholders of Hillhaven to be held on September , 1995 and at any
adjournments or postponements thereof (the "Hillhaven Meeting," and, together
with the Vencor Meeting, the "Special Meetings").
At the Special Meetings, stockholders of Vencor and Hillhaven will be asked
to consider and vote upon a proposal to adopt and approve an Amended and
Restated Agreement and Plan of Merger, dated as of April 23, 1995 and as amended
and restated as of July 31, 1995, between Vencor and Hillhaven (as it may be
further amended, supplemented or otherwise modified from time to time, the
"Merger Agreement"), which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference, and to approve the
transactions contemplated by the Merger Agreement. The Merger Agreement provides
for the merger (the "Merger") of Hillhaven with and into Vencor, with Vencor
being the corporation surviving the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"). Upon the Merger becoming effective (the "Effective
Time"), each share of Hillhaven Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares owned by Vencor or any subsidiary
of Vencor (collectively, the "Vencor Companies") or held in Hillhaven's
treasury) will be converted into the right to receive that number of shares of
Vencor Common Stock (the "Conversion Number") determined by dividing $32.25 by
the average closing price on the New York Stock Exchange (the "NYSE") of Vencor
Common Stock (as reported in the NYSE Composite Transactions reporting system as
published in The Wall Street Journal or, if not published therein, in another
authoritative source) for the ten consecutive trading days ending with the
second trading day immediately preceding the Effective Time (the "Vencor Average
Price"); provided, that the Conversion Number will not be less than 0.768 nor
more than 0.977, except that pursuant to the Merger Agreement, if the product of
the Vencor Average Price times the Conversion Number is less than $31.00 per
share, Hillhaven may terminate the Merger Agreement unless Vencor advises
Hillhaven that the Conversion Number will be determined by dividing $31.00 by
the Vencor Average Price without regard to any maximum imposed on the Conversion
Number. In addition, at the Effective Time, each share of Hillhaven Preferred
Stock issued and outstanding immediately prior to the Effective Time (other than
shares owned by any Vencor Company or held in Hillhaven's treasury or held by a
holder of Hillhaven Preferred Stock exercising dissenters' rights with respect
to Hillhaven Preferred Stock ("Hillhaven Preferred Dissenting Stockholders"))
will be converted into the right to receive $900 in cash, plus accrued and
unpaid dividends to the Effective Time. See "The Merger -- Dissenters' Rights."
Each share of Vencor Common Stock issued in the Merger will be accompanied by
the corresponding Vencor participating preferred stock purchase right. See
"Description of Capital Stock of Vencor."
(Continued on next page)
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER,
SEE "RISK FACTORS."
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Joint Proxy Statement/Prospectus is August , 1995.
<PAGE> 11
(Continued from previous page)
At the Vencor Meeting, together with considering and voting upon the
approval and adoption of the Merger Agreement, stockholders of Vencor will be
asked to consider and vote upon a proposal to amend Vencor's Certificate of
Incorporation (the "Vencor Certificate") to increase the authorized number of
shares of Vencor Common Stock from 60,000,000 shares to 180,000,000 shares (the
"Charter Amendment"). This amendment is necessary to provide sufficient shares
of Vencor Common Stock for issuance in the Merger and available authorized and
unissued shares for future use. See "Amendment to the Vencor Certificate of
Incorporation." The stockholders of Vencor will also be asked to consider and
vote upon a proposal to amend Vencor's 1987 Incentive Compensation Program (the
"Vencor Compensation Program") to increase the number of shares of Vencor Common
Stock that may be issued upon the exercise of stock options and pursuant to
other stock and cash awards granted under the program from 3,162,562 shares to
6,900,000 shares (the "Compensation Program Amendment"). The purpose of this
amendment is to ensure that there is a sufficient number of shares which may be
issued under the program in light of the greater number of Vencor employees
following the Merger. The Compensation Program Amendment will not be effected
unless the Merger is consummated. See "Amendment to the Vencor 1987 Incentive
Compensation Program."
Vencor has filed a Registration Statement on Form S-4 (including exhibits
and amendments thereto, the "Vencor S-4 Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
of Vencor Common Stock (and accompanying Vencor participating preferred stock
purchase rights) issuable in the Merger. This Joint Proxy Statement/Prospectus
constitutes both the Joint Proxy Statement of Vencor and Hillhaven relating to
the solicitation of proxies for use at their respective Special Meetings and the
Vencor Prospectus filed as part of the Vencor S-4 Registration Statement. This
Joint Proxy Statement/Prospectus and the proxies are first being provided to
stockholders of Vencor and Hillhaven on or about August , 1995.
<PAGE> 12
AVAILABLE INFORMATION
Each of Vencor and Hillhaven is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Vencor and Hillhaven with the
Commission can be inspected and copied at the Commission's public reference room
located at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the public reference facilities in the Commission's regional
offices located at: 7 World Trade Center, 13th Floor, New York, New York 10048,
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. The shares of Vencor Common Stock
and Hillhaven Common Stock are listed on the NYSE and, as such, the periodic
reports, proxy statements and other information filed by Vencor and Hillhaven
with the Commission may be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Vencor S-4 Registration Statement covering the
securities offered hereby which Vencor has filed with the Commission, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission, and to which portions reference is hereby made for further
information with respect to Vencor, Hillhaven and the securities offered hereby.
Statements contained herein concerning any documents are not necessarily
complete and, in each instance, reference is made to the copies of such
documents filed as exhibits to the Vencor S-4 Registration Statement. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO VENCOR,
EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO SECRETARY,
VENCOR, INC., 3300 PROVIDIAN CENTER, 400 WEST MARKET STREET, LOUISVILLE,
KENTUCKY 40202. TELEPHONE REQUESTS MAY BE DIRECTED TO JILL L. FORCE AT (502)
569-7300. DOCUMENTS RELATING TO HILLHAVEN, EXCLUDING EXHIBITS TO SUCH DOCUMENTS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN, ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST TO SECRETARY, THE HILLHAVEN CORPORATION, 1148 BROADWAY
PLAZA, TACOMA, WASHINGTON 98402. TELEPHONE REQUESTS MAY BE DIRECTED TO RICHARD
P. ADCOCK AT (206) 572-4901. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1995.
The following documents filed with the Commission by Vencor (File No.
1-10989) are incorporated herein by reference: (a) Vencor Annual Report on Form
10-K for the fiscal year ended December 31, 1994 (the "1994 Vencor 10-K"); (b)
the portions of the Vencor Proxy Statement for the Annual Meeting of
Stockholders held on May 9, 1995 that have been incorporated by reference in the
1994 Vencor 10-K; (c) Vencor Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1995; (d) Vencor Current Reports on Form 8-K filed April
24, 1995 and May 5, 1995; (e) the description of Vencor Common Stock contained
in Vencor's Registration Statement on Form 8-A filed with the Commission on
January 22, 1992 and (f) the description of the Vencor Participating Preferred
Stock Purchase Rights contained in Vencor's Registration Statement on Form 8-A
filed with the Commission on July 21, 1993.
The following documents filed with the Commission by Hillhaven (File No.
1-10426) are incorporated herein by reference: (a) Hillhaven Annual Report on
Form 10-K for the fiscal year ended May 31, 1994 (the "1994 Hillhaven 10-K");
(b) the portions of the Hillhaven Proxy Statement for the Annual Meeting of
Stockholders held on September 27, 1994 that have been incorporated by reference
in the 1994 Hillhaven 10-K; (c) Hillhaven Quarterly Reports on Form 10-Q for the
quarterly periods ended August 31, 1994, November 30, 1994 and February 28,
1995; (d) Hillhaven Current Reports on Form 8-K dated October 12, 1994, January
27, 1995, March 6, 1995 and April 23, 1995; and (e) the Audited Financial
Statements of Nationwide Care, Inc. included in the Hillhaven Form S-4 filed
with the Commission on May 19, 1995.
i
<PAGE> 13
All documents filed by either Vencor or Hillhaven pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the Special Meetings shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing. Any statement
contained herein or in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document which also is, or is deemed to be, incorporated
herein by reference modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part hereof, except
as so modified or superseded.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus or in the
documents incorporated herein by reference in connection with the solicitation
and the offering made hereby and, if given or made, such information or
representation should not be relied upon as having been authorized by Vencor or
Hillhaven. This Joint Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Joint Proxy Statement/Prospectus, or the solicitation of a proxy from any
person, in any jurisdiction in which it is unlawful to make such offer,
solicitation of an offer or proxy solicitation. Neither the delivery of this
Joint Proxy Statement/Prospectus nor any distribution of the securities made
under this Joint Proxy Statement/Prospectus shall, under any circumstances,
create an implication that there has been no change in the affairs of Vencor or
Hillhaven since the date of this Joint Proxy Statement/Prospectus other than as
set forth in the documents incorporated herein by reference.
ii
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................... i
Incorporation of Certain Information by Reference....... i
Summary................................................. 1
The Companies......................................... 1
The Nationwide Transaction............................ 2
Recent Developments................................... 2
The Special Meetings.................................. 3
The Merger............................................ 4
Certain Federal Income Tax Consequences............... 12
Certain Effects of the Merger on the Rights of Holders
of Hillhaven Common Stock........................... 12
Operations and Management After the Merger............ 12
Amendment to the Vencor Certificate of
Incorporation....................................... 13
Amendment to the Vencor 1987 Incentive Compensation
Program............................................. 13
Markets and Market Prices............................. 13
Selected Historical Financial Information............. 15
Summary Selected Unaudited Pro Forma Condensed
Combined Financial Data............................. 20
Comparison of Historical and Equivalent Per Share Data
(unaudited)......................................... 22
Risk Factors............................................ 24
Federal and State Legislation......................... 24
Increased Leverage.................................... 24
Reliance on Reimbursement from Government Sources..... 24
Governmental Regulation............................... 25
Competition........................................... 25
Limited Availability of Labor......................... 25
Interests of Certain Persons in the Merger............ 25
Unaudited Pro Forma Condensed Combined Financial
Information........................................... 27
The Special Meetings.................................... 39
General............................................... 39
Date, Place and Time.................................. 39
Record Dates.......................................... 39
Votes Required........................................ 40
Voting and Revocation of Proxies...................... 41
Solicitation of Proxies............................... 41
Dissenters' Rights.................................... 42
Operations and Management After the Merger.............. 42
Post-Merger Operations................................ 42
Post-Merger Capitalization............................ 44
Directors After the Merger............................ 45
Executive Officers After the Merger................... 46
Post-Merger Dividend Policy........................... 46
Recent Developments................................... 47
Vencor.............................................. 47
Hillhaven........................................... 48
The Merger.............................................. 48
General............................................... 48
Background of the Merger.............................. 49
Reasons for the Merger; Recommendations of the Boards
of Directors........................................ 52
Opinions of Financial Advisors........................ 57
Terms of the Merger................................... 64
Effective Time; Closing............................... 65
Conduct of Business Prior to Effective Time; Certain
Covenants; No Solicitations of Transactions......... 65
Certain Regulatory Matters............................ 67
Employee Benefits..................................... 67
Indemnification and Insurance......................... 68
Conditions............................................ 68
Waiver and Amendment.................................. 69
Termination........................................... 69
<CAPTION>
PAGE
----
<S> <C>
Certain Termination Fees.............................. 70
Expenses.............................................. 71
Accounting Treatment.................................. 71
Resale of Vencor Capital Stock........................ 71
Hillhaven Litigation.................................. 72
Interests of Certain Persons in the Transactions...... 72
Proposed Amendments to Vencor's Certificate of
Incorporation....................................... 74
Dissenters' Rights.................................... 74
Surrender of Certificates............................. 76
New York Stock Exchange Listing....................... 77
Certain Federal Income Tax Consequences of the Merger... 77
Tax Opinion........................................... 77
Consequences to Hillhaven Stockholders................ 78
Fractional Shares..................................... 78
Consequences to Hillhaven and Vencor.................. 78
Security Ownership...................................... 79
Description of Vencor Capital Stock..................... 79
Vencor Common Stock................................... 79
Vencor Preferred Stock................................ 79
Delaware Anti-takeover Law and Certain Bylaw
Provisions.......................................... 83
Transfer Agent........................................ 83
Comparison of Certain Rights of Stockholders of Vencor
and Hillhaven......................................... 84
General............................................... 84
Size and Classification of the Board of Directors;
Hillhaven Designated Directors...................... 84
Removal of Directors; Filling Vacancies on the Board
of Directors........................................ 84
Action by Written Consent............................. 85
Meetings of Stockholders.............................. 85
Stockholder Proposals................................. 86
Required Vote for Authorization of Certain Actions.... 86
Amendment of Corporate Charter and Bylaws............. 87
Appraisal and Dissenters' Rights...................... 88
Fair Price and Anti-Greenmail Provisions.............. 88
State Antitakeover Statutes........................... 88
Rights Plans.......................................... 90
Limitation on Directors' Liability.................... 91
Indemnification of Officers and Directors............. 91
No Cumulative Voting.................................. 92
Conflict-of-Interest Transactions..................... 92
Dividends and Other Distributions..................... 92
Duties of Directors................................... 92
Issuance of Rights or Options to Purchase Shares to
Directors, Officers and Employees................... 93
Loans to Directors.................................... 93
Amendment to the Vencor Certificate of Incorporation.... 93
Purpose and Effect of the Charter Amendment........... 93
Amendment to the Vencor's 1987 Incentive Compensation
Program............................................... 94
Purpose of the Incentive Compensation Program
Amendment........................................... 94
Eligibility for Participation......................... 94
Types of Incentives................................... 94
Non-Transferability of Incentives..................... 96
Amendment of the Vencor Compensation Program.......... 96
Effect of Termination of Employment or Death.......... 96
Federal Income Tax Consequences....................... 96
Option Grants in Last Fiscal Year..................... 97
Duration.............................................. 97
Experts................................................. 97
Validity of Shares...................................... 98
Submission of Stockholder Proposals..................... 98
</TABLE>
Appendix A -- Amended and Restated Agreement and Plan of Merger
Appendix B -- Opinion of CS First Boston Corporation
Appendix C -- Opinion of Merrill, Lynch, Pierce, Fenner & Smith Incorporated
Appendix D -- Amendment to Vencor's Certificate of Incorporation
Appendix E -- Sections 78.471 to 78.502 of Nevada Revised Statutes
Appendix F -- Amendment to Vencor's 1987 Incentive Compensation Program
iii
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and does not purport to be complete and
is qualified in its entirety by reference to the full text of this Joint Proxy
Statement/Prospectus, including the Appendices attached hereto. As used in this
Joint Proxy Statement/Prospectus, "Vencor" refers to Vencor, Inc. and
"Hillhaven" refers to The Hillhaven Corporation and unless the context otherwise
requires, such entities and their respective subsidiaries and affiliated
partnerships. The information contained in this Joint Proxy Statement/Prospectus
with respect to Vencor has been supplied by Vencor, and the information with
respect to Hillhaven and Nationwide Care, Inc. and their respective affiliates
has been supplied by Hillhaven. Except as otherwise noted, the information in
this Joint Proxy Statement/Prospectus relating to Vencor reflects the
three-for-two stock split of Vencor Common Stock effected on October 25, 1994.
Except as otherwise noted, the information in this Joint Proxy
Statement/Prospectus relating to Hillhaven reflects a one-for-five reverse stock
split effected on November 1, 1993.
THE COMPANIES
Vencor
Vencor operates a network of healthcare services for patients who suffer
from cardiopulmonary disorders. The foundation of Vencor's network is a
nationwide chain of long-term intensive care hospitals. Vencor's hospitals treat
medically complex, chronically ill patients who generally are dependent upon
ventilators or other life-support devices. Vencor's Vencare contract services
division provides respiratory therapy and subacute services to lower acuity
patients at nursing centers and hospitals owned by third parties. Through its
subsidiary, Ventech Systems, Inc. ("Ventech"), Vencor is developing
ProTouch(TM), a comprehensive paperless clinical information system designed to
increase the operating efficiencies of Vencor's hospitals, as well as other
healthcare facilities.
Since its inception in 1985, Vencor has created what it believes to be the
nation's largest network of long-term intensive care hospitals. As of June 30,
1995, Vencor owned, leased or managed 35 intensive care hospitals, one general
acute care hospital and one long-term hospital unit located in 17 states with a
total of 3,275 licensed beds. As of June 30, 1995, Vencor's Vencare division had
contracts to provide respiratory care services and supplies to approximately
1,100 nursing centers and subacute care services to 33 nursing centers and
hospitals located in 31 states.
Vencor was incorporated in Kentucky in 1983 and commenced operations in
1985. It was reorganized as a Delaware corporation in 1987. Its principal
executive offices are located at 3300 Providian Center, 400 West Market Street,
Louisville, Kentucky 40202 and its telephone number is (502) 569-7300.
Hillhaven
Hillhaven provides a wide range of diversified healthcare services,
including long-term care and subacute medical and rehabilitation services, such
as wound care, oncology treatment, brain injury care, stroke therapy and
orthopedic therapy. Subacute medical and rehabilitation services are offered at
all of Hillhaven's nursing centers and are the fastest growing components of
Hillhaven's nursing center operations. Hillhaven believes that it is also one of
the largest providers of physical, occupational and speech therapy programs in
the United States. In addition, Hillhaven currently provides long-term care to
residents of Hillhaven's nursing centers with Alzheimer's disease through 69
Alzheimer's care units.
As of June 30, 1995, Hillhaven operated 288 nursing centers, 56 retail and
institutional pharmacies and 19 retirement housing communities (excluding the
operations of Nationwide (as defined below)). Based upon the number of beds in
service and net operating revenues, Hillhaven is the second-largest long-term
care provider in the United States and believes that it is one of the leading
providers of Alzheimer's care. The largest long-term care provider in the United
States operates over 800 nursing centers. Pharmacy operations are conducted
through Hillhaven's wholly owned subsidiary, Medisave Pharmacies, Inc.
Hillhaven has entered into the Nationwide Share Exchange Agreement (as
defined below) pursuant to which it acquired Nationwide Care, Inc. and certain
of its affiliated entities. See "-- The Nationwide Transaction."
<PAGE> 16
Hillhaven was incorporated under the laws of the State of Nevada in May
1989. Its principal executive offices are located at 1148 Broadway Plaza,
Tacoma, Washington 98402, and its telephone number is (206) 572-4901.
THE NATIONWIDE TRANSACTION
On June 30, 1995, Hillhaven consummated the transactions contemplated by
the Amended and Restated Agreement and Plan of Share Exchange and Agreement to
Assign Partnership Interests, executed on April 14, 1995, but dated as of
February 27, 1995 (the "Nationwide Share Exchange Agreement"), with Nationwide
Care, Inc., an Indiana corporation ("Nationwide"), Phillippe Enterprises, Inc.,
an Indiana corporation ("PEI"), and Meadowvale Skilled Care Center, Inc., an
Indiana corporation ("Meadowvale"), and certain Nationwide affiliated
partnerships, pursuant to which the stockholders of Nationwide received an
aggregate of 5,000,000 shares of Hillhaven Common Stock (the "Nationwide
Transaction"). As a result, former stockholders of Nationwide who are holders of
record of Hillhaven Common Stock on the Hillhaven Record Date (as defined below)
will be entitled to vote at the Hillhaven Meeting. The Nationwide Transaction is
being accounted for as a pooling of interests.
Nationwide operates long-term healthcare centers located in Indiana, Ohio
and Florida. Nationwide's operations include 23 nursing centers with a total of
3,257 licensed beds, two retirement centers with a total of 240 units, two
assisted living centers totaling 162 units and 40 additional assisted living
units located in one of the retirement centers. Of Nationwide's 27 centers, 14
are owned, 11 are leased and two are managed for other parties. Twenty-one of
Nationwide's centers are located in Indiana, three are located in Ohio and three
are located in Florida.
Unless otherwise stated, all discussions in this Joint Proxy
Statement/Prospectus relating to the operations of Vencor following the Merger
or the operations of Hillhaven include the operations of Nationwide.
RECENT DEVELOPMENTS
Vencor
Second Quarter Results. On July 20, 1995, Vencor announced operating
results (unaudited) for the second quarter and six months ended June 30, 1995, a
summary of which is presented below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.............................................. $140,663 $ 98,534 $261,094 $185,497
Income before income taxes............................ 17,705 12,131 32,704 22,004
Net income............................................ 10,813 7,282 19,961 13,202
Earnings per common and common equivalent share:
Primary............................................. 0.37 0.28 0.71 0.51
Fully diluted....................................... 0.35 0.26 0.66 0.49
Shares used in earnings per common and common
equivalent share computations:
Primary............................................. 28,871 25,784 28,083 25,719
Fully diluted....................................... 33,294 30,207 32,506 30,143
</TABLE>
Acquisitions. Vencor entered into an agreement as of August 1, 1995, to
acquire all of the outstanding stock of Professional Health Care Services, Inc.
and Professional Health Care Services of West Coast Florida, Inc. These
companies, which had combined revenues of approximately $9 million in 1994,
provide rehabilitation, physical therapy and occupational therapy services in
Florida.
2
<PAGE> 17
Hillhaven
Fiscal Year 1995 Results. On June 29, 1995, Hillhaven announced operating
results (unaudited) for the fourth quarter and year ended May 31, 1995, a
summary of which is presented below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
MAY 31, MAY 31,
------------------- -----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................................... $411,502 $377,670 $1,589,142 $1,484,825
Income before income taxes and extraordinary
charge........................................... 19,192 18,461 77,414 82,865
Net income:
Income before extraordinary charge............... 12,885 13,241 51,859 59,480
Extraordinary loss on extinguishment of debt..... (348) (49) (570) (1,062)
Net income....................................... 12,537 13,192 51,289 58,418
Earnings per common and common equivalent share:
Primary:
Income before extraordinary charge............ 0.38 0.40 1.56 2.00
Extraordinary loss on extinguishment of
debt........................................ (0.01) -- (0.02) (0.04)
Net income.................................... 0.37 0.40 1.54 1.96
Fully diluted:
Income before extraordinary charge............ 0.35 0.36 1.42 1.71
Extraordinary loss on extinguishment of
debt........................................ (0.01) -- (0.02) (0.03)
Net income.................................... 0.34 0.36 1.40 1.68
Shares used in earnings per common and common
equivalent share computations:
Primary.......................................... 28,996 28,629 28,825 25,952
Fully diluted.................................... 36,888 36,676 36,841 34,326
</TABLE>
Results of operations for the year ended May 31, 1994 include a credit of
$20.2 million (before income taxes) related to the restructuring program
initiated in fiscal 1992.
THE SPECIAL MEETINGS
Vencor
The Vencor Meeting to consider and vote on approval and adoption of the
Merger Agreement and the transactions contemplated thereby, the Charter
Amendment and the Compensation Program Amendment, will be held on September ,
1995 at 1:00 p.m. local time, at the [Hyatt Regency, 320 West Jefferson Street,
Louisville, Kentucky]. Only holders of record of Vencor Common Stock at the
close of business on August , 1995 (the "Vencor Record Date") will be entitled
to vote at the Vencor Meeting. At August , 1995, there were shares of
Vencor Common Stock outstanding and entitled to vote. Each share of Vencor
Common Stock is entitled to one vote.
The affirmative vote of a majority of the outstanding shares of Vencor
Common Stock entitled to vote at the Vencor Meeting is necessary for the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby and for the approval of the Charter Amendment. The affirmative vote of a
majority of the shares of Vencor Common Stock present, in person or by proxy, at
the Vencor Meeting is necessary to approve the Compensation Program Amendment.
As of June 30, 1995, directors and executive officers of Vencor and their
affiliates beneficially owned an aggregate of 5,041,992 shares of Vencor Common
Stock (including shares which may be acquired within 60 days upon exercise of
employee stock options or conversion of notes) or approximately 17.4% percent of
the shares of Vencor Common Stock outstanding on such date. The directors and
executive officers of Vencor have indicated their intention to vote their shares
of Vencor Common Stock in favor of approval and adoption
3
<PAGE> 18
of the Merger Agreement and the transactions contemplated thereby, the Charter
Amendment and the Compensation Program Amendment.
Hillhaven
The Hillhaven Meeting to consider and vote on approval and adoption of the
Merger Agreement and the transactions contemplated thereby will be held on
September , 1995 at 10:00 a.m. local time, at the corporate headquarters of
Hillhaven, 1148 Broadway Plaza, First Floor, Tacoma, Washington. Only holders of
record of Hillhaven Stock at the close of business on August , 1995 (the
"Hillhaven Record Date") will be entitled to vote at the Hillhaven Meeting. At
August , 1995, there were outstanding and entitled to vote shares of
Hillhaven Common Stock, 35,000 shares of Hillhaven Series C Preferred Stock and
shares of Hillhaven Series D Preferred Stock. Each share of Hillhaven
Common Stock and Hillhaven Preferred Stock (collectively, "Hillhaven Stock") is
entitled to one vote.
The affirmative vote of a majority of the outstanding shares of Hillhaven
Common Stock, voting as a class, and the affirmative vote of two-thirds of the
outstanding shares of Hillhaven Series C Preferred Stock and Hillhaven Series D
Preferred Stock, each voting separately as a class, and the affirmative vote of
a majority of all votes entitled to be voted of Hillhaven Stock is required to
approve the matters to be considered and voted on at the Hillhaven Meeting in
connection with the Merger Agreement.
As of , 1995, directors and executive officers of Hillhaven
and their affiliates owned beneficially an aggregate of shares of Hillhaven
Common Stock (including shares which may be acquired upon exercise of employee
stock options), or approximately percent of the shares of Hillhaven Common
Stock outstanding on such date. The directors and executive officers of
Hillhaven have indicated their intention to vote their shares of Hillhaven
Common Stock in favor of the proposal to approve the Merger Agreement.
For additional information relating to the Special Meetings, see "The
Special Meetings."
THE MERGER
The Merger Agreement provides for a business combination between Vencor and
Hillhaven in which, subject to the satisfaction of the conditions therein,
Hillhaven will be merged with and into Vencor and the holders of Hillhaven
Common Stock will be issued Vencor Common Stock in a transaction intended to
qualify as a pooling of interests for accounting purposes and as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), for federal income tax purposes. In the
Merger, each outstanding share of Hillhaven Common Stock will be converted into
a fraction of a share of Vencor Common Stock (the "Conversion Number")
determined by dividing $32.25 by the Vencor Average Price, except that the
Conversion Number will not be less than 0.768 or greater than 0.977 except in
certain limited circumstances described under "The Merger -- Terms of the
Merger," and each share of Hillhaven Preferred Stock will be converted into the
right to receive $900 in cash, plus accrued and unpaid dividends to the
Effective Time. The formula for calculating the Conversion Number was determined
through arms-length negotiation between Vencor and Hillhaven. Each outstanding
share of Vencor Common Stock will remain outstanding and be unaffected by the
Merger. As a result of the Merger, except in certain limited circumstances
described under "The Merger -- Terms of the Merger", holders of Hillhaven Common
Stock immediately prior to the Merger will own between approximately 49% and 55%
of the Vencor Common Stock on a primary basis after the Merger, depending upon
the Conversion Number.
No fractional shares of Vencor Common Stock will be issued in the Merger
and fractional share interests will not entitle the owner thereof to vote or to
any other rights of a Vencor stockholder. All fractional shares of Vencor Common
Stock that a holder of Hillhaven Common Stock, Hillhaven Options (as defined
herein) or PIP Options (as defined herein) would otherwise be entitled to
receive as a result of the Merger will be aggregated. If a fractional share
results, such holder will be entitled to receive cash equal to the Vencor
Average Price multiplied by the fraction of a share of Vencor Common Stock to
which such holder would otherwise have been entitled.
4
<PAGE> 19
Recommendations of the Boards of Directors
Vencor. The Vencor Board has unanimously determined that the terms of the
Merger Agreement and the transactions contemplated thereby, which were
established through arms-length negotiation with Hillhaven, are fair to, and in
the best interests of, Vencor and its stockholders. Accordingly, the Vencor
Board has unanimously approved the Merger Agreement and unanimously recommends
that the stockholders of Vencor vote FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereby, vote FOR the adoption of
the Charter Amendment and vote FOR the approval of the Compensation Program
Amendment. The recommendation of the Vencor Board is based on a number of
strategic, operating and financial factors and included the consideration of
certain possible risks associated with the Merger as described in "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors --
Vencor."
Hillhaven. The Hillhaven Board has unanimously determined that the terms
of the Merger Agreement and the transactions contemplated thereby, which were
established through arms-length negotiation with Vencor, are fair to, and in the
best interests of, Hillhaven and its stockholders. Accordingly, the Hillhaven
Board has unanimously approved the Merger Agreement and unanimously recommends
that the stockholders of Hillhaven vote FOR approval and adoption of the Merger
Agreement. The recommendation of the Hillhaven Board is based on a number of
strategic, operating and financial factors and included the consideration of
certain possible risks associated with the Merger as described in "The
Merger -- Reasons for the Merger; Recommendations of the Boards of
Directors -- Hillhaven."
Opinions of Financial Advisors
Vencor. CS First Boston Corporation ("First Boston") has delivered its
written opinion dated April 23, 1995 and the date of this Joint Proxy
Statement/Prospectus to the Vencor Board, to the effect that, as of such dates,
the consideration, taken as a whole, to be paid by Vencor in the Merger is fair
to Vencor from a financial point of view. The generally accepted financial
analyses First Boston used in reaching its opinion and which it discussed with
the Vencor Board included (i) comparable acquisitions analysis, which consisted
of reviewing operating statistics and purchase price information with respect to
selected acquisitions of businesses similar to those of Hillhaven's, (ii)
comparable company trading analysis, which consisted of reviewing market
statistics and financial and operating information in respect of selected
publicly traded companies considered comparable to the businesses of Hillhaven,
and (iii) discounted cash flow ("DCF") analyses, which consisted of discounting
to present value the projected cash flows and terminal values of Hillhaven and
certain synergies that may result from the Merger. Based on the foregoing
analyses, First Boston derived an overall reference range of enterprise value
and equity value for Hillhaven, excluding synergies, ranging from $1,800 million
to $2,100 million and $1,339 million to $1,639 million, respectively, or $31.37
to $38.40 per fully diluted share.
A copy of the opinion of First Boston, dated as of the date hereof, which
sets forth the assumptions made, procedures followed, matters considered,
limitations on and the scope of the review by First Boston in rendering its
opinion, is attached as Appendix B to this Joint Proxy Statement/Prospectus.
Vencor stockholders are urged to read First Boston's opinion in its entirety.
See "The Merger -- Opinions of Financial Advisors -- Vencor."
Hillhaven. Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") has delivered its written opinions, dated April 23, 1995 and
, 1995 to the Hillhaven Board to the effect that, as of such dates,
and based upon the assumptions made, matters considered and limits of review as
set forth in such opinions, the consideration to be received by the holders of
shares of Hillhaven Common Stock (other than Tenet Healthcare Corporation
("Tenet")) pursuant to the Merger Agreement is fair to such holders from a
financial point of view. In arriving at the Merrill Lynch Opinion (as defined
herein), Merrill Lynch considered certain financial analyses and other factors,
and used several valuation methods, which it discussed with the Hillhaven Board.
Based on a discounted cash flow analysis, Merrill Lynch calculated implied per
share equity values for Hillhaven Common Stock on a fully diluted basis, which
included utilizing the Base Case (as defined below), of between approximately
$31.50 to $36.75. Based upon a comparison of Hillhaven to certain
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publicly traded companies, Merrill Lynch estimated imputed public trading market
values for a share of Hillhaven Common Stock (on a fully diluted basis and after
giving effect to the Nationwide Transaction) of between approximately $24.00 and
$25.00. Based on a comparison of the Merger to certain acquisition transactions,
Merrill Lynch applied a range of multiples derived from these acquisition
transactions and calculated implied values per share of Hillhaven Common Stock
(on a fully diluted basis, after taking into account the Nationwide Transaction,
and the payment of full liquidation value on the Hillhaven Preferred Stock) of
between approximately $27.00 and $32.00. Based on a liquidation analysis,
Merrill Lynch estimated that such hypothetical values for each share of
Hillhaven Common Stock (on a fully diluted basis, giving effect to the
Nationwide Transaction, and the payment of full liquidation value on the
Hillhaven Preferred Stock) might range from approximately $29.00 to $35.00. In
addition, Merrill Lynch prepared analyses to determine an appropriate Conversion
Number. In this regard, Merrill Lynch analyzed certain pro forma effects of the
Merger based on various assumptions, which analysis indicated that the Merger
would be generally accretive for Vencor for substantially all combinations
analyzed for the years considered. Based on a contribution analysis, which
consisted of analyzing and comparing the respective contribution of net income
on a fully diluted basis of Hillhaven and Vencor to the pro forma combined
estimated net income, using various projections and estimates, Merrill Lynch
calculated an implied Conversion Number of between 0.823 and 0.977. Merrill
Lynch also calculated a range of implied equity values of Hillhaven and Vencor
based on a discounted cash flow analysis, from which Merrill Lynch derived a
range of implied Conversion Numbers of between 0.750 and 1.000. For a detailed
description of the analyses described above, including the assumptions made, see
"The Merger -- Opinions of Financial Advisors -- Hillhaven."
A copy of the Merrill Lynch Opinion is attached as Appendix C to this Joint
Proxy Statement/ Prospectus. Holders of shares of Hillhaven Common Stock are
urged to, and should, read such opinion in its entirety. See "The
Merger -- Opinions of Financial Advisors -- Hillhaven."
Effective Time
The Merger will become effective at the Effective Time which will occur on
the date and at such time as both the Certificate of Merger is filed with the
Secretary of State of the State of Delaware and the Articles of Merger are filed
with the Secretary of State of the State of Nevada. See "The Merger -- Effective
Time; Closing."
Covenants
The Merger Agreement provides that, during the period from the date of the
Merger Agreement until the Effective Time, except as otherwise contemplated by
the Merger Agreement, each of Vencor and Hillhaven will, and each of its
respective subsidiaries will, conduct its business only in the ordinary course
consistent with past practice and use its respective reasonable best efforts to
preserve intact its business organization and its relationships with third
parties and to keep available the services of their present officers and key
employees. See "The Merger -- Conduct of Business Prior to Effective Time;
Certain Covenants; No Solicitations of Transactions -- Operational Covenants"
for a discussion of additional restrictions on Vencor, Hillhaven and their
subsidiaries with respect to the conduct of their respective businesses prior to
the Effective Time.
The Merger Agreement provides that each of Vencor and Hillhaven agrees that
from the date of the Merger Agreement until the termination of the Merger
Agreement, it and its subsidiaries will not, and will use its respective
reasonable best efforts to cause its officers, directors, employees or other
agents not to, directly or indirectly, (i) take any action to solicit or
initiate any Acquisition Proposal (as defined below) or (ii) engage in
negotiations with, or disclose any non-public information relating to it or any
of its subsidiaries or afford access to the properties, books or records of it
or any of its subsidiaries to any person or entity, unless with respect to the
actions referred to in (ii) it is otherwise required to in accordance with the
fiduciary duties of the Board of Directors under applicable law as advised by
independent legal counsel, in response to a person or entity that has made an
Acquisition Proposal in writing. Hillhaven, however, is not prohibited from
amending or waiving the provisions of confidentiality agreements it has entered
into with third persons in respect of the ability of such persons to submit an
Acquisition Proposal to Hillhaven or its stockholders, and Hillhaven has already
done so. Each of Vencor and Hillhaven will, as promptly as reasonably
practicable, notify the other
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<PAGE> 21
after receipt of any Acquisition Proposal or any indication that any person or
entity is considering making an Acquisition Proposal and identify the party with
whom it has negotiated or to whom it has disclosed confidential information. An
"Acquisition Proposal" is defined in the Merger Agreement as any good faith
offer or proposal for a merger or other business combination involving Vencor or
Hillhaven, as the case may be, or any of their respective subsidiaries or the
acquisition of any equity interest in, or a substantial portion of the assets
of, it or any of its subsidiaries, other than the transactions contemplated by
the Merger Agreement. See "The Merger -- Conduct of Business Prior to Effective
Time; Certain Covenants; No Solicitations of Transactions -- No Solicitations."
Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, certain transactions,
including the Merger, may not be consummated unless certain waiting period
requirements have been satisfied. Vencor and Hillhaven each filed a Premerger
Notification and Report Form (a "Notification and Report Form") pursuant to the
HSR Act with the Antitrust Division of the Department of Justice ("DOJ") and the
Federal Trade Commission ("FTC") on June 13, 1995. Early termination of the
waiting period was granted on June 26, 1995. At any time before or after the
Effective Time, the FTC, the DOJ or others could take action under the antitrust
laws with respect to the Merger, including seeking to enjoin the consummation of
the Merger, to rescind the Merger or to require divestiture of substantial
assets of Vencor or Hillhaven. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
that it would not be successful.
In addition, Hillhaven and Vencor are required to file notices with, and in
some jurisdictions obtain approvals or consents from, various state agencies
responsible for the licensure or certification of healthcare facilities in
states where Hillhaven conducts its nursing center business or Vencor conducts
its businesses.
Employee Benefits
Hillhaven officers and employees hold outstanding stock awards in the form
of stock option grants, restricted stock grants and performance share grants
under the Hillhaven 1990 Stock Incentive Plan (the "Stock Incentive Plan") in
the aggregate amount of , and shares, respectively.
Hillhaven directors hold outstanding stock option grants under the Hillhaven
Directors' Stock Option Plan (the "Directors' Stock Plan" and, together with the
Stock Incentive Plan, the "Hillhaven Option Plans") in the aggregate amount of
50,000 shares. Under the Directors' Stock Plan, the Merger constitutes an event
pursuant to which all outstanding options will become exercisable and vested.
The Merger Agreement does not provide for continuation of stock option grants
and restricted stock grants under the Stock Incentive Plan and accordingly all
stock option awards will become exercisable and vested and all restrictions on
restricted stock grants will lapse in accordance with the terms of the Stock
Incentive Plan. Vencor will deliver in respect of each stock option granted
under the Directors' Stock Plan and the Stock Incentive Plan (each a "Hillhaven
Option" and together, the "Hillhaven Options") the number of shares of Vencor
Common Stock equal to the product of (x) the result of multiplying the
Conversion Number by a fraction, the numerator of which is the excess, if any,
of the product of the Conversion Number and the Vencor Average Price (the
"Transaction Value") over the exercise or strike price of such Hillhaven Option,
and the denominator of which is the Transaction Value and (y) the number of
shares of Hillhaven Common Stock subject to such Hillhaven Option. The Merger
Agreement provides that Vencor will continue the performance share grants under
the Stock Incentive Plan and immediately after the Merger satisfy its
obligations under such performance share grants by the delivery to holders of
such grants a number of shares of Vencor Common Stock equal to the product of
(x) .75 multiplied by the Conversion Number and (y) the number of shares of
Hillhaven Common Stock subject to such award. Based on the number of options
outstanding under the Hillhaven Option Plans on August , 1995 and pursuant to
the treatment under the Merger Agreement, assuming a Conversion Number of 0.977
and a Transaction Value of $31.00, Vencor will record compensation expense of
approximately $ million. Vencor will realize a tax benefit of approximately $
million related to the cancellation of stock options.
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<PAGE> 22
Hillhaven officers and employees hold, in the aggregate, investment
options (the "PIP Options") to purchase Hillhaven's Convertible Debentures due
May 29, 1999 (the "PIP Convertible Debentures") granted pursuant to Hillhaven's
Performance Investment Plan. As a result of the Merger, these PIP Options,
whether or not exercisable, and whether or not vested, will become fully
exercisable and vested. Each PIP Option which is then outstanding will be
canceled and in consideration of such cancellation, Vencor will deliver for each
PIP Option the number of shares of Vencor Common Stock having a value equal to
the value which a PIP Optionholder would realize upon exercising an option
immediately prior to the Effective Time. Such value is equal to the product of
(x) the result of multiplying the Conversion Number by a fraction, the numerator
of which is the excess, if any, of the Transaction Value over $15.7105 (which
represents the exercise price of $16.5375 less the amount attributable to the
participant's original capital contribution of $.8270) and the denominator of
which is the Transaction Value and (y) the number of shares of Hillhaven Common
Stock subject to such PIP Option upon the conversion of the underlying PIP
Convertible Debentures and Hillhaven Series B Preferred Stock, par value $.15
per share (the "Hillhaven Series B Preferred Stock"). Based on the number of PIP
Options outstanding on August , 1995 and pursuant to the treatment under the
Merger Agreement, assuming a Conversion Number of 0.977 and a Transaction Value
of $31.00, Vencor will record no compensation expense and will realize a tax
benefit of approximately $ million in connection with the cancellation of the
PIP Options.
Vencor has agreed to honor and perform all severance, indemnification and
similar agreements of Hillhaven identified in the Merger Agreement. Hillhaven,
however, will use its best efforts to amend all severance agreements to
eliminate, as a basis upon which severance benefits may be paid, all references
to changes in title. For the purposes of Hillhaven's Supplemental Executive
Retirement Plan, the consummation of the Merger at the Effective Time will be
deemed to be a change in control.
See "The Merger -- Employee Benefits."
Conditions
The respective obligations of Vencor and Hillhaven to consummate the Merger
is subject to a number of conditions, including the following: (a) approval by
the Hillhaven stockholders of the Merger Agreement, (b) approval by the Vencor
stockholders of (i) the Merger Agreement and the issuance of Vencor Common Stock
in connection therewith and any necessary amendment to Vencor's stock option
plans and (ii) the Charter Amendment, (c) expiration or termination of the
waiting period applicable to the Merger under the HSR Act, (d) receipt of all
material consents, authorizations, orders, and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory body,
(e) there being in effect no provision of any applicable domestic law or
regulation and no judgment, injunction, order or decree of a court or
governmental agency or authority of competent jurisdiction which has the effect
of making the Merger illegal or would otherwise restrain or prohibit the
consummation of the Merger, (f) the declaration of effectiveness by the
Commission under the Securities Act of the Vencor S-4 Registration Statement, of
which this Joint Proxy Statement/Prospectus is a part, and no stop order
suspending such effectiveness being in effect and no proceedings for such
purpose having been initiated or threatened by the Commission, (g) approval for
listing on the NYSE, subject to official notice of issuance, of Vencor's Common
Stock to be issued in the Merger, (h) receipt by Vencor and Hillhaven of an
opinion from Ernst & Young LLP and KPMG Peat Marwick LLP, respectively, to the
effect that the Merger will qualify as a pooling of interests under generally
accepted accounting principles and the Commission will not have objected to such
accounting treatment, and (i) receipt of all material third party consents. See
"The Merger -- Conditions" for a discussion of additional conditions to which
the Merger is subject.
Waiver and Amendment
The Merger Agreement provides that, subject to the applicable provisions of
the General Corporation Law of the State of Delaware ("Delaware Law") and the
corporation law of the State of Nevada ("Nevada Law"), any provision of the
Merger Agreement may be amended or waived prior to the Effective Time, if such
amendment or waiver is in writing and signed, in the case of an amendment by
Hillhaven and Vencor or, in the case of a waiver, by the party against whom the
waiver is to be effective; provided that any waiver shall
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<PAGE> 23
be effective against a party only if the Board of Directors of such party
approves such waiver or amendment. The failure or delay by any party in
exercising any right, power or privilege, however, does not operate as a waiver
of such right, power or privilege. See "The Merger -- Waiver and Amendment."
Termination
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after any requisite stockholder
approval, (i) by mutual consent of Vencor and Hillhaven by action of their
respective Boards or (ii) by action of either the Vencor or Hillhaven Board if
(a) the Merger has not been consummated by December 31, 1995, (b) if any of the
stockholder approvals required pursuant to the Merger Agreement have not been
obtained due to the failure to obtain the requisite vote upon a vote at a duly
held meeting of stockholders or at any adjournment or postponement thereof, (c)
there has been a material breach of any (x) representation or warranty contained
in the Merger Agreement on the part of the other party which cannot be cured
prior to the Effective Time or (y) covenants or agreements set forth in the
Merger Agreement on the part of the other party which breach by its nature
cannot be cured or, if curable, is not cured within 30 days after written notice
is given by the terminating party, or (d) there is any applicable domestic law,
rule or regulation that makes the consummation of the Merger illegal or if any
judgment, injunction, order or decree of a court or governmental agency or
authority of competent jurisdiction restrains or prohibits the consummation of
the Merger, and such judgment, injunction, order or decree is final and
nonappealable.
In addition, the Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, (i) by action of the Vencor
Board, if the Hillhaven Board does not recommend in this Joint Proxy
Statement/Prospectus that Hillhaven's stockholders approve and adopt the Merger
Agreement and the Merger, or if the Hillhaven Board withdraws, changes or
modifies its recommendation in any manner adverse to Vencor, or (ii) by action
of the Hillhaven Board, if the Vencor Board does not recommend in this Joint
Proxy Statement/ Prospectus that Vencor's stockholders approve and adopt the
Merger Agreement and the Merger.
Furthermore, the Merger Agreement states that it may be terminated and the
Merger abandoned prior to the Effective Time by Hillhaven if the product of the
Vencor Average Price (defined to be the average closing price on the NYSE of
Vencor Common Stock for the ten consecutive trading days ending with the second
trading day immediately preceding the Effective Time) times the Conversion
Number is less than $31.00 per share. Hillhaven, however, may not terminate the
Merger Agreement if Vencor advises Hillhaven in writing that the Conversion
Number will be determined by dividing $31.00 by the Vencor Average Price without
regard to any maximum imposed on the Conversion Number by the Merger Agreement.
Hillhaven may also terminate the Merger Agreement and abandon the Merger at any
time prior to the Effective Time if Hillhaven receives an unsolicited written
Acquisition Proposal that Hillhaven's Board determines in good faith, after
consultation with its legal and financial advisors, is reasonably likely to lead
to a transaction that is more favorable to its stockholders than the Merger and
that failing to take such action would be a breach of the Hillhaven Board's
fiduciary duties. Hillhaven, however, may not terminate the Merger Agreement and
abandon the Merger unless it has provided Vencor with five business days prior
written notice of its intent to terminate the Merger Agreement due to such an
Acquisition Proposal. The written notice must include a detailed summary of the
terms and conditions of the Acquisition Proposal. If Hillhaven elects to
terminate the Merger Agreement and abandon the Merger due to such Acquisition
Proposal, Hillhaven will pay a termination fee to Vencor. If the Merger
Agreement is terminated under certain other specified circumstances, certain
termination fees and expense reimbursement provisions will become applicable.
See "The Merger -- Termination" and "-- Certain Termination Fees."
Accounting Treatment
Vencor and Hillhaven believe that the Merger will qualify as a pooling of
interests for accounting and financial reporting purposes, and have been so
advised by their respective independent public accountants. Under this method of
accounting, Vencor will restate its consolidated financial statements to include
the
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assets, liabilities, shareholders' equity and results of operations of
Hillhaven. It is anticipated that upon consummation of the Merger, the fiscal
year of the combined company will be the calendar year.
Consummation of the Merger is conditioned upon the receipt by each of
Vencor and Hillhaven of a letter from their respective independent public
accountants stating that the Merger, in their respective opinions, will qualify
as a pooling of interests for accounting purposes. See "The Merger -- Accounting
Treatment" and "-- Conditions" and "Unaudited Pro Forma Condensed Combined
Financial Information."
Interests of Certain Persons in the Transactions
In considering the recommendations of Hillhaven's Board, stockholders
should be aware that certain members of management and of the Hillhaven Board
have certain interests in the Merger that are in addition to the interests of
stockholders generally and which may create potential conflicts of interests.
Pursuant to the treatment under the Merger Agreement of Hillhaven's Option
Plans and PIP Options, and assuming a Conversion Number of 0.977 and a
Transaction Value of $31.00, Messrs. Busby and Marker would each receive an
aggregate of 565,674 and 392,135 shares of Vencor Common Stock, respectively,
the other seven executive officers of Hillhaven would receive an aggregate of
815,915 shares of Vencor Common Stock and other officers and certain employees
of Hillhaven would receive an aggregate of 1,016,304 shares of Vencor Common
Stock. Based on the closing price on the NYSE of Vencor Common Stock on
, 1995, of $ , the dollar value of Vencor Common Stock to be
received by Messrs. Busby and Marker, the other seven executive officers of
Hillhaven and the other officers and certain employees of Hillhaven pursuant to
the Hillhaven Option Plans and PIP Options is $ , $ , $ and
$ , respectively. See "The Merger -- Employee Benefits." In addition,
under preexisting severance agreements with executive officers of Hillhaven,
including each of Hillhaven's five most highly compensated executive officers,
such executive officers may receive severance compensation payments upon certain
terminations of their employment in the event of a change in control as defined
in such agreements. Upon such a termination of employment, Messrs. Busby and
Marker would be entitled to receive approximately $900,000 and $720,000,
respectively, and the other seven executive officers of Hillhaven would be
entitled, if all were terminated, to receive an aggregate of $2.0 million, plus
in each case, any amounts required to reimburse the employees, on an after tax
basis for the amount of any applicable excise taxes under Section 4999 of the
Code.
Pursuant to the Merger Agreement, Vencor has agreed to fulfill Hillhaven's
obligations under the Directors' Retirement Plan with respect to each of
Hillhaven's outside directors, whether or not such director continues as a
Hillhaven Designated Director (as defined herein). Under the Directors'
Retirement Plan each outside director will receive an annual retirement payment
of $25,440 for a period of ten years following the Merger. Also, the Merger
constitutes an event accelerating vesting under the Directors' Stock Plan and,
as a result of such acceleration, the directors of Hillhaven other than Messrs.
Busby and Marker will each have options for 2,000 shares (for an aggregate of
12,000) of Hillhaven Common Stock, with an average exercise price of $27.25,
which will become exercisable and vested and will be exchanged for shares of
Vencor Common Stock in the same manner as described under "The
Merger -- Employee Benefits" for Hillhaven officer and employee stock options.
Assuming a Conversion Number of 0.977 and a Transaction Value of $31.00, the
directors of Hillhaven, other than Messrs. Busby and Marker would receive, in
the aggregate, 21,303 shares of Vencor Common Stock pursuant to the Directors'
Stock Plan. Based on the closing price on the NYSE per share of Vencor Common
Stock on , 1995 of $ , the dollar value of Vencor Common Stock
to be received by each such director pursuant to the Directors' Stock Plan is
$ .
Pursuant to the Merger Agreement, from and after the Effective Time, Vencor
will indemnify, defend and hold harmless the present and former officers and
directors of Hillhaven and its subsidiaries against all losses, claims, damages
and liability for acts or omissions occurring at or prior to the Effective Time
to the fullest extent that Hillhaven and its subsidiaries would have been
permitted under applicable law and under the Articles of Incorporation and
Bylaws of Hillhaven or such subsidiary. For at least six years after the
Effective Time, Vencor will use its best efforts to, without any lapse in
coverage, provide directors' and officers' liability insurance for acts or
omissions occurring prior to the Effective Time covering those persons currently
covered by Hillhaven's directors' and officers' liability insurance policy on
terms, coverage and limits
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no less favorable than the policy in effect on the date of the Merger Agreement.
In no event, however, will Vencor be required to pay annually more than 200% of
the premium paid by Hillhaven in its most recently ended fiscal year.
Pursuant to the Merger Agreement, Vencor has agreed to take all actions
that shall be necessary to cause the number of directors comprising the full
Vencor Board at the Effective Time to be increased so that the three Hillhaven
Designated Directors can be appointed to the Vencor Board to have terms expiring
at the Vencor Annual Meeting of Stockholders to be held in 1996. The following
three members of the Hillhaven Board are expected to be the Hillhaven Designated
Directors: Bruce L. Busby, Walter F. Beran and Jack O. Vance. In addition,
Vencor has agreed to cause the Hillhaven Designated Directors to be nominated
for election to the Vencor Board at the Vencor Annual Meeting of Stockholders to
be held in 1996. Mr. Busby is also expected to serve as President of the newly
formed nursing center division of Vencor after the Merger. See "Operations and
Management After the Merger -- Directors After the Merger" and "-- Executive
Officers After the Merger."
In addition, as of July 31, 1995, the holder of the Hillhaven Preferred
Stock would receive, pursuant to the Merger Agreement, an aggregate amount equal
to $90.7 million in respect of the Hillhaven Preferred Stock, which represents a
discount of $10.0 million from the stated liquidation value thereof, plus
accrued and unpaid dividends through the Effective Time. The existing terms of
the Hillhaven Preferred Stock provide that upon a change in control such as the
Merger the holder of the Hillhaven Preferred Stock will have a right to receive
cash equal to its stated liquidation value in exchange for such shares.
For more complete information concerning the interests of executives and
directors of Hillhaven in the Merger, stockholders of Vencor and Hillhaven
should review the information set forth under "The Merger -- Interests of
Certain Persons in the Transactions."
Dissenters' Rights
Holders of Vencor Common Stock will not be entitled to any dissenters' or
appraisal rights under Delaware Law as a result of the matters to be voted upon
at the Vencor Meeting. Under Delaware Law, a stockholder of a constituent
corporation in a merger is not entitled to appraisal rights if the stock of such
corporation is listed on a national securities exchange and such stockholder is
not required to exchange its shares of such corporation pursuant to the merger.
Holders of Hillhaven Common Stock will not be entitled to any dissenters'
or appraisal rights as a result of the matters to be voted upon at the Hillhaven
Meeting.
Under Nevada Law, a holder of Hillhaven Preferred Stock would have certain
dissenters' rights as a result of the Merger to demand payment of the fair value
of its shares of Hillhaven Preferred Stock. A person having a beneficial
interest in Hillhaven Preferred Stock that is held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever dissenters' rights the beneficial owner may have.
A holder of Hillhaven Preferred Stock as of the record date for the
Hillhaven Meeting who elects to dissent from the approval and adoption of the
Merger Agreement and who has not voted in favor thereof is entitled under NRS
Section 78.497 of Nevada Law, as an alternative to receiving the applicable
Merger consideration for such Hillhaven Preferred Stock, to receive fair value
of the shares, plus accrued interest. The obligation of Hillhaven under this
section may be judicially enforced. A holder of Hillhaven Preferred Stock
electing to exercise dissenters' rights must deliver to Hillhaven, before the
vote on the Merger Agreement at the Hillhaven Meeting takes place, a written
notice of intent to demand payment if the Merger is effectuated. If the Merger
is approved, Hillhaven will then mail a dissenters' notice to each holder of
Hillhaven Preferred Stock who has satisfied the notice requirement to assert
dissenters' rights. Each holder of Hillhaven Preferred Stock to whom a
dissenters' notice is sent, must, among other things, demand payment and deposit
its stock certificates in accordance with the terms of the dissenters' notice or
such holder will not be entitled to payment for its shares under the dissenters'
rights provisions of the Nevada Law. See "The Special Meetings --
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Dissenters' Rights," "The Merger -- Dissenters' Rights" and Section 78.497 of
Nevada Law included herein as Appendix E.
NYSE Listing
Pursuant to the Merger Agreement, Vencor has agreed to use its best efforts
to cause the shares of Vencor Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify, and in the opinion of counsel to
Hillhaven and Vencor it will qualify, for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. Assuming the
Merger so qualifies as a reorganization within the meaning of Section 368(a) of
the Code, in general, no gain or loss would be recognized by holders of
Hillhaven Common Stock with respect thereto on the exchange of their Hillhaven
Common Stock for Vencor Common Stock, except in respect of cash received in lieu
of fractional shares, and no gain or loss would be recognized by Vencor or
Hillhaven. Under the Merger Agreement, it is a condition precedent to the
obligation of Vencor to consummate the Merger that it will have received a
supplementary opinion of counsel as of the Effective Time to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code, and to the obligation of Hillhaven that it will have received a
supplementary opinion of counsel as of the Effective Time to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code. For a further discussion of the federal income tax consequences of the
Merger, see "Certain Federal Income Tax Consequences of the Merger."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF HILLHAVEN COMMON STOCK
Upon consummation of the Merger, holders of shares of Hillhaven Common
Stock will become stockholders of Vencor. The internal affairs of Vencor are
governed by Delaware Law and Vencor's Certificate of Incorporation and Bylaws.
The Merger will result in certain differences in the rights of holders of
Hillhaven Common Stock. See "Description of Vencor Capital Stock" and
"Comparison of Certain Rights of Stockholders of Vencor and Hillhaven."
OPERATIONS AND MANAGEMENT AFTER THE MERGER
Vencor and Hillhaven believe that the Merger presents a unique strategic
opportunity to form one of the nation's largest providers of healthcare services
primarily focusing on the needs of the elderly. After the Merger, Vencor will
have operations in 38 states which contain approximately 80% of the nation's
population. Vencor's post-Merger operations will include 36 long-term intensive
care hospitals and 311 nursing centers with more than 42,000 beds, 56 retail and
institutional pharmacy outlets and 23 retirement housing communities with
approximately 3,000 apartments. Healthcare services provided through this
network of facilities will include long-term intensive hospital care, long-term
nursing care, contract respiratory therapy services, acute cardiopulmonary care,
subacute and post-operative care, inpatient and outpatient rehabilitation
therapy, specialized care for Alzheimer's disease, hospice care, pharmacy
services and retirement and assisted living. In addition, through contracts with
approximately 1,700 non-affiliated nursing and subacute centers, the combined
companies will provide a broad array of respiratory, physical, occupational and
speech therapy and subacute services.
Vencor management believes that as a result of the Merger, Vencor will have
increased revenues of approximately $100 million per year by 1997. These
increased revenues are expected to be achieved through cross-marketing a broad
array of contract services to non-affiliated nursing and subacute care centers
as well as cross-referrals of long-term patients.
After the Merger, Vencor expects to realize annual cost savings of
approximately $15 million (before taxes) by 1997. These cost savings will be
achieved through elimination of duplicate corporate services and functions,
improved purchasing and reduced financing costs. The managements of Vencor and
Hillhaven also
12
<PAGE> 27
expect to realize additional cost savings through implementation of Vencor's
Ventech clinical information system in the Hillhaven nursing centers. This
ProTouch(TM) system is now operating in a majority of the Vencor hospitals and
has resulted in increased productivity and decreased labor costs. It is expected
that similar results can be realized when the system is installed in the
Hillhaven nursing centers. The additional savings related to the implementation
of the Ventech system are expected to reach approximately $15 million (before
taxes) annually by 1998.
It is expected that transaction costs of approximately $50 million before
income taxes will be incurred in connection with the Merger. Such transaction
costs are expected to exceed the first year's cost savings. See Note 5 to the
"Unaudited Pro Forma Condensed Combined Financial Information." Vencor and
Hillhaven have not yet completed their plans for combining the operations of the
respective companies and therefore have not determined the restructuring charges
to be incurred in connection with the Merger.
After the Merger, Bruce L. Busby, Walter F. Beran and Jack O. Vance,
current members of the Hillhaven Board, are expected to become members of the
Vencor Board.
See "Operations and Management After the Merger."
AMENDMENT TO THE VENCOR CERTIFICATE OF INCORPORATION
At the Vencor Meeting, the holders of Vencor Common Stock will consider and
vote upon the Charter Amendment as set forth in Appendix D to this Joint Proxy
Statement/Prospectus. If adopted, the Charter Amendment will increase the number
of authorized shares of Vencor Common Stock from 60,000,000 shares to
180,000,000 shares. Vencor intends to use shares of Vencor Common Stock which
are authorized and unissued following consummation of the Merger for various
corporate purposes, including, but not limited to, possible future financings
and acquisition transactions, stock dividends and stock splits. Such shares may
be issued by the Vencor Board without further Vencor stockholder action unless
the issuance is in connection with a transaction for which stockholder approval
is otherwise required under applicable law or for compliance with any agreement
with any stock exchange on which Vencor Common Stock is listed. The Charter
Amendment will not be effected unless the Merger is consummated. Likewise, the
Merger cannot be effected absent shareholder approval of the Charter Amendment.
See "The Special Meetings" and "Amendment to the Vencor Certificate of
Incorporation."
AMENDMENT TO THE VENCOR 1987 INCENTIVE COMPENSATION PROGRAM
At the Vencor Meeting, the holders of Vencor Common Stock will consider and
vote upon the Compensation Program Amendment. If the Compensation Program
Amendment is approved and adopted, the number of shares of Vencor Common Stock
which may be issued upon the exercise of stock options and pursuant to other
stock and cash awards under the Vencor Compensation Program will be increased
from 3,162,562 shares to 6,900,000 shares. The purpose of the Compensation
Program Amendment is to ensure that there is a sufficient number of shares which
may be issued under the Vencor Compensation Program in light of the greater
number of Vencor employees following the Merger. The Compensation Program
Amendment will not be effected unless the Merger is consummated. See "The
Special Meetings" and "Amendment to the Vencor 1987 Incentive Compensation
Program."
MARKETS AND MARKET PRICES
Vencor Common Stock has been listed and traded on the NYSE under the symbol
VC since February 4, 1992. Prior to such time, Vencor Common Stock was listed
and traded on NASDAQ under the symbol VCOR. Hillhaven Common Stock has been
listed and traded on the NYSE under the symbol HIL since November 2, 1993. Prior
to such time, Hillhaven Common Stock was listed and traded on the American Stock
Exchange under the symbol HIL. The Hillhaven Preferred Stock is not listed or
admitted for trading on a national securities exchange. Application will be made
to list the shares of Vencor Common Stock to be issued pursuant to the Merger on
the NYSE.
13
<PAGE> 28
On June 30, 1995, there were 1,206 holders of record of Vencor Common
Stock, 9,357 holders of record of Hillhaven Common Stock, one holder of record
of Hillhaven Series C Preferred Stock and one holder of record of Hillhaven
Series D Preferred Stock.
On December 20, 1994, the last day prior to Tenet filing an amendment to
its Schedule 13D disclosing that it was reviewing its alternatives for its
investment in Hillhaven, the last reported sale price on the NYSE Composite Tape
for Hillhaven Common Stock was $20.75. On April 21, 1995, the last trading date
prior to the joint public announcement by Vencor and Hillhaven of the signing of
the Merger Agreement, the last reported sale prices on the NYSE Composite Tape
were $37.00 per share for Vencor Common Stock and $24.50 per share for Hillhaven
Common Stock.
The following table sets forth, for the calendar quarters indicated (ended
March 31, June 30, September 30 and December 31), the range of high and low
sales prices of Vencor Common Stock and Hillhaven Common Stock as reported on
the NYSE Composite Tape. The prices in the table for Vencor Common Stock are
adjusted to reflect a three-for-two stock split effected on October 25, 1994.
The prices in the table for Hillhaven Common Stock are adjusted to reflect a
one-for-five reverse stock split effected on November 1, 1993.
<TABLE>
<CAPTION>
VENCOR HILLHAVEN
COMMON COMMON
STOCK STOCK
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1993:
First quarter............................................... $24-1/8 $14 $21-1/4 $12-13/16
Second quarter.............................................. 19-1/2 13-7/8 18-3/4 13-1/8
Third quarter............................................... 20-7/8 13 18-1/8 14-3/8
Fourth quarter.............................................. 19-7/8 14-3/8 20-5/16 16-9/16
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1994:
First quarter............................................... 24-7/8 19-1/8 22-7/8 18-3/8
Second quarter.............................................. 24 20 21-3/8 17-5/8
Third quarter............................................... 30-3/8 22-3/8 24 17-3/8
Fourth quarter.............................................. 30-5/8 25-3/4 22-3/4 18-5/8
1995:
First quarter............................................... 37 27-1/8 28-3/4 20-1/4
Second quarter.............................................. 38 28-1/2 29-3/8 24-1/4
Third quarter (through August , 1995).....................
</TABLE>
On August , 1995, the last reported sale prices on the NYSE
Composite Tape were $ per share of Vencor Common Stock and
$ per share of Hillhaven Common Stock. If the Effective Time of the
Merger was August , 1995, the Conversion Number, which is determined by
dividing $32.25 by the average closing price on the NYSE of Vencor Common Stock
for the ten consecutive trading days ending with the second trading day
immediately preceding the Effective Time, would have been . As a
result, each share of Hillhaven Common Stock issued and outstanding as of such
time would have been converted into the right to receive 0. of a
share of Vencor Common Stock in the Merger.
Because the Conversion Number is subject to fluctuation based on the market
value of Vencor Common Stock, the number of shares of Vencor Common Stock which
each holder of Hillhaven Common Stock will have a right to receive in the Merger
may increase or decrease prior to the Effective Time.
Neither Vencor nor Hillhaven has paid a dividend on outstanding shares of
Vencor Common Stock or Hillhaven Common Stock, as the case may be, and neither
Vencor nor Hillhaven expects to pay a dividend on outstanding shares of Vencor
Common Stock or Hillhaven Common Stock, as the case may be, in the foreseeable
future.
14
<PAGE> 29
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial data of Vencor, Hillhaven and
Nationwide coincides with their respective annual reporting periods: Vencor
(December 31), Hillhaven (May 31) and Nationwide (September 30). It is
anticipated that upon consummation of the Merger, the fiscal year of the
combined company will be the calendar year. Accordingly, fiscal years of the
combined company subsequent to the Merger will include the financial information
of Hillhaven and Nationwide on a calendar year basis. See "The Merger --
Accounting Treatment" and "Unaudited Pro Forma Condensed Combined Financial
Information."
Vencor
The selected historical consolidated financial data of Vencor set forth
below have been derived from the financial statements of Vencor for each of the
five fiscal years for the period ended December 31, 1994 and the unaudited
three-month periods ended March 31, 1995 and 1994. The financial statements for
each of the five fiscal years for the period ended December 31, 1994 have been
audited by Ernst & Young LLP, independent auditors. The selected historical
consolidated financial data set forth below should be read in conjunction with
the historical financial statements and notes thereto contained in the 1994
Vencor Form 10-K and the Vencor Quarterly Report on Form 10-Q for the three
months ended March 31, 1995, which are incorporated by reference herein, and in
conjunction with the unaudited pro forma condensed combined financial
information and notes thereto contained elsewhere in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Information by Reference",
"Available Information" and "Unaudited Pro Forma Condensed Combined Financial
Information."
15
<PAGE> 30
VENCOR, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH
31, FOR THE YEARS ENDED DECEMBER 31,
------------------- ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues
Patient revenues.................. $119,614 $ 86,305 $396,766 $276,587 $210,721 $132,404 $77,194
Other revenues.................... 817 658 3,252 5,648 3,969 2,897 2,650
-------- -------- -------- -------- -------- -------- -------
Net revenues............... 120,431 86,963 400,018 282,235 214,690 135,301 79,844
Expenses
Salaries, wages and benefits...... 61,994 43,397 197,336 132,492 102,133 64,848 39,719
Supplies.......................... 13,245 10,781 46,662 33,020 26,399 17,041 10,400
Rent.............................. 4,578 4,038 16,757 14,930 12,924 9,173 5,210
Other operating expenses.......... 17,767 13,013 59,535 44,328 35,147 23,178 16,058
Depreciation and amortization..... 5,701 4,088 20,390 12,705 7,402 3,248 1,494
Interest.......................... 2,147 1,773 6,787 6,375 2,129 725 1,373
-------- -------- -------- -------- -------- -------- -------
Total expenses............. 105,432 77,090 347,467 243,850 186,134 118,213 74,254
-------- -------- -------- -------- -------- -------- -------
Income before income taxes.......... 14,999 9,873 52,551 38,385 28,556 17,088 5,590
Income taxes........................ 5,851 3,953 21,135 15,461 11,128 7,002 2,274
-------- -------- -------- -------- -------- -------- -------
Net income................. $ 9,148 $ 5,920 $ 31,416 $ 22,924 $ 17,428 $ 10,086 $ 3,316
========= ========= ========= ========= ========= ========= ========
Net income per share
Primary........................... $ 0.34 $ 0.23 $ 1.20 $ 0.85 $ 0.63 $ 0.42 $ 0.19
Fully diluted..................... $ 0.31 $ 0.23 $ 1.13 $ -- $ -- $ -- $ --
Shares used in per share calculation
Primary........................... 27,288 25,470 25,994 27,072 27,507 24,047 17,348
Fully diluted..................... 31,711 25,470 30,417 -- -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital..................... $ 86,625 $ 65,364 $ 76,907 $ 61,670 $ 54,546 $ 72,826 $20,265
Total assets........................ 455,604 313,359 390,372 294,265 294,229 148,234 56,123
Long-term debt, less current
portion........................... 123,889 116,310 141,899 116,370 116,830 866 12,761
Shareholders' equity................ 261,104 141,312 183,727 131,096 144,801 126,047 30,191
Book value per common share......... $ 9.37 $ 5.67 $ 7.19 $ 5.31 $ 5.38 $ 4.75 $ 1.58
SELECTED STATISTICAL DATA
(UNAUDITED)
(AT END OF PERIOD):
Number of hospitals................. 35 28 34 29 22 17 13
Number of licensed beds............. 2,859 2,316 2,511 2,198 1,717 1,250 996
Patient days........................ 113,165 100,124 403,623 293,367 223,483 150,564 109,303
Percentage of net revenues from
inpatient hospital operations..... 83% 93% 90% 97% 98% 98% 97%
Average daily census................ 1,258 1,104 1,123 875 620 459 312
</TABLE>
16
<PAGE> 31
Hillhaven
The selected historical consolidated and combined financial data of
Hillhaven (excluding Nationwide) set forth below have been derived from the
financial statements of Hillhaven and its predecessor for each of the four
fiscal years ended May 31, 1994, the four-month period ended May 31, 1990 and
the eight-month period ended January 31, 1990, and the nine-month periods ended
February 28, 1995 and 1994. The financial statements for each of the periods
indicated, except for the nine-month periods ended February 28, 1995 and 1994,
have been audited by KPMG Peat Marwick LLP, independent accountants. The
selected historical consolidated and combined financial data set forth below
should be read in conjunction with the historical financial statements and notes
thereto contained in the 1994 Hillhaven 10-K and the Hillhaven Quarterly Report
on Form 10-Q for the nine months ended February 28, 1995, which are incorporated
by reference herein, and in conjunction with the unaudited pro forma condensed
combined financial information and notes thereto contained elsewhere in this
Joint Proxy Statement/Prospectus. See "Incorporation of Certain Information by
Reference," "Available Information" and "Unaudited Pro Forma Condensed Combined
Financial Information."
17
<PAGE> 32
THE HILLHAVEN CORPORATION
SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS PREDECESSOR
ENDED FOUR MONTHS EIGHT MONTHS
FEBRUARY 28, YEARS ENDED MAY 31, ENDED ENDED
----------------------- ------------------------------------------------- MAY 31, JAN. 31,
1995 1994(1) 1994(1) 1993(1) 1992(1) 1991(1) 1990(1) 1990(1)
---------- ---------- --------- ---------- ---------- ---------- ----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(2):
Net operating
revenues............. $1,168,020 $1,096,764 $1,471,190 $1,378,466 $1,317,187 $1,254,253 $ 386,327 $741,686
Expenses
General and
administrative..... 999,460 938,732 1,255,332 1,180,974 1,144,390 1,094,456 335,102 646,300
Interest............. 36,664 41,677 56,178 63,600 56,863 43,800 13,707 43,170
Depreciation and
amortization....... 42,646 40,738 54,395 53,651 46,698 33,650 10,087 28,448
Rent................. 40,648 41,829 56,280 56,687 71,665 101,604 35,648 39,570
Restructuring........ -- (20,225) (20,225) 5,769 92,529 -- -- --
Adjustment to
carrying value of
properties
previously reported
as discontinued
operations......... -- -- -- -- 20,736 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------- ------------
Net expenses........... 1,119,418 1,042,751 1,401,960 1,360,681 1,432,881 1,273,510 394,544 757,488
---------- ---------- ---------- ---------- ---------- ---------- ----------- ------------
Income (loss) from
operations........... 48,602 54,013 69,230 17,785 (115,694) (19,257) (8,217) (15,802)
Interest income........ 9,620 10,391 13,635 16,006 12,820 17,013 6,309 8,704
---------- ---------- ---------- ---------- ---------- ---------- ----------- ------------
Income (loss) before
reinstatement of
discontinued
operations,
extraordinary charge
and cumulative effect
of accounting
change............... 58,222 64,404 82,865 33,791 (102,874) (2,244) (1,908) (7,098)
Income tax (expense)
benefit.............. (19,248) (18,165) (23,385) 7,116 (543) (136) (266) 3,049
Reinstatement of
discontinued
operations........... -- -- -- -- 24,743 4,379 2,647 5,785
Extraordinary
charge -- early
extinguishment of
debt, net of income
taxes................ (222) (1,013) (1,062) (565) -- -- -- --
Cumulative effect of
change in accounting
for income taxes..... -- -- -- (1,103) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------- ------------
Net income (loss)...... $ 38,752 $ 45,226 $ 58,418 $ 39,239 $ (78,674) $ 1,999 $ 473 $ 1,736
========= ========= ========= ========= ========= ========= ========== ===========
Net income (loss) per
common share
-- primary........... $ 1.17 $ 1.57 $ 1.96 $ 1.51 $ (3.63) $ .09 $ .02 --
-- fully diluted..... 1.06 1.31 1.68 -- -- -- -- --
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $ 61,926 $ 34,490 $ 37,673 $ 78,886 $ 59,619 $ 78,771 $ 90,577 $ 45,058
Total assets........... 1,233,582 1,181,251 1,192,493 1,224,012 1,178,909 817,823 683,707 561,294
Long-term debt......... 589,619 599,902 579,035 819,202 834,452 443,095 337,476 250,824
Stockholders' equity... 404,688 350,292 363,747 181,649 141,321 182,251 172,256 446,968
Book value per common
share(3)............. $ 14.13 $ 12.33 $ 12.79 $ 8.17 $ 6.38 $ 8.26 $ 7.89 --
OTHER INFORMATION
(UNAUDITED)
(AT END OF PERIOD):
NURSING CENTERS
Number of nursing
centers owned, leased
and operated......... 271 272 272 284 334 342 343 343
Number of licensed
beds................. 34,074 34,143 34,162 35,139 41,089 42,239 42,409 42,367
Average occupancy rate
for the period....... 93.0% 93.5% 93.4% 93.4% 91.6% 90.6% 90.4% 90.8%
Nursing centers managed
for others........... 15 16 16 17 17 19 19 18
Number of licensed beds
managed for others... 1,967 2,087 2,087 2,263 2,263 2,442 2,532 2,412
PHARMACY OUTLETS....... 58 85 77 88 131 118 121 127
RETIREMENT
HOUSING/ASSISTED
LIVING COMMUNITIES
Number of
Communities.......... 19 20 19 21 27 27 24 24
Number of Units........ 2,679 2,722 2,622 2,884 3,288 3,237 2,700 2,652
</TABLE>
---------------
(1) On October 31, 1994, Hillhaven acquired closely-held CPS Pharmaceutical
Services, Inc. ("CPS") and Advanced Infusion Systems, Inc. ("AIS") in a
business combination accounted for as a pooling of interests. Accordingly,
prior year information has been restated to reflect these acquisitions.
(2) Income statement data for Hillhaven are not necessarily comparable to those
of its predecessor for periods prior to January 31, 1990 due to the
spin-off from Tenet.
(3) Computed based on the actual number of shares of Hillhaven Common Stock
outstanding at the balance sheet date, excluding 4,179,520 shares of
Hillhaven Common Stock held in trust, and including 1,262,062 shares of
Hillhaven Common Stock issued in connection with the acquisition of CPS and
AIS.
18
<PAGE> 33
Nationwide
The selected historical consolidated financial data of Nationwide set forth
below have been derived from the financial statements of Nationwide for each of
the five fiscal years ended September 30, 1994 and the unaudited eight-month
periods ended May 31, 1995 and 1994. The selected historical consolidated
financial data set forth below should be read in conjunction with the unaudited
pro forma condensed combined financial information and notes thereto contained
elsewhere in this Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma
Condensed Combined Financial Information."
NATIONWIDE CARE, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
MAY 31, YEARS ENDED SEPTEMBER 30,
----------------- ------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- -------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT STATISTICAL DATA)
STATEMENT OF OPERATIONS DATA(1)(2):
Revenue, net............................. $86,443 $79,741 $120,724 $66,161 $43,348 $36,075 $30,718
Expenses:
Healthcare services.................... 66,518 59,018 90,384 45,907 28,417 24,124 20,122
Selling, general and administrative.... 4,296 3,329 5,971 4,307 2,775 2,645 2,292
Leases and rental...................... 4,845 4,692 7,085 2,671 1,353 1,419 1,309
Depreciation and amortization.......... 2,412 1,949 2,947 2,738 2,308 2,281 2,086
------- ------- -------- ------- ------- ------- -------
Income from operations................... 8,372 10,753 14,337 10,538 8,495 5,606 4,909
Interest expense, net.................... 3,301 2,946 4,778 3,669 3,540 3,839 4,080
Other income............................. -- -- -- -- -- -- 22
------- ------- -------- ------- ------- ------- -------
Income before income taxes and
extraordinary items.................... 5,071 7,807 9,559 6,869 4,955 1,767 851
Income taxes(3).......................... 2,474 3,302 4,600 1,744 380 -- --
------- ------- -------- ------- ------- ------- -------
Income before extraordinary items........ 2,597 4,505 4,959 5,125 4,575 1,767 851
Extraordinary items...................... -- -- -- (1,652) 380 -- --
------- ------- -------- ------- ------- ------- -------
Net income...................... $ 2,597 $ 4,505 $ 4,959 $ 3,473 $ 4,955 $ 1,767 $ 851
======== ======== ========= ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)................ $ 5,946 $ 3,997 $ 2,830 $ 2,281 $ 530 $(1,205) $(1,315)
Total assets............................. 84,703 72,766 75,939 69,132 41,287 38,036 38,501
Long-term debt........................... 47,974 42,124 43,045 42,404 37,716 37,119 39,192
Stock warrants and redeemable
preferred stock........................ 17,130 6,997 7,169 7,254 -- -- --
Other shareholders' and partners' equity
(deficit)(4)........................... (743) 6,429 6,621 1,667 (3,717) (6,224) (6,104)
STATISTICAL DATA (UNAUDITED)
(AT END OF PERIOD):
Nursing centers.......................... 23 24 23 24 18 19 19
Nursing center beds...................... 3,257 3,357 3,257 3,357 2,067 2,127 2,127
Assisted living/retirement centers....... 4 3 3 3 2 2 2
Assisted living/retirement center
units.................................. 442 370 370 370 277 277 277
Overall nursing center occupancy rate,
period ended........................... 90.4% 90.4% 90.4% 92.6% 93.6% 91.1% 88.5%
</TABLE>
---------------
(1) As a result of the Royal Oaks Acquisition, the Regency Center leases and the
reorganization of Nationwide in July 1993 (the "Reorganization"), the
statement of operations data prior to the dates of the aforementioned
transactions are not comparable to statement of operations data subsequent
to the aforementioned transactions.
19
<PAGE> 34
(2) The selected financial data set forth above includes only Nationwide. Two
other entities included in the Nationwide Transaction, Meadowvale and PEI,
are not reflected in the above data because (i) Meadowvale's operations are
already included in Nationwide's financial statements; only the real estate
is being acquired in connection with the Nationwide Transaction; and (ii)
PEI is immaterial (less than 1% of Nationwide's total revenues).
(3) Prior to the Reorganization, certain of the businesses now comprising
Nationwide were taxed as S Corporations and certain of the businesses were
partnerships; therefore, income was not subject to federal or state income
taxes.
(4) Prior to the Reorganization, shareholders' and partners' equity (deficit)
consists of the combined capital structure of separate corporations and
partnerships. As of the date of the Reorganization, the undistributed
earnings (deficit) of the S Corporations and partnerships was transferred
to the no par common stock of Nationwide.
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The selected unaudited pro forma condensed combined financial data are
presented assuming the Merger will be accounted for as a pooling of interests.
The income statement data included in the pro forma combined financial data
reflects the combination of the historical operating results of Vencor for the
years ended December 31, 1994, 1993 and 1992, and for the three months ended
March 31, 1995 and 1994, with the restated historical operating results of
Hillhaven for the twelve months ended November 30, 1994 and historical operating
results for the years ended May 31, 1993 and 1992 and for the three months ended
February 28, 1995 and 1994 and the historical operating results of Nationwide
for the years ended September 30, 1994, 1993 and 1992 and for the three months
ended December 31, 1994 and 1993, respectively. On May 1, 1995, Vencor acquired
for $8 million, in a transaction to be accounted for as a purchase, an acute
care hospital in Arlington, Virginia (the "Arlington Acquisition"). The
unaudited pro forma condensed combined income statements for the year ended
December 31, 1994 and the three months ended March 31, 1995 and 1994 include the
Arlington Acquisition. The unaudited pro forma condensed combined balance sheet
reflects the combination of the historical balance sheets of Vencor at March 31,
1995 and the assets acquired in connection with the Arlington Acquisition with
the historical balance sheets of Hillhaven at February 28, 1995 and Nationwide
at December 31, 1994. The unaudited pro forma condensed combined financial data
do not reflect the restructuring charge expected to be incurred by Vencor and
Hillhaven in connection with the Merger, and do not give effect to the revenue
enhancements and cost savings expected to be realized in connection with the
Merger. The pro forma condensed combined financial data are not necessarily
indicative of the results or financial position that actually would have
occurred had the Merger been consummated prior to January 1, 1992 or that may be
obtained in the future. See "Unaudited Pro Forma Condensed Combined Financial
Information" and "Operations and Management After the Merger."
20
<PAGE> 35
VENCOR, INC. AND THE HILLHAVEN CORPORATION
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ------------------------------------
1995 1994 1994 1993 1992
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues
Patient revenues...................... $490,087 $425,269 $1,796,117 $1,468,322 $1,347,613
Other revenues........................ 66,703 74,661 293,873 275,170 240,432
-------- -------- ---------- ---------- ----------
Net revenues.................. 556,790 499,930 2,089,990 1,743,492 1,588,045
Expenses
Salaries, wages and benefits.......... 322,418 280,120 1,176,871 985,163 921,508
Supplies.............................. 44,119 38,863 166,282 126,473 117,940
Rent.................................. 19,993 20,068 80,282 74,323 85,968
Other operating expenses.............. 98,922 95,162 379,865 330,014 299,817
Depreciation and amortization......... 21,039 18,500 79,272 69,126 56,408
Interest.............................. 17,476 15,876 70,944 73,559 62,399
Restructuring......................... -- -- -- 5,769 92,529
Adjustment to carrying value of
properties previously reported as
discontinued operations............ -- -- -- -- 20,736
-------- -------- ---------- ---------- ----------
Total expenses................ 523,967 468,589 1,953,516 1,664,427 1,657,305
-------- -------- ---------- ---------- ----------
Income (loss) before income taxes,
extraordinary charges and cumulative
effect of change in accounting for
income taxes.......................... 32,823 31,341 136,474 79,065 (69,260)
Income tax expense...................... 11,948 10,929 46,233 10,089 12,051
Reinstatement of discontinued
operations, net of tax................ -- -- -- -- 24,743
-------- -------- ---------- ---------- ----------
Income (loss) before extraordinary
charges and cumulative effect of
change in accounting for income
taxes................................. $ 20,875 $ 20,412 $ 90,241 $ 68,976 $ (56,568)
======== ======== ========= ========= =========
Income (loss) before extraordinary
charges and cumulative effect of
accounting change available to common
stockholders.......................... $ 20,875 $ 17,767 $ 90,241 $ 66,088 $ (58,012)
======== ======== ========= ========= =========
Income (loss) per share before
extraordinary charges and cumulative
effect of change in accounting for
income taxes
Primary............................... $ 0.35 $ 0.32 $ 1.55 $ 1.20 $ (1.08)
Fully diluted......................... $ 0.32 $ 0.31 $ 1.42 -- --
Shares used in per share calculation
Primary............................... 60,373 55,018 58,069 55,790 53,957
Fully diluted......................... 72,585 63,333 70,480 -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1995
----------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................................. $ 174,431
Total assets..................................................................... 1,762,215
Long-term debt, less current portion............................................. 854,191
Shareholders' equity............................................................. 591,637
</TABLE>
See "Unaudited Pro Forma Condensed Combined Financial Information."
21
<PAGE> 36
COMPARISON OF HISTORICAL AND EQUIVALENT PER SHARE DATA (UNAUDITED)
The following tables summarize certain unaudited selected financial
information on a pro forma and pro forma equivalent per share basis and are
derived from, and should be read in conjunction with, the unaudited pro forma
condensed combined financial statements, including the notes thereto, included
elsewhere in this Joint Proxy Statement/Prospectus and the historical financial
statements of Vencor and Hillhaven which are incorporated herein by reference.
All per share amounts are adjusted to reflect any stock splits during the
periods presented. Neither Vencor nor Hillhaven has paid any dividends on common
stock during the periods presented, and Vencor does not expect to pay dividends
on Vencor Common Stock for the foreseeable future. The information presented in
these tables do not purport to present the financial position or results of
operations of the combined company had the Merger taken place on the dates
specified, nor is such information necessarily indicative of the results of
operations that may be achieved in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER
MARCH 31, 31,
------------- -----------------------
1995 1994 1994 1993 1992
----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
BASED ON A CONVERSION NUMBER OF 0.977
VENCOR
Historical net income before extraordinary items per
common share, fully diluted(1)......................... $0.31 $0.23 $ 1.13 $0.85 $ 0.63
Pro forma combined income before extraordinary items per
common share, fully diluted (Vencor and
Arlington)(1).......................................... .31 .28 1.20
Pro forma combined income (loss) before extraordinary
items per common share, fully diluted(1)(4)............ .32 .31 1.42 1.20 (1.08)
Historical book value per common share(2)................ 9.37 7.19
Pro forma combined book value per common share (Vencor
and Arlington)(2)...................................... 9.37 7.19
Pro forma combined book value per common share........... 9.32 10.11
Historical cash dividends per common share............... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
FEBRUARY 28, NOVEMBER 30, YEARS ENDED MAY 31,
---------------- ------------- -------------------
1995 1994(3) 1994(3) 1993(3) 1992(3)
------ ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
HILLHAVEN
Historical net income (loss) before
extraordinary items per common share, fully
diluted(4)(5)................................ $ 0.31 $0.32 $ 1.53 $1.58 $(3.63 )
Pro forma combined income (loss) before
extraordinary items per common share, fully
diluted (Hillhaven and Nationwide)(4)(5)..... .30 .32 1.45 1.49 (2.79 )
Equivalent pro forma combined income (loss)
before extraordinary items per common share,
fully diluted(4)(6).......................... .31 .30 1.39 1.17 (1.06 )
Historical book value per common share(7)...... 14.13 13.73
Pro forma combined book value per common share
(Hillhaven and Nationwide)(5)................ 12.21 12.10
Equivalent pro forma combined book value per
common share(6)(7)........................... 9.11 9.88
</TABLE>
22
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER
MARCH 31, 31,
-------------- -----------------------
1995 1994 1994 1993 1992
------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
BASED ON A CONVERSION NUMBER OF 0.768
VENCOR
Historical net income before extraordinary items per
common share, fully diluted(1)........................ $ 0.31 $0.23 $ 1.13 $0.85 $ 0.63
Pro forma combined income before extraordinary items per
common share, fully diluted (Vencor and
Arlington)(1)......................................... .31 .28 1.20
Pro forma combined income (loss) before extraordinary
items per common share, fully diluted(1)(4)........... .37 .35 1.62 1.34 (1.20)
Historical book value per common share(2)............... 9.37 -- 7.19 -- --
Pro forma combined book value per common share (Vencor
and Arlington)(2)..................................... 9.37 7.19
Pro forma combined book value per common share.......... 10.38 -- 11.49 -- --
Historical cash dividends per common share.............. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
FEBRUARY 28, NOVEMBER 30, YEARS ENDED MAY 31,
---------------- ------------- -------------------
1995 1994(3) 1994(3) 1993(3) 1992(3)
------ ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
HILLHAVEN
Historical net income (loss) before
extraordinary items per common share, fully
diluted(4)(5)................................ $ 0.31 $0.32 $ 1.53 $1.58 $(3.63 )
Pro forma combined income (loss) before
extraordinary items per common share, fully
diluted (Hillhaven and Nationwide)(4)(5)..... .30 .32 1.45 1.49 (2.79 )
Equivalent pro forma combined income (loss)
before extraordinary items per common share,
fully diluted(4)(8).......................... .28 .27 1.24 1.03 (.92 )
Historical book value per common share(7)...... 14.13 13.73
Pro forma combined book value per common share
(Hillhaven and Nationwide)(5)................ 12.21 12.10
Equivalent pro forma combined book value per
common share(7)(8)........................... 7.97 8.82
</TABLE>
---------------
(1) Vencor reported only primary income per share in the three months ended
March 31, 1994 and the years ended 1993 and 1992.
(2) This calculation is based on the number of shares of Vencor Common Stock
outstanding at the end of the period, excluding common stock held in
treasury.
(3) Prior year and interim period information has been restated to reflect the
October 1994 acquisitions of CPS and AIS which were each accounted for as a
pooling of interests.
(4) Hillhaven reported only primary income (loss) per share in 1993 and 1992.
(5) This calculation is based on the weighted average number of shares of
Hillhaven Common Stock outstanding for each period, excluding 4,179,520
shares of Hillhaven Common Stock held in trust at February 28, 1995, but
including 5,000,000 shares of Hillhaven Common Stock issued in connection
with the Nationwide Transaction on June 30, 1995.
(6) Equivalent pro forma data were calculated by multiplying the pro forma
combined per share data of Vencor by an assumed Conversion Number of 0.977
for each share of Hillhaven Common Stock. An increase in the Vencor Average
Price of $0.51 would result in a $0.01 increase in pro forma combined income
per share for the year ended December 31, 1994.
(7) This calculation is based on the number of shares of Hillhaven Common Stock
outstanding at the end of the period, excluding 4,179,520 shares of
Hillhaven Common Stock held in trust at February 28, 1995, but including
5,000,000 shares of Hillhaven Common Stock issued in connection with the
Nationwide Transaction on June 30, 1995.
(8) Equivalent pro forma data was calculated by multiplying the pro forma
combined per share data of Vencor by an assumed Conversion Number of 0.768
for each share of Hillhaven Common Stock.
23
<PAGE> 38
RISK FACTORS
The following factors and the information provided elsewhere in this Joint
Proxy Statement/Prospectus should be considered carefully by the stockholders of
Vencor and Hillhaven in evaluating the Merger.
FEDERAL AND STATE LEGISLATION
In recent years, an increasing number of legislative proposals have been
introduced or proposed by Congress and in some state legislatures which would
effect major changes in the healthcare system. In October 1993, the Clinton
Administration submitted comprehensive healthcare reform legislation to Congress
designed to provide, among other things, for universal access to healthcare.
Neither the Clinton Administration's plan nor any other healthcare reform
legislation was enacted by Congress.
A number of legislative proposals have contained a moratorium on the
designation of additional long-term hospital facilities for Medicare
reimbursement purposes. However, neither Vencor nor Hillhaven can predict the
form of healthcare reform legislation which may be proposed in Congress or in
state legislatures in the future and whether and in what form such legislation
will be adopted. Accordingly, neither Vencor nor Hillhaven is able to assess the
effect of any such legislation on their respective businesses or their combined
business following consummation of the Merger. There can be no assurance that
any such legislation will not have a material adverse impact on the future
growth, net revenues and net income of Vencor or Hillhaven or their combined
operations following consummation of the Merger.
INCREASED LEVERAGE
Hillhaven has substantially greater leverage than Vencor, and, after the
Merger, Vencor will have significantly higher indebtedness than it has
historically maintained, including indebtedness incurred as a result of the
cash-out of the Hillhaven Preferred Stock and payment of certain transaction
costs. Although the management of Vencor believes its post-merger indebtedness
will not adversely affect the business or operations of Vencor, such
indebtedness could adversely affect Vencor's ability to obtain additional
financing for working capital and other purposes and could make Vencor more
vulnerable to changes in the healthcare marketplace, economic downturns and
competitive pressures. Vencor expects to refinance a substantial portion of the
outstanding indebtedness of the combined companies. To the extent such
indebtedness is refinanced at floating interest rates, Vencor will be subject to
the risk that interest rates will rise, increasing Vencor's interest expense.
See "Operations and Management After the Merger -- Post-Merger Capitalization."
RELIANCE ON REIMBURSEMENT FROM GOVERNMENT SOURCES
Vencor and Hillhaven derive substantial portions of their net revenues from
third party payors, including government reimbursement programs such as Medicare
and Medicaid, and non-government sources, such as commercial insurance
companies, HMOs, PPOs and contract services. For the year ended December 31,
1994, Vencor received approximately 60% of its net patient revenues from
government sources and approximately 40% of its net patient revenues from
non-government sources. For the nine months ended February 28, 1995, Hillhaven
received approximately 73% of its net patient revenues from government sources
and approximately 27% of its net patient revenues from non-government sources.
Both government and non-government payors have undertaken cost containment
measures designed to limit payments to healthcare providers such as Vencor and
Hillhaven. Furthermore, government reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings and government funding restrictions, all of which may materially
increase or decrease the rate of program payments to Vencor and Hillhaven for
their services. There can be no assurance that payments under governmental and
non-governmental payor programs will be sufficient to cover the costs allocable
to patients eligible for reimbursement. There have been, and Vencor and
Hillhaven expect that there will continue to be, a number of proposals to
further limit Medicare and Medicaid reimbursement for healthcare services.
Neither Vencor nor Hillhaven can at this time predict whether or what proposals
or cost containment measures will be adopted or, if adopted and implemented what
effect, if any, such proposals might have on the operations of Vencor or
Hillhaven or their combined operations following consummation of the Merger.
24
<PAGE> 39
The net incomes of Vencor and Hillhaven are affected by changes in sources
of net revenues. Rates paid by commercial insurers, including those which
provide Medicare supplemental insurance, are generally based on established
charges, and are generally higher than Medicare reimbursement rates. A change in
the payor mix of Vencor's and Hillhaven's patients resulting in a decrease in
patients covered by commercial insurance could have an adverse impact on the net
revenues and income of Vencor or Hillhaven or their combined net revenues and
income following consummation of the Merger.
GOVERNMENTAL REGULATION
Vencor, Hillhaven and the healthcare industry are subject to extensive
federal, state and local regulations governing licensure, conduct of operations
at existing facilities, construction of new facilities, purchase or lease of
existing facilities, addition of new services, certain capital expenditures,
cost containment and reimbursement for services rendered. It is not possible to
predict the content or impact of future regulations or legislation affecting the
healthcare industry. The failure to obtain or renew certain required regulatory
approvals or licenses, the delicensing of certain facilities owned, leased or
operated by Vencor or Hillhaven or the combined company following consummation
of the Merger or the disqualification of Vencor or Hillhaven or the combined
company following the consummation of the Merger from participation in certain
federal and state reimbursement programs could have a material adverse effect
upon the operations of Vencor or Hillhaven or their combined operations
following consummation of the Merger.
COMPETITION
Organizations such as Vencor and Hillhaven operate in a highly competitive
industry. The long-term care hospitals and nursing centers operated by Vencor
and Hillhaven are in communities where other facilities offer similar services.
Some of these competing facilities are operated by entities having greater
financial and other resources and longer operating histories than Vencor or
Hillhaven. In addition, certain of these competing facilities are operated by
non-taxpaying or governmental agencies, which can finance capital expenditures
on a tax exempt basis, and which receive funds and charitable contributions
unavailable to Vencor's hospitals or Hillhaven's nursing centers. There can be
no assurance that the combined company will not encounter increased competition
in the future that would adversely affect its results of operations.
LIMITED AVAILABILITY OF LABOR
In the past, the long-term care industry has periodically experienced
shortages of nurses. Although Vencor and Hillhaven currently do not have a
staffing shortage, a shortage of nurses in geographic areas in which Vencor and
Hillhaven operate could adversely affect the ability of Vencor and Hillhaven to
attract and retain qualified nursing personnel and could increase their
operating costs. Vencor and Hillhaven compete with other healthcare providers
for the services of nurses and other professional and non-professional
employees. Vencor and Hillhaven expect that their labor costs will increase in
the future, and there can be no assurance that such cost increases will be
matched by timely corresponding reimbursement rate increases.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of Hillhaven and of the Hillhaven Board have
certain interests in the Merger that are in addition to the interests of
stockholders generally and which may create potential conflicts of interest.
Pursuant to the treatment under the Merger Agreement of Hillhaven's Option
Plans and PIP Options, and assuming a Conversion Number of 0.977 and a
Transaction Value of $31.00, Messrs. Busby and Marker would each receive an
aggregate of 565,674 and 392,135 shares of Vencor Common Stock, respectively,
the other seven executive officers of Hillhaven would receive an aggregate of
815,915 shares of Vencor Common Stock and other officers and certain employees
of Hillhaven would receive an aggregate of 1,016,304 shares of Vencor Common
Stock. Based on the closing price on the NYSE of Vencor Common Stock on
, 1995, of $ , the dollar value of Vencor Common Stock to be
received by Messrs. Busby and Marker, the other seven executive officers of
Hillhaven and the other officers and certain employees of
25
<PAGE> 40
Hillhaven pursuant to the Hillhaven Option Plans and the PIP Options is
$ , $ , $ and $ , respectively. In addition
under preexisting severance agreements with executive officers of Hillhaven,
including the five most highly compensated executive officers, such executive
officers may receive severance compensation payments upon certain terminations
of their employment in the event of a change in control as defined in such
agreements. Upon such a termination of employment, Messrs. Busby and Marker
would be entitled to receive approximately $900,000 and $720,000, respectively,
and the other seven executive officers of Hillhaven would be entitled, if all
were terminated, to receive an aggregate of $2.0 million, plus in each case, any
amounts required to reimburse the employees, on an after tax basis for the
amount of any applicable excise taxes under Section 4999 of the Code.
Pursuant to the Merger Agreement, under the Directors' Retirement Plan,
each outside director will receive an annual retirement payment of $25,440 for a
period of ten years following the Merger and, since the Merger constitutes an
event accelerating vesting under the Directors' Stock Plan, the directors of
Hillhaven other than Messrs. Busby and Marker will each have options for 2,000
shares (for an aggregate of 12,000) of Hillhaven Common Stock, with an average
exercise price of $27.25. Assuming a Conversion Number of 0.977 and a
Transaction Value of $31.00 the directors of Hillhaven, other than Messrs. Busby
and Marker would receive, in the aggregate, 21,303 shares of Vencor Common Stock
pursuant to the Directors' Stock Plan. Based on a closing price on the NYSE per
share of Vencor Common Stock on , 1995 of $ , the dollar
value of Vencor Common Stock to be received by each such director pursuant to
the Directors' Stock Plan is $ .
See "Summary -- The Merger -- Employee Benefits" and "-- Interests of
Certain Persons in the Transactions," "The Merger -- Employee Benefits" and
"-- Interests of Certain Persons in the Transactions."
26
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
are presented assuming the Merger and the Nationwide Transaction will each be
accounted for as a pooling of interests. For a description of pooling of
interests accounting with respect to the Merger, see "The Merger -- Accounting
Treatment."
The Merger Agreement provides that each outstanding share of Hillhaven
Common Stock will be converted into a fraction of a share of Vencor Common Stock
determined by dividing $32.25 by the Vencor Average Price, except that the
Conversion Number will not be less than 0.768 or greater than 0.977 except in
certain limited circumstances described under "The Merger -- Terms of the
Merger," and each share of Hillhaven Preferred Stock will be converted into the
right to receive $900 in cash, plus accrued and unpaid dividends to the
Effective Time. Each outstanding share of Vencor Common Stock will remain
outstanding and unaffected by the Merger. For all applicable periods in the
unaudited condensed combined income statements, shares used in the computation
of earnings per common and common equivalent share assume a Conversion Number of
0.977 and a Transaction Value of $31.00.
The Nationwide Transaction, which will be accounted for as a pooling of
interests, was consummated on June 30, 1995. At such time, Hillhaven issued
5,000,000 shares of Hillhaven Common Stock to the stockholders of Nationwide. As
a result, former stockholders of Nationwide who are holders of record of
Hillhaven Common Stock on the Hillhaven Record Date will be entitled to vote at
the Hillhaven Meeting.
The Arlington Acquisition, which was accounted for as a purchase
transaction, was consummated on May 1, 1995.
The unaudited pro forma condensed combined income statements reflect the
combination of the historical operating results of Vencor for the years ended
December 31, 1994, 1993 and 1992, and for the three months ended March 31, 1995
and 1994 with the restated historical operating results of Hillhaven for twelve
months ended November 30, 1994 and historical operating results for the years
ended May 31, 1993 and 1992 and for the three months ended February 28, 1995 and
1994 and the historical operating results of Nationwide for the years ended
September 30, 1994, 1993 and 1992 and for the three months ended December 31,
1994 and 1993, respectively. The unaudited pro forma condensed combined income
statement for the year ended December 31, 1994 and the three months ended March
31, 1995 and 1994 include the Arlington Acquisition. The unaudited pro forma
condensed combined balance sheet reflects the combination of the historical
balance sheets of Vencor at March 31, 1995 and the assets acquired in connection
with the Arlington Acquisition with the historical balance sheets of Hillhaven
at February 28, 1995 and Nationwide at December 31, 1994.
The unaudited pro forma condensed combined financial statements do not
reflect the restructuring charge expected to be incurred by Vencor and Hillhaven
in connection with the Merger. The restructuring charge will include costs
associated with the combination of Vencor and Hillhaven, including severance,
duplicative systems and other operations consolidation expenses. Also, no
provision has been reflected in the unaudited pro forma condensed combined
financial statements for the possible refinancing of certain of Hillhaven's debt
after the consummation of the Merger. The unaudited pro forma condensed combined
financial statements also do not give effect to the revenue enhancements and
cost savings expected to be realized in connection with the Merger. The
unaudited pro forma condensed combined financial statements are not necessarily
indicative of the results or financial position that actually would have
occurred had the Merger been consummated on the dates indicated or that may be
obtained in the future. See "Risk Factors" and "Operations and Management After
the Merger." These pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of Vencor and
Hillhaven incorporated by reference in this Joint Proxy Statement/Prospectus.
27
<PAGE> 42
VENCOR, INC. AND THE HILLHAVEN CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
VENCOR ARLINGTON
HILLHAVEN NATIONWIDE THREE THREE
THREE MONTHS THREE MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
FEBRUARY 28, DECEMBER 31, PRO FORMA HILLHAVEN MARCH 31, MARCH 31, PRO FORMA
1995 1994 ADJUSTMENTS PRO FORMA 1995 1995 ADJUSTMENTS
------------ ------------ ----------- --------- --------- --------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues
Patient revenues... $330,453 $ 31,410 $ -- $361,863 $119,614 $ 8,772 --
Other revenues..... 65,714 223 (15)(a)
(36)(b) 65,886 817 -- --
---------- ------------ ----- --------- --------- --------- -----------
Net revenues.......... 396,167 31,633 (51) 427,749 120,431 8,772 --
Expenses
Salaries, wages
and benefits....... 241,466 14,971 -- 256,437 61,994 3,987 --
Supplies............. 26,256 3,239 -- 29,495 13,245 1,379 --
Rent................. 13,445 1,812 -- 15,257 4,578 158 --
Other operating
expenses........... 71,417 7,417 (15)(a) 78,819 17,767 2,498 --
Depreciation and
amortization....... 14,452 783 -- 15,235 5,701 603 (500)(s)
Interest............. 12,108 1,202 (36)(b) 13,274 2,147 349 140(s)
------------ ------------ ----- --------- --------- --------- -----------
Total
expenses........ 379,144 29,424 (51) 408,517 105,432 8,974 (360)
------------ ------------ ----- --------- --------- --------- -----------
Income before income
taxes and
extraordinary
charges............... 17,023 2,209 -- 19,232 14,999 (202) 360
Income tax
expense............... 5,635 1,025 -- 6,660 5,851 -- 63(s)
------------ ------------ ----- --------- --------- --------- -----------
Income before
extraordinary
charges............... $ 11,388 $ 1,184 $ -- $ 12,572 $ 9,148 (202) 297
=========== ============ =========== ========== ========= ========= ===========
Income before
extraordinary
charges per share
Primary............... $ 0.33 $ 0.32 $ 0.34
Fully diluted......... $ 0.31 $ 0.30 $ 0.31
Shares used in per
share calculation
Primary................ 28,864 5,000(h) 33,864 27,288
Fully diluted.......... 36,836 5,000(h) 41,836 31,711
</TABLE>
<TABLE>
<CAPTION>
VENCOR PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS COMBINED
--------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenues
Patient revenues... $128,386 $ (162)(i) $490,087
Other revenues..... 817 -- 66,703
--------- ----------- ---------
Net revenues.......... 129,203 (162) 556,790
Expenses
Salaries, wages and
benefits.......... 65,981 -- 322,418
Supplies............ 14,624 -- 44,119
Rent................ 4,736 -- 19,993
Other operating
expenses.......... 20,265 (162)(i) 98,922
Depreciation and
amortization...... 5,804 -- 21,039
Interest............ 2,636 1,566(n) 17,476
--------- ----------- ---------
Total
expenses...... 114,046 1,404 523,967
--------- ----------- ---------
Income before income
taxes and
extraordinary
charges............. 15,157 (1,566) 32,823
Income
tax expense......... 5,914 (626)(n) 11,948
--------- ----------- ---------
Income before
extraordinary
charges.............. 9,243 $ (940) $ 20,875
========= =========== ==========
Income before
extraordinary
charges per share
Primary.............. $ 0.34 $ 0.35
Fully diluted........ $ 0.31 $ 0.32
Shares used in per
share calculation
Primary.............. 27,288 33,085(r) 60,373
Fully diluted........ 31,711 40,874(r) 72,585
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
28
<PAGE> 43
VENCOR, INC. AND THE HILLHAVEN CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
HILLHAVEN NATIONWIDE VENCOR ARLINGTON
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
FEBRUARY 28, DECEMBER 31, PRO FORMA HILLHAVEN MARCH 31, MARCH 31, PRO FORMA
1994 1993 ADJUSTMENTS PRO FORMA 1994 1995 ADJUSTMENTS
------------ ------------ ----------- --------- ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues
Patient revenues..... $299,313 $ 29,299 $ -- $328,612 $ 86,305 $ 10,352 $ --
Other revenues....... 73,808 246 (12)(a)
(39)(b) 74,003 658 -- --
------------ ------------ ----------- --------- ------------ ------------ -----------
Net revenues..... 373,121 29,545 (51) 402,615 86,963 10,352 --
Expenses
Salaries, wages and
benefits........... 218,519 14,243 -- 232,762 43,397 3,961 --
Supplies............. 23,568 3,134 -- 26,702 10,781 1,380 --
Rent................. 14,101 1,766 -- 15,867 4,038 163 --
Other operating
expenses........... 73,830 6,023 (12)(a) 79,841 13,013 2,308 --
Depreciation and
amortization....... 13,557 722 -- 14,279 4,088 633 (500)(s)
Interest............. 12,573 1,072 (39)(b) 13,606 1,773 357 140(s)
------------ ------------ ----------- --------- ------------ ------------ -----------
Total expenses..... 356,148 26,960 (51) 383,057 77,090 8,802 (360)
------------ ------------ ----------- --------- ------------ ------------ -----------
Income before income
taxes and
extraordinary
charges.............. 16,973 2,585 -- 19,558 9,873 1,550 360
Income tax expense..... 5,029 1,183 -- 6,212 3,953 620 144(s)
------------ ------------ ----------- --------- ------------ ------------ -----------
Income before
extraordinary
charges.............. $ 11,944 $ 1,402 $ -- $ 13,346 $ 5,920 $ 930 $ 216
=========== =========== ========== ======== =========== =========== ==========
Income before
extraordinary charges
available to common
stockholders......... $ 9,299 $ 1,402 $ -- $ 10,701 $ 5,920 $ 930 $ 216
=========== =========== ========== ======== =========== =========== ==========
Income before
extraordinary
charges per share
Primary.............. $ 0.37 $ 0.35 $ 0.23
Fully diluted........ $ 0.32 $ 0.32 $ 0.23
Shares used in per
share calculation
Primary.............. 25,244 5,000(h) 30,244 25,470
Fully diluted........ 33,754 5,000(h) 38,754 25,470
<CAPTION>
VENCOR PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS COMBINED
--------- ----------- ---------
<S> <C> <C> <C>
Net revenues
Patient revenues..... $ 96,657 $ -- $425,269
Other revenues.......
658 -- 74,661
--------- ----------- ---------
Net revenues..... 97,315 -- 499,930
Expenses
Salaries, wages and
benefits........... 47,358 -- 280,120
Supplies............. 12,161 -- 38,863
Rent................. 4,201 -- 20,068
Other operating
expenses........... 15,321 -- 95,162
Depreciation and
amortization....... 4,221 -- 18,500
Interest............. 2,270 -- 15,876
--------- ----------- ---------
Total expenses..... 85,532 -- 468,589
--------- ----------- ---------
Income before income
taxes and
extraordinary
charges.............. 11,783 -- 31,341
Income tax expense..... 4,717 -- 10,929
--------- ----------- ---------
Income before
extraordinary
charges.............. $ 7,066 $ -- $ 20,412
======== ========== ========
Income before
extraordinary charges
available to common
stockholders......... $ 7,066 $ -- $ 17,767
======== ========== ========
Income before
extraordinary
charges per share
Primary.............. $ 0.28 $ 0.32
Fully diluted........ $ 0.28 $ 0.31
Shares used in per
share calculation
Primary.............. 25,470 29,548(r) 55,018
Fully diluted........ 25,470 37,863(r) 63,333
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
29
<PAGE> 44
VENCOR, INC. AND THE HILLHAVEN CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HILLHAVEN
TWELVE
MONTHS NATIONWIDE VENCOR ARLINGTON
ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, SEPTEMBER 30, PRO FORMA HILLHAVEN DECEMBER 31, DECEMBER 31, PRO FORMA
1994 1994 ADJUSTMENTS PRO FORMA 1994 1994 ADJUSTMENTS
------------ ------------- ----------- ---------- ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues
Patient revenues....... $1,242,531 $ 120,855 $ -- $1,363,386 $396,766 $ 36,339 $ --
Other revenues......... 289,733 1,095 (54)(a)
(153)(b) 290,621 3,252 -- --
---------- -------- ----- ---------- -------- ------- -------
Net revenues......... 1,532,264 121,950 (207) 1,654,007 400,018 36,339 --
Expenses
Salaries, wages and
benefits............. 907,354 56,363 -- 963,717 197,336 15,818 --
Supplies............... 101,321 13,261 -- 114,582 46,662 5,038 --
Rent................... 55,755 7,131 -- 62,886 16,757 639 --
Other operating
expenses............. 284,163 27,722 (54)(a) 311,831 59,535 8,873 --
Depreciation and
amortization......... 55,408 2,989 -- 58,397 20,390 2,485 (2,000)(s)
Interest............... 51,630 4,865 (153)(b) 56,342 6,787 1,439 560(s)
---------- -------- ----- ---------- -------- ------- -------
Total expenses..... 1,455,631 112,331 (207) 1,567,755 347,467 34,292 (1,440)
---------- -------- ----- ---------- -------- ------- -------
Income before income
taxes and extraordinary
charges................ 76,633 9,619 -- 86,252 52,551 2,047 1,440
Income tax expense....... 21,429 4,600 -- 26,029 21,135 819 576(s)
---------- -------- ----- ---------- -------- ------- -------
Income before
extraordinary
charges................ $ 55,204 $ 5,019 $ -- $ 60,223 $ 31,416 $ 1,228 $ 864
========== ======== ===== ========== ======== ======= =======
Income before
extraordinary charges
per share
Primary................ $ 1.72 $ 1.60 $ 1.20
Fully diluted.......... $ 1.53 $ 1.45 1.13
Shares used in per share
calculation
Primary................ 27,830 5,000(h) 32,830 25,994
Fully diluted.......... 36,006 5,000(h) 41,006 30,417
<CAPTION>
VENCOR PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS COMBINED
--------- ----------- ----------
<S> <C> <C> <C>
Net revenues
Patient revenues....... $433,105 $ (374)(i) $1,796,117
Other revenues.........
3,252 -- 293,873
-------- ------- ----------
Net revenues......... 436,357 (374) 2,089,990
Expenses
Salaries, wages and
benefits............. 213,154 -- 1,176,871
Supplies............... 51,700 -- 166,282
Rent................... 17,396 -- 80,282
Other operating
expenses............. 68,408 (374)(i) 379,865
Depreciation and
amortization......... 20,875 -- 79,272
Interest............... 8,786 5,816(n) 70,944
-------- ------- ----------
Total expenses..... 380,319 5,442 1,953,516
-------- ------- ----------
Income before income
taxes and extraordinary
charges................ 56,038 (5,816) 136,474
Income tax expense....... 22,530 (2,326)(n) 46,233
-------- ------- ----------
Income before
extraordinary
charges................ $ 33,508 $(3,490) $ 90,241
======== ======= ==========
Income before
extraordinary charges
per share
Primary................ $ 1.29 $ 1.55
Fully diluted.......... $ 1.20 $ 1.42
Shares used in per share
calculation
Primary................ 25,994 32,075(r) 58,069
Fully diluted.......... 30,417 40,063(r) 70,480
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
30
<PAGE> 45
VENCOR, INC. AND THE HILLHAVEN CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HILLHAVEN NATIONWIDE VENCOR
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, SEPTEMBER 30, PRO FORMA HILLHAVEN DECEMBER 31, PRO FORMA PRO FORMA
1993 1993 ADJUSTMENTS PRO FORMA 1993 ADJUSTMENTS COMBINED
---------- ------------- ----------- ---------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues
Patient revenues................ $1,127,809 $63,926 $ -- $1,191,735 $276,587 $ -- $1,468,322
Other revenues.................. 266,663 3,059 (34)(a)
(166)(b) 269,522 5,648 -- 275,170
---------- ------------- ----------- ---------- ------------ ----------- ----------
Net revenues.................. 1,394,472 66,985 (200) 1,461,257 282,235 -- 1,743,492
Expenses
Salaries, wages and benefits.... 820,823 31,848 -- 852,671 132,492 -- 985,163
Supplies........................ 88,637 4,816 -- 93,453 33,020 -- 126,473
Rent............................ 56,687 2,706 -- 59,393 14,930 -- 74,323
Other operating expenses........ 271,514 14,206 (34)(a) 285,686 44,328 -- 330,014
Depreciation and amortization... 53,651 2,770 -- 56,421 12,705 -- 69,126
Interest........................ 63,600 3,750 (166)(b) 67,184 6,375 -- 73,559
Restructuring................... 5,769 -- -- 5,769 -- -- 5,769
---------- ------------- ----------- ---------- ------------ ----------- ----------
Total expenses........... 1,360,681 60,096 (200) 1,420,577 243,850 -- 1,664,427
---------- ------------- ----------- ---------- ------------ ----------- ----------
Income before income taxes,
extraordinary charges and
cumulative effect of change in
accounting for income taxes..... 33,791 6,889 -- 40,680 38,385 -- 79,065
Income tax expense (benefit)...... (7,116) 1,744 -- (5,372) 15,461 -- 10,089
---------- ------------- ----------- ---------- ------------ ----------- ----------
Income before extraordinary
charges and cumulative effect of
change in accounting for income
taxes........................... $ 40,907 $ 5,145 $ -- $ 46,052 $ 22,924 $ -- $ 68,976
========== ============ =========== ========== ============ =========== ==========
Income before extraordinary
charges and cumulative effect
available to common
stockholders.................... $ 38,019 $ 5,145 $ -- $ 43,164 $ 22,924 $ -- $ 66,088
========== ============ =========== ========== ============ =========== ==========
Income before extraordinary
charges and cumulative effect
per share
Primary......................... $ 1.58 $ 1.49 $ 0.85 $ 1.20
Shares used in per share
calculation
Primary......................... 24,394 5,000(h) 29,394 27,072 28,718(r) 55,790
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
31
<PAGE> 46
VENCOR, INC. AND THE HILLHAVEN CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
HILLHAVEN NATIONWIDE VENCOR
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, SEPTEMBER 30, PRO FORMA HILLHAVEN DECEMBER 31, PRO FORMA PRO FORMA
1992 1992 ADJUSTMENTS PRO FORMA 1992 ADJUSTMENTS COMBINED
---------- ------------- ----------- ---------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues
Patient revenues............ $1,097,304 $39,588 $ -- $1,136,892 $210,721 $ -- $1,347,613
Other revenues.............. 232,703 3,939 (179)(a) 236,463 3,969 -- 240,432
---------- ------------- ----------- ---------- ------------ ----------- ----------
Net revenues......... 1,330,007 43,527 (179) 1,373,355 214,690 -- 1,588,045
Expenses
Salaries, wages and
benefits.................. 798,855 20,520 -- 819,375 102,133 -- 921,508
Supplies.................... 86,772 4,769 -- 91,541 26,399 -- 117,940
Rent........................ 71,665 1,379 -- 73,044 12,924 -- 85,968
Other operating expenses.... 258,763 5,907 -- 264,670 35,147 -- 299,817
Depreciation and
amortization.............. 46,698 2,308 -- 49,006 7,402 -- 56,408
Interest.................... 56,863 3,586 (179)(a) 60,270 2,129 -- 62,399
Restructuring............... 92,529 -- -- 92,529 -- -- 92,529
Adjustment to carrying value
of properties previously
reported as discontinued
operations................ 20,736 -- -- 20,736 -- -- 20,736
---------- ------------- ----------- ---------- ------------ ----------- ----------
Total expenses....... 1,432,881 38,469 (179) 1,471,171 186,134 -- 1,657,305
---------- ------------- ----------- ---------- ------------ ----------- ----------
Income (loss) before income
taxes and extraordinary
charges..................... (102,874) 5,058 -- (97,816) 28,556 -- (69,260)
Income tax expense............ 543 380 -- 923 11,128 -- 12,051
Reinstatement of discontinued
operations, net of tax...... 24,743 -- -- 24,743 -- -- 24,743
---------- ------------- ----------- ---------- ------------ ----------- ----------
Income (loss) before
extraordinary charges....... $ (78,674) $ 4,678 $ -- $ (73,996) $ 17,428 $ -- $ (56,568)
========== ============ =========== ========== ============ =========== ==========
Income (loss) before
extraordinary charges
available to common
stockholders................ $ (80,118) $ 4,678 $ -- $ (75,440) $ 17,428 $ -- $ (58,012)
========== ============ =========== ========== ============ =========== ==========
Income (loss) before
extraordinary charges per
share
Primary................... $ (3.63) $ (2.79) $ 0.63 $ (1.08)
Shares used in per share
calculation
Primary................... 22,073 5,000(h) 27,073 27,507 26,450(r) 53,957
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
32
<PAGE> 47
VENCOR, INC. AND THE HILLHAVEN CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
HILLHAVEN NATIONWIDE VENCOR ARLINGTON
FEBRUARY 28, DECEMBER 31, PRO FORMA HILLHAVEN MARCH 31, MARCH 31,
1995 1994 ADJUSTMENTS PRO FORMA 1995 1995
------------ ------------ ----------- ---------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............. $ 48,965 $ 4,893 $(3,000)(d) $ 46,358 $ 5,736 $ --
(4,500)(g)
Patient accounts receivable, net...... 164,713 10,636 (151)(b) 175,198 108,045 --
Inventories........................... 17,163 -- -- 17,163 5,249 --
Other current assets.................. 33,849 2,351 1,399(c) 37,599 21,212 --
------------ ------ ----------- ---------- --------- -----------
Total Current Assets............ 264,690 17,880 (6,252) 276,318 140,242
Long-term notes receivable, net........ 85,365 -- -- 85,365 -- --
Property and equipment, net............ 811,559 49,895 -- 861,454 262,625 25,571
Investments available for acquisitions
and general corporate purposes........ -- -- -- -- 25,906 --
Other assets........................... 71,968 10,957 (1,386)(b)
(463)(d) 81,076 26,831 --
------------ ------ ----------- ---------- --------- -----------
Total Assets.................... $1,233,582 $ 78,732 $(8,101) $1,304,213 $455,604 $25,571
=========== ============ =========== =========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable...................... $ 58,944 $ 2,885 $ -- $ 61,829 $ 18,870 --
Accrued expenses...................... 104,956 7,422 (276)(b) 112,102 22,340 --
Income taxes payable.................. 99 -- (1,498)(c)
1,399(c) -- 12,008 --
Current portion of long-term debt..... 38,765 3,973 (151)(b) 42,587 399 --
------------ ------ ----------- ---------- --------- -----------
Total Current Liabilities....... 202,764 14,280 (526) 216,518 53,617
Deferred credits and other
liabilities........................... 36,511 4,755 -- 41,266 16,994 --
Long-term debt......................... 589,619 43,470 (1,110)(b)
3,744(c)
(12,000)(d)
12,000(d) 635,723 123,889 --
Stock warrants......................... -- 5,918 7,380(e) -- --
(13,298)(f)
Redeemable preferred stock............. -- 1,305 1,695(c) -- -- --
(3,000)(d)
SHAREHOLDERS' EQUITY:
Preferred stock....................... 15 -- -- 15 -- --
Common stock.......................... 24,618 4,814 13,298(f) 28,368 7,501 --
(14,362)(h)
Additional paid-in capital............ 421,772 -- 14,362(h) 436,134 184,012 --
Retained earnings..................... 49,718 4,190 (1,695)(c)
(3,744)(c)
1,498(c)
(463)(d)
(7,380)(e)
(4,500)(g) 37,624 96,764 25,571
Other shareholders' equity............ (91,435) -- -- (91,435) (27,173 ) --
------------ ------ ----------- ---------- --------- -----------
Net shareholders'
equity......................... 404,688 9,004 (2,986) 410,706 261,104 25,571
------------ ------ ----------- ---------- --------- -----------
Total liabilities and equity.... $1,233,582 $ 78,732 $(8,101) $1,304,213 $455,604 $25,571
=========== ============ =========== =========== ========= ==========
Book value per common share............ $ 14.13 $ 12.21 $ 9.37
Common shares outstanding, excluding
shares held in trust or treasury...... 28,645 5,000(h) 33,645 27,870
<CAPTION>
PRO FORMA VENCOR PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
<S> <<C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............. $ -- $ 5,736 $ -- $ 52,094
Patient accounts receivable, net...... -- 108,045 -- 283,243
Inventories........................... -- 5,249 -- 22,412
Other current assets.................. -- 21,212 15,998(o) 74,809
----------- ----------- ----------- ----------
Total Current Assets............ 140,242 15,998 432,558
Long-term notes receivable, net........ -- -- -- 85,365
Property and equipment, net............ (17,571)(s) 270,625 -- 1,132,079
Investments available for acquisitions
and general corporate purposes........ -- 25,906 (21,600)(j) 4,306
Other assets........................... --
-- 26,831 107,907
----------- ----------- ----------- ----------
Total Assets.................... $ (17,571) $ 463,604 $ (5,602) $1,762,215
=========== ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable...................... -- 18,870 $ -- $ 80,699
Accrued expenses...................... -- 22,340 -- 134,442
Income taxes payable.................. (28,006)(o)
-- 12,008 15,998(o) --
Current portion of long-term debt..... -- 399 -- 42,986
----------- ----------- ----------- ----------
Total Current Liabilities....... 53,617 (12,008) 258,127
Deferred credits and other
liabilities........................... -- 16,994 -- 58,260
Long-term debt.........................
(2,895)(m)
8,000(s) 131,889 89,474(n) 854,191
Stock warrants.........................
Redeemable preferred stock............. -- -- -- --
SHAREHOLDERS' EQUITY:
Preferred stock....................... -- -- (15)(n) --
Common stock.......................... -- 7,501 68(k) 15,870
196(l)
422(m)
(20,685)(q)
Additional paid-in capital............ -- 184,012 (68)(k) 593,497
24,617(l)
2,473(m)
(99,401)(n)
25,045(o)
20,685(q)
Retained earnings.....................
(21,600)(j)
(3,587)(k)
(24,813)(l)
9,942(n)
(25,571)(s) 96,764 2,961(o) 97,291
Other shareholders' equity............ -- (27,173) 3,587(k) (115,021)
----------- ----------- ----------- ----------
Net shareholders'
equity......................... (25,571) 261,104 (80,173) 591,637
----------- ----------- ----------- ----------
Total liabilities and equity.... $ (17,571) $ 463,604 $ (5,602) $1,762,215
=========== ============ =========== ===========
Book value per common share............ $ 9.37 $ 9.32
Common shares outstanding, excluding
shares held in trust or treasury...... 27,870 1,966(p) 63,481
</TABLE>
See notes to unaudited pro forma condensed combined financial information
33
<PAGE> 48
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- BASIS OF PRESENTATION
For accounting purposes, the Merger will be treated as a pooling of
interests. Accordingly, the accompanying unaudited pro forma condensed combined
financial statements give retroactive effect to the Merger and include the
combined operations of Vencor and Hillhaven for all periods presented. Hillhaven
net revenues of $734,034 and net income of $33,355 for the period June 1, 1993
to November 30, 1993 have been excluded from the pro forma financial statements.
Hillhaven net revenues and net income for the period from June 1, 1994 to
November 30, 1994 amounted to $781,473 and $27,412, respectively.
Vencor's annual financial reporting period ending on December 31 will be
adopted by the combined entity upon consummation of the Merger.
On October 31, 1994, Hillhaven acquired CPS and AIS in a business
combination accounted for as a pooling of interests and, accordingly,
Hillhaven's results of operations have been restated to include the operations
of CPS and AIS for all periods presented. Hillhaven acquired CPS and AIS through
the exchange of 1,262 shares of Hillhaven Common Stock valued at approximately
$29,000.
Shares of Hillhaven Common Stock held in the Grantor Trust are excluded in
the calculation of net income per share and book value per share. Upon
consummation of the Merger, the Grantor Trust will be terminated and the shares
used to satisfy Hillhaven's obligations under the Stock Incentive Plan,
Performance Investment Plan and certain other employee benefit plans. Shares
held in the Grantor Trust totalled 4,180 at February 28, 1995.
NOTE 2 -- PRO FORMA ADJUSTMENTS
The adjustments to the pro forma financial statements are discussed below:
The Nationwide Transaction
(a) To eliminate management fees between the Nationwide entities.
(b) To eliminate capital lease transactions between the Nationwide
entities.
(c) To (i) adjust the redeemable preferred stock in the amount of $1,695 to
its $3,000 par value, (ii) write off the unamortized discount on the Nationwide
Senior Subordinated Notes in the amount of $3,744 (tax benefit of $1,498) and
(iii) reclassify $1,399 from income taxes payable to income tax refunds
receivable (other current assets).
(d) To record (i) the redemption of the redeemable preferred stock for
$3,000 in cash and (ii) the redemption of the Nationwide Senior Subordinated
Notes in the amount of $12,000, financed by borrowings, and (iii) the write-off
of deferred financing charges amounting to $463.
(e) To record the $7,380 adjustment to fair market value of the stock
warrants, which is a direct adjustment to equity, as a result of the Merger. The
detachable stock warrants include put and call options, the exercise prices of
which are based upon the value of the warrants as determined by defined
formulas.
(f) To record the exercise of the stock warrants (valued at $13,298) prior
to consummation of the Nationwide Transaction.
(g) To record transaction costs in the amount of $4,500 in connection with
the Nationwide Transaction which were paid in cash and are nondeductible for tax
purposes. Aggregate transaction costs totalling $8,707 also include the
write-off of the unamortized discount on the Nationwide Senior Subordinated
Notes in the amount of $3,744 and the write-off of deferred financing charges
amounting to $463 included in adjustments (c) and (d) above, respectively.
34
<PAGE> 49
(h) To record the business combination under pooling of interests
accounting (based on 33,645 Hillhaven pro forma shares outstanding with a par
value of $0.75 per share) and issuance of 5,000 shares of Hillhaven Common Stock
in connection with the Nationwide Transaction. Nationwide and affiliated
stockholders received 4,443 shares and the holders of stock warrants received
557 shares of Hillhaven Common Stock. The conversion ratio of Nationwide shares
to Hillhaven shares was 0.5882.
The Merger
(i) To eliminate service fees between Vencor and Hillhaven.
(j) To record transaction costs in the amount of $21,600 in connection with
the Merger which are not deductible for income tax purposes. The remaining
$28,402 of transaction costs are included in adjustments (k) and (l) below, with
the tax effects included in adjustment (o).
(k) To record approximately 271 shares of Vencor Common Stock issued in
consideration of the required cancellation of options granted under the
Hillhaven Option Plans based on a Conversion Number of 0.977 and a Transaction
Value of $31.00. See "The Merger -- Employee Benefits." The adjustment includes
the write-off of unearned compensation amounting to $3,587. The adjustment to
common stock and additional paid-in capital is calculated as follows:
<TABLE>
<S> <C>
Transaction Value......................................................... $ 31.00
Less average exercise price of options.................................... (12.79)
-------
Difference................................................................ 18.21
Divide by Transaction Value............................................... / 31.00
-------
Ratio..................................................................... .587
Conversion Number......................................................... X 0.977
-------
0.574
Stock options outstanding................................................. X 472
-------
Equivalent Vencor shares.................................................. 271
Par value of Vencor Stock................................................. X 0.25
-------
Reclassification from additional paid-in capital to common stock.......... $ 68
========
</TABLE>
(l) To record approximately 782 shares of Vencor Common Stock issued in
consideration of the satisfaction of performance shares granted under the
Hillhaven Option Plans based on a Conversion Number of 0.977 and a Transaction
Value of $31.00. See "The Merger -- Employee Benefits." The adjustment to common
stock and additional paid-in capital are calculated as follows:
<TABLE>
<S> <C>
Conversion Number......................................................... 0.977
Merger Agreement percentage............................................... X 75%
--------
Product................................................................... 0.733
Performance Shares........................................................ X 1,067
--------
Equivalent Vencor shares.................................................. 782
Vencor Average Price...................................................... X $31.73
--------
Compensation expense...................................................... $ 24,813
========
Equivalent Vencor shares.................................................. 782
Par value of Vencor Stock................................................. X $0.25
--------
Adjustment to common stock................................................ 196
Adjustment to additional paid-in capital.................................. 24,617
--------
Total........................................................... $ 24,813
========
</TABLE>
35
<PAGE> 50
(m) To record approximately 1,687 shares of Vencor Common Stock issued in
consideration of the required cancellation of the PIP Options based on a
Conversion Number of 0.977 and a Transaction Value of $31.00. See "The
Merger -- Employee Benefits."
The adjustments to common stock and additional paid-in capital are
calculated as follows:
<TABLE>
<S> <C>
Transaction Value........................................................ $ 31.00
Exercise price........................................................... (15.71)
--------
Difference............................................................... 15.29
Transaction Value........................................................ / 31.00
--------
Ratio.................................................................... 0.493
Conversion Number........................................................ X 0.977
--------
0.482
PIP Options.............................................................. X 3,501
--------
Equivalent Vencor shares................................................. 1,687
Par value of Vencor stock................................................ X 0.25
--------
Adjustment to common stock............................................... 422
Original participants' capital contributions included in long-term
debt................................................................... (2,895)
--------
Adjustment to additional paid-in capital................................. $ 2,473
=========
</TABLE>
(n) To record the cash-out of Hillhaven Preferred Stock for $89,474, which
represents a 10% discount from the aggregate liquidation value of $99,416. The
payment to Tenet will be financed with external borrowings. Estimated interest
expense at 6.5% amounted to $5,816 for the year ended December 31, 1994 with a
tax benefit of $2,324. For the three months ended March 31, 1995, estimated
interest expense at 7.1% amounted to $1,566 with a tax benefit of $626. The
interest rate is based on Hillhaven's average interest rate for the period on
its term loan facility.
(o) To record (i) the decrease in income taxes payable and increase in
additional paid-in capital in the amount of $25,045 representing the tax benefit
arising from conversion of PIP Options and stock options under the Hillhaven
Option Plans, (ii) the decrease in income taxes payable and increase in retained
earnings in the amount of $2,961 which represents the tax effect of compensation
expense related to the conversion of performance shares and (iii) a
reclassification of $15,998 from income taxes payable to income tax refunds
receivable (other current assets).
(p) To adjust common shares outstanding as follows:
<TABLE>
<S> <C>
Hillhaven equivalent shares outstanding, based on a Conversion
Number of 0.977................................................... 32,871
Hillhaven pro forma common shares................................... 33,645
-------
Adjustment.......................................................... (774)
Vencor common shares issued in connection with Hillhaven Option
Plans............................................................. 2,740
-------
Net increase in pro forma combined common shares outstanding........ 1,966
======
</TABLE>
(q) To record the Merger under pooling of interests accounting based on
63,481 pro forma combined common shares outstanding with a par value of $0.25
per share.
(r) To reflect the Vencor shares issued in the Merger in the number of
shares used in earnings per share calculations. See Note 4.
36
<PAGE> 51
Arlington Aquisition
(s) To record (i) the decrease in pro forma depreciation expense resulting
from the $17,571 write down in basis of assets purchased in the Arlington
Acquisition, (ii) the pro forma interest expense on the $8,000 borrowings
incurred to finance the Arlington Acquisition based on an interest rate of 7%
which represents the average rate on Vencor's credit facility for the respective
periods and (iii) the tax effect with respect to the depreciation and interest
adjustments in (i) and (ii) above.
NOTE 3 -- INCOME TAXES
Estimated provisions for income taxes related to pro forma adjustments are
based on an assumed combined federal and state income tax rate of 40%, adjusted
for certain nondeductible items.
NOTE 4 -- EARNINGS PER COMMON SHARE
Shares used in pro forma earnings per common and common equivalent share
are computed as follows based on a Conversion Number of 0.977 and a Transaction
Value of $31.00:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
----------------- ------------------------
1995 1994 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Vencor:
Weighted average common and common
equivalent shares, fully diluted..... 31,711 25,470 30,417 27,072 27,507
====== ====== ====== ====== ======
Hillhaven:
Weighted average common and common
equivalent shares, fully diluted..... 36,836 33,754 36,006 24,394 22,073
Common Stock to be issued in connection
with the Nationwide Transaction...... 5,000 5,000 5,000 5,000 5,000
------ ------ ------ ------ ------
Pro forma Hillhaven..................... 41,836 38,754 41,006 29,394 27,073
Conversion Number....................... 0.977 0.977 0.977 0.977 0.977
------ ------ ------ ------ ------
40,874 37,863 40,063 28,718 26,450
====== ====== ====== ====== ======
Shares used in earnings per common and
common share equivalent
computations......................... 72,585 63,333 70,480 55,790 53,957
====== ====== ====== ====== ======
</TABLE>
The calculation of pro forma earnings per common and common equivalent
share reflects the maximum number of shares of Vencor Common Stock issuable in
connection with the Merger. The following pro forma share and per share data
reflect the minimum number of shares of Vencor Common Stock issuable in
connection with the Merger (based on a Conversion Number of 0.768 and a
Transaction Value of $32.25) and are presented below for informational purposes
only.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
----------------- ------------------------
1995 1994 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Shares used in earnings per common and
common share equivalent computations.... 63,841 55,233 61,910 49,647 48,299
Pro forma earnings per share,fully
diluted................................. $ 0.37 $ 0.35 $ 1.62 $ 1.34 $(1.20)
</TABLE>
Vencor reported only primary income per share in the three months ended
March 31, 1994 and the years ended December 31, 1993 and 1992. Hillhaven
reported only primary income (loss) per share in 1993 and 1992.
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<PAGE> 52
NOTE 5 -- TRANSACTION COSTS AND EXPENSES
No provision has been reflected in the unaudited pro forma condensed
combined income statements for expenses expected to be incurred in connection
with both the Nationwide Transaction and the Merger. Estimated costs for each
transaction are $8,707 and $50,002, respectively, including financial advisory,
legal and accounting fees and expenses, printing and mailing costs, and
compensation expense incurred as a result of the acceleration of vesting of
certain employee benefits. The unaudited pro forma condensed combined income
statements do not give effect to any revenue enhancements and cost savings which
may be realized following the Merger. Vencor and Hillhaven have not yet
completed their plans for combining the companies and therefore have not
determined the restructuring charges to be incurred in connection with the
Merger.
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<PAGE> 53
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Vencor Common Stock in connection with the solicitation of proxies by the Vencor
Board for use at the Vencor Meeting, to be held on September , 1995, and any
adjournments or postponements thereof, (a) to consider and vote upon the
approval and adoption of the Merger Agreement and to approve the transactions
contemplated by the Merger Agreement, including, among other things, the
issuance of Vencor Common Stock pursuant to the Merger Agreement, (b) to
consider and vote on the Charter Amendment, as set forth in Appendix D to this
Joint Proxy Statement/Prospectus, (c) to consider and vote on the Compensation
Program Amendment and (d) to transact such other business as may properly come
before the Vencor Meeting or any adjournments or postponements thereof. The
Merger Agreement, the Charter Amendment and the Compensation Program Amendment
will each be voted upon separately.
THE VENCOR BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE VENCOR STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT (WHICH APPROVAL AND ADOPTION SHALL CONSTITUTE APPROVAL OF
THE ISSUANCE OF SHARES OF VENCOR COMMON STOCK IN CONNECTION WITH THE MERGER).
THE VENCOR BOARD HAS ALSO APPROVED THE CHARTER AMENDMENT AND THE COMPENSATION
PROGRAM AMENDMENT AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE CHARTER
AMENDMENT AND A VOTE FOR THE APPROVAL OF THE COMPENSATION PROGRAM AMENDMENT.
This Joint Proxy Statement/Prospectus is being furnished to holders of
Hillhaven Stock in connection with the solicitation of proxies by the Hillhaven
Board for use at the Hillhaven Meeting, to be held on September , 1995 and any
adjournments or postponements thereof, to consider and vote upon the approval
and adoption of the Merger Agreement and the transactions contemplated thereby
and to transact such other business as may properly come before the Hillhaven
Meeting or any adjournments or postponements thereof.
THE HILLHAVEN BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE HILLHAVEN STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Hillhaven Stock is accompanied by a form of proxy for use at the Hillhaven
Meeting, and each copy of this Joint Proxy Statement/ Prospectus mailed to
holders of Vencor Common Stock is accompanied by a form of proxy for use at the
Vencor Meeting.
This Joint Proxy Statement/Prospectus is also furnished to Hillhaven
stockholders as a prospectus in connection with the issuance by Vencor of shares
of Vencor Common Stock in connection with the Merger.
DATE, PLACE AND TIME
The Vencor Meeting will be held at the [Hyatt Regency, 320 West Jefferson
Street, Louisville, Kentucky] on September , 1995, at 1:00 p.m., local time.
The Hillhaven Meeting will be held at the corporate headquarters of
Hillhaven, 1148 Broadway Plaza, First Floor, Tacoma, Washington on September ,
1995 at 10:00 a.m., local time.
RECORD DATES
Vencor
The Vencor Board has fixed the close of business on August , 1995 as the
record date (the "Vencor Record Date") for the determination of the holders of
Vencor Common Stock entitled to receive notice of and to vote at the Vencor
Meeting and at any adjournments or postponements thereof.
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<PAGE> 54
Hillhaven
The Hillhaven Board has fixed the close of business on August , 1995 as
the record date (the "Hillhaven Record Date") for the determination of the
holders of Hillhaven Stock entitled to receive notice of and to vote at the
Hillhaven meeting and at any adjournments or postponements thereof.
VOTES REQUIRED
Vencor
As of August , 1995, there were shares of Vencor Common Stock
outstanding. Each share of Vencor Common Stock outstanding on the Vencor Record
Date is entitled to one vote upon each matter properly submitted at the Vencor
Meeting. The affirmative vote of a majority of the outstanding shares of Vencor
Common Stock voted at the Vencor Meeting is necessary for the approval and
adoption of the Merger Agreement and the transactions contemplated thereby and
for the approval of the Charter Amendment. The affirmative vote of a majority of
the shares of Vencor Common Stock present, in person or by proxy, at the Special
Meeting is required to approve the Compensation Program Amendment. The terms of
the Merger Agreement do not require the affirmative vote of a majority of the
unaffiliated stockholders of Vencor for the approval and adoption of the Merger
Agreement and the transactions contemplated thereby or the Charter Amendment.
The presence in person or by proxy at the Vencor Meeting of a majority of
the outstanding shares of Vencor Common Stock entitled to vote is necessary to
constitute a quorum for the transaction of business. Abstentions will be counted
as present for purposes of determining whether a quorum is present. Any
abstention or broker non-vote with respect to the approval of the Merger
Agreement or Charter Amendment or any abstention with respect to the
Compensation Program Amendment will have the effect of a negative vote for such
proposals. Under the rules of the NYSE, brokers who hold shares in street name
for customers will not have authority to vote on the Merger unless they receive
specific instructions from beneficial owners but are allowed to vote on the
Charter Amendment and the Compensation Program Amendment without such
instructions.
As of June 30, 1995, directors and executive officers of Vencor and their
affiliates beneficially owned an aggregate of 5,041,932 shares of Vencor Common
Stock (including shares which may be acquired within 60 days upon exercise of
employee stock options or conversion of notes) or approximately 17.4% of the
shares of Vencor Common Stock outstanding on such date. The directors and
executive officers of Vencor have indicated their intention to vote their shares
of Vencor Common Stock in favor of approval and adoption of the Merger Agreement
and the transactions contemplated thereby, in favor of approval of the Charter
Amendment and in favor of approval of the Compensation Program Amendment.
As of August , 1995, the directors and executive officers of Hillhaven
owned no shares of Vencor Common Stock.
See "The Merger -- Interests of Certain Persons in the Transactions."
Hillhaven
As of August , 1995, there were shares of Hillhaven Common Stock,
shares of Hillhaven Series C Preferred Stock and shares of
Hillhaven Series D Preferred Stock outstanding. Each share of Hillhaven Stock
outstanding on the Hillhaven Record Date is entitled to one vote upon each
matter properly submitted at the Hillhaven Meeting. The affirmative vote of a
majority of the outstanding shares of Hillhaven Common Stock, voting as a class,
and the affirmative vote of two-thirds of the outstanding shares of Hillhaven
Series C Preferred Stock and Hillhaven Series D Preferred Stock, each voting
separately as a class, and the affirmative vote of a majority of all votes
entitled to be voted of Hillhaven Stock is required to approve the matters to be
considered and voted on at the Hillhaven Meeting in connection with the Merger
Agreement. The terms of the Merger Agreement do not require the affirmative vote
of a majority of the unaffiliated stockholders of Hillhaven for the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
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<PAGE> 55
The presence in person or by proxy at the Hillhaven Meeting of the holders
entitled to vote a majority of the voting stock is necessary to constitute a
quorum for the transaction of business. Abstentions will be counted as present
for the purposes of determining whether a quorum is present. Any abstention with
respect to the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby will have the same effect as a negative vote.
Under the rules of the NYSE, brokers who hold shares in street name for
customers will not have the authority to vote on the Merger unless they receive
specific instructions from beneficial owners.
As of August , 1995, directors and executive officers of Hillhaven and
their affiliates owned beneficially an aggregate of shares of Hillhaven
Common Stock (including shares which may be acquired upon exercise of employee
stock options), or approximately percent of the shares of Hillhaven Common
Stock outstanding on such date. Of such amount, shares or percent of
the shares of Hillhaven Common Stock is beneficially owned by Tenet. All of the
outstanding shares of Hillhaven Preferred Stock are beneficially owned by Tenet.
The directors and executive officers of Hillhaven have indicated their intention
to vote their shares of Hillhaven Common Stock in favor of the proposal to
approve the Merger Agreement.
As of August , 1995, directors and executive officers of Vencor owned no
shares of Hillhaven Stock.
See "The Merger -- Interests of Certain Persons in the Transactions."
VOTING AND REVOCATION OF PROXIES
Shares of Vencor Common Stock and Hillhaven Stock represented by a proxy
properly signed and received at or prior to the appropriate Special Meeting,
unless subsequently revoked, will be voted in accordance with the instructions
thereon. IF A PROXY IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS, SHARES OF VENCOR COMMON STOCK REPRESENTED BY THE PROXY WILL BE
VOTED FOR THE PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND FOR THE PROPOSAL TO APPROVE THE CHARTER
AMENDMENT, AND SHARES OF HILLHAVEN STOCK REPRESENTED BY THE PROXY WILL BE VOTED
FOR THE PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT. Any proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before the proxy is voted by filing a duly executed revocation or of a duly
executed proxy bearing a later date with the Secretary of Vencor, for Vencor
stockholders, or with the Secretary of Hillhaven, for Hillhaven stockholders,
prior to or at the appropriate Special Meeting, or by voting in person at the
appropriate Special Meeting. All written notices of revocation and other
communications with respect to revocation of Vencor proxies should be addressed
as follows: Vencor, Inc., 3300 Providian Center, 400 West Market Street,
Louisville, Kentucky 40202, Attention: Secretary. All written notices of
revocation and other communications with respect to revocation of Hillhaven
proxies should be addressed to: The Hillhaven Corporation, 1148 Broadway Plaza,
Tacoma, Washington 98402, Attention: Secretary. Attendance at a Special Meeting
will not in and of itself constitute revocation of a proxy.
The Vencor and Hillhaven Boards are not currently aware of any business to
be acted upon at the Special Meeting, of their respective stockholders, other
than as described herein. If, however, other matters are properly brought before
either Special Meeting, or any adjournments or postponements thereof, the
persons appointed as proxies will have discretion to vote or act thereon
according to their best judgment.
Stockholders of Vencor and Hillhaven will not be entitled to present any
matter for consideration at either Special Meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Vencor and Hillhaven, who will not be specifically compensated for such
services, may solicit proxies from the stockholders of Vencor and Hillhaven,
respectively, personally or by telephone, telecopy or telegram or other forms of
communication. Brokerage houses, nominees, fiduciaries and other custodians will
be requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy materials to
beneficial owners.
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<PAGE> 56
In addition, Vencor and Hillhaven have retained Georgeson & Company, Inc.
("Georgeson") and D.F. King & Co., Inc. ("D.F. King"), respectively, to assist
in the solicitation of proxies from their respective stockholders. The fees to
be paid to such firms for such services by each of Vencor and Hillhaven are not
expected to exceed $7,500 and , respectively, plus in each case
reasonable out-of-pocket costs and expenses. Vencor and Hillhaven each will bear
its own expenses in connection with the solicitation of proxies for its Special
Meeting, except that each will pay one-half of all printing, filing and mailing
costs for this Joint Proxy Statement/Prospectus (and the related Vencor S-4
Registration Statement) and all Commission and other regulatory filing fees.
DISSENTERS' RIGHTS
Holders of Vencor Common Stock will not be entitled to any dissenters' or
appraisal rights under Delaware Law as a result of the matters to be voted upon
at the Vencor Meeting. Under Delaware Law, a stockholder of a constituent
corporation in a merger is not entitled to appraisal rights if the stock of such
corporation is listed on a national securities exchange and such stockholder is
not required to exchange its shares of such corporation pursuant to the merger.
Holders of Hillhaven Common Stock will not be entitled to any dissenters' or
appraisal rights as a result of the matters to be voted upon at the Hillhaven
Meeting.
A holder of Hillhaven Preferred Stock would have certain dissenters' rights
as a result of the Merger pursuant to which it may demand payment of the "fair
value" of shares of Hillhaven Preferred Stock so long as it timely objects to
the Merger, does not vote for the approval and adoption of the Merger Agreement
and strictly complies with certain other requirements. Failure to take any of
the steps required on a timely basis may result in the loss of dissenters'
rights. A holder of Hillhaven Preferred Stock electing to exercise dissenters'
rights must deliver to Hillhaven, before the vote on the Merger Agreement at the
Hillhaven Meeting takes place, a written notice of intent to demand payment if
the Merger is effectuated. If the Merger is approved, Hillhaven will then mail a
dissenters' notice to each holder of Hillhaven Preferred Stock who has satisfied
the notice requirement to assert dissenters' rights. Each holder of Hillhaven
Preferred Stock, to whom a dissenters' notice is sent, must, among other things,
demand payment and deposit its stock certificates in accordance with the terms
of the dissenters' notice or such holder will not be entitled to payment for its
shares under the dissenters' rights provisions of the Nevada Law. The "fair
value" obtainable upon the valid exercise of dissenters' rights would be
determined initially by what Hillhaven estimates to be the "fair value" of the
shares, plus accrued interest, although the holder of Hillhaven Preferred Stock
may notify Hillhaven of its own estimate of the "fair value" of the shares and
the amount of interest due. If Hillhaven does not agree with such holder's
estimate, the "fair value" of the shares will be determined by judicial
proceedings, the result of which cannot be predicted. See "The
Merger -- Dissenters' Rights."
OPERATIONS AND MANAGEMENT AFTER THE MERGER
POST-MERGER OPERATIONS
Vencor and Hillhaven believe that the Merger presents a unique strategic
opportunity to form one of the nation's largest providers of healthcare services
primarily focusing on the needs of the elderly. After the Merger, Vencor will
have pro forma 1994 revenues of approximately $2.09 billion and pro forma 1994
net income before extraordinary charges of approximately $89 million. Because of
the resulting increase in size and range of services which Vencor and Hillhaven
will be able to provide, Vencor and Hillhaven managements believe the combined
company will be able to recognize both revenue and cost-saving synergies that
will position it for a leadership role in the rapidly changing U.S. healthcare
industry.
After the Merger, Vencor will have operations in 38 states, which contain
approximately 80% of the nation's population. Vencor's post-Merger operations
will include 36 long-term intensive care hospitals and 311 nursing centers with
more than 42,000 beds, 56 retail and institutional pharmacy outlets and 23
retirement housing communities with approximately 3,000 apartments. The
healthcare services which will be provided through this network of facilities
will include long-term intensive hospital care, long-term nursing care, contract
respiratory therapy services, acute cardiopulmonary care, subacute and
post-operative care, inpatient
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<PAGE> 57
and outpatient rehabilitation therapy, specialized care for Alzheimer's disease,
hospice care, pharmacy services and retirement and assisted living. In addition,
through contracts with approximately 1,700 non-affiliated nursing and subacute
centers, the combined companies will provide a broad array of respiratory,
physical, occupational and speech therapy and subacute services.
Projected Increased Revenues; Synergies
Vencor management believes that, as a result of the Merger, Vencor's
revenues will be increased by approximately $100 million annually by 1997. These
increased revenues are expected to be achieved through the cross-marketing of a
broad array of contract services to non-affiliated nursing and subacute care
centers, as more fully described below, as well as cross-referrals of long-term
patients.
Of Hillhaven's 311 nursing centers, approximately 65% of such nursing
centers are in states where Vencor operates hospitals and approximately 25% of
such nursing centers are within 50 miles of a Vencor hospital. Having both
long-term care hospitals and nursing centers within such close proximity will
facilitate the referral of patients within the combined Vencor-Hillhaven
network. Many of Vencor's patients are discharged into nursing centers when
their condition has improved sufficiently to require a continuous, but less
acute, level of care. Conversely, patients in nursing centers may be admitted to
long-term care hospitals when their condition requires a more acute level of
care.
On June 30, 1995, Vencor's Vencare division had contracts to provide
respiratory care services and supplies to approximately 1,100 nursing centers
and subacute care services to approximately 33 nursing centers and hospitals.
The Merger will enable Vencare to provide physical, occupational and speech
therapy services to such nursing centers in addition to respiratory therapy
services. Hillhaven operates 311 nursing centers and has contracts to provide
rehabilitation therapy management services to an additional 550 nursing centers.
The Merger will enable Vencor to provide respiratory care services and supplies
to these 861 nursing centers in addition to the services already provided by
Hillhaven. This benefit may be offset to some extent by concerns by
non-Hillhaven nursing centers about procuring services from Vencor after the
Merger. Certain nursing centers which currently obtain services from Vencor may
choose not to obtain services from a company which owns competing nursing
centers.
Management of Vencor believes that Vencor will be able to achieve revenue
growth of 20% per year and net income growth of 25% per year for the two years
following the Merger (not including transaction costs and restructuring charges)
assuming the continued growth of each company's current operations, the further
implementation of Vencor's strategy to develop long-term care networks through
expansion of products and services, the realization of projected revenue and
cost synergies resulting from the Merger and greater operational efficiencies
resulting from implementation of the Ventech ProTouch(TM) clinical information
system in Vencor and Hillhaven facilities. Many factors outside Vencor's
control, including competitive factors and changes in government regulation or
reimbursement policies, could cause these expectations to be materially
inaccurate and there can be no assurance as to any future financial results. In
addition, although the foregoing forecasts represent management's good faith
assessment of Vencor's future performance, they were not prepared with a view
toward compliance with the Commission's policy on projections. Vencor does not
presently intend to update publicly the foregoing forecasts or provide similar
forecasts in the future.
Projected Cost Savings
After the Merger, Vencor expects to realize annual cost savings of
approximately $15 million (before taxes) by 1997. These cost savings would be
achieved through elimination of duplicate corporate services and functions,
improved purchasing and reduced financing costs. The managements of Vencor and
Hillhaven also expect to realize additional cost savings through implementation
of Vencor's Ventech clinical information system in the Hillhaven nursing
centers. This ProTouch(TM) system, which is now operating in a majority of the
Vencor hospitals, has resulted in increased productivity and decreased labor
costs. It is expected that similar results can be realized when the system is
installed in the Hillhaven nursing centers. These additional savings related to
the implementation of the Ventech system are expected to reach approximately $15
million (before taxes) annually by 1998.
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<PAGE> 58
It is expected that transaction costs of approximately $50 million will be
incurred in connection with the Merger. Such transaction costs are expected to
exceed the first year's cost savings. See Note 5 to the "Unaudited Pro Forma
Condensed Combined Financial Information." Vencor and Hillhaven have not yet
completed their plans for combining the companies and therefore have not
determined the restructuring charges to be incurred in connection with the
Merger.
Because the markets in which Vencor and Hillhaven operate are highly
competitive and because of the inherent uncertainties associated with merging
two large companies, there can be no assurance that the combined entity will be
able to realize fully the revenue synergies and cost savings which Vencor and
Hillhaven currently expect to realize as a result of the Merger or that such
revenue synergies and cost savings will be realized at the times currently
anticipated. Further, there can be no assurance that cost savings which are
realized will not be offset by losses in revenues or other charges to earnings.
POST-MERGER CAPITALIZATION
Debt Tender and Consent Solicitation
In connection with the Merger, Vencor and Hillhaven expect to make a joint
tender offer (the "Debt Tender") to purchase for cash, subject to certain terms
and conditions, any and all of the 10 1/8% Senior Subordinated Notes due 2001 of
Hillhaven (the "Notes"). The Notes have an aggregate outstanding principal
amount of approximately $175 million. The principal purposes of the Debt Tender
are to reduce Vencor's aggregate interest expense by replacing the higher
interest costs associated with the Notes with lower interest costs associated
with the Credit Facility (as defined herein) and to eliminate or modify certain
restrictive covenants (the "Proposed Amendments") in the Indenture relating to
the Notes (the "Indenture"). The Debt Tender would be conditioned upon the
occurrence of the Merger, although the consummation of the Debt Tender is not a
condition to the Merger. Any Notes which are not tendered pursuant to the Debt
Tender would remain outstanding and become obligations of Vencor. In connection
with the Debt Tender, Vencor and Hillhaven would also solicit consents from the
holders of the Notes (the "Consent Solicitation") to, among other things, effect
the Proposed Amendments. The Indenture requires, and consummation of the Debt
Tender is conditioned upon the receipt of, the affirmative consent of the
holders of at least a majority of the aggregate principal amount of the Notes
outstanding in order to effect the Proposed Amendments. The principal purpose of
the Consent Solicitation is to provide Vencor with additional operating
flexibility following the Merger.
Redemption of Convertible Securities
Vencor's 6.0% Convertible Subordinated Notes (the "6.0% Notes") become
redeemable on October 15, 1995 and Vencor presently expects to provide notices
of redemption on such date. Hillhaven's 7.75% Convertible Debentures (the "7.75%
Debentures") become redeemable on November 1, 1995 and, assuming consummation of
the Merger, Vencor expects to provide notices of redemption on such date. As of
June 30, 1995, there were approximately $115 million principal amount of 6%
Notes outstanding and as of June 30, 1995, there were approximately $75 million
principal amount of 7.75% Debentures outstanding. Because these securities are
convertible into common stock having a market price in excess of their
respective redemption prices, Vencor expects that substantially all of these
securities will be converted into common stock.
Credit Facility
Concurrently with the consummation of the Merger, Vencor expects to enter
into a senior credit facility (the "Credit Facility"), which will have a
maturity of five and one-half years. Although the terms of the Credit Facility
have not yet been finalized, it is presently expected to consist of a $400
million amortizing term loan facility and a $600 million revolving credit
facility, including a letter of credit option not to exceed $150 million. It is
anticipated that loans under the Credit Facility will bear interest, at Vencor's
option, at either (i) a base rate based on NationsBank's prime rate or the daily
federal funds rate, (ii) a LIBOR rate or (iii) a CD rate. It is expected that
Vencor's obligations under the Credit Facility will be secured by a first
priority lien on the capital stock of Vencor's present and future principal
subsidiaries and all intercompany
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<PAGE> 59
indebtedness owed to Vencor by its subsidiaries (collectively, the "Collateral")
and that the Collateral will automatically be released upon Vencor achieving
investment grade ratings from both Standard & Poors and Moody's. It is also
contemplated that the Credit Facility will contain various affirmative, negative
and financial covenants. The Credit Facility will be conditioned upon, among
other things, consummation of the Merger.
Vencor expects to use the Credit Facility to, among other things, (i)
refinance the existing credit facilities of Vencor and Hillhaven, (ii) finance
the Debt Tender and the Consent Solicitation, (iii) satisfy the obligation to
pay the merger consideration in respect of the Hillhaven Preferred Stock
pursuant to the Merger and (iv) additionally repay approximately $63 million in
principal amount of Hillhaven's total outstanding indebtedness of approximately
$660 million. At July 1, 1995, the principal balance outstanding under each of
the existing Vencor credit facility and the Hillhaven credit facility was
approximately $28.5 million and $166 million, respectively (excluding
outstanding letters of credit in the approximate aggregate amount of $500,000
and $116 million, respectively).
Although the amount of the after-tax loss that would be incurred by Vencor
in connection with the Debt Tender and the replacement of the existing Vencor
and Hillhaven credit facilities and any annual interest savings related thereto
is contingent upon various market conditions at the time of the transactions,
Vencor anticipates that such after-tax loss may approximate $ million and
annual interest savings (before income taxes) related thereto may approximate
$ million.
DIRECTORS AFTER THE MERGER
As provided in the Merger Agreement, Vencor must take all actions necessary
to cause the number of directors comprising the full Vencor Board at the
Effective Time to be increased so that three persons selected prior to the
Effective Time by Hillhaven's Board can be appointed to the Vencor Board to have
terms expiring at the Vencor Annual Meeting of Stockholders to be held in 1996.
The three persons to be added to the Vencor Board will be selected by the
Hillhaven Board from among the present directors of Hillhaven, two of whom will
be neither officers of Hillhaven nor designees of any affiliate of Hillhaven and
the third of whom shall be Bruce L. Busby, the Chairman and Chief Executive
Officer of Hillhaven (the "Hillhaven Designated Directors"). Vencor has also
agreed to cause the Hillhaven Designated Directors to be nominated for election
to the Vencor Board at the Vencor Annual Meeting of Stockholders to be held in
1996. In addition to Mr. Busby, Hillhaven has advised Vencor that Walter F.
Beran and Jack O. Vance will be selected for service on the Vencor Board.
Biographical information with respect to the current directors of Vencor and the
Hillhaven Designated Directors is set forth below.
Vencor Board
William C. Ballard Jr. (age 54) has been a director of Vencor 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).
Michael R. Barr (age 46), a founder of Vencor, physical therapist and
certified respiratory therapist, has served as Vice President, Operations and a
director of Vencor since 1985. Mr. Barr is a director of Colorado MEDtech, Inc.,
a medical products and equipment company.
Donna R. Ecton (age 48) has served as a director of Vencor 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., a confectionery products business. 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, Tandy Corporation and H&R
Block, Inc.
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Greg D. Hudson (age 46) has served as a director of Vencor since 1991. He
has been President of Hudson Chevrolet-Oldsmobile, Inc. since 1988.
William H. Lomicka (age 58) has served as a director of Vencor 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, the Regent Group and Advocat, Inc., an
operator of nursing facilities and retirement centers.
W. Bruce Lunsford (age 47), a founder of Vencor, certified public
accountant and attorney, has served as Chairman of the Board, President and
Chief Executive Officer of Vencor since Vencor commenced operations in 1985. Mr.
Lunsford is a director of Churchill Downs Incorporated and Res-Care, Inc., a
provider of residential training and support services for persons with
developmental disabilities and certain vocational training services.
W. Earl Reed, III (age 43), a certified public accountant, has served as a
director and Vice President, Finance and Development of Vencor since 1987.
R. Gene Smith (age 60), a founder of Vencor, has served as a director of
Vencor 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.
Hillhaven Designated Directors
Bruce L. Busby (age 51) has served as a director and the Chief Executive
Officer of Hillhaven since 1991 and Chairman of Hillhaven since September 1993.
From 1988 to 1991, Mr. Busby was Chief Executive Officer and President of the
Venture Development Group of National Medical Enterprises, Inc.
Walter F. Beran (age 69) has served as a director of Hillhaven since
December 1989. Since September 1986, Mr. Beran has served as Chairman of the
Pacific Alliance Group, a merger and acquisition services firm. Previously, Mr.
Beran served as Vice Chairman and Western Regional Managing Partner of the
accounting firm of Ernst & Whinney (now Ernst & Young) from 1971 until his
retirement in September 1986. Mr. Beran also serves as a director of Arco
Chemical Company, Pacific Scientific Company and Fleetwood Enterprises, Inc.
Jack O. Vance (age 70) has served as a director of Hillhaven since December
1989. From 1960 to 1990, Mr. Vance served as a director of McKinsey & Company,
Inc., a management consulting firm. In 1990, Mr. Vance formed Management
Research, Inc., where he has since served as managing director. Mr. Vance is a
director of ESCORP, F.C.G. Enterprises, Inc., International Rectifier Corp.,
International Technology Corporation, The Olson Company, SEMTECH and University
Restaurant Group.
EXECUTIVE OFFICERS AFTER THE MERGER
Each of the executive officers, including the chief executive officer and
the other senior executives of Vencor, is expected to continue as an executive
of Vencor after the Merger. In addition, Mr. Busby is expected to serve as
President of the newly formed nursing center division of Vencor after the
Merger. The management of Vencor also expects that after the Merger other
Hillhaven executives will assume significant executive roles in Vencor and its
subsidiaries. Each of Vencor's executive officers serves at the discretion of
the Vencor Board of Directors.
POST-MERGER DIVIDEND POLICY
Vencor does not pay dividends on outstanding shares of Vencor Common Stock
and does not expect to pay dividends on outstanding shares of Vencor Common
Stock for the foreseeable future.
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<PAGE> 61
RECENT DEVELOPMENTS
VENCOR
Second Quarter Results
On July 20, 1995, Vencor announced operating results (unaudited) for the
second quarter and six months ended June 30, 1995, a summary of which is
presented below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1995 1994 1995 1994
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $140,663 $98,534 $261,094 $185,497
Income before income taxes..................... 17,705 12,131 32,704 22,004
Net income..................................... 10,813 7,282 19,961 13,202
Earnings per common and common equivalent
share:
Primary...................................... 0.37 0.28 0.71 0.51
Fully diluted................................ 0.35 0.26 0.66 0.49
Shares used in earnings per common and common
equivalent share computations:
Primary...................................... 28,871 25,784 28,083 25,719
Fully diluted................................ 33,294 30,207 32,506 30,143
</TABLE>
Acquisitions
Vencor entered into an agreement as of August 1, 1995, to acquire all of
the outstanding stock of Professional Health Care Services, Inc. and
Professional Health Care Services of West Coast Florida, Inc. These companies,
which had combined revenues of approximately $9 million in 1994, provide
rehabilitation, physical therapy and occupational therapy services in Florida.
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<PAGE> 62
HILLHAVEN
Fiscal Year 1995 Results
On June 29, 1995, Hillhaven announced operating results (unaudited) for the
fourth quarter and year ended May 31, 1995, a summary of which is presented
below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MAY 31, MAY 31,
----------------------- -------------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues................................... $411,502 $377,670 $1,589,142 $1,484,825
Income before income taxes and
extraordinary charge..................... 19,192 18,461 77,414 82,865
Net income:
Income before extraordinary charge....... 12,885 13,241 51,859 59,480
Extraordinary loss on extinguishment of
debt.................................. (348) (49) (570) (1,062)
Net income............................... 12,537 13,192 51,289 58,418
Earnings per common and common equivalent
share:
Primary:
Income before extraordinary charge.... 0.38 0.40 1.56 2.00
Extraordinary loss on extinguishment
of debt............................. (0.01) -- (0.02) (0.04)
Net income............................ 0.37 0.40 1.54 1.96
Fully diluted:
Income before extraordinary charge.... 0.35 0.36 1.42 1.71
Extraordinary loss on extinguishment
of debt............................. (0.01) -- (0.02) (0.03)
Net income............................ 0.34 0.36 1.40 1.68
Shares used in earnings per common and
common equivalent share computations:
Primary.................................. 28,996 28,629 28,825 25,952
Fully diluted............................ 36,888 36,676 36,841 34,326
</TABLE>
Results of operations for the year ended May 31, 1994 include a credit of
$20.2 million (before income taxes) related to the restructuring program
initiated in fiscal 1992.
THE MERGER
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the proposed Merger. To the extent that it relates to the Merger
Agreement, the following description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. All stockholders are urged to read the Merger
Agreement in its entirety.
GENERAL
The Merger Agreement provides for a business combination between Vencor and
Hillhaven in which, subject to the satisfaction of the conditions therein,
Hillhaven will be merged with and into Vencor and the holders of Hillhaven
Common Stock will be issued Vencor Common Stock in a transaction intended to
qualify as a pooling of interests for accounting purposes and as a
reorganization within the meaning of Section 368(a) of the Code for federal
income tax purposes. In the Merger, each outstanding share of Hillhaven Common
Stock will be converted into a fraction of a share of Vencor Common Stock (the
"Conversion Number") determined by dividing $32.25 by the Vencor Average Price,
except that the Conversion Number will not be less than 0.768 or greater than
0.977 except in certain limited circumstances described under "-- Terms of the
Merger," and each share of Hillhaven Preferred Stock will be converted into the
right to receive $900 in cash, plus accrued and unpaid dividends to the
Effective Time. Each outstanding share of Vencor Common Stock
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<PAGE> 63
will remain outstanding and be unaffected by the Merger. As a result of the
Merger, except in certain limited circumstances described under "-- Terms of the
Merger," holders of Hillhaven Common Stock immediately prior to the Merger will
own between approximately 49% and 55% of Vencor Common Stock on a primary basis
after the Merger, depending upon the Conversion Number.
BACKGROUND OF THE MERGER
In early December 1994, Mr. Busby and Jeffrey C. Barbakow, Chairman and
Chief Executive Officer of Tenet engaged in discussions in which it became
apparent that Tenet was in the process of evaluating whether its investment in
Hillhaven was consistent with its strategic plans. During these discussions
Hillhaven indicated a willingness to cooperate with Tenet in transactions
pursuant to which Tenet could realize immediate value for its investment in
Hillhaven so long as the transactions were consistent with Hillhaven's business
strategy of enhancing value for all Hillhaven stockholders.
On December 21, 1994, Tenet filed an amendment to its Schedule 13D which
stated, among other things, that Tenet was reviewing alternatives for its
investment in Hillhaven, including possible transactions with Hillhaven or the
sale of all or a part of its investment to one or more third parties. Also on
December 21, 1994, Hillhaven publicly announced that it intended to discuss with
Tenet the Tenet investment in Hillhaven and would continue to analyze various
financial alternatives in order to preserve its flexibility to maximize long-
term value for all Hillhaven stockholders.
On January 12, 1995, Mr. Barbakow advised Mr. Busby that Neal Elliott,
Chairman and President of Horizon Healthcare Corporation ("Horizon"), which had
indicated a willingness to propose to acquire Hillhaven in a transaction in
which holders of Hillhaven Common Stock would receive common stock of Horizon
valued by Horizon at $28 per share.
On January 16, 1995, a committee of the Hillhaven Board (the "Shareholder
Relationship Committee"), consisting of Jack Vance, Dinah Jacobs and Walter
Beran, which had been previously established to act on matters including the
relationship between Hillhaven and Tenet, met and reviewed the status of
discussions with Tenet and Horizon's expression of interest in a possible
transaction with Hillhaven. The Shareholder Relationship Committee unanimously
reaffirmed its previous determination that a sale of Hillhaven would not be in
the best interest of Hillhaven, its stockholders and other constituents after
discussing the Horizon expression of interest with its legal and financial
advisors. Following the meeting of the Shareholder Relationship Committee, a
meeting of the Hillhaven Board was held on January 16, 1995. At this meeting, it
was determined that Hillhaven would not pursue a transaction with Horizon, but
that the Hillhaven Board would consider any communication directed to them by
Horizon. At this meeting, the directors affirmed their July 1994 action
authorizing the creation of a grantor trust to pre-fund future obligations under
existing Hillhaven employee benefit plans and authorized the issuance of
4,200,000 shares of Hillhaven Common Stock to the trust. The Hillhaven Board
also adopted an amendment to Hillhaven's stockholder rights plan. (Maris
Andersons, who also serves as an executive officer of Tenet, voted against the
amendment and the grantor trust and Peter de Wetter, who is a director and
retired executive officer of Tenet, abstained.) Prior to the amendment to
Hillhaven's stockholder rights plan, all persons other than Tenet were
restricted from owning 30% or more of Hillhaven Common Stock without approval of
the Hillhaven Board. As a result of the amendment, Tenet became subject to this
limitation on ownership of Hillhaven Common Stock.
At Mr. Elliott's initiation, Mr. Busby met with Mr. Elliott on January 17,
1995. At this meeting, Mr. Elliott proposed to Mr. Busby a transaction in which
Horizon would acquire Hillhaven and in which holders of Hillhaven Common Stock
would receive for each of their shares common stock of Horizon valued by Horizon
at $27.25, and in which the Hillhaven Preferred Stock, all of which is owned by
Tenet and at the time had a liquidation preference of approximately $96.5
million, would be redeemed for $72.4 million in cash. In response, Mr. Busby
indicated that he would further discuss the proposal with the Hillhaven Board,
but that the Hillhaven Board had previously concluded that Horizon's expression
of interest to Tenet at $28 per share was not preferable to Hillhaven's pursuing
its business strategy of remaining an independent public company.
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<PAGE> 64
On January 25, 1995, Horizon sent a letter to Hillhaven formally proposing
a business combination between Horizon and Hillhaven. Under the terms of the
proposal, each holder of Hillhaven Common Stock would receive for each share a
share of common stock of a newly formed holding company valued by Horizon at $28
and the Hillhaven Preferred Stock would be redeemed at their full liquidation
preference of $1,000 per share in cash. On January 26, 1995, Tenet filed an
amendment to its Schedule 13D relating to Hillhaven in which Tenet reported that
it had entered into a letter agreement with Horizon prior to Horizon sending its
January 25 letter to Hillhaven. The agreement between Horizon and Tenet
provides, among other things, that, if within 12 months of the agreement, Tenet
receives consideration for any of its shares of Hillhaven Common Stock equal to
or greater than $27.50 per share in a merger, consolidation or other transaction
with any party other than Horizon, then Horizon shall be entitled to receive
from Tenet upon consummation of such transaction the greater of $5,000,000 or
50% of the consideration received by Tenet in excess of $29 per share of
Hillhaven Common Stock.
On February 5, 1995, the Shareholder Relationship Committee met and
concluded that the Hillhaven Board had not authorized it to act with respect to
merger or acquisition proposals. It unanimously decided to recommend to the
Hillhaven Board that the Hillhaven Board create a new committee, comprised of
all directors other than those affiliated with Tenet, with the power, among
other things, to respond to merger and acquisition proposals. Immediately
following the meeting of the Shareholder Relationship Committee, a meeting of
the Hillhaven Board was held. The Board established the Special Committee of the
Hillhaven Board (the "Special Committee"), comprised of all directors other than
Messrs. de Wetter and Andersons, with the authority, among other things, to
respond to proposals to merge with or acquire Hillhaven. At this meeting, Donald
S. Burns was added to the Hillhaven Board to serve in the class of directors
with a term expiring in 1997.
The Special Committee met on February 5, 1995 following the Hillhaven Board
meeting. The Special Committee reviewed the January 25 proposal from Horizon
with its financial and legal advisors. The Special Committee unanimously
rejected the Horizon proposal. In arriving at its conclusion, the Special
Committee considered a number of factors, including the opinion of its financial
advisor, Merrill Lynch, to the effect that, based upon the assumptions made,
matters considered and limits of review as set forth in such opinion, the
proposed consideration to be received by the holders of Hillhaven Common Stock
(other than Tenet) pursuant to the Horizon proposal was inadequate to such
stockholders from a financial point of view. Among the concerns expressed by the
Special Committee were that a $28 per share price, even if obtainable under the
Horizon proposal, was not a sufficient price for Hillhaven Common Stock; that
the value of the Horizon proposal was highly uncertain and did not by its terms
even appear to guarantee the $28 per share of Hillhaven Common Stock determined
to be inadequate; and that the arrangements between Horizon and Tenet had caused
Horizon to become the "beneficial owner" of Tenet's Hillhaven Common Stock and,
because Nevada Law prohibits a merger for three years with any person acquiring
beneficial ownership of more than 10% of Hillhaven Common Stock without prior
Hillhaven approval, the Horizon proposal could not be consummated. The Special
Committee authorized Hillhaven to commence litigation seeking a determination
that Horizon could not effect a merger with Hillhaven in compliance with Nevada
Law.
Following the January 25 announcement by Horizon of its proposal to acquire
Hillhaven a number of companies contacted Mr. Busby regarding their interest in
pursuing transactions with Hillhaven. Among these expressions of interest in
late January and February, 1995 was an expression of interest by Vencor in being
invited to participate in any process Hillhaven might initiate leading to an
acquisition of Hillhaven. None of these expressions of interest were pursued in
light of the determination of the Special Committee that Hillhaven should pursue
its long-term business strategy and not seek a sale or other extraordinary
transaction.
On February 27, 1995, the Hillhaven Board approved the Nationwide
Transaction (with Mr. Andersons voting against).
On March 7, 1995, Horizon sent a letter to Hillhaven in which it proposed
to acquire Hillhaven in a transaction in which holders of Hillhaven Common Stock
would receive for each of their shares stock in a newly formed holding company
valued by Horizon at $31 and the Hillhaven Preferred Stock owned by Tenet would
be redeemed at $900 per share in cash. The offer was conditioned upon completion
of the Nationwide
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<PAGE> 65
Transaction. Following the announcement of the revised Horizon proposal,
representatives of a number of public companies, including Vencor, expressed
interest in exploring the possible acquisition of Hillhaven. Hillhaven and its
financial advisors had meetings or discussions with such parties.
On March 8, 1995, Tenet filed preliminary proxy materials with the
Commission relating to a solicitation of proxies in favor of a stockholder
resolution urging the Hillhaven Board to instruct its financial advisor to
solicit offers to acquire Hillhaven by sale or merger, to establish a committee
of directors who are not officers of Hillhaven to review any proposal and make a
recommendation to the Hillhaven Board, and to take all action necessary to
effectuate such sale or merger. In this filing, Tenet stated that it was in
favor of any merger or sale proposal that would maximize the value of all
stockholders' investment in Hillhaven. On March 31, 1995, Tenet filed definitive
proxy materials with the Commission with respect to its solicitation of proxies
relating to a stockholder resolution to be presented at Hillhaven's 1995 Annual
Meeting of Stockholders.
On March 20, 1995, the Special Committee reviewed the revised Horizon
proposal with its legal and financial advisors. The Special Committee
unanimously concluded that, in light of the revised Horizon proposal and the
expressions of interest by other parties desiring to explore an acquisition of
Hillhaven, Hillhaven should explore strategic alternatives, including the
possible sale of Hillhaven or a division thereof or Hillhaven remaining an
independent public company. The Special Committee further concluded not to take
a position with respect to the revised Horizon proposal at that time. In the
public announcement of its decision, the Special Committee stated its intention
to invite Horizon to participate in the process of exploring alternatives.
Following Hillhaven's public announcement on March 20, 1995 of its intention to
explore strategic alternatives, Hillhaven's financial advisor contacted third
parties, including Horizon's financial advisor, regarding the possibility of
their exploring a transaction with Hillhaven. Hillhaven's financial advisor
contacted long-term care, hospital, insurance and other healthcare companies to
determine their interest in pursuing a business combination with Hillhaven. In
addition, Hillhaven and Merrill Lynch were contacted by third parties. Each
interested party was given the opportunity to examine non-public information
regarding Hillhaven following the execution of a standard form of
confidentiality agreement, which included certain limitations on the ability of
parties to pursue transactions involving Hillhaven without Hillhaven's consent.
On March 22, 1995, a spokesman for Horizon publicly announced that its offer for
Hillhaven had expired and that Horizon "had nothing on the table" for Hillhaven.
After March 20, 1995, representatives of each of Vencor and Hillhaven began
preliminary discussions regarding a possible acquisition of Hillhaven by Vencor
and Vencor indicated its preliminary valuation of Hillhaven was in excess of $31
per share of Hillhaven Common Stock. On March 23, 1995, Hillhaven and Vencor
entered into a confidentiality agreement providing for an exchange of
information between the two companies and their advisors. On April 4 and 5,
1995, representatives of Vencor visited Hillhaven's headquarters in Tacoma,
Washington, discussed Hillhaven's business and prospects with Hillhaven's
management and reviewed information regarding Hillhaven. On April 6 and 7, 1995,
representatives of Hillhaven visited Vencor's headquarters in Louisville,
Kentucky, discussed Vencor's business and prospects with Vencor's management and
reviewed information regarding Vencor. During this time, representatives of
Vencor and Hillhaven also discussed the possible benefit of a combination of the
two companies.
During the week of April 10, 1995, Mr. Lunsford and Mr. Busby and their
companies' respective financial advisors engaged in a number of discussions
regarding a possible acquisition of Hillhaven by Vencor including the benefits
of such a transaction to each company and certain general ideas about the
principal terms thereof. In addition, each company and its respective
representatives continued to exchange and analyze relevant information. On April
17, 1995, Vencor's financial advisors indicated to Hillhaven's financial
advisors in general terms the financial aspects of a proposal based upon
Hillhaven committing to agree to negotiate a mutually acceptable merger
agreement as quickly as possible.
On April 19, 1995, Mr. Busby updated the Special Committee on the status of
the discussions with Vencor and the Special Committee authorized Mr. Busby and
the Special Committee's advisors to engage in negotiations with Vencor in an
effort to present and define the terms of a transaction for consideration by the
Special Committee.
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From April 19 through April 21, 1995, Messrs. Lunsford and Busby and their
companies' respective financial advisors engaged in negotiations regarding the
financial terms of an acquisition of Hillhaven by Vencor. On April 22 and April
23, representatives of and advisors to each of Vencor and Hillhaven negotiated
the provisions of a merger agreement. Issues included in these negotiations were
the value in Vencor Common Stock to be received by holders of Hillhaven Common
Stock in the acquisition, the time at which the value of Vencor Common Stock
would be determined, collar provisions relating to the calculation of the amount
of Vencor Common Stock to be received by holders of Hillhaven Common Stock and
the fees payable to Vencor by Hillhaven if Vencor's acquisition of Hillhaven was
not consummated because a proposal to acquire Hillhaven was submitted by a third
party. The terms of the acquisition were negotiated on an arms-length basis
between Vencor and Hillhaven.
In the evening of April 23, 1995, the Special Committee met to consider the
transactions contemplated by the Merger Agreement and reviewed the status of
Hillhaven's process of exploring strategic alternatives. After review with its
legal and financial advisors, the Special Committee unanimously recommended that
(i) the Merger Agreement be submitted for consideration by the entire Hillhaven
Board and (ii) the Hillhaven Board approve the Merger Agreement.
Following the meeting of the Special Committee, the Hillhaven Board met. At
this meeting, the status of Hillhaven's process of exploring strategic
alternatives and the terms of the Merger Agreement were reviewed with legal and
financial advisors. In addition, representatives of Merrill Lynch reviewed
financial analyses and delivered their opinion to the effect that, as of April
23, 1995, and based upon the assumptions made, matters considered and limits of
review as set forth in such opinion, the consideration to be received by the
holders of Hillhaven Common Stock (other than Tenet) pursuant to the Merger
Agreement is fair to such holders from a financial point of view. See also "The
Merger -- Opinions of Financial Advisors -- Hillhaven." Members of Hillhaven
management presented a business review of Vencor and their analysis of potential
synergies resulting from a combination of Vencor and Hillhaven. At this meeting,
the Hillhaven Board stressed the need for Mr. Busby to assist in the integration
of Hillhaven and Vencor and the realization of synergies by the combined entity.
After considering these presentations, the Hillhaven Board unanimously approved
the Merger Agreement, determined that the Merger is fair to, and in the best
interests of, Hillhaven and its stockholders, and recommended approval and
adoption of the Merger Agreement by Hillhaven stockholders.
In the evening of April 23, 1995, the Vencor Board met. At this meeting,
counsel reviewed the terms of the Merger Agreement. Representatives of First
Boston reviewed financial analyses and delivered its opinion to the effect that,
as of April 23, 1995, and based upon the assumptions made, matters considered
and limits of review as set forth in such opinion, the consideration, taken as a
whole, to be paid by Vencor in the Merger was fair to Vencor from a financial
point of view. See "The Merger -- Opinions of Financial Advisors -- Vencor."
Management of Vencor also presented a business review of Hillhaven and their
analysis of potential synergies resulting from a combination of Vencor and
Hillhaven. After considering these presentations, the Vencor Board unanimously
approved the Merger Agreement, determined that the Merger is fair to and in the
best interests of Vencor and its stockholders, and recommended approval and
adoption of the Merger Agreement by Vencor stockholders.
The Merger Agreement was signed following the conclusion of the meetings of
both the Vencor Board and the Hillhaven Board. On April 24, 1995, Vencor and
Hillhaven jointly issued a press release announcing the execution of the Merger
Agreement. On July 31, 1995, the Merger Agreement was amended and restated
effective as of April 23, 1995 in order to simplify the corporate structure of
the Surviving Corporation. The terms of the Merger are described below in "The
Merger -- Terms of the Merger."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Vencor
The Vencor Board has determined that the terms of the Merger Agreement and
the transactions contemplated thereby, which were established through
arms-length negotiation with Hillhaven, are fair to, and in the best interests
of, Vencor and its stockholders. Accordingly, the Vencor Board has unanimously
approved the Merger Agreement and unanimously recommends that the stockholders
of Vencor vote to approve and
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adopt the Merger Agreement and the transactions contemplated thereby and to
approve the Charter Amendment and the Compensation Program Amendment. The
factors considered by the Vencor Board in reaching its determination include
those set forth below.
The Vencor Board believes that the Merger represents a unique strategic
opportunity for Vencor to create one of the nation's largest providers of
healthcare services primarily focusing on the needs of the elderly. Vencor's
overriding objective is to create full-service integrated networks for the care
of the elderly. Through these networks, Vencor intends to provide healthcare
services in a variety of sites, including hospitals, skilled nursing facilities
and patient homes. After giving effect to the Merger, Vencor will have pro forma
1994 revenues of approximately $2.09 billion and pro forma 1994 net income
before extraordinary charges of approximately $89 million. Because of the
resulting increase in size and range of services which Vencor will be able to
provide, the Vencor Board believes that the merged company will be able to
realize revenue synergies and cost savings which neither company would enjoy on
its own. The Vencor Board also believes the increased diversification and
resources of the combined company will enhance Vencor's opportunities to
negotiate contracts with managed care providers. See "Operations and Management
After the Merger -- Post-Merger Operations."
The Vencor Board identified a number of potential significant strategic and
operating benefits of the Merger. In particular, the Vencor Board noted that the
Merger would significantly diversify Vencor's businesses, enabling Vencor to
provide through the combined network of facilities of Vencor and Hillhaven,
services including long-term intensive hospital care, long-term nursing care,
contract respiratory therapy services, acute cardiopulmonary care, subacute and
post-operative care, inpatient and outpatient rehabilitation, specialized care
for Alzheimer's disease, hospice care, pharmacy services and retirement and
assisted living. The Vencor Board considered the operating synergies expected to
be realized from combining the businesses of the two companies. These synergies
are expected to result from cross-marketing a broad array of contract services
to non-affiliated nursing and subacute care centers, patient referrals and from
cost savings in the combination of operations. In this regard, the Vencor Board
considered that Vencor management expects an annual increase in revenues of
approximately $100 million per year by 1997, annual cost savings of
approximately $15 million (before taxes) by 1997, and additional savings related
to the implementation of the Ventech System of approximately $15 million (before
taxes) annually by 1998, subject to the inherent risks associated with the
degree and timing of these revenue enhancements and cost savings. For a
discussion of certain important matters with respect thereto, see "Operations
and Management After the Merger -- Post-Merger Operations." As a result of all
the foregoing, the Vencor Board believed that the Merger would assist Vencor in
achieving its overall strategic growth plans.
The Vencor Board, based upon a number of factors described below, approved
the consideration which Vencor is to pay in the Merger and other terms of the
Merger. In reaching its determination, the Vencor Board also considered and
evaluated information discussed with the Vencor Board by management of Vencor
and by First Boston, Vencor's financial advisor, with respect to the Merger. The
Vencor Board's decision to approve the Merger was supported by the following
considerations identified by the Vencor Board (i) Hillhaven offered a large
portfolio of high quality, well run nursing centers which would enable Vencor to
extend its continuum of long-term care services, (ii) the complementary
geographic locations of the Vencor and Hillhaven facilities should provide
opportunity for increased revenues due to referrals between the two businesses,
(iii) the Merger should enhance Vencor's relationships with third party payors
because the range of services provided by the combined company will better
enable it to compete in the rapidly changing healthcare industry, (iv) the
Merger will better position Vencor to deal with uncertainties which may face the
industry due to healthcare reform, (v) excluding transaction costs related to
the Merger, the Merger should be accretive to Vencor's earnings per share in
1996 and thereafter, and (vi) the results of the due diligence review conducted
by members of Vencor's management with respect to Hillhaven's business and
operations were satisfactory. As a result of all the foregoing, the Vencor Board
believed that the Merger would enhance the ability of Vencor to achieve its
long-term growth objectives.
The Vencor Board also recognized that there were inherent risks related to
the Merger. The Vencor Board noted that Vencor would be assuming management
responsibility for a corporation larger than Vencor
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and that it may be difficult to retain executives of Hillhaven, although such
risks could be offset by the opportunity to draw upon the depth of experienced
management and operating personnel of both companies.
The Vencor Board considered the risk that Vencor and Hillhaven managements
after the Merger would be unable to increase Hillhaven's earnings at a rate as
rapid as the Vencor Board expected Vencor's stand-alone earnings to increase.
The Vencor Board concluded that such risk was offset by the diversification of
growth opportunities available to the combined company and by the expected
strategic benefits of the Merger. These expected strategic benefits include the
combined company's financial strength and its enhanced ability to develop a
full-service integrated healthcare network, with appeal to third party payors,
the potential to cross-market a broad array of contract services and referrals
between the two businesses, the opportunity to diversify earnings, the business
synergies that might be realized and expected cost savings.
The Vencor Board considered the risks associated with the increased
leverage arising out of the assumption and/or refinancing of Hillhaven
indebtedness. However, the Vencor Board concluded that such risks were offset to
some degree by the increased stability in earnings and cash flow expected to
result from the diversification of Vencor's businesses as a result of the
Merger. The Vencor Board considered the risk that the acquisition of Hillhaven
would reduce Vencor's ability to market its Vencare services to nursing home
companies that compete with Hillhaven, although such risk was expected to be
minimized by the revenue synergies resulting from cross-marketing a broad array
of contract services to non-affiliated nursing and subacute care centers and
patient referrals.
The Vencor Board also considered (i) the terms of the Merger Agreement
(including the collar provisions that assure that Vencor would not be required
to issue more than 0.977 shares of Vencor Common Stock per share of Hillhaven
Common Stock), (ii) the structure of the Merger, (iii) the terms and manner in
which the Conversion Number would be determined, (iv) the tax-free nature of the
Merger, (v) the regulatory approval requirements, (vi) the fact that Vencor's
stockholders would, assuming a Conversion Number of 0.977, retain only
approximately 45% of the equity of the combined company, (vii) that the Merger
would be accounted for as a pooling of interests, (viii) that certain members of
Hillhaven's management would receive material amounts of Vencor Common Stock,
which could reduce their willingness to remain employed by Vencor after the
Merger and (ix) the fact that the current directors of Vencor would constitute a
majority of the Vencor Board after the Merger. The Vencor Board believed that
the Merger Agreement includes reasonable protections against circumstances
changing from the signing of the Merger Agreement through the Effective Time,
including the representations and warranties included in the Merger Agreement,
and in particular the representation to the effect that there has been no
material adverse change since May 31, 1994 in the condition (financial or
otherwise), business, assets or results of operations of Hillhaven and its
subsidiaries taken as a whole. The Vencor Board believed that such terms and the
structure of the Merger did not place any significant burdens upon the
operations of the combined company following the consummation of the Merger. In
addition, the Vencor Board believed that any limitation on the ability of
Vencor's stockholders to influence corporate direction as a result of their
retaining only approximately 45% of the equity of the combined company, assuming
a Conversion Number of 0.977, was offset by the strategic and operating benefits
of the Merger discussed above, as well as the terms of the Merger whereby Vencor
would be the surviving corporation in the Merger, the current directors of
Vencor would constitute a majority of the Vencor Board following the Merger, and
that the executive officers of Vencor would continue to be executive officers of
the combined company.
The Vencor Board also considered, in addition to its own independent
determinations, First Boston's opinion that the consideration, taken as a whole,
to be paid by Vencor in the Merger is fair to Vencor from a financial point of
view, which, in addition to all the factors listed above, supported the Vencor
Board's determination that the terms of the Merger Agreement and the
transactions contemplated thereby, are fair to, and in the best interests of,
Vencor and its stockholders.
Based on all of these matters, Vencor's Board unanimously approved the
Merger Agreement and the transactions contemplated thereby.
The foregoing discussion of the information and factors considered and
given weight by the Vencor Board is not intended to be exhaustive but is
believed to include all material factors considered by the Vencor Board.
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In addition, in reaching the determination to approve and recommend the Merger
Agreement and the transactions contemplated thereby, the Vencor Board did not
assign any relative or specific weights to the foregoing factors which were
considered, and individual directors may have given differing weights to
different factors. The Vencor Board is, however, unanimous in its recommendation
to the holders of Vencor Common Stock that the Merger Agreement and the
transactions contemplated thereby be approved, and that the Charter Amendment
and the Compensation Program Amendment be approved.
VENCOR'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT VENCOR STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND THAT THEY VOTE FOR THE CHARTER AMENDMENT AND THE
COMPENSATION PROGRAM AMENDMENT.
Hillhaven
The Hillhaven Board has determined that the terms of the Merger Agreement
and the transactions contemplated thereby, which were established through
arms-length negotiation with Vencor, are fair to, and in the best interests of,
Hillhaven and its stockholders. Accordingly, the Hillhaven Board has unanimously
approved the Merger Agreement and unanimously recommends that the stockholders
of Hillhaven vote FOR approval and adoption of the Merger Agreement. In reaching
its determination, the Hillhaven Board consulted with Hillhaven's management, as
well as its legal counsel and financial advisor, and considered a number of
reasons and factors, including the following:
(i) The belief that the Merger will result in a strong combined entity
with complementary businesses, corporate goals and management philosophies
and the financial resources necessary to compete and pursue growth
opportunities in the changing healthcare environment and with significant
opportunities for revenue synergies and cost savings;
(ii) An assessment of Hillhaven's strategic alternatives, including
remaining a publicly owned company, acquisitions, and other arrangements
with third parties. In this regard, the terms of the Merger Agreement
provide the highest immediate value for holders of Hillhaven Common Stock
among the alternatives known and anticipated to be available to Hillhaven
and the Merger will provide holders of Hillhaven Common Stock with the
opportunity to continue to participate in the equity ownership of the
combined company in a transaction that should be nontaxable to stockholders
for federal income tax purposes;
(iii) Information relating to the financial performance, prospects and
business operations of each of Vencor and Hillhaven;
(iv) The terms and conditions of the Merger Agreement, including
(a) the provisions requiring that the determination of the
Conversion Number occur shortly before the Effective Time and the collar
provisions, which provide reasonable assurance as to the value to be
received by holders of Hillhaven Common Stock;
(b) the right of Hillhaven to terminate the Merger Agreement if the
value of Vencor Common Stock to be received in exchange for each share
of Hillhaven Common Stock in the Merger is less than $31, which provides
additional assurance as to the value to be received by holders of
Hillhaven Common Stock; and
(c) the right of Hillhaven to negotiate and provide information to
third parties and terminate the Merger Agreement in the event of an
alternative proposal, if required by the fiduciary duties of the
Hillhaven Board and the fact that if, under certain circumstances
involving a competing transaction, the Merger Agreement is terminated,
Hillhaven would be obligated to pay Vencor $35 million or, if the
competing transaction is intended to be accounted for as a pooling of
interests for accounting purposes, $13.5 million. The Hillhaven Board
did not view these obligations as unreasonably precluding any third
party from proposing an alternative transaction and concluded
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that entering into the Merger Agreement before completely exhausting its
exploration of all possible strategic alternatives was in the best
interests of Hillhaven;
(v) the presentation of Hillhaven's financial advisor, Merrill Lynch,
and its opinion to the effect that, as of April 23, 1995, and based upon
the assumptions made, matters considered and limits of review as set forth
in such opinion, the consideration to be received by the holders of shares
of Hillhaven Common Stock (other than Tenet) pursuant to the Merger
Agreement is fair to such holders from a financial point of view; for a
summary of Merrill Lynch's opinion, including the assumptions made, matters
considered and limits of review, see "The Merger -- Opinions of Financial
Advisors -- Hillhaven;"
(vi) the amount of time which had transpired since the initial public
announcement of Horizon's interest in acquiring Hillhaven without Hillhaven
receiving an expression of interest from a third party regarding a
transaction in which Hillhaven stockholders would receive value similar to
that contemplated by the Merger Agreement, which provides further assurance
that the Merger provides the highest immediate value for holders of
Hillhaven Common Stock; and
(vii) the fact that Vencor and Hillhaven each have very capable
management teams that have an established track record, and that, by
combining the expertise of these managements, the combined company should
be well positioned to take advantage of opportunities created by the Merger
and the changing healthcare environment.
In considering the fairness of the terms of the Merger Agreement to Tenet,
which owns all of the Hillhaven Preferred Stock and approximately 27% of the
Hillhaven Common Stock, the Hillhaven Board also considered the following
additional factors:
(i) The terms of the Merger Agreement provide that Tenet will receive
the same consideration for its shares of Hillhaven Common Stock as all
other holders of Hillhaven Common Stock;
(ii) Tenet has previously supported a transaction proposed by Horizon
in which it would have received for each of its shares of Hillhaven Common
Stock consideration consisting of Horizon common stock valued by Horizon at
$31, whereas the terms of the Merger Agreement are intended to provide
$32.25 in value of Vencor Common Stock for each share of Hillhaven Common
Stock and greater protection than that proposed by Horizon against possible
declines in the value of the stock consideration to be received in the
proposed transaction;
(iii) The terms of the Merger Agreement contemplate the payment of
$900 per share in cash for each share of Hillhaven Preferred Stock owned by
Tenet, the same consideration proposed to be paid for such shares in the
transaction proposed by Horizon and supported by Tenet and, accordingly,
before taking into account Tenet's arrangements with Horizon, the Merger
provides greater value to Tenet than proposals Tenet previously supported;
(iv) Tenet will be entitled to vote its Hillhaven Preferred Stock as
separate classes in connection with consideration of the Merger Agreement
by Hillhaven's stockholders;
(v) The belief that Tenet's contractual arrangement with Horizon,
which might require Tenet to make a payment to Horizon upon consummation of
the Merger and thereby make a Horizon proposal to acquire Hillhaven at a
value per share of Hillhaven Common Stock less than that contemplated by
the Merger Agreement more attractive to Tenet than the Merger, should not
be a basis for depriving all other holders of Hillhaven Common Stock of the
benefits of a transaction which is in the best interests of Hillhaven and
provides the highest value for all of Hillhaven's equity; and
(vi) The belief that immediately prior to the April 23, 1995 meeting
of the Hillhaven Board, Tenet indicated it would support Hillhaven entering
into the Merger Agreement.
In connection with its deliberations at its April 23, 1995 meeting, the
Hillhaven Board was aware of the potential benefits to be received in the Merger
by Hillhaven's directors and officers, as described under "The
Merger -- Interests of Certain Persons in the Transactions."
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The Hillhaven Board believes that Hillhaven and its stockholders will
receive reasonable protection from a change in circumstances between the date of
the Joint Proxy Statement/Prospectus and the Effective Time through (a) the
determination of the Conversion Number shortly before the Effective Time, (b)
the right of Hillhaven to terminate the Merger Agreement if the value of the
Vencor Common Stock to be received for each share of Hillhaven Common Stock in
the Merger is less than $31.00 and (c) the inclusion in the Merger Agreement of
a representation, required to be true in all material respects at the Effective
Time, to the effect that since December 31, 1994, there has not been any change
or development, or combination of changes or developments which are reasonably
likely to have a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of Vencor and its
subsidiaries taken as a whole.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Merger, the Hillhaven Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination, each
of which was viewed as supportive of its conclusion that the terms of the Merger
Agreement are fair to, and in the best interests of, Hillhaven and its
stockholders.
THE HILLHAVEN BOARD UNANIMOUSLY RECOMMENDS THAT HILLHAVEN STOCKHOLDERS VOTE
TO APPROVE AND ADOPT THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
Vencor
First Boston has delivered its written opinion to the Vencor Board, dated
April 23, 1995 and the date of this Joint Proxy Statement/Prospectus, to the
effect that, as of such dates, the consideration, taken as a whole, to be paid
by Vencor in the Merger is fair to Vencor from a financial point of view. No
limitations were imposed by the Vencor Board with respect to the investigations
made or the procedures followed by First Boston in rendering its opinion. First
Boston's opinion was delivered for the information of the Vencor Board and is
not a recommendation to any Vencor stockholder as to how such stockholder should
vote at the Vencor Meeting or any other meeting of Vencor stockholders called to
consider matters relating to the Merger.
In arriving at its opinion, First Boston reviewed certain publicly
available business and financial information relating to Hillhaven and Vencor
and reviewed the Merger Agreement. First Boston also reviewed certain other
information, including financial forecasts provided to it by Hillhaven and
Vencor, and met with Hillhaven's and Vencor's management to discuss the
businesses and prospects of Hillhaven and Vencor.
First Boston also considered certain financial and stock market data of
Hillhaven and compared that data with similar data for other publicly held
companies in businesses similar to those of Hillhaven, considered the financial
terms of certain other business combinations and other transactions which have
recently been effected and have considered the financial effects of the Merger
on Vencor. In addition, First Boston considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which it deemed relevant.
In connection with its review, First Boston did not assume any
responsibility for independent verification of any of the foregoing information
and relied on its being complete and accurate in all material respects. With
respect to the financial forecasts (including without limitation projected
operational benefits and cost savings arising from the Merger), First Boston
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of Hillhaven's and Vencor's
management as to the future financial performance of Hillhaven and Vencor. First
Boston expressed no view as to such forecasts or the assumptions on which they
are based and there cannot be any assurance that actual results of Hillhaven or
Vencor will not differ materially from those reflected in the forecasts. In
addition, First Boston did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Hillhaven or Vencor, nor
was First Boston furnished with any such evaluations or appraisals.
THE FULL TEXT OF THE WRITTEN OPINION OF FIRST BOSTON, DATED THE DATE
HEREOF, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED, LIMITATIONS ON AND THE SCOPE OF THE REVIEW BY FIRST BOSTON IN
RENDERING ITS OPINION, IS ATTACHED HERETO AS APPENDIX B. VENCOR STOCKHOLDERS ARE
URGED TO
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READ FIRST BOSTON'S OPINION IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF FIRST
BOSTON IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
The generally accepted financial analyses First Boston used in reaching its
opinion dated April 23, 1995 and which it discussed with the Vencor Board of
Directors included (i) comparable acquisitions analysis, which consisted of
reviewing operating statistics and purchase price information with respect to
selected acquisitions of businesses similar to those of Hillhaven's, (ii)
comparable company trading analysis, which consisted of reviewing market
statistics and financial and operating information in respect of selected
publicly traded companies considered comparable to the businesses of Hillhaven,
and (iii) discounted cash flow ("DCF") analysis, which consisted of discounting
to present value the projected cash flows and terminal values of Hillhaven and
certain synergies that may result from the Merger. The material portions of
these analyses are summarized below.
Comparable Acquisitions Analysis
First Boston reviewed acquisitions of companies in the long-term care
industry over the past two years, specifically the acquisition of The Brian
Center Corporation by Living Centers of America, the acquisition of Nationwide
by Hillhaven, the acquisition of CSI by Mariner Health Group ("Mariner"), the
acquisition of Providence Health Care, Inc. by The Multicare Companies, the
acquisition of Pinnacle Care Corporation by Mariner, the acquisition of The
Mediplex Group Inc. by Sun Healthcare Group Inc., the acquisition of Care
Enterprises, Inc. by Regency Health Services, Inc., the acquisition of Meridian
Healthcare, Inc. by Genesis Health Ventures, the acquisition of Greenery
Rehabilitation Group by Horizon and the acquisition of Vari-Care by Living
Centers of America. For the comparable transactions, First Boston determined the
relationship between the equity purchase price and net income and between the
enterprise value (the equity purchase price plus debt and redeemable preferred
stock minus cash and cash equivalents) and sales (revenue) and earnings before
interest, taxes, depreciation and amortization ("EBITDA"). First Boston then
derived a range of these multiples of net income (24.0x to 32.0x), sales
(revenue) (1.3x to 1.6x) and EBITDA (10.0x to 13.0x) and applied these multiples
to the financial data for Hillhaven. The reference range of enterprise value and
equity value derived from this analysis ranged from $1,800 million to $2,200
million and $1,339 million to $1,739 million, respectively, or $31.37 to $40.75
per fully diluted share.
Comparable Company Analysis
First Boston reviewed certain financial results of selected public
companies in the long-term care industry deemed to be comparable to Hillhaven.
Using publicly available financial and stock price data, First Boston determined
the relationship for these comparable companies between enterprise value (equity
value plus debt and redeemable preferred stock minus cash and cash equivalents)
and EBITDA and between enterprise value plus capitalized operating leases and
earnings before interest, taxes, depreciation, amortization and rent
("EBITDAR"). First Boston also compared equity values as multiples of
calendarized projected net income in 1995 and 1996. First Boston then derived a
range of these multiples of EBITDAR (8.0x to 10.0x), EBITDA (9.0x to 11.0x) and
estimated net income for calendar 1995 (16.0x to 19.0x) and calendar 1996 (13.0x
to 15.0x). The reference range, excluding synergies, of enterprise value and
equity value derived from this analysis ranged from $1,400 million to $1,700
million and $939 million to $1,239 million, respectively. First Boston then
added to this a range the discounted present value of certain synergies that may
result from the Merger ($300 million to $350 million) (see "Discounted Cash Flow
Analyses" below) and derived a subtotal reference range of enterprise value and
equity value of $1,700 million to $2,050 million, and $1,239 million to $1,589
million, respectively, or $29.03 to $37.23 per fully diluted share. The
comparable companies examined by First Boston included Arbor Health Care,
Beverly Enterprises Inc., Genesis Health Ventures, Inc., GranCare, Inc., Health
Care and Retirement Corporation, Horizon, Integrated Health Services, Living
Centers of America, Inc., Manor Care, Inc., Mariner Health Group, Inc.,
Multicare Companies, Inc., Regency Health Services Inc., Summit Care Corporation
and Sun Healthcare Group, Inc.
No company, transaction or business used in the comparable acquisitions and
comparable company analyses is identical to Hillhaven or the Merger.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in
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financial and operating characteristics and other factors that could affect the
acquisition or public trading values of the companies used in the foregoing
analyses or the company to which they are being compared.
Discounted Cash Flow Analyses
First Boston's DCF analyses were based on Hillhaven management's financial
forecast and a Vencor case forecast prepared in conjunction with Vencor
management for each of the five years ended May 31, from 1996 to 2000. First
Boston derived the unlevered "free cash flow" that Hillhaven was expected to
generate in each year from 1996 through 2000. First Boston discounted these cash
flows to present values, applying discount rates ranging from 10.0% to 14.0%.
First Boston arrived at this range of appropriate discount rates based on its
analysis of Hillhaven's weighted average cost of capital. To approximate the
terminal value of Hillhaven in 2000, First Boston applied terminal multiples of
7.0x to 9.0x EBITDA in 2000. First Boston also approximated the terminal value
by discounting the estimated "perpetual free cash flow" assuming that the
estimated cash flow in 2000 would grow at rates ranging from 5.0% to 7.0% in
perpetuity. These terminal values were then discounted to present value using
the range of discount rates described above.
First Boston derived a reference range of enterprise value and equity value
of $2,100 million to $2,450 million, and $1,639 million to $1,989 million,
respectively, using the Hillhaven management forecasts, or $38.40 to $46.61 per
fully diluted share. Using the Vencor case forecast, First Boston derived a
reference range of enterprise value and equity value of $1,700 million to $2,050
million, and $1,239 million to $1,589 million, respectively, or $29.03 to $37.23
per fully diluted share.
First Boston also derived a range of present values of certain synergies
that may result from the Merger using a similar methodology as described above
(discount rates of 10.0% to 14.0%, perpetual free cash flow growth rates of 5.0%
to 7.0% and terminal multiples of 9.0x to 11.0x EBIT in the year 2000). This
analysis implied a present value of the synergies ranging from $300 million to
$350 or $7.03 to $8.20 per fully diluted share.
Pro Forma Effect on Vencor's Fully Diluted Earnings Per Share
First Boston analyzed the pro forma effect on Vencor's fully diluted
earnings per share from the Merger based on Hillhaven management's financial
forecast and the conservative case forecast noted above in "The
Merger -- Opinions of Financial Advisors -- Discounted Cash Flow Analyses." The
analysis assumed a purchase price for Hillhaven shares of $32.25, a Vencor
Average Price per share of either $33.00 or $37.00, and included synergies. This
analysis, using the Hillhaven management forecast, indicated that the Merger
would be accretive for Vencor for the years analyzed (1995, 1996 and 1997)
assuming a Vencor Average Price of $37.00, and dilutive in 1995 and accretive
(excluding transaction costs) for the other years analyzed assuming a Vencor
Average Price of $33.00. This analysis, using the conservative case forecast,
indicated that the Merger would be dilutive for the years analyzed assuming a
Vencor Average Price of $37.00 or $33.00 per share.
Based on the foregoing analyses, First Boston derived an overall reference
range of enterprise value and equity value for Hillhaven, excluding synergies,
ranging from $1,800 million to $2,100 million and $1,339 million to $1,639
million, respectively, or $31.37 to $38.40 per fully diluted share.
In arriving at its opinions dated April 23, 1995 and the date of this Joint
Proxy Statement/Prospectus, First Boston performed a variety of financial
analyses, including those summarized above. The summary set forth in this
section does not purport to be a complete description of First Boston's
analyses. First Boston believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or of the summary above, without considering
all factors and analyses, could create an incomplete view of the processes
underlying First Boston's opinion, so that the ranges of valuation resulting
from any particular analysis described above should not be taken to be First
Boston's view of the actual value of Hillhaven. First Boston's analyses depend
on numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Hillhaven and Vencor. First Boston's analyses are not
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necessarily indicative of actual values or actual future results that might be
achieved and are not and do not purport to be appraisals or otherwise reflective
of prices at which companies may actually be sold.
Pursuant to an engagement letter dated April 4, 1995, between Vencor and
First Boston (i) Vencor has paid First Boston (a) a fee of $200,000 upon
execution of the engagement letter and (b) a fee of $1,500,000 upon execution of
the Merger Agreement and the delivery of the opinion dated April 23, 1995 and
(ii) Vencor has agreed to pay First Boston a fee of $7,500,000 (less the fees
described in (i)) upon the acquisition by Vencor of a majority of the voting
power of Hillhaven's outstanding voting securities, upon the acquisition of a
majority of Hillhaven's assets or upon the closing of a merger or other form of
business combination transaction. Vencor also agreed to reimburse First Boston
for its out-of-pocket expenses, including reasonable fees and disbursements of
counsel. Vencor has also agreed to indemnify First Boston and its affiliates,
their respective directors, officers, partners, agents and employees and each
person, if any, controlling First Boston or any of its affiliates against
certain liabilities, including certain liabilities under the federal securities
laws, relating to or arising out of its engagement.
First Boston is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Vencor
Board selected First Boston to act as its financial advisor on the basis of
First Boston's reputation and First Boston's prior work with Vencor. In the
past, First Boston has provided investment banking services for Vencor and
Hillhaven for which First Boston received customary compensation. First Boston
actively trades the debt and equity securities of both Vencor and Hillhaven for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities.
Hillhaven
Merrill Lynch delivered its written opinions dated April 23, 1995 and
, 1995 to the Hillhaven Board to the effect that, as of such dates,
and based upon the assumptions made, matters considered and limits of review as
set forth in such opinion, the consideration to be received by the holders of
shares of Hillhaven Common Stock (other than Tenet) pursuant to the Merger
Agreement is fair to such holders from a financial point of view. References
herein to the "Merrill Lynch Opinion" refer to the written opinion of Merrill
Lynch dated , 1995.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
MERRILL LYNCH, IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. HOLDERS OF SHARES OF HILLHAVEN COMMON STOCK ARE URGED TO,
AND SHOULD, READ THE MERRILL LYNCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH
OPINION IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE
CONSIDERATION TO BE RECEIVED BY HOLDERS OF HILLHAVEN COMMON STOCK (OTHER THAN
TENET) PURSUANT TO THE MERGER AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY HILLHAVEN STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
HILLHAVEN MEETING. THE SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE MERRILL LYNCH OPINION ATTACHED AS APPENDIX C HERETO.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things, (i) reviewed Hillhaven's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended May 31, 1994 and
Hillhaven's Forms 10-Q and the related unaudited financial information for the
quarterly periods ended August 31, 1994, November 30, 1994 and February 28,
1995; (ii) reviewed Vencor's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1994 and Vencor's Form
10-Q and the related unaudited financial information for the quarterly period
ended March 31, 1995; (iii) reviewed certain other filings with the Commission
made by Hillhaven and Vencor, including proxy statements and registration
statements, during the last three years; (iv) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of Hillhaven and Vencor, furnished to Merrill Lynch by
Hillhaven and Vencor, respectively; (v) conducted discussions with members of
senior management of Hillhaven and Vencor concerning their respective businesses
and prospects and potential synergies which might be realized following the
Merger; (vi) reviewed the historical market prices and trading activity for the
Hillhaven Common Stock and Vencor Common Stock and
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compared them with that of certain publicly traded companies which Merrill Lynch
deemed to be reasonably similar to Hillhaven and Vencor, respectively; (vii)
compared the results of operations of Hillhaven and Vencor with those of certain
companies which Merrill Lynch deemed to be reasonably similar to Hillhaven and
Vencor, respectively; (viii) compared the proposed financial terms of the
transactions contemplated by the Merger Agreement with the financial terms of
certain other mergers and acquisitions which Merrill Lynch deemed to be
relevant; (ix) analyzed the pro forma effect of the Merger on the combined
company earnings per share; (x) reviewed the Merger Agreement; and (xi) reviewed
such other financial studies and analyses and performed such other
investigations as Merrill Lynch deemed necessary, including its assessment of
general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by Hillhaven and Vencor, and Merrill Lynch did not independently
verify such information or undertake or obtain an independent appraisal of the
assets or liabilities of Hillhaven or Vencor or conduct a physical inspection of
Hillhaven's or Vencor's properties or facilities. With respect to the financial
forecasts and estimates of potential synergies furnished by Hillhaven and
Vencor, Merrill Lynch assumed that they were reasonably prepared and reflected
the best currently available estimates and judgment of Hillhaven's or Vencor's
management as to the expected future financial performance of Hillhaven or
Vencor, as the case may be. The Merrill Lynch Opinion is necessarily based upon
market, economic and other conditions as they existed on, and could be evaluated
as of, the date of the Merrill Lynch Opinion. The matters considered by Merrill
Lynch in arriving at the Merrill Lynch Opinion are based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions, many of which are beyond
Hillhaven's or Vencor's control.
The Merrill Lynch Opinion does not present a discussion of the relative
merits of the Merger as compared to any other business plan or opportunity that
might be presented to Hillhaven, or the effect of any other arrangement in which
Hillhaven might engage.
In arriving at the Merrill Lynch Opinion, Merrill Lynch considered certain
financial analyses and other factors, including the results of solicitations of
third-party indications of interest for the acquisition of Hillhaven as
described below, and used several valuation methods, which it discussed in its
presentation to the Hillhaven Board. The material portions of these analyses are
summarized below.
Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity
value for Hillhaven based upon the value, discounted to the present, of its
fiscal year end five-year stream of projected unleveraged cash flow and its
projected fiscal year 1999 terminal values based upon a range of multiples of
its projected fiscal year 1999 earnings before interest, taxes, depreciation,
amortization and rents ("EBITDAR") less its net debt, capitalized rents and
preferred stock. In conducting its analysis, Merrill Lynch utilized three
different sets of financial projections for Hillhaven (in each case, giving
effect to the Nationwide Transaction), all of which were provided by management
of Hillhaven. The "Base Case" was based on certain assumptions viewed by
Hillhaven management as the most likely scenario, the "Upside Case" assumed
Hillhaven would significantly exceed the Base Case projections and the "Downside
Case" assumed Hillhaven would significantly underperform in comparison to the
Base Case projections. Merrill Lynch applied discount rates ranging from 11% to
14% and multiples of terminal EBITDAR ranging from 8.2x to 9.0x. Based on this
analysis, Merrill Lynch calculated implied per share equity values for Hillhaven
Common Stock on a fully diluted basis ranging from $31.50 to $36.75 utilizing
the Base Case, from $39.50 to $45.50 utilizing the Upside Case, and from $26.50
to $31.00 utilizing the Downside Case.
Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch
compared certain financial information for Hillhaven with the corresponding
publicly available financial information of certain other companies which
Merrill Lynch deemed to be reasonably similar. Merrill Lynch compared Hillhaven
to eight long-term care companies: Beverly Enterprises, Inc., Genesis Health
Ventures, Inc., Health Care and Retirement Corporation, Horizon, Integrated
Health Services, Living Centers of America, Inc., Manor Care, Inc., and Sun
Healthcare Group, Inc.
Merrill Lynch calculated multiples for such companies of market value per
common share as of , 1995 to calendar 1994 earnings per share ("EPS"),
estimated calendar 1995 EPS, latest twelve
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months' ("LTM") book value, and LTM EBITDAR. Information was based on the
filings with the Commission made by such companies, except that estimates of the
future performance of such companies were obtained from First Call Research
Network. For these companies the multiple of market value per common share to
calendar 1994 EPS has a mean and median of 21.1x, the multiple to estimated
calendar 1995 EPS has a mean of 17.1x and a median of 17.6x, the multiple to LTM
book value has a mean of 3.1x and a median of 3.4x, and the multiple to LTM
EBITDAR has a mean of 8.9x and a median of 9.1x. Based upon this comparison,
Merrill Lynch estimated imputed public trading market values for a share of
Hillhaven Common Stock (on a fully diluted basis and after giving effect to the
Nationwide Transaction) of $24.69 based on calendar 1994 EPS, of between $24.11
and $24.82 based on estimated calendar 1995 EPS, of between $26.23 and $28.76
based on LTM book value, and of between $35.48 and $36.54 based on LTM EBITDAR.
Analysis of Selected Comparable Acquisition Transactions. Merrill Lynch
also reviewed publicly available information relating to seven transactions in
which companies in the long-term health care industry were acquired since
August, 1993. These comparable acquisitions included Mariner Health Group,
Inc.'s acquisition of Legend Medical Services, Inc., Horizon's acquisition of
Peoplecare Heritage, Multicare Companies' acquisition of Providence Health Care
Inc., Sun Healthcare Group's acquisition of The Mediplex Group, Regency Health
Services' acquisition of Care Enterprises, Genesis Health Ventures, Inc.'s
acquisition of Meridian Healthcare Group and Horizon's acquisition of Greenery
Rehabilitation Group. This review indicated that the prices paid in these
acquisitions represented a multiple of between (i) 24.0x and 26.0x LTM fully
diluted net income, (ii) 3.3x and 3.8x LTM book value, (iii) 10.0x and 11.5x LTM
earnings before interest, taxes, depreciation and amortization ("EBITDA"), (iv)
14.5x and 15.5x LTM earnings before interest and taxes ("EBIT"), and (v) 1.50x
and 1.70x LTM sales. Applying the ranges of multiples derived from these
acquisition transactions, Merrill Lynch then calculated implied values per share
of Hillhaven Common Stock (on a fully diluted basis, after taking into account
the Nationwide Transaction, and the payment of full liquidation value on the
Hillhaven Preferred Stock) of (i) between $26.90 and $29.14 based on LTM net
income and between $28.79 and $31.19 based on estimated 1995 net income, (ii)
between $27.92 and $32.15 based on LTM book value and between $28.40 and $32.70
based on estimated fiscal 1995 book value, (iii) between $27.63 and $33.55 based
on LTM EBITDA and between $28.22 and $34.22 based on estimated fiscal 1995
EBITDA, (iv) between $25.32 and $27.85 based on LTM EBIT and between $25.94 and
$28.51 based on estimated fiscal 1995 EBIT, and (v) between $45.47 and $53.10
based on LTM sales and between $46.53 and $54.31 based on estimated fiscal 1995
sales.
Hypothetical Break-up Analysis. Merrill Lynch considered the hypothetical
liquidation value of Hillhaven. In connection with this review, Merrill Lynch
estimated possible values for Hillhaven based upon a sale or valuation of the
assets and liabilities of Hillhaven. This analysis indicated that such pre-tax
hypothetical values for each share of Hillhaven Common Stock (on a fully diluted
basis, giving effect to the Nationwide Transaction, and the payment of
liquidation value on the Hillhaven Preferred Stock) might range from $29.86 to
$35.39 and the after-tax values might range from $28.81 to $33.98. Merrill Lynch
noted that a break-up of a company may take a significant period of time and
that there is substantial uncertainty as to the ability to complete a
liquidation at estimated values or to retain the experienced management team
necessary to help realize such estimated values. For these reasons, Merrill
Lynch cautioned that these values might not reflect the values actually
realizable by Hillhaven stockholders in the event of a liquidation of Hillhaven.
Pro Forma Merger Analysis. Merrill Lynch analyzed certain pro forma
effects resulting from the Merger based on various assumptions regarding
Hillhaven's and Vencor's projected financial performance, the Conversion Number
and the timing and magnitude of synergies realizable following the Effective
Time. On the basis of the projections of Hillhaven and Vencor, this analysis
indicated that the Merger would be accretive (excluding the one-time charge
relating to the Merger) for Vencor for substantially all combinations analyzed
for the years considered (1995, 1996 and 1997).
Contribution Analysis. Merrill Lynch analyzed and compared the respective
contribution of net income on a fully diluted basis of Hillhaven and Vencor to
the pro forma combined estimated net income for 1995, 1996 and 1997 based upon
the Base and Downside Case projections on a stand alone basis for each company
provided by Hillhaven and Vencor and based upon publicly available estimates
obtained from First Call
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Research Network. This analysis did not take into account any synergies
realizable following the Merger. Under the Base Case, Hillhaven would contribute
an estimated 56.7%, 55.9% and 55.9% of the net income of the combined operations
for the years 1995 through 1997. Under the Downside Case, Hillhaven would
contribute an estimated 56.5%, 52.9% and 52.4% of such net income for such
years. Using publicly available estimates, Hillhaven would contribute 58.2%,
56.2% and 54.5% of such net income for such years. Based on these contributions,
Merrill Lynch calculated an implied Conversion Number of between .823 and .977.
Implied Conversion Number. Merrill Lynch also calculated a range of
implied equity values of Hillhaven and Vencor based on a discounted cash flow
analysis using the Base Case and the Downside Case including the allocation of
100%, 50% and 0% of the synergies realizable following the Merger to Hillhaven.
From these implied equity values, Merrill Lynch derived a range of implied
Conversion Numbers of between .750 and 1.000. (Implied Conversion Numbers in
excess of .9 were derived only if 100% of synergies were allocated to
Hillhaven.)
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. In addition, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all factors and analyses, could
create an incomplete view of the process underlying the analysis set forth in
the Merrill Lynch Opinion. Merrill Lynch did not assign relative weights to any
of its analyses in preparing the Merrill Lynch Opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Any estimates incorporated in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
past or future values or results, which may be significantly more or less
favorable than any such estimates.
Estimated values do not purport to be appraisals and do not necessarily
reflect the prices at which businesses or companies may be sold in the future,
and such estimates are inherently subject to uncertainty. No public company
utilized as a comparison is identical to Hillhaven, Vencor or the business
segment for which a comparison is being made, and none of the comparable
acquisition transactions or other business combinations utilized as a comparison
is identical to the Merger. Accordingly, an analysis of publicly traded
comparable companies and comparable business combinations resulting from the
transactions is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
In connection with Merrill Lynch's engagement by Hillhaven, Merrill Lynch
was authorized to solicit third-party indications of interest for the
acquisition of Hillhaven. Merrill Lynch contacted approximately 29 long-term
care, hospital, insurance and other healthcare companies as well as financial
buyers to determine their interest in pursuing a business combination with
Hillhaven. Each interested party was given the opportunity to examine non-public
information regarding Hillhaven following the execution of a standard form of
confidentiality agreement, which included certain limitations on the ability of
parties to pursue transactions involving Hillhaven without Hillhaven's consent.
Several of such potentially interested parties would not agree to sign a
confidentiality and standstill agreement with Hillhaven. Based on preliminary
conversations between Merrill Lynch and the potentially interested entities and
Merrill Lynch's analysis of the financial condition of such entities, Merrill
Lynch concluded that it was unlikely that any of such entities had the
willingness and financial capacity to make an offer to acquire Hillhaven that
was superior to Vencor's offer.
The Hillhaven Board selected Merrill Lynch to render a fairness opinion
because Merrill Lynch is an internationally recognized investment banking firm
with substantial expertise in transactions similar to the Merger and because it
is familiar with Hillhaven and its business. As part of its investment banking
business, Merrill Lynch is continually engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions. Merrill Lynch
has provided, from time to time, various investment banking, financial advisory
and financial services to Hillhaven, Tenet and Vencor, for which it has received
customary compensation, including serving as financial advisor to Hillhaven in
connection with (i) the Nationwide Transaction, for which it will receive
aggregate compensation of $850,000, and (ii) Hillhaven's review and approval of
a grantor trust, for which it will receive a fee of $100,000.
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With respect to Merrill Lynch's services as financial advisor in connection
with the Merger, Hillhaven has agreed to pay Merrill Lynch a retainer of
$250,000, and a quarterly advisory fee of $500,000 on June 1, 1995 and quarterly
advisory fees of $750,000 on each of September 30, 1995, December 31, 1995, and
March 31, 1996, and, upon consummation of the Merger, will pay a transaction fee
of .45% of equity and debt (approximately $8.62 million, assuming a Transaction
Value of $31.00), against which the retainer fee and quarterly advisory fees
will be credited.
In addition, Hillhaven also has agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses (including reasonable fees and expenses of its
legal counsel) and to indemnify Merrill Lynch and certain related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of its engagement.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of Vencor, Hillhaven and Tenet for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
TERMS OF THE MERGER
At the Effective Time, Vencor and Hillhaven will consummate the Merger in
which Hillhaven will be merged with and into Vencor and the separate corporate
existence of Hillhaven will thereupon cease. Vencor will be the Surviving
Corporation in the Merger and will continue to be governed by the laws of the
State of Delaware. The Merger Agreement provides that the Certificate of
Incorporation of Vencor will be the Certificate of Incorporation of Vencor
following the Merger. The Merger Agreement provides that the Bylaws of Vencor in
effect at the Effective Time will continue as the Bylaws of Vencor following the
Merger.
Pursuant to the Merger Agreement, at the Effective Time, each share of
Hillhaven Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares held by Hillhaven as treasury stock or owned by any
Vencor Company immediately prior to the Effective Time) will be converted into
the right to receive that number of duly authorized, validly issued, fully paid
and nonassessable shares of Vencor Common Stock equal to the Conversion Number.
The Conversion Number will not be less than 0.768 nor more than 0.977; provided,
however, that if the product of the Vencor Average Price times the Conversion
Number is less than $31.00 per share, Hillhaven can terminate the Merger
Agreement unless Vencor has advised Hillhaven in writing that the Conversion
Number will be determined by dividing $31.00 by the Vencor Average Price and
will not be subject to a maximum.
The Merger Agreement provides that at the Effective Time each share of
Hillhaven Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than shares held by Hillhaven as treasury stock or owned
by any Vencor Company immediately prior to the Effective Time) will be converted
into the right to receive $900 in cash per share, plus accrued and unpaid
dividends to the Effective Time. On September , 1995, the accrued and unpaid
dividends with respect to the Hillhaven Series C Preferred Stock and the accrued
and unpaid dividends with respect to the Hillhaven Series D Preferred Stock are
expected to be approximately $ and $ , respectively.
If at any time during the period between the date of the Merger Agreement
and the Effective Time any change in the outstanding shares of Vencor Common
Stock shall occur, such as any reclassification, recapitalization, stock split
or combination, exchange or readjustment or stock dividend with a record date
during such period, the Conversion Number will be appropriately adjusted.
No fractional shares of Vencor Common Stock will be issued in the Merger
and fractional share interests will not entitle the owner thereof to vote or to
any other rights of a Vencor stockholder. All fractional shares of Vencor Common
Stock that a holder of Hillhaven Common Stock, Hillhaven Options or PIP Options
would otherwise be entitled to receive as a result of the Merger will be
aggregated. If a fractional share results, such holder will be entitled to
receive cash equal to the Vencor Average Price multiplied by the fraction of a
share of Vencor Common Stock to which such holder would otherwise have been
entitled.
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EFFECTIVE TIME; CLOSING
The Merger will become effective at the Effective Time, which will occur on
the date and at such time as both the Certificate of Merger is filed with the
Secretary of State of the State of Delaware and the Articles of Merger are filed
with the Secretary of State of the State of Nevada. The Merger Agreement
provides that the closing (the "Closing") will take place on the first business
day on which the conditions specified in the Merger Agreement are fulfilled or,
to the extent permitted, waived, or on such other date as Vencor and Hillhaven
may agree. The date upon which the Closing will occur is herein called the
"Closing Date."
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME; CERTAIN COVENANTS; NO SOLICITATIONS
OF TRANSACTIONS
Operational Covenants
The Merger Agreement provides that, during the period from the date of the
Merger Agreement until the Effective Time, except as otherwise contemplated by
the Merger Agreement, each of Vencor and Hillhaven will, and each of its
respective subsidiaries will, conduct its business only in the ordinary course
consistent with past practice and use its respective reasonable best efforts to
preserve intact its business organization and its relationships with third
parties and to keep available the services of their present officers and key
employees.
Furthermore, from the date of the Merger Agreement until the Effective
Time, neither Vencor nor its subsidiaries will, except as provided in the Merger
Agreement, (i) merge or consolidate (other than with a subsidiary) or acquire a
material amount of stock or assets of any other person or entity; provided that
Vencor and its subsidiaries may merge or consolidate with, or acquire the stock
or assets of a person or entity primarily engaged in a business in which Vencor
or any of its subsidiaries is presently engaged, provided that such transaction
would not require the preparation of pro forma financial statements in
accordance with applicable rules and regulations of the Commission or might
reasonably be expected to delay the transaction contemplated by the Merger
Agreement; (ii) sell, lease, license, mortgage, pledge or otherwise dispose of
any material assets or property except (a) pursuant to existing contracts or
commitments, (b) in the ordinary course consistent with past practice or (c)
transfers between Vencor and/or its wholly-owned subsidiaries; (iii) (a) issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
capital stock of Vencor or its subsidiaries, other than to carry out the Merger
and as otherwise provided in the Merger Agreement, (b) split, combine or
reclassify any capital stock of Vencor or its subsidiaries or (c) repurchase,
redeem or otherwise acquire any capital stock of Vencor or its subsidiaries; or
(iv) take or agree or commit to take any action that would make any
representation and warranty of Vencor under the Merger Agreement materially
inaccurate at, or as of any time prior to, the Effective Time or which is
reasonably likely to result in a delay in consummation of the Merger.
In addition, Vencor will not adopt or propose any change to its certificate
of incorporation or bylaws and Vencor will not declare or pay any dividends or
make any distributions on Vencor Common Stock except as contemplated by the
Merger Agreement. Furthermore, Vencor will not, except to the extent required by
law, voluntarily accelerate the vesting of any compensation or benefit or take
any action with respect to any Vencor employee plan or benefit arrangement which
could prevent the Merger from being treated as a pooling of interests. Vencor
will not, and will not permit any of its subsidiaries to, agree or commit to do
any of the foregoing, except that Vencor may grant stock options to employees in
the ordinary course of business consistent with past practice. Vencor will also
use its best efforts to cause its shares of common stock to be issued in the
Merger to be approved for listing on the NYSE prior to the Effective Time.
From the date of the Merger Agreement until the Effective Time, neither
Hillhaven nor its subsidiaries will (i) merge, consolidate or enter into a share
exchange or acquire any stock or any material amount of assets of any other
person or entity or sell, lease, license, mortgage, pledge or otherwise dispose
of any material assets or property except (a) pursuant to existing contracts or
commitments, (b) in the ordinary course consistent with past practice or (c)
transfers between Hillhaven and/or its wholly-owned subsidiaries; (ii) (a)
issue, deliver, sell, encumber or authorize or propose the issuance, delivery,
sale or encumbrance of, any capital stock or other securities of Hillhaven or
its subsidiaries, other than issuing shares of Hillhaven Common Stock upon the
exercise of Hillhaven Options, to fulfill existing obligations or the vesting of
performance share awards prior to the Effective Time, (b) split, combine or
reclassify any Hillhaven Stock or
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securities of its subsidiaries or (c), except pursuant to the Merger Agreement,
repurchase, redeem or otherwise acquire any Hillhaven Stock or securities of its
subsidiaries; or (iii) take any action that would make any representation and
warranty of Hillhaven under the Merger Agreement materially inaccurate at, or as
of any time prior to, the Effective Time or which is reasonably likely to result
in a delay in consummation of the Merger.
In addition, Hillhaven will not, except as expressly provided for in the
Merger Agreement, (i) adopt or propose any change or amendment in its Articles
of Incorporation or Bylaws or Rights Agreement dated January 31, 1990 between
Hillhaven and Manufacturers Hanover Trust Company (the "Hillhaven Rights
Agreement"); (ii) declare, set aside, or pay any dividends or make any
distributions on Hillhaven Common Stock or pay any dividends on Hillhaven
Preferred Stock, except in accordance with the terms thereof and in a form of
consideration consistent with past practice; or (iii) make any commitment or
enter into any contract or agreement material to Hillhaven and its subsidiaries
taken as a whole, except in the ordinary course of business consistent with past
practice and will consult with Vencor before making or committing to make any
capital expenditure of $500,000 or more.
Hillhaven also will not increase the compensation or fringe benefits of its
directors, officers and other key employees or pay any pension or retirement
allowance not required by any existing plan or agreement to such employees, or
become a party to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any employee, other than general increases in the
compensation of key employees (other than executive officers of Hillhaven) in
the ordinary course of business consistent with past practice, and Hillhaven
will not voluntarily accelerate the vesting of any compensation or benefit or
take any action with respect to any employee plan or benefit arrangement which
could prevent the Merger from being treated as a pooling of interests, provided
that Hillhaven's bonus payments typically paid as of May 31 may be paid
consistent with past practice and Hillhaven can increase the compensation of one
individual previously identified to Vencor. Hillhaven will also ensure that
executing the Merger Agreement and the transactions contemplated thereby will
not result in the grant of any rights, or the exercise of any rights
outstanding, to any person under the Hillhaven Rights Agreement. Finally,
Hillhaven will not amend or waive any provision of the agreement relating to the
Nationwide Transaction.
No Solicitations
The Merger Agreement provides that each of Vencor and Hillhaven agrees that
from the date of the Merger Agreement until the termination of the Merger
Agreement, it and its subsidiaries will not, and will use its respective
reasonable best efforts to cause its officers, directors, employees or other
agents not to, directly or indirectly, (i) take any action to solicit or
initiate any Acquisition Proposal or (ii) engage in negotiations with, or
disclose any non-public information relating to it or any of its subsidiaries or
afford access to the properties, books or records of it or any of its
subsidiaries to any person or entity, unless with respect to the actions
referred to in (ii) it is otherwise required to in accordance with the fiduciary
duties of the Board of Directors under applicable law as advised by independent
legal counsel, in response to a person or entity that has made an Acquisition
Proposal in writing. Hillhaven, however, is not prohibited from amending or
waiving the provisions of confidentiality agreements it has entered into with
third persons in respect of the ability of such persons to submit an Acquisition
Proposal to Hillhaven or its stockholders, and Hillhaven has already done so.
Each of Vencor and Hillhaven will, as promptly as reasonably practicable, notify
the other after receipt of any Acquisition Proposal or any indication that any
person or entity is considering making an Acquisition Proposal and identify the
party with whom it has negotiated or to whom it has disclosed confidential
information. An "Acquisition Proposal" is defined in the Merger Agreement as any
good faith offer or proposal for a merger or other business combination
involving Vencor or Hillhaven, as the case may be, or any of their respective
subsidiaries or the acquisition of any equity interest in, or a substantial
portion of the assets of, it or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement.
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CERTAIN REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder, certain
transactions, including the Merger, may not be consummated unless certain
waiting period requirements have been satisfied. Vencor and Hillhaven each filed
a Notification and Report Form pursuant to the HSR Act with the DOJ and the FTC
on June 13, 1995. Early termination of the waiting period was granted on June
26, 1995. At any time before or after the Effective Time, the FTC, the DOJ or
others could take action under the antitrust laws with respect to the Merger,
including seeking to enjoin the consummation of the Merger, to rescind the
Merger or to require divestiture of substantial assets of Vencor or Hillhaven.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if such a challenge is made, that it would not be
successful.
The Merger Agreement provides that each of Vencor and Hillhaven will
cooperate with one another in determining whether any action by or in respect
of, or filing with, any government body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by the Merger Agreement. Vencor
and Hillhaven will also cooperate with one another in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith and seeking to obtain timely any
such actions, consents, approvals or waivers. Such actions include filing
notices with, and in some jurisdictions obtaining approvals or consents from,
various state agencies responsible for the licensure or certification of
healthcare facilities in states where Hillhaven and Vencor conduct their
respective businesses. Each of Vencor and Hillhaven also agrees to use its best
reasonable efforts to respond as promptly as practicable to all inquiries
received from the DOJ or the FTC for additional information or documentation in
connection with the HSR filing. Vencor and Hillhaven each will consult with the
other in connection with the foregoing and each will use its best reasonable
efforts to take any steps as may be necessary in order to obtain any consents,
approvals, permits or authorizations required in connection with the Merger,
including negotiating a resolution of disputes with governmental or regulatory
authorities and performing the resolution as negotiated.
EMPLOYEE BENEFITS
Hillhaven officers and employees hold outstanding stock awards in the form
of stock option grants, restricted stock grants and performance share grants
under the Stock Incentive Plan. Hillhaven outside directors hold outstanding
stock option grants under the Directors' Stock Plan. Under the Directors' Stock
Plan, the Merger constitutes an event pursuant to which all outstanding options
will become exercisable and vested. The Merger Agreement does not provide for
continuation of stock option grants and restricted stock grants under the Stock
Incentive Plan and, accordingly, all stock option awards will become exercisable
and vested and all restrictions on restricted stock grants will lapse in
accordance with the terms of the Stock Incentive Plan. Vencor will deliver in
respect of each stock option granted under the Directors' Stock Plan and the
Stock Incentive Plan the number of shares of Vencor Common Stock equal to the
product of (x) the result of multiplying the Conversion Number by a fraction,
the numerator of which is the excess, if any, of the Transaction Value over the
exercise or strike price of such Hillhaven Option and the denominator of which
is the Transaction Value and (y) the number of shares of Hillhaven Common Stock
subject to such Hillhaven Option. The Merger Agreement provides that Vencor will
continue the performance share grants under the Stock Incentive Plan and,
immediately after the Merger, satisfy its obligations under such performance
share grants by the delivery to holders of such grants a number of shares of
Vencor Common Stock equal to the product of (x) .75 multiplied by the Conversion
Number and (y) the number of shares of Hillhaven Common Stock subject to such
award.
Hillhaven officers and employees hold PIP Options granted pursuant to
Hillhaven's Performance Investment Plan. As a result of the Merger these PIP
Options, whether or not exercisable, and whether or not vested, will become
fully exercisable and vested. Each PIP Option which is then outstanding will be
canceled and in consideration of such cancellation, Vencor will deliver for each
PIP Option the number of shares of Vencor Common Stock having a value equal to
the value which a PIP Optionholder would realize had such person exercised an
option immediately prior to the Effective Time, which is equal to the product of
(x) the result of multiplying the Conversion Number by a fraction, the numerator
of which is the excess, if any, of the
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Transaction Value over $15.7105 (which represents the exercise price of $16.5375
less the amount attributable to the participant's original capital contribution
of $.8270) and the denominator of which is the Transaction Value and (y) the
number of shares of Hillhaven Common Stock subject to such PIP Option upon the
conversion of the underlying PIP Convertible Debentures and Hillhaven Series B
Preferred Stock.
The Merger Agreement states that Vencor intends, following the Effective
Time through December 31, 1995, to continue, to the extent practicable and
appropriate, the existing level of employee benefits provided by Hillhaven and
its subsidiaries (other than employee benefit plans based on Hillhaven capital
stock) and thereafter to provide to officers and employees of Hillhaven and its
subsidiaries benefits comparable to those provided to similarly situated
employees of Vencor and its subsidiaries under Vencor's employee benefit plans.
Vencor has agreed to honor and perform all severance, indemnification and
similar agreements of Hillhaven identified in the Merger Agreement. Hillhaven,
however, will use its best efforts to amend all severance agreements to
eliminate, as a basis upon which severance benefits may be paid, all references
to changes in title. For the purposes of Hillhaven's Supplemental Executive
Retirement Plan, the Effective Time will be deemed to be a change in control.
INDEMNIFICATION AND INSURANCE
Pursuant to the Merger Agreement, from and after the Effective Time, Vencor
will indemnify, defend and hold harmless the present and former officers and
directors of Hillhaven and its subsidiaries against all losses, claims, damages
and liability for acts or omissions occurring at or prior to the Effective Time
to the fullest extent that Hillhaven and its subsidiaries would have been
permitted under applicable law and under the Articles of Incorporation and
Bylaws of Hillhaven or such subsidiary. For at least six years after the
Effective Time, Vencor will use its best efforts to, without any lapse in
coverage, provide directors' and officers' liability insurance for acts or
omissions occurring prior to the Effective Time covering those persons currently
covered by Hillhaven's directors' and officers' liability insurance policy on
terms, coverage and limits no less favorable than the policy in effect on the
date of the Merger Agreement. In no event, however, will Vencor be required to
pay annually more than 200% of the premium paid by Hillhaven in its most
recently ended fiscal year. Vencor will reimburse all expenses including
reasonable attorney's fees, incurred by any person to enforce successfully the
indemnification and insurance obligations of Vencor under the Merger Agreement.
CONDITIONS
The respective obligations of Vencor and Hillhaven to consummate the Merger
are subject to a number of conditions, including the following: (a) approval by
the Hillhaven stockholders of the Merger Agreement, (b) approval by the Vencor
stockholders of (i) the Merger Agreement and the transactions contemplated
thereby and any necessary amendment to Vencor's stock option plans and (ii) the
Charter Amendment, (c) expiration or termination of the waiting period
applicable to the Merger under the HSR Act, (d) receipt of all material
consents, authorizations, orders, and approvals of (or filings or registrations
with) any governmental commission, board or other regulatory body, (e) there
being in effect no provision of any applicable domestic law or regulation and no
judgment, injunction, order or decree of a court or governmental agency or
authority of competent jurisdiction which has the effect of making the Merger
illegal or would otherwise restrain or prohibit the consummation of the Merger,
(f) the declaration of effectiveness by the Commission under the Securities Act
of the Vencor S-4 Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, and no stop order suspending such effectiveness
being in effect and no proceedings for such purpose having been initiated or
threatened by the Commission, (g) approval for listing on the NYSE, subject to
official notice of issuance, of Vencor's Common Stock to be issued in the
Merger, (h) receipt by Vencor and Hillhaven of an opinion from Ernst & Young LLP
and KPMG Peat Marwick LLP, respectively, to the effect that the Merger will
qualify as a pooling of interests under generally accepted accounting principles
and the Commission will not have objected to such accounting treatment, and (i)
receipt of all material third party consents.
In addition, the obligation of Vencor to consummate the Merger is subject
to the satisfaction of the following conditions: (a) Hillhaven has materially
performed its obligations under the Merger Agreement by
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the Effective Time and Hillhaven's representations and warranties contained in
the Merger Agreement are materially true at the Effective Time, except for
representations and warranties made as of a specified date, and Vencor will have
received a certificate signed by an executive officer and the chief financial
officer of Hillhaven to the foregoing effect, (b) Hillhaven has provided Vencor
with "cold comfort" letters of KPMG Peat Marwick LLP as contemplated by the
Statement of Auditing Standards with respect to Letters to Underwriters
promulgated by the American Institute of Certified Public Accountants with
respect to procedures undertaken by them relating to Hillhaven and its
subsidiaries' financial statements contained in the Vencor S-4 Registration
Statement, of which this Joint Proxy Statement/Prospectus is a part, and such
other matters customarily included in such comfort letters relating to
transactions similar to the Merger, and (c) receipt by Vencor of opinions from
Sullivan & Cromwell (or such other counsel selected by Vencor), based on
relevant assumptions and representations, that the Merger will qualify for
federal income tax purposes as a reorganization within the meaning of Section
368 of the Code.
In addition, the obligation of Hillhaven to consummate the Merger is
subject to the satisfaction of the following conditions: (a) Vencor has
materially performed its obligations under the Merger Agreement by the Effective
Time and Vencor's representations and warranties contained in the Merger
Agreement are materially true at the Effective Time, and Hillhaven will have
received a certificate signed by the chief financial officer of Vencor to the
foregoing effect, (b) Vencor has provided Hillhaven with "cold comfort" letters
of Ernst & Young LLP as contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants with respect to procedures undertaken by them
relating to Vencor and its subsidiaries' financial statements contained in the
Vencor S-4 Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, and such other matters customarily included in
such comfort letters relating to transactions similar to the Merger, (c) receipt
by Hillhaven of opinions from Fried, Frank, Harris, Shriver & Jacobson (or such
other counsel selected by Hillhaven), based on relevant assumptions and
representations, that the Merger will qualify for federal income tax purposes as
a reorganization within the meaning of Section 368 of the Code and (d) the three
Hillhaven Designated Directors selected by Hillhaven's Board to be appointed to
Vencor's Board have been so elected to Vencor's Board.
If the Merger is not consummated, Vencor intends to continue to pursue its
strategic objectives, including the creation of full-service integrated networks
for the care of the elderly. Through the creation of these networks, Vencor
intends to position itself to provide cardiopulmonary care in a variety of
sites, including hospitals, skilled nursing facilities and patient homes. In
addition, Vencor intends to explore ways in which it can transfer its expertise
in the efficient delivery of cardiopulmonary care to other healthcare
businesses.
Hillhaven has no fixed plans as to how it will proceed if the Merger is not
consummated, but will consider all strategic alternatives then available to it,
which may include remaining an independent public company.
WAIVER AND AMENDMENT
The Merger Agreement provides that, subject to the applicable provisions of
Delaware Law and Nevada Law, any provision of the Merger Agreement may be
amended or waived prior to the Effective Time, if such amendment or waiver is in
writing and signed, in the case of an amendment by Hillhaven and Vencor or, in
the case of a waiver, by the party against whom the waiver is to be effective;
provided that any waiver or amendment shall be effective against a party if the
Board of Directors of such party approves such waiver or amendment. The failure
or delay by any party in exercising any right, power or privilege, however, does
not operate as a waiver of such right, power or privilege.
TERMINATION
The Merger Agreement states that it may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after any
requisite stockholder approval, (i) by mutual consent of Vencor and Hillhaven by
action of their respective Boards or (ii) by action of either the Vencor or
Hillhaven Board if (a) the Merger has not been consummated by December 31, 1995,
(b) if any of the stockholder approvals required pursuant to the Merger
Agreement have not been obtained due to the failure to obtain the
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requisite vote upon a vote at a duly held meeting of stockholders or at any
adjournment or postponement thereof, (c) there has been a material breach of any
(x) representation or warranty contained in the Merger Agreement on the part of
the other party which cannot be cured prior to the Effective Time or (y)
covenants or agreements set forth in the Merger Agreement on the part of the
other party which breach by its nature cannot be cured or, if curable, is not
cured within 30 days after written notice is given by the terminating party, or
(d) there is any applicable domestic law, rule or regulation that makes the
consummation of the Merger illegal or if any judgment, injunction, order or
decree of a court or governmental agency or authority of competent jurisdiction
restrains or prohibits the consummation of the Merger, and such judgment,
injunction, order or decree is final and nonappealable.
In addition, the Merger Agreement states that it may be terminated and the
Merger abandoned at any time prior to the Effective Time, (i) by action of the
Vencor Board, if the Hillhaven Board does not publicly recommend in the Joint
Proxy Statement/Prospectus that Hillhaven's stockholders approve and adopt the
Merger Agreement and the Merger, or if the Hillhaven Board withdraws, changes or
modifies its recommendation in any manner adverse to Vencor, or (ii) by action
of the Hillhaven Board, if the Vencor Board does not publicly recommend in the
Joint Proxy Statement/Prospectus that Vencor's stockholders approve and adopt
the Merger Agreement and the Merger.
Furthermore, the Merger Agreement states that it may be terminated and the
Merger abandoned prior to the Effective Time by Hillhaven if the product of the
Vencor Average Price (defined to be the average closing price on the NYSE of
Vencor Common Stock for the ten consecutive trading days ending with the second
trading day immediately preceding the Effective Time) times the Conversion
Number is less than $31.00 per share. Hillhaven, however, may not terminate the
Merger Agreement if Vencor advises it in writing that the Conversion Number will
be determined by dividing $31.00 by the Vencor Average Price without regard to
any maximum imposed on the Conversion Number by the Merger Agreement. Hillhaven
may also terminate the Merger Agreement and abandon the Merger at any time prior
to the Effective Time if Hillhaven receives an unsolicited written Acquisition
Proposal that Hillhaven's Board determines in good faith, after consultation
with its legal and financial advisors, is reasonably likely to lead to a
transaction that is more favorable to its stockholders than the Merger and that
failing to take such action would be a breach of the Hillhaven Board's fiduciary
duties. Hillhaven, however, may not terminate the Merger Agreement and abandon
the Merger unless it has provided Vencor with five business days prior written
notice of its intent to terminate the Merger Agreement due to such an
Acquisition Proposal. The written notice must include a detailed summary of the
terms and conditions of the Acquisition Proposal. If Hillhaven elects to
terminate the Merger Agreement and abandon the Merger due to such Acquisition
Proposal, Hillhaven will pay a termination fee (as described below) to Vencor.
Except as set forth in the Merger Agreement, in the event of termination of
the Merger Agreement, no party to the Merger Agreement or any of its directors
or officers will have any liability or further obligation to any other party,
except that nothing in the Merger Agreement will relieve any party from
liability for any breach of the covenants respecting confidential information in
the possession of the other party and nothing in the Merger Agreement will
relieve any party of liability under certain termination fees, as described
below.
CERTAIN TERMINATION FEES
If the Merger Agreement is terminated (a) by Hillhaven (i) as a result of
an Acquisition Proposal for Hillhaven, as described above, or (ii) when an
Acquisition Proposal for Hillhaven has been made and thereafter the Merger
Agreement is terminated because the Merger has not been consummated by December
31, 1995 or the requisite Hillhaven stockholder approval has not been obtained
or (iii) when an Acquisition Proposal for Hillhaven has been made and the Merger
Agreement is terminated because the Hillhaven Board did not publicly recommend
that Hillhaven stockholders approve and adopt the Merger Agreement or the
Hillhaven Board withdrew, modified or changed such recommendation in a manner
adverse to Vencor or (b) by Vencor (i) when an Acquisition Proposal for Vencor
has been made and thereafter the Merger Agreement is terminated because the
Merger has not been consummated by December 31, 1995 or the requisite Vencor
stockholder approval has not been obtained or (ii) when an Acquisition Proposal
for Vencor has been made and the Merger Agreement is terminated because the
Vencor Board did not publicly
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recommend that Vencor stockholders approve and adopt the transactions
contemplated by the Merger Agreement or the Vencor Board withdrew, modified or
changed such recommendation in a manner adverse to Hillhaven, then, in the case
of clause (a) above, Hillhaven will pay Vencor and, in the case of clause (b)
above, Vencor will pay Hillhaven, a cash fee of $35,000,000. If the proposed
Acquisition Proposal in either (a) or (b) above is to be accounted for as a
pooling of interests, then the amount of the cash fee will be reduced to
$13,500,000.
Hillhaven will reimburse Vencor for all of its out-of-pocket expenses and
fees (subject to a maximum reimbursement obligation of $5,000,000) related to
the Merger incurred prior to the termination of the Merger Agreement (including
fees and expenses of Vencor's counsel, financial advisors, accountants,
environmental experts and consultants, and all printing and advertising
expenses) if the Merger Agreement is terminated because the stockholders of
Hillhaven fail to approve the Merger Agreement and no Acquisition Proposal
involving Hillhaven is outstanding at the time of such vote.
Vencor will reimburse Hillhaven for all of its out-of-pocket expenses and
fees (subject to a maximum reimbursement obligation of $5,000,000) related to
the Merger incurred prior to the termination of the Merger Agreement (including
fees and expenses of Hillhaven's counsel, financial advisors, accountants,
environmental experts and consultants, and all printing and advertising
expenses) if the Merger Agreement is terminated because the stockholders of
Vencor fail to approve the Merger Agreement and no Acquisition Proposal
involving Vencor or its subsidiaries is outstanding at the time of such vote.
EXPENSES
Except as provided above under "-- Certain Termination Fees," pursuant to
the Merger Agreement, whether or not the Merger is consummated, all costs and
expenses incurred in connection with the Merger Agreement will be paid by the
party incurring such cost or expense, except that Vencor and Hillhaven will each
pay one-half of all printing, filing and mailing costs for the Vencor S-4
Registration Statement and this Joint Proxy Statement/Prospectus and all
Commission and other regulatory filing fees.
ACCOUNTING TREATMENT
Vencor and Hillhaven believe that the Merger will qualify as a pooling of
interests for accounting and financial reporting purposes, and have been so
advised by their respective independent public accountants. Under this method of
accounting, Vencor will restate its consolidated financial statements to include
the assets, liabilities, shareholders' equity and results of operations of
Hillhaven. It is anticipated that upon consummation of the Merger, the fiscal
year of the combined company will be the calendar year.
Consummation of the Merger is conditioned upon the receipt by each of
Vencor and Hillhaven of a letter from their respective independent public
accountants stating that the Merger, in their respective opinions, will qualify
as a pooling of interests for accounting purposes. See "-- Conditions" and
"Unaudited Pro Forma Condensed Combined Financial Information."
RESALE OF VENCOR CAPITAL STOCK
The shares of Vencor Common Stock issuable to stockholders of Hillhaven in
connection with the Merger have been registered under the Securities Act. Such
shares may be traded freely and without restriction by those stockholders not
deemed to be "affiliates" of Vencor or Hillhaven as that term is defined in the
rules under the Securities Act. "Affiliates" are generally defined as persons
who control, are controlled by or are under common control with Hillhaven at the
time of the Hillhaven Meeting. Shares of Vencor Common Stock received by those
stockholders of Hillhaven who are deemed to be "affiliates" of Hillhaven may be
resold without registration as provided for by Rules 144 or 145, or as otherwise
permitted, under the Securities Act. This Joint Proxy Statement/Prospectus does
not cover any resales of Vencor Common Stock received by affiliates of
Hillhaven, or by certain of their family members or related interests.
Pursuant to the Merger Agreement, Hillhaven has agreed to use its best
efforts to cause each holder of Hillhaven's capital stock deemed to be an
affiliate of such company to enter into a written agreement providing
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that such affiliate will not sell, pledge, transfer or otherwise dispose of the
shares of Vencor Common Stock to be received by such person in the Merger except
in compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder.
HILLHAVEN LITIGATION
A number of actions have resulted from Horizon's January and March
proposals to acquire Hillhaven.
On February 6, 1995, Hillhaven filed a complaint against Horizon in the
United States District Court for the District of Nevada seeking injunctive and
declaratory relief that a business combination between Horizon and Hillhaven is
prohibited by the Nevada statute regarding business combinations with interested
stockholders (NRS Sections 78.411 through 78.444) by reason of Horizon's
arrangements with Tenet. On February 27, 1995, Horizon filed an answer and a
counterclaim alleging that, among other things, Hillhaven and all of its
directors (other than Messrs. de Wetter and Andersons) have breached their
fiduciary duties to Hillhaven's stockholders in connection with their
consideration of Horizon's acquisition proposal and certain actions taken by
Hillhaven, including the formation of a grantor trust, the amendment of
Hillhaven's stockholder rights plan and the filing of a shelf registration
statement with the Commission. The counterclaim seeks injunctive and declaratory
relief and compensatory and punitive damages in unspecified amounts. Hillhaven
has answered the counterclaim and believes Horizon's claims are without merit.
By stipulation of the parties, all proceedings in these actions have been stayed
until October 31, 1995.
Hillhaven and its directors are named as defendants in a number of putative
class action complaints filed on behalf of Hillhaven's stockholders in Nevada
state court and California state court. These complaints raise allegations that
Hillhaven and its directors have breached their fiduciary duties to Hillhaven's
stockholders in connection with the consideration of Horizon's acquisition
proposal and certain corporate actions also cited in Horizon's counterclaim.
These actions seek declaratory and injunctive relief and money damages in
unspecified amounts. The Service Employees International Union (AFL-CIO), and
Joann Sforza, a Hillhaven employee and union member, are seeking to intervene as
party plaintiffs in both the Nevada and California putative class actions
brought on behalf of Hillhaven's stockholders, alleging that their interests as
stockholders and employees of Hillhaven are not adequately represented.
Hillhaven has opposed this intervention. In addition, Tenet filed a complaint
against Hillhaven and two of its directors, Mr. Busby and Mr. Marker, in state
court in California seeking declaratory and injunctive relief and alleging,
among other things that they have breached their fiduciary duties to Tenet and
Hillhaven's other stockholders in connection with their consideration of
Horizon's acquisition proposal and certain of the other corporate actions cited
in the Horizon and putative class action complaints (the "Tenet Action"). The
plaintiffs in the Nevada state court actions have moved to dismiss their
complaints, which dismissal has been opposed by Hillhaven and its directors.
Consideration of this motion has been suspended without date. Hillhaven believes
all of these actions are without merit.
By stipulation of the parties, all proceedings in the Tenet Action have
been stayed until August 10, 1995.
The stays in the actions filed in the California state courts have expired;
however, no schedule has been established with respect to further proceedings in
these actions.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of Hillhaven's Board, stockholders
should be aware that certain members of management and of the Hillhaven Board
have certain interests in the Merger that are in addition to the interests of
stockholders generally and which may create potential conflicts of interest.
Hillhaven Option Plans and Other Awards
As described above under "The Merger -- Employee Benefits", the Merger will
result in the acceleration of exercisability and vesting of stock options
granted under the Hillhaven Option Plans, the lapse of restrictions on
restricted stock awards and the continuation, and subsequent payments of Vencor
stock in satisfaction of performance share award grants outstanding under the
Hillhaven Option Plans. The Merger will
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also result in the acceleration of exercisability and vesting of PIP Options
granted pursuant to Hillhaven's Performance Investment Plan and the cancellation
of PIP Options in exchange for Vencor Common Stock in an amount calculated as
described in "The Merger -- Employee Benefits".
Pursuant to the foregoing treatment of awards under the Hillhaven Option
Plans and PIP Options, and assuming a Conversion Number of 0.977 and a
Transaction Value of $31.00, Messrs. Busby and Marker would each receive an
aggregate of 565,674 and 392,135 shares of Vencor Common Stock, respectively,
the other seven executive officers of Hillhaven would receive an aggregate of
815,915 shares of Vencor Common Stock and other officers and employees of
Hillhaven would receive an aggregate of 1,016,304 shares of Vencor Common Stock.
Based on the closing price on the NYSE of Vencor Common Stock on
, 1995 of $ , the dollar value of Vencor Common
Stock to be received by Messrs. Busby and Marker, the other seven executive
officers of Hillhaven and the other officers and employees of Hillhaven pursuant
to the Hillhaven Option Plans and PIP Options is $ , $ , $ and
$ , respectively.
Approval of the Merger Agreement and the transactions related thereto by
the stockholders of Vencor and Hillhaven will constitute stockholder approval of
the treatment of the Hillhaven Options, PIP Options, restricted shares and
performance share described above at the Effective Time.
Severance Agreements
Preexisting severance agreements with certain Hillhaven officers, including
each of Hillhaven's executive officers, provide for the payment of severance
compensation, consisting of a lump-sum payment of one or two years' base salary,
upon certain terminations of employment in the event of a change in control as
defined in the agreements. The Merger will result in a change in control under
the agreements as a result of a change in the majority of the Hillhaven Board.
Payments are made under the severance agreements following a termination by
Hillhaven without cause or a termination by the executive following (i) a
reduction in salary, (ii) a reduction in fringe benefits (other than a reduction
applicable to substantially all employees), (iii) a requirement for the
executive to relocate to a location beyond a thirty-mile radius from the
executive's current place of employment or (iv) a material reduction in title or
responsibilities; provided, however, that Hillhaven has agreed in the Merger
Agreement to use its best efforts to eliminate all references to change in title
in the severance agreements. Upon such a termination of employment, Messrs.
Busby and Marker would be entitled to receive approximately $900,000 and
$720,000, respectively, and the other seven executive officers of Hillhaven
would be entitled, if all were terminated, to receive an aggregate of $2.0
million, plus in each case, any amounts required to reimburse employees on an
after tax basis for the amount of any applicable excise taxes under Section 4999
of the Code.
Directors' Retirement Plan and Directors' Stock Option Plan
Pursuant to the Merger Agreement, Vencor has agreed to fulfill Hillhaven's
obligations under the Directors' Retirement Plan with respect to each of
Hillhaven's outside directors, whether or not such director continues as a
Hillhaven Designated Director. Under the Directors' Retirement Plan each outside
director will receive an annual retirement payment of $25,440 for a period of
ten years following the Merger. Also, the Merger constitutes an event
accelerating vesting under the Directors' Stock Plan and, as a result of such
acceleration, the directors of Hillhaven other than Messrs. Busby and Marker
will each have options for 2,000 shares (for an aggregate of 12,000) of
Hillhaven Common Stock, with an average exercise price of $27.25, which will
become exercisable and vested and be exchanged for shares of Vencor Common Stock
in the same manner described above under "-- Hillhaven Option Plans and Other
Awards" for Hillhaven officer and employee stock options. Assuming a Conversion
Number of 0.977 and a Transaction Value of $31.00, the directors of Hillhaven,
other than Messrs. Busby and Marker, will receive, in the aggregate, 21,303
shares of Vencor Common Stock pursuant to the Directors' Stock Plan. Based on
the closing price on the NYSE per share of Vencor Common Stock on , 1995
of $ , the dollar value of Vencor Common Stock to be received by each such
director pursuant to the Directors' Stock Plan is $ .
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Director and Officer Indemnification and Insurance
Pursuant to the Merger Agreement, from and after the Effective Time, Vencor
will indemnify, defend and hold harmless the present and former officers and
directors of Hillhaven and its subsidiaries against all losses, claims, damages
and liability for acts or omissions occurring at or prior to the Effective Time
to the fullest extent that Hillhaven and its subsidiaries would have been
permitted under applicable law and under the Articles of Incorporation and
Bylaws of Hillhaven or such subsidiary. For at least six years after the
Effective Time, Vencor will use its best efforts to, without any lapse in
coverage, provide directors' and officers' liability insurance for acts or
omissions occurring prior to the Effective Time covering those persons currently
covered by Hillhaven's directors' and officers' liability insurance policy on
terms, coverage and limits no less favorable than the policy in effect on the
date of the Merger Agreement. In no event, however, will Vencor be required to
pay annually more than 200% of the premium paid by Hillhaven in its most
recently ended fiscal year. Vencor will reimburse all expenses including
reasonable attorney's fees, incurred by any person to enforce successfully the
indemnification and insurance obligations of Vencor under the Merger Agreement.
Board of Directors
Pursuant to the Merger Agreement, Vencor has agreed to take all actions as
shall be necessary to cause the number of directors comprising the full Vencor
Board at the Effective Time to be increased so that the three Hillhaven
Designated Directors can be appointed to the Vencor Board to have terms expiring
at the Vencor Annual Meeting of Stockholders to be held in 1996. The following
three members of the Hillhaven Board will be the Hillhaven Designated Directors:
Bruce L. Busby, Walter F. Beran and Jack O. Vance. In addition, Vencor has
agreed to cause the Hillhaven Designated Directors to be nominated for election
to the Vencor Board at the Vencor Annual Meeting of Stockholders to be held in
1996. Mr. Busby is also expected to serve as President of the newly formed
nursing center division of Vencor after the Merger. See "Operations and
Management After the Merger -- Directors After the Merger."
Hillhaven Preferred Stockholders
As of July 31, 1995, the holder of the Hillhaven Preferred Stock would
receive, pursuant to the Merger Agreement, an aggregate amount equal to $90.7
million in respect of the Hillhaven Preferred Stock, which represents a discount
of $10.0 million from the stated liquidation value thereof, plus accrued and
unpaid dividends through the Effective Time. The existing terms of the Hillhaven
Preferred Stock provide that upon a change of control such as the Merger the
holder of Hillhaven Preferred Stock will have the right to receive a cash
payment equal to its stated liquidation value in exchange for such shares.
PROPOSED AMENDMENTS TO VENCOR'S CERTIFICATE OF INCORPORATION
Pursuant to the Merger Agreement, the Vencor Board is unanimously proposing
to amend Vencor's Certificate of Incorporation to increase the total number of
authorized shares of Vencor Common Stock from 60,000,000 shares to 180,000,000
shares. See "Amendment to the Vencor Certificate of Incorporation."
DISSENTERS' RIGHTS
Holders of Vencor Common Stock will not be entitled to any dissenters' or
appraisal rights under Delaware law as a result of the matters to be voted upon
at the Vencor Meeting. Under Delaware Law, a stockholder of a constituent
corporation in a merger is not entitled to appraisal rights if the stock of such
corporation is listed on a national securities exchange and such stockholder is
not required to exchange its shares of such corporation pursuant to the merger.
Holders of Hillhaven Common Stock will not be entitled to any dissenters'
rights as a result of the matters to be voted upon at the Hillhaven Meeting.
Under Nevada Law, the holder of Hillhaven Preferred Stock would have
certain dissenters' rights as a result of the Merger to demand payment of the
"fair value" of its shares of Hillhaven Preferred Stock. The
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following summary of the applicable provisions of Nevada Law is not intended to
be a complete statement of such provisions and is qualified in its entirety by
reference to the full sections of Nevada Law, copies of which are attached to
this Joint Proxy Statement/Prospectus as Appendix E. A PERSON HAVING A
BENEFICIAL INTEREST IN HILLHAVEN PREFERRED STOCK THAT IS HELD OF RECORD IN THE
NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE
THE RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY
MANNER TO PERFECT WHATEVER DISSENTERS' RIGHTS THE BENEFICIAL OWNER MAY HAVE.
THIS DISCUSSION AND APPENDIX E SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER
OF HILLHAVEN PREFERRED STOCK WHO WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS
OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO STRICTLY COMPLY
WITH ANY OF THE PROCEDURAL REQUIREMENTS OF NEVADA LAW MAY RESULT IN A
TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER NEVADA LAW.
A holder of Hillhaven Preferred Stock as of the record date for the
Hillhaven Meeting who elects to dissent from the approval and adoption of the
Merger Agreement and who has not voted in favor thereof is entitled under NRS
Section 78.497 of Nevada Law, as an alternative to receiving the applicable
Merger consideration for such Hillhaven Preferred Stock, to receive the amount
that Hillhaven estimates to be the fair value of the shares, plus accrued
interest. The obligation of Hillhaven under this section may be judicially
enforced.
Any holder of Hillhaven Preferred Stock who elects to exercise such
holder's dissenters' rights with respect to the Merger Agreement must (i)
deliver to Hillhaven, before the vote is taken, a written notice of intent to
demand payment if the proposed action is effectuated and (ii) not vote in favor
of the proposed action. A stockholder who does not comply with these provisions
is not entitled to payment under the statutory dissenters' rights provisions of
Nevada Law.
If the Merger is approved at the Hillhaven Meeting, Hillhaven will deliver
a written dissenters' notice to holders of Hillhaven Preferred Stock who
satisfied the notice requirements to assert dissenters' rights. Hillhaven's
dissenters' notice will be sent no later than ten days after approval of the
Merger and will (i) state where the demand for payment must be sent and where
and when certificates for certificated shares must be deposited, (ii) inform the
holders of uncertificated shares as to what extent the transfer of the shares
will be restricted after the demand for payment is received, (iii) supply a form
for demanding payment that includes the date of the first announcement of the
news media or to the stockholders of the terms of the Merger so that the person
asserting dissenters' rights can certify whether or not the beneficial ownership
was acquired before that date, (iv) set a date for Hillhaven to receive the
demand for payment, which may not be less than thirty nor more than sixty days
after the date the notice is delivered, and (v) include copies of the relevant
statutory provision on dissenters' rights of Nevada Law.
A holder of Hillhaven Preferred Stock to whom a dissenters' notice was sent
must (i) demand payment, (ii) certify whether beneficial ownership of the shares
was acquired before the date set forth in Hillhaven's dissenters' notice and
(iii) deposit the certificates in accordance with the terms of the dissenters'
notice. A stockholder who demands payment and deposits the certificates will
retain all other rights of a stockholder until those rights are canceled or
modified by the Merger. A stockholder who does not demand payment or deposit the
certificates where required is not entitled to payment for the shares under the
dissenters' rights provisions of the Nevada Law.
Within thirty days after receiving a demand for payment, Hillhaven will pay
each dissenter the amount that Hillhaven estimates to be the fair value, plus
accrued interest. This obligation under Nevada Law may be judicially enforced.
A dissenter may elect to notify Hillhaven of the stockholder's own estimate
of the fair value and the amount of interest due, and demand payment for this
estimate, less any payment already made as described above. A dissenter,
however, cannot so elect unless the stockholder notifies Hillhaven of this
demand in writing within thirty days after Hillhaven made or offered to pay for
his shares, as described above.
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Hillhaven may elect to withhold payment to a dissenter who was not a
beneficial owner prior to the date set forth in the dissenter's notice. If
Hillhaven so elects, after the Merger Hillhaven will estimate the fair value
plus interest and will offer to make such payment in full satisfaction of such
dissenter's demand.
If a demand for payment remains unsettled, Hillhaven will commence a
proceeding within sixty days after receiving the demand and will petition the
court to determine the fair value of the shares and accrued interest. If
Hillhaven does not commence the proceeding within sixty days, it will pay each
dissenter whose demand remains unsettled the amount demanded. Hillhaven will
make all dissenters whose demand remains unsettled parties to the action.
The court in such a proceeding will assess the costs and expenses of the
proceeding against Hillhaven, except the court may assess the dissenters with
costs if the court finds that the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment. Each dissenter who is a party to the
proceeding is entitled to judgment for (i) the amount, if any, by which the
court finds the fair value plus interest exceeds the amount paid to the
dissenter by Hillhaven or (ii) the fair value plus interest of after-acquired
shares for which Hillhaven elected to withhold payment.
SURRENDER OF CERTIFICATES
The Merger Agreement provides that Vencor will appoint an exchange agent
(the "Exchange Agent") for the purpose of exchanging certificates representing
shares of Hillhaven Stock. Vencor will deposit with the Exchange Agent for the
benefit of the holders of Hillhaven Stock (other than Hillhaven, Vencor or any
subsidiary of Vencor) for exchange as of the Effective Time, (i) certificates
representing shares of Vencor Common Stock to be issued in exchange for shares
of Hillhaven Common Stock, (ii) cash in an amount equal to the aggregate merger
consideration to be paid to the holders of Hillhaven Preferred Stock and (iii),
from time to time as necessary to make payments, cash to be paid in lieu of
fractional shares (collectively, the "Exchange Fund"). The Exchange Agent will
deliver Vencor Common Stock and/or cash in exchange for surrendered certificates
representing Hillhaven Stock out of the Exchange Fund, which is to be used for
no other purpose.
Promptly after the Effective Time, Vencor will send, or will cause the
Exchange Agent to send, to each holder of a certificate that immediately prior
to the Effective Time represented outstanding shares of Hillhaven Stock
("Certificates") a letter of transmittal and instructions for use in effecting
such exchange of Certificates for Vencor Common Stock and/or cash. Provision
will also be made for holders of Certificates to procure a letter of transmittal
and instructions and deliver such letter of transmittal and Certificates in
exchange for Vencor Common Stock and/or cash in person immediately after the
Effective Time. After the Effective Time, Certificates will represent the right,
upon surrender thereof to the Exchange Agent, together with a duly executed and
properly completed letter of transmittal relating thereto, to receive in
exchange therefor that number of whole shares of Vencor Common Stock and/or cash
which such holder has the right to receive under the Merger Agreement, after
giving effect to any required tax withholding, and the Certificates so
surrendered will be canceled. No interest will be paid or will accrue on any
cash amount payable upon the surrender of any such Certificates.
If any shares of Vencor Common Stock are to be issued and/or cash paid to a
person other than a registered holder of the Certificate surrendered, it will be
a condition to such issuance that the Certificate so surrendered be properly
endorsed or be in otherwise proper form for transfer. A person requesting such
an issuance will pay the Exchange Agent any appropriate transfer or other taxes
required as a result of such issuance to a person other than the registered
holder or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable.
At and after the Effective Time, Hillhaven's stock transfer books will be
closed and there will be no further registration of transfers of Hillhaven Stock
outstanding prior to the Effective Time. If, at or after the Effective Time,
Certificates are presented to the Surviving Corporation, they will be canceled
and exchanged as provided for in the Merger Agreement.
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Any share of Vencor Common Stock and/or cash in the Exchange Fund that
remain unclaimed by the holders of Hillhaven Stock six months after the
Effective Time shall be returned to Vencor. Any such holders of Hillhaven Stock
who have not exchanged their shares of Hillhaven Stock will thereafter look to
Vencor, as a general creditor thereof, to exchange such shares or amounts to
which they are entitled. If outstanding Certificates are not surrendered within
six years from the Effective Time, to the extent permitted by applicable law,
the Vencor Common Stock issuable in respect of such certificates will become the
property of the Surviving Corporation.
The Merger Agreement provides that no dividends or distributions on Vencor
Common Stock will be paid to the holder of any unsurrendered Certificates with
respect to shares of Vencor Common Stock represented thereby until such
Certificates are surrendered. Following such surrender, there shall be paid,
without interest to the person in whose name the certificates representing the
shares of Vencor Common Stock issued in exchange therefor are registered, (i)
all dividends and distributions paid in respect of Vencor Common Stock with a
record date on or after the Effective Time and theretofore paid and (ii) at the
appropriate date, all dividends or other distributions in respect of Vencor
Common Stock with a record date after the Effective Time but prior to surrender
and a payment date occurring after surrender.
Pursuant to the Merger Agreement, if any Certificate has been lost, stolen
or destroyed, upon submitting an affidavit to that effect by the person claiming
such Certificate to be lost, stolen or destroyed, and, if required by the
Surviving Corporation, the posting of a bond in such reasonable amount as the
Surviving Corporation may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of Vencor
Common Stock and/or cash and unpaid dividends and other distributions on shares
of Vencor Common Stock deliverable under the Merger Agreement.
NEW YORK STOCK EXCHANGE LISTING
Pursuant to the Merger Agreement, Vencor agrees to use its best efforts to
cause the shares of Vencor Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury Regulations thereunder and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to change, and
any such change could affect the continuing validity of the discussion. The
discussion assumes that holders of shares of Hillhaven Common Stock hold such
shares as a capital asset. Further, the discussion does not address the tax
consequences that may be relevant to a particular stockholder subject to special
treatment under certain federal income tax laws, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, non-United States persons,
the holder of Hillhaven Preferred Stock which also owns Hillhaven Common Stock,
stockholders who acquired shares of Hillhaven Common Stock pursuant to the
Nationwide Share Exchange Agreement or through the exercise of options or
otherwise as compensation or through a tax-qualified retirement plan, and
holders of options and performance shares granted under Hillhaven's benefit
plans. This discussion does not address any consequences arising under the laws
of any state, locality or foreign jurisdiction.
Neither Hillhaven nor Vencor has requested a ruling from the Internal
Revenue Service ("IRS") with regard to any of the federal income tax
consequences of the Merger, and the opinions of counsel as to such federal
income tax consequences set forth below will not be binding on the IRS.
TAX OPINION
Fried, Frank, Harris, Shriver & Jacobson ("Fried Frank"), special counsel
to Hillhaven, and Sullivan & Cromwell, special counsel to Vencor, are of the
opinion that the Merger will constitute a reorganization
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pursuant to Section 368(a)(1)(A) of the Code. The foregoing opinions are based
upon (i) representations of Hillhaven, Vencor, and certain stockholders of
Hillhaven customarily given in transactions of this type, and (ii) the
assumption that the Merger will be consummated in accordance with its terms. The
consummation of the Merger is conditioned on (i) the receipt by Vencor of an
opinion of Sullivan & Cromwell confirming that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and (ii) the
receipt by Hillhaven of an opinion of Fried Frank confirming that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code.
The discussion below summarizes the material federal income tax
consequences of the Merger and reflects the opinions of Fried Frank and Sullivan
& Cromwell, assuming that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code.
CONSEQUENCES TO HILLHAVEN STOCKHOLDERS
Under the reorganization provisions of the Code, no gain or loss will be
recognized by holders of Hillhaven Common Stock with respect thereto as a result
of the conversion of their shares of Hillhaven Common Stock into shares of
Vencor Common Stock pursuant to the Merger (except to the extent cash is
received in lieu of fractional shares). The tax basis of the shares of Vencor
Common Stock received in the Merger will be the same as the tax basis of the
shares of Hillhaven Common Stock exchanged therefor in the Merger (including any
fractional shares of Vencor Common Stock deemed received). The holding period of
the shares of Vencor Common Stock received will include the holding period of
shares of Hillhaven Common Stock exchanged therefor.
FRACTIONAL SHARES
If a holder of shares of Hillhaven Common Stock receives cash in lieu of a
fractional share of Vencor Common Stock in the Merger, such cash amount will be
treated as received in redemption of the fractional share of Vencor Common
Stock. Gain or loss recognized as a result of that exchange will be equal to the
cash amount received for the fractional share of Vencor Common Stock reduced by
the proportion of the holder's tax basis in shares of Hillhaven Common Stock
exchanged and allocable to the fractional share of Vencor Common Stock.
CONSEQUENCES TO HILLHAVEN AND VENCOR
None of Hillhaven or Vencor, or the holders of Vencor Common Stock will
recognize gain or loss as a result of the Merger.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS, HILLHAVEN
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS,
THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX
LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
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SECURITY OWNERSHIP
The following table sets forth certain information with respect to all
stockholders known by Vencor and Hillhaven, based upon filings publicly
available as of August , 1995, who would have been beneficial owners of more
than 5% of the outstanding Vencor Common Stock if the Merger had occurred on
that date.
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF
SHARES BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED AFTER THE MERGER OF CLASS
-------------------------------------------------------------- ----------------------- --------
<S> <C> <C>
Tenet Healthcare Corporation.................................. -- --
2700 Colorado Avenue
Santa Monica, CA 90404
Putnam Investments, Inc....................................... -- --
One Post Office Square
Boston, MA 02109
</TABLE>
DESCRIPTION OF VENCOR CAPITAL STOCK
The following description of certain terms of the capital stock of Vencor
does not purport to be complete and is qualified in its entirety by reference to
Vencor's Certificate of Incorporation incorporated herein by reference and to
the Relative Rights, Preferences and Limitations of the Series A Participating
Preferred Stock which are incorporated herein by reference.
The authorized capital stock of Vencor currently consists of 60,000,000
shares of Vencor Common Stock, par value $.25 per share, and 1,000,000 shares of
preferred stock, par value $1.00 per share, of which 65,000 shares are
designated Series A Preferred Stock ("Vencor Series A Preferred Stock") and
300,000 shares are designated Series A Participating Preferred Stock ("Vencor
Series A Participating Preferred Stock" and, together with the Vencor Series A
Preferred Stock, the "Vencor Preferred Stock"). Each share of Vencor Common
Stock trades with an associated participating preferred stock purchase right.
See "Vencor Preferred Stock -- Description of Vencor Rights." As of June 30,
1995, there were outstanding 28,348,871 shares of Vencor Common Stock, with an
additional 1,661,650 shares issued and held in treasury. In addition, as of June
30, 1995, an aggregate of 2,360,928 shares of Vencor Common Stock were reserved
for issuance pursuant to various option plans. There are no shares of Vencor
Preferred Stock outstanding. The Charter Amendment would, if approved, increase
the number of authorized shares of Vencor Common Stock from 60,000,000 shares to
180,000,000 shares.
VENCOR COMMON STOCK
The holders of Vencor Common Stock are entitled to one vote per share for
each share held of record on all matters submitted to a vote of stockholders and
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. As a Delaware corporation,
Vencor is subject to statutory limitations on the declaration and payment of
dividends. In the event of a liquidation, dissolution or winding up of Vencor,
holders of Vencor Common Stock have the right to a ratable portion of assets
remaining after payment of all liabilities and the aggregate liquidation
preferences of any outstanding shares of Vencor Preferred Stock. The holders of
Vencor Common Stock have no preemptive rights. All outstanding shares of Vencor
Common Stock are, and the shares of Vencor Common Stock to be issued in the
Merger will be, fully paid and non-assessable. As of June 30, 1995, there were
1,206 holders of record of Vencor Common Stock.
VENCOR PREFERRED STOCK
The Vencor Board may, without further action by the stockholders of Vencor,
designate and issue preferred stock in one or more series and fix the rights and
preferences thereof, including the voting rights, dividend rights and rates,
redemption rights (including sinking fund provisions), conversion rights,
liquidation rights, priority as to other series of preferred stock and any other
powers, preferences, privileges and relative
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participating, optional or other special rights of the series and the
qualifications, limitations or restrictions thereof.
The rights of the holders of Vencor Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
preferred stock that may be issued in the future. Issuance of shares of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of
Vencor. See "-- Description of Vencor Rights." Vencor has no present plans to
issue any shares of preferred stock.
Description of Vencor Rights
On July 20, 1993, the Vencor Board declared a dividend of one right to
purchase Vencor Series A Participating Preferred Stock (a "Vencor Right")
(currently 0.667 of a Vencor Right as adjusted for Vencor's three-for-two stock
split effected October 25, 1994) for each outstanding share of Vencor Common
Stock. Each Vencor Right entitles the holder to purchase from Vencor
one-hundredth of a share of Vencor Series A Participating Preferred Stock at a
purchase price of $73.33, subject to future adjustment (currently and as so
adjusted, the "Vencor Purchase Price"). The dividend was paid to holders of
record as of August 1, 1993 (the "Vencor Record Date"). Vencor Rights are also
issued with shares of Vencor Common Stock issued after the initial dividend
distribution and before the occurrence of certain specified events (which have
not occurred as of the date hereof). Until a Vencor Right is exercised, the
holder thereof, as such, has no rights as a stockholder of Vencor, including,
without limitation, the right to vote or to receive dividends.
The description and terms of the Vencor Rights are set forth in a Rights
Agreement dated as of July 20, 1993 (the "Vencor Rights Agreement"), between
Vencor and National City Bank of Cleveland, Ohio, as Rights Agent. The Vencor
Rights Agreement has been filed with the Commission as an exhibit to Vencor's
Registration Statement on Form 8-A filed on July 21, 1993. The existence of the
Vencor Rights may have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of Vencor. The following summary description of the
Vencor Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is hereby incorporated herein by
reference.
The Vencor Rights are currently attached to all Vencor Common Stock
certificates representing outstanding shares and no separate Vencor Rights
certificates have been distributed. Until the earlier to occur of (i) the first
date (the "Vencor Stock Acquisition Date") of a public announcement that,
without the prior approval of Vencor (which approval is prohibited under certain
circumstances as described below), a person or group of affiliated or associated
persons (a "Vencor Acquiring Person") has acquired, or obtained the right to
acquire beneficial ownership of securities having 15% or more of the voting
power of all outstanding voting securities of Vencor or (ii) ten days (unless
such date is extended by the Vencor Board) following the commencement of (or a
public announcement of an intention to make) a tender offer or exchange offer
which would result in any person or group of related persons becoming a Vencor
Acquiring Person (the earlier of such dates being called the "Vencor Rights
Distribution Date"), the Vencor Rights will continue to be evidenced by the
Vencor Common Stock certificates. Until the Vencor Rights Distribution Date, the
Vencor Rights will be transferred only with Vencor Common Stock certificates.
New Vencor Common Stock certificates issued after the Vencor Record Date upon
transfer or new issuance of the Vencor Common Stock contain a notation
incorporating the Vencor Rights Agreement by reference. Until the Vencor Rights
Distribution Date (or earlier redemption, exchange, or expiration of the Vencor
Rights), the surrender for transfer of any certificates for Vencor Common Stock
will also constitute the transfer of the Vencor Rights associated with the
Vencor Common Stock represented by such certificate. As soon as practicable
following the Vencor Rights Distribution Date, separate certificates evidencing
the Vencor Rights ("Vencor Rights Certificates") will be mailed to holders of
record of the Vencor Common Stock as of the close of business on the Vencor
Rights Distribution Date, and the separate Vencor Rights Certificates alone will
evidence the Vencor Rights.
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The Vencor Rights will not be exercisable until the Vencor Rights
Distribution Date. The Vencor Rights will expire on the earliest of (i) the
close of business on July 19, 2003; (ii) consummation of a merger transaction
with a person or group who acquired Vencor Common Stock pursuant to a Vencor
Permitted Offer (as defined below), and is offering in the merger the same form
of consideration, and not less than the price per share, paid pursuant to the
Vencor Permitted Offer; (iii) redemption by Vencor as described below; or (iv)
or exchange by Vencor as described below.
The Vencor Purchase Price payable, and the number of shares of Vencor
Series A Participating Preferred Stock or other securities issuable, upon
exercise of the Vencor Rights will be subject to an adjustment from time to time
to prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of the Vencor Series A participating Preferred
Stock, (ii) upon the grant to holders of the Vencor Series A Participating
Preferred Stock, certain convertible securities or securities having rights,
privileges and preferences the same as, or more favorable than, the Vencor
Series A Participating Preferred Stock at less than the current market price of
the Vencor Series A Participating Preferred Stock or (iii) upon the distribution
to holders of the Vencor Series A Participating Preferred Stock of evidences of
indebtedness, cash (excluding regular quarterly cash dividends out of earnings
or retained earnings), assets (other than a dividend payable in Vencor Series A
Participating Preferred Stock) or of subscription rights or warrants (other than
those referred to above).
In the event that, after the first date of public announcement by Vencor or
a Vencor Acquiring Person that a Vencor Acquiring Person has become such, Vencor
is involved in a merger or other business combination transaction in which the
Vencor Common Stock is exchanged or changed (other than a merger with a person
or group who acquired Vencor Common Stock pursuant to a Vencor Permitted Offer
and is offering in the merger not less than the price paid pursuant to the
Vencor Permitted Offer and the same form of consideration paid in the Vencor
Permitted Offer), or 50% or more of Vencor's assets or earning power are sold
(in one transaction or a series of transactions), proper provision shall be made
so that each holder of a Vencor Right (other than such Vencor Acquiring Person)
shall thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Vencor Right, that number of shares of common
stock of the acquiring company (or, in the event that there is more than one
acquiring company, the acquiring company receiving the greatest portion of the
assets or earning power transferred) which at the time of such transaction would
have a market value of two times the exercise price of the Vencor Right (such
right being called the "Flip-over Right"). "Vencor Permitted Offer" means a
tender offer or exchange offer for all outstanding shares of Vencor Common Stock
at a price and on terms determined, prior to the purchase of shares under such
tender offer or exchange offer, by at least a majority of the members of the
Vencor Board who are not officers of Vencor to be both adequate and otherwise in
the best interests of Vencor, its stockholders (other than the person on whose
behalf the offer is being made) and other relevant constituencies.
In the event that a Vencor Acquiring Person becomes such, proper provision
shall be made so that each holder of a Vencor Right will for a 60 day period
thereafter have the right to receive upon exercise that number of shares of
Vencor Common Stock having a market value of two times the exercise price of the
Vencor Right, to the extent available, and then (after all authorized and
unreserved shares of Vencor Common Stock have been issued) a common stock
equivalent (such as Vencor Series A Participating Preferred Stock or another
equity security with at least the same economic value as the Vencor Common
Stock) having a market value of two times the exercise price of the Vencor
Right, with Vencor Common Stock to the extent available being issued first (such
right being called the "Flip-in Right").
The holder of a Vencor Right will continue to have the Flip-over Right
whether or not such holder exercises the Flip-in Right. Upon the occurrence of
any of the events giving rise to the exercisability of the Flip-over Right or
the Flip-in Right, any Vencor Rights that are or were at any time owned by an
Acquiring Person shall become void insofar as they relate to the Flip-over Right
or the Flip-in Right.
With certain exceptions, no adjustments in the Vencor Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1% in
such Vencor Purchase Price. No fractions of shares will be
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issued and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Vencor Common Stock on the last trading date prior to the
date of exercise.
At any time prior to the earlier to occur of (i) a person becoming a Vencor
Acquiring Person or (ii) the expiration of the Vencor Rights, Vencor may redeem
the Vencor Rights in whole, but not in part, at a price of $.0067 in cash per
Vencor Right (the "Vencor Rights Redemption Price"), which redemption shall be
effective upon the action of the Vencor Board in the exercise of its sole
discretion. Additionally, Vencor may, following the Stock Acquisition Date,
redeem the then outstanding Rights in whole, but not in part, at the Vencor
Rights Redemption Price, following an event giving rise to, and the expiration
of the exercise period for, the Flip-in Right, provided that redemption is (i)
in connection with a merger or other business combination transaction or series
of transactions involving Vencor in which all holders of Vencor Common Stock are
treated alike but not involving a Vencor Acquiring Person or any person who was
a Vencor Acquiring Person or (ii) if and for as long as no person beneficially
owns securities representing 15% or more of the voting power of Vencor's voting
securities. Upon the effective date of the redemption of the Vencor Rights, the
right to exercise the Vencor Rights will terminate and the only right of the
holders of Vencor Rights will be to receive the Vencor Rights Redemption Price.
The Vencor Board may, at its option, at any time after any person becomes a
Vencor Acquiring Person, exchange all or part of the then outstanding and
exercisable Vencor Rights for shares of Vencor Common Stock at an exchange ratio
of one share of Vencor Common Stock per Vencor Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the Vencor Rights Record Date. Notwithstanding the foregoing, the Vencor Board
is not empowered to effect such exchange at any time after any person (other
than Vencor, any subsidiary of Vencor, any employee benefit plan of Vencor or
any such subsidiary, or any entity holding Vencor Common Stock for or pursuant
to the terms of any such plan), together with all affiliates and associates of
such person, becomes the beneficial owner of 50% or more of the Vencor Common
Stock then outstanding. Immediately upon the action of the Vencor Board ordering
the exchange of any Vencor Rights, and without any further action and without
any notice, the right to exercise such Vencor Rights shall terminate and the
only right thereafter of a holder of such Vencor Rights shall be to receive that
number of shares of Vencor Common Stock equal to the number of such Vencor
Rights held by such holder.
Any of the provisions of the Vencor Rights Agreement may be amended by the
Vencor Board prior to a person becoming a Vencor Acquiring Person. After such
time, the provisions of the Vencor Rights Agreement may only be amended by the
Vencor Board to make changes which do not adversely affect the interests of
holders of Vencor Rights.
The Vencor Series A Participating Preferred Stock purchasable upon exercise
of the Vencor Rights will be nonredeemable and junior to any other series of
preferred stock Vencor may issue (unless otherwise provided in the terms of such
stock). Each share of Vencor Series A Participating Preferred Stock will have a
preferential quarterly dividend in an amount equal to 100 times the dividend
declared on each share of Vencor Common Stock, but in no event less than $1.00.
In the event of liquidation, the holders of Vencor Series A Participating
Preferred Stock will receive a preferred liquidation payment equal to $100 per
share, plus an amount equal to accrued and unpaid dividends thereon to the date
of such payment. Each share of Vencor Series A Participating Preferred Stock
will have 100 votes, voting together with the shares of Vencor Common Stock. In
the event of any merger, consolidation or other transaction in which shares of
Vencor Common Stock are exchanged, each share of Vencor Series A Participating
Preferred Stock will be entitled to receive 100 times the amount and type of
consideration received per share of Vencor Common Stock. Vencor shall not be
required to issue fractions of a share of Vencor Series A Participating
Preferred Stock.
Until a Vencor Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Vencor, including, without limitation, the right
to vote or to receive dividends. Vencor shall not be required to issue fractions
of Vencor Rights.
The Vencor Rights may have certain anti-takeover effects. The Vencor Rights
will cause substantial dilution to a person or group that attempts to acquire
Vencor without conditioning the offer on the Vencor Rights being redeemed or a
substantial number of Vencor Rights being acquired. However, the Vencor Rights
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should not interfere with any tender offer or merger approved by Vencor (other
than with a Vencor Acquiring Person) because the Vencor Rights (i) do not become
exercisable in the event of a Vencor Permitted Offer and expire automatically
upon the consummation of a merger in which the form of consideration is the same
as, and the price is not less than the price paid in, the Vencor Permitted Offer
and (ii) are redeemable and exchangeable in connection with an approved merger
in which all holders of Vencor Common Stock are treated alike.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN BYLAW PROVISIONS
Vencor is a Delaware corporation and consequently is subject to certain
anti-takeover provisions of Delaware Law. The business combination provision
contained in Section 203 of Delaware Law ("Section 203") defines an interested
stockholder of a corporation as any person that (i) owns, directly or
indirectly, or has the right to acquire, 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder; and the affiliates and the associates of such person. Under Section
203, a Delaware corporation may not engage in any business combination with any
interested stockholder for a period of three years following the date such
stockholder became an interested stockholder, unless (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for determining the number of shares
outstanding, (a) shares owned by persons who are directors and officers and (b)
employee stock plans, in certain instances), or (iii) on or subsequent to such
date the business combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders by at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. The restrictions imposed by Section 203 will not apply to a
corporation if (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by this section or
(ii) the corporation, by the action of its stockholders holding a majority of
outstanding stock, adopts an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by Section 203 (such amendment will
not be effective until 12 months after adoption and shall not apply to any
business combination between such corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption).
Vencor has not elected out of Section 203, and the restrictions imposed by
Section 203 apply to Vencor. Section 203 could, under certain circumstances,
make it more difficult for a third party to gain control of Vencor.
Vencor's Restated Bylaws include several provisions which may deter an
unsolicited acquisition of control of Vencor. These provisions require: (a)
special meetings of stockholders be called by the Chairman of the Vencor Board;
(b) advance notice of stockholder proposals; (c) consent of 80% of stockholders
to take written action (which is also included in the Vencor Certificate); (d)
record dates be set by the Vencor Board for the purpose of determining
stockholders entitled to consent to corporate action in writing without a
meeting; and (e) approval of bylaw amendments by the Vencor Board or the holders
of two-thirds of the Vencor's Common Stock.
TRANSFER AGENT
The transfer agent and registrar for Vencor Common Stock is National City
Bank, Cleveland, Ohio.
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COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
OF VENCOR AND HILLHAVEN
GENERAL
As a result of the Merger, holders of Hillhaven Common Stock will become
holders of Vencor Common Stock and the rights of all such former holders of
Hillhaven Common Stock will thereafter be governed by the Vencor Certificate of
Incorporation (the "Vencor Certificate"), the Vencor Bylaws and Delaware Law.
The rights of the holders of Hillhaven Common Stock are presently governed by
the Articles of Incorporation of Hillhaven (the "Hillhaven Articles"), the
Hillhaven Bylaws and Nevada Law. The following summary, which does not purport
to be a complete statement of the general differences among the rights of the
stockholders of Vencor and Hillhaven, sets forth certain differences between
Delaware Law and Nevada Law, between the Vencor Certificate and the Hillhaven
Articles and between the Vencor Bylaws and the Hillhaven Bylaws. This summary is
qualified in its entirety by reference to the full text of each of such
documents, Delaware Law and Nevada Law. For information as to how such documents
may be obtained, see "Available Information."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS; HILLHAVEN DESIGNATED
DIRECTORS
Vencor
The Vencor Bylaws provide that the number of directors of Vencor will be
determined from time to time by a majority of the Vencor Board, but in no event
can there be less than three or more than eleven. Pursuant to the Merger
Agreement, at the Effective Time, Vencor must take all actions necessary to
cause the number of directors comprising the full Vencor Board to be increased
so that the three Hillhaven Designated Directors can be appointed to the Vencor
Board to have terms expiring at the Vencor Annual Meeting to be held in 1996. In
addition to Bruce L. Busby, the Chairman and Chief Executive Officer of
Hillhaven, Hillhaven has advised Vencor that Walter F. Beran and Jack O. Vance
will be selected for service on the Vencor Board. Under the Merger Agreement,
Vencor also agreed to cause the Hillhaven Designated Directors to be nominated
for election to the Vencor Board at the Vencor Annual Meeting of Stockholders to
be held in 1996. See "Operations and Management After the Merger -- Directors
After the Merger."
Although the Delaware Law allows directors to be divided into three
separate classes with staggered terms of office, neither the Vencor Certificate
nor the Vencor Bylaws provide for the classification of directors.
Hillhaven
Nevada Law provides that a corporation's board of directors shall consist
of at least one member and the authorized number of directors may be fixed or
variable within a fixed minimum or maximum as provided in either the
corporation's articles of incorporation or in the bylaws. The Hillhaven Articles
provide that the authorized number of directors constituting the Hillhaven Board
shall not be less than three or more than twenty-one, as fixed from time to time
exclusively by the Hillhaven Board pursuant to a resolution adopted by a
majority of the total number of authorized directors. The Hillhaven Board has
fixed the number of directors comprising the Hillhaven Board at eight.
The Hillhaven Articles also provide that the Hillhaven Board will be
divided into three classes, and each class will generally serve for a term of
three years. Each year the term of one class of directors expires, so it is only
possible to elect one class of the Hillhaven Board of Directors (approximately
one-third) in any one year, whereas the entire Vencor Board is elected at each
annual meeting of stockholders.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Vencor
Pursuant to the Vencor Bylaws, any director or the entire Vencor Board may
be removed with or without cause, at any time, by the affirmative vote of the
holders of record of a majority of the outstanding shares of Vencor stock
entitled to vote in the election of directors at a special meeting of the
stockholders held for that purpose. The Vencor Bylaws provide that any vacancy
occurring on the Vencor Board for any reason,
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including the resignation, removal or death of a director or an increase in the
number of directors within the limits set forth above, may be filled by the vote
of a majority of the directors remaining in office at such time although less
than a quorum, with such successor to serve for the unexpired term and until his
successor is elected and qualified.
Hillhaven
Under Nevada Law, a director may be removed by the vote of the holders of
not less than two-thirds of the voting power of the voting stock, subject to
certain restrictions concerning cumulative voting. However, a Nevada corporation
may include in its articles of incorporation a provision requiring the approval
of a larger percentage of the voting power to remove a director. Under Nevada
Law, any vacancy in the board of directors may be filled by a majority of the
remaining directors, though less than a quorum. The Hillhaven Articles provide
that any director may be removed from office at any time, upon the vote of the
stockholders representing not less than two-thirds of the outstanding voting
stock of Hillhaven. The Hillhaven Articles further provide that the Hillhaven
Board will fill all vacancies, including a vacancy created by an increase in the
number of directors, by election of the Hillhaven Board with the director so
elected to serve for the remainder of the term of the class to which the
director has been assigned. All directors will continue in office until the
election and qualification of their respective successors in office. The
Hillhaven Bylaws provide that the affirmative vote of a majority of the
remaining directors is required to fill a vacancy on the Hillhaven Board.
ACTION BY WRITTEN CONSENT
Vencor
Under Delaware Law, unless otherwise provided in the certificate of
incorporation, stockholders may take action without a meeting, without prior
notice and without a vote, upon the written consent of stockholders having not
less than the minimum number of votes that would be necessary to authorize the
proposed action at a meeting at which all shares entitled to vote were present
and voted. However, the Vencor Certificate provides that action can be taken by
stockholders without a meeting, without prior notice and without a vote only if
a consent in writing, setting forth the actions so taken, is signed by the
holders of at least 80% of all the issued and outstanding shares of stock of
Vencor entitled to vote.
Hillhaven
Under Nevada Law, unless otherwise provided in the articles of
incorporation or the bylaws, stockholders may take action without a meeting,
without prior notice and without a vote, upon the written consent of
stockholders having at least a majority of the voting power, except that if a
different proportion of voting power is required for such an action at a
meeting, then that proportion of written consent is required. The Hillhaven
Articles provide, however, that all action required or permitted to be taken by
stockholders must be taken at an annual or special meeting of the stockholders
except for actions taken by unanimous written consent.
MEETINGS OF STOCKHOLDERS
Vencor
Pursuant to Vencor's Bylaws, a special meeting of stockholders, unless
otherwise prescribed by statute, may be called at any time only by the Vencor
Board or the chairman of the Vencor Board.
The Vencor Bylaws provide that the presence in person or representation by
proxy of a majority of the issued and outstanding shares of Vencor stock
entitled to vote will constitute a quorum. When a quorum is present or
represented at a meeting of Vencor stockholders, the vote of the holders of a
majority of shares of stock having voting power present in person or represented
by proxy will decide any question brought before the meeting, unless the
question is one upon which by express provision of Delaware Law, Vencor's
Certificate or Vencor's Bylaws a different vote is required, in which case such
express provision will govern and control the decision of such question brought
before the meeting. Delaware Law provides that quorum and voting requirements
may be increased or decreased by amendment of the Vencor Certificate and the
Vencor Bylaws
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(which bylaw amendment may be effected by the Vencor Board), so long as the
requirement for a quorum does not fall below one-third of the shares entitled to
vote and subject to provisions of Delaware Law setting forth voting requirements
for certain specified actions, such as mergers.
Hillhaven
Under Hillhaven's Bylaws, except as otherwise required by law, a special
meeting of stockholders may be called only by the Hillhaven Board pursuant to a
resolution adopted by a majority of the total number of directors.
Under Nevada Law, unless the articles of incorporation or the bylaws
provide otherwise, stockholders holding at least a majority of the voting power
are necessary to constitute a quorum for the transaction of business. The
Hillhaven Bylaws provide that the presence in person or by proxy of a majority
of the voting stock entitled to vote constitutes a quorum for the transaction of
business.
STOCKHOLDER PROPOSALS
Vencor
The Vencor Bylaws establish procedures that must be followed for a
stockholder to submit a proposal for a vote of the stockholders of Vencor at the
annual meeting of stockholders. No business may be proposed by a stockholder at
the annual meeting of stockholders without giving written notice to the
Secretary of Vencor not less than 60 days nor more than 90 days prior to the
scheduled date of the annual meeting. In the event, however, that less than 70
days' notice or prior public disclosure of the date of the annual meeting is
given to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the 10th day following the earlier of
(i) the day on which such notice of the date of the meeting was mailed or (ii)
the day on which such public disclosure was made. The stockholder's notice must
set forth (i) a description, in 500 words or less, of the business desired to be
brought before the annual meeting and the reasons for conducting the business at
the annual meeting, (ii) the name and address of the stockholder making, as well
as those stockholders known to be supporting, the proposal, (iii) the class and
number of shares beneficially owned by the stockholder, (iv) a description, in
500 words or less, of any interest the stockholder has in the proposal and (v) a
representation that the stockholder is a holder of record of stock of Vencor and
intends to appear in person or by proxy to present the proposal at the meeting.
If the chairman of an annual meeting determines that any such proposal was not
made in accordance with these procedures or is otherwise not in accordance with
law, the Chairman may so declare at the meeting and such defective proposal will
be disregarded.
Hillhaven
The Hillhaven Bylaws also establish procedures that must be followed for a
stockholder to submit a proposal to a vote of the stockholders of Hillhaven at
the annual meeting of stockholders. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given notice to
the Secretary of Hillhaven not less than 90 days in advance of the annual
meeting. The stockholder's notice must state (i) a brief description of the
proposal and the reasons for considering the proposal at the annual meeting,
(ii) the name and address of the stockholder, (iii) the class and number of
shares of capital stock beneficially owned by the stockholder and (iv) any
material interest the stockholder has in the proposal. If the officer presiding
over the annual meeting determines that the proposal was not properly brought
before the meeting in accordance with these procedures, the officer will so
declare at the meeting and the proposal will not be considered.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Vencor
Under Delaware Law, the recommendation of the Vencor Board and the approval
of a majority of the outstanding shares of Vencor entitled to vote thereon are
required to effect a merger or consolidation or to sell, lease or exchange
substantially all of Vencor's assets. Subject to the provisions of Section 203
of Delaware
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Law described below under "-- State Antitakeover Statutes," no vote of the
stockholders of Vencor would be required if Vencor were the surviving
corporation and (i) the merger agreement did not amend the Vencor Certificate,
(ii) each share of stock of Vencor outstanding immediately before the merger was
an identical outstanding or treasury share of Vencor after the Merger and (iii)
the number of shares of Vencor Common Stock to be issued in the merger (or to be
issuable upon conversion of any convertible instruments to be issued in the
merger) did not exceed twenty percent of the shares of Vencor Common Stock
outstanding immediately before the merger.
Hillhaven
Under Nevada Law, the recommendation of the Hillhaven Board and, unless
Nevada Law, the Hillhaven Articles or the Hillhaven Board requires a greater
vote or a vote by class of stockholders, approval of a majority of the voting
power is required to approve a plan of merger or exchange. Subject to the
provisions of Hillhaven's Articles described below under "-- Fair Price and
Anti-Greenmail Provisions" and NRS Section 78.454 of Nevada Law, no vote of the
stockholders of Hillhaven is required if Hillhaven will be the surviving
corporation and (i) the articles of incorporation of the surviving corporation
will not differ from its articles before the merger, (ii) each stockholder of
the surviving corporation whose shares were outstanding immediately before the
merger will hold the same number of shares, with identical designations,
preferences, limitations, and relative rights immediately after the merger and
(iii) the number of shares of Hillhaven Common Stock to be issued in the merger
(or to be issuable upon conversion of any convertible instruments to be issued
in the merger) will not exceed twenty percent of the shares of Hillhaven Common
Stock outstanding immediately before the merger.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
Vencor
Under Delaware Law, an amendment to the certificate of incorporation
generally requires the recommendation of the Board of Directors, the approval of
a majority of all shares entitled to vote thereon, voting together as a single
class, and the majority of the outstanding stock of each class entitled to vote
thereon.
Under Delaware Law, the Board of Directors may amend the bylaws if the
certificate of incorporation contains a provision entitling the directors to
amend the bylaws. Even if the certificate of incorporation contains such a
provision, the stockholders also have the power to amend the bylaws. The Vencor
Certificate states that the Board of Directors is expressly authorized to adopt,
amend or repeal the Vencor Bylaws without the consent or vote of the
stockholders. The Vencor Bylaws may also be amended or repealed by the
affirmative vote of the holders of at least two-thirds of the voting power of
all shares of Vencor entitled to vote generally in the election of directors,
voting together as a single class. The Vencor Bylaws further state that any
bylaw made by the Vencor Board may be amended or repealed by action of the
stockholders at any annual or special meeting of stockholders.
Hillhaven
Under Nevada Law, the articles of incorporation may be amended by the vote
of stockholders holding at least a majority of the voting power, unless a
greater proportion of the voting power is required in the articles of
incorporation. The Hillhaven Articles require the affirmative vote of the
holders of at least two-thirds of the voting power of all of the
then-outstanding shares of the voting stock voting together as a single class to
alter, amend or repeal the articles relating to: (i) the composition,
classification and number of directors, (ii) directors' and officers' liability,
(iii) Related Persons Transactions as described below under "-- Fair Price and
Anti-Greenmail Provisions," (iv) unanimous written consent for stockholder
action without a meeting, (v) advance notice of stockholder nominations for
directors, (vi) controlling interest acquisitions, (vii) bylaw amendments that
reflect any of the foregoing and (viii) the vote required under the Hillhaven
Articles to amend any of the foregoing.
Nevada Law further provides that the board of directors may amend the
bylaws if the bylaws so provide. Even if the bylaws confer such power on the
board of directors, the stockholders also have the power to amend
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the bylaws. The Hillhaven Bylaws provide that the Hillhaven Board shall have the
power to adopt, amend or repeal any of the bylaws by the affirmative vote of a
majority of the directors present, except as otherwise required by the Hillhaven
Articles as described above.
APPRAISAL AND DISSENTERS' RIGHTS
Vencor
Delaware Law provides appraisal rights for certain mergers and
consolidations. Appraisal rights are not available to holders of (i) shares
listed on a national securities exchange or held of record by more than 2,000
stockholders or (ii) shares of the surviving corporation of the merger, if the
merger did not require the approval of the stockholders of such corporation,
unless in either case, the holders of such stock are required pursuant to the
merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which are also listed on
a national securities exchange or held by more than 2,000 holders or (C) cash in
lieu of fractional shares of such stock. Appraisal rights are not available for
a sale of assets or an amendment to the certificate of incorporation.
Hillhaven
Under Nevada Law, a stockholder is entitled to dissent from, and receive
the fair value of shares owned in the event of a plan of merger or exchange, if
the stockholder is entitled to vote on the transaction. However, there is no
right to dissent to a plan of merger or exchange in favor of the holders of
shares of any class or series which were either listed on a national securities
exchange, designated as a national market security of an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held by at
least 2,000 stockholders of record, unless the articles of incorporation provide
otherwise or the holders are required to receive anything other than cash,
shares or shares and cash of the surviving or acquiring corporation.
FAIR PRICE AND ANTI-GREENMAIL PROVISIONS
Vencor
The Vencor Certificate does not contain any such "Fair Price" or
"Anti-Greenmail" provisions.
Hillhaven
Under the Hillhaven Articles, certain transactions, including a merger or
consolidation, a sale, lease or exchange of a substantial portion of assets,
issuing voting securities, voluntary dissolution, or reclassification or
recapitalization of securities ("Transactions") involving "Related Persons"
(defined generally to be holders of five percent or more of Hillhaven Common
Stock, except for Hillhaven or its subsidiaries, Tenet or its subsidiaries, any
successor to Tenet, any affiliates of Hillhaven or Tenet or any employee stock
or benefit plan each of Hillhaven or Tenet or its subsidiaries), require
approval by the affirmative vote of the holders of at least two-thirds of the
voting power of all of the then outstanding shares of voting stock voting
together as a single class, unless the Transaction is approved by a majority of
the Hillhaven Board and by a majority of the disinterested directors.
Accordingly, holders of Hillhaven Common Stock who become holders of Vencor
Common Stock after the Merger is consummated will no longer be afforded certain
protections in the corporate charter with respect to Related Person
Transactions.
STATE ANTITAKEOVER STATUTES
Vencor
Section 203 of the DGCL would prohibit a "business combination" (as defined
in Section 203, generally including mergers, sales and leases of assets,
issuances of securities and similar transactions) by Vencor or a subsidiary with
an "interested stockholder" (as defined in Section 203, generally the beneficial
owner of 15 percent or more of Vencor's voting stock) within three years after
the person or entity becomes an interested stockholder, unless (i) prior to the
person or entity becoming an interested stockholder, the business
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combination or the transaction pursuant to which such person or entity became an
interested stockholder shall have been approved by the Vencor Board, (ii) upon
the consummation of the transaction in which the person or entity became an
interested stockholder, the interested stockholder holds at least 85 percent of
the voting stock of Vencor (excluding for purposes of determining the number of
shares outstanding, shares held by persons who are both officers and directors
of Vencor and shares held by certain employee benefit plans) or (iii) the
business combination is approved by the Vencor Board and by the holders of at
least two-thirds of the outstanding voting stock of Vencor, excluding shares
held by the interested stockholder.
Hillhaven
Control Share Acquisition Provision. Under Nevada Law, once a person has
acquired or offers to acquire twenty percent, one-third or fifty percent of the
stock of a corporation, a stockholders meeting must be held after delivery of
the "offeror's statement," at the acquiror's expense, so the stockholders can
vote on whether the control shares may exercise voting rights. Except as
otherwise provided in the articles of incorporation, the approval of a majority
of the outstanding stock not held by the acquiror is required for the stock held
by the acquiror to receive voting rights. The Control Share Acquisition
Provisions are applicable to any acquisition of a controlling interest unless
the articles of incorporation or bylaws of the corporation in effect on the
tenth day following the acquisition of a controlling interest by an acquiring
person provide that the Control Share Acquisition Provisions do not apply.
The Hillhaven Articles, however, state that any resolution of the
stockholders granting voting rights to any or all Control Shares of an acquiring
person must be approved by the holders of two-thirds of the outstanding shares
of Hillhaven, excluding those shares held by any interested shareholder. The
Hillhaven Articles further provide that all Control Shares are to be subject to
redemption by Hillhaven at the average price paid for the Control Shares if an
offeror's statement, as permitted by Section 3789 of Nevada Law, is not
delivered within ten days of the acquisition of the controlling interest or if
the Control Shares are not accorded full voting rights by the stockholders of
Hillhaven. The Hillhaven Articles exclude from these rules regarding the
acquisition of a controlling interest (i) Hillhaven or any of its subsidiaries,
(ii) Tenet or any of its subsidiaries, (iii) any affiliate or associate of
Hillhaven or Tenet and (iv) any employee stock or benefit plan of Hillhaven,
Tenet, or any subsidiary of Hillhaven or Tenet.
Combination Moratorium Provision. Nevada Law provides that a resident
domestic corporation may not engage in any "combination" (broadly defined to
include a wide range of transactions with an interested stockholder or an
affiliate or associate of an interested stockholder) with an interested
stockholder (defined as the beneficial owner of ten percent or more of the
outstanding voting power) for three years after the interested stockholder's
date of acquiring shares, unless the combination or the purchase of shares made
by the interested stockholder on the interested stockholder's date of acquiring
shares is approved by the board of directors before that date or if the
consideration to be paid by the interested stockholder is at least equal to the
highest of: (i) the highest price per share paid by the interested stockholder
within the three years immediately preceding the date of the announcement of the
combination or in the transaction in which he became an interested stockholder,
whichever is higher, (ii) the market value per common share on the date of
announcement of the combination or the date the interested stockholder acquired
the shares, whichever is higher, or (iii) if higher for the holders of preferred
stock, the highest liquidation value of the preferred stock.
Other Provisions. Under Nevada Law, the selection of a period for the
achievement of corporate goals is the responsibility of the directors. In
addition, the directors and officers, in exercising their respective powers with
a view to the interests of the corporation, may consider (i) the interests of
the corporation's employees, suppliers, creditors and customers, (ii) the
economy of the state and nation, (iii) the interests of the community and of
society and (iv) the long-term as well as short-term interests of the
corporation and its stockholders, including the possibility that these interests
may be best served by the continued independence of the corporation. The
directors also may resist a change or potential change in control of the
corporation if the directors by a majority vote of a quorum determine that the
change or potential change is opposed to or not in the best interests of the
corporation "upon consideration of the interests of the corporation's
stockholders" or for one of the other reasons described above. Finally, the
directors may take action to protect the interests of
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the corporation and its stockholders by adopting or executing plans that deny
rights, privileges, power or authority to a holder of a specified number of
shares or percentage of share ownership or voting power.
Thus, holders of Hillhaven Common Stock who become holders of Vencor Common
Stock after the Merger is consummated will no longer be afforded certain
statutory protection in connection with the acquisition of a controlling
interest or other takeover activities.
RIGHTS PLANS
Vencor
On July 20, 1993, the Board of Directors of Vencor declared a dividend of
one Vencor Right to purchase Vencor Participating Preferred Stock (0.667 of a
Vencor Right as adjusted for Vencor's three-for-two stock split effected October
25, 1994) for each outstanding share of Vencor Common Stock. The Vencor Rights
may have certain anti-takeover effects. See "Description of Vencor Capital
Stock -- Vencor Preferred Stock -- Description of Vencor Rights."
Hillhaven
On January 31, 1990, the Board of Directors of Hillhaven made a dividend
distribution of one right (a "Hillhaven Right") for each share of Hillhaven
Common Stock then outstanding and authorized the issuance of additional
Hillhaven Rights for Hillhaven Common Stock issued after that date. Hillhaven
may redeem the Hillhaven Rights at $.01 per Hillhaven Right at any time until
they become exercisable. With certain exceptions, the Hillhaven Rights become
exercisable ten business days, which may be extended under certain conditions to
twenty business days by the Hillhaven Board, after an investor (a "Hillhaven
Acquiring Person") has (i) commenced a tender or exchange offer for thirty
percent or more of the general voting power of Hillhaven stock or (ii) made or
is the subject of a public announcement that the investor has acquired twenty
percent or more of the general voting power of Hillhaven stock. Upon the
occurrence of such events, the Hillhaven Rights may be exchanged for one
one-hundredth of a share of Hillhaven's Series A Preferred Stock at an exercise
price of $10.00 per share, subject to certain adjustments. The Hillhaven Right
holder as such will have no rights as a stockholder of Hillhaven, including no
right to vote or to receive dividends or distributions.
The Hillhaven Series A Preferred Stock is non-redeemable and ranks junior
in preference as to dividends and distributions of assets to all other classes
or series of Hillhaven Preferred Stock, unless the terms thereof provide
otherwise. Each share of Series A Preferred Stock will have a minimum
preferential quarterly dividend rate of $5.00 per share but will be entitled to
an aggregate of 100 times the cash and non-cash (payable in kind) dividends and
distributions (other than dividends and distributions payable in Hillhaven
Common Stock) declared on Hillhaven Common Stock. Each share of Hillhaven Series
A Preferred Stock has a liquidation preference equal to the greater of $1,000
per share or 100 times the payment made per share on the Hillhaven Common Stock,
plus the amount of accrued and unpaid dividends and distributions. Each share of
Hillhaven Series A Preferred Stock will have 100 votes.
In the event that, on or after the date the Hillhaven Rights become
exercisable, Hillhaven is acquired or merged, or more than 50% of the assets or
earning power of Hillhaven and its subsidiaries, taken as a whole, are sold,
each Hillhaven Right holder, excluding those Hillhaven Rights owned by a
Hillhaven Acquiring Person, will be entitled to purchase, for the then-current
exercise price of each Hillhaven Right, common stock of the surviving company
having a market value equal to two times the exercise price of each Hillhaven
Right. In the event that, on or after the date the Hillhaven Rights become
exercisable, Hillhaven is the survivor of a merger or other business
combination, a Hillhaven Acquiring Person engages in certain self-dealing
transactions, a person becomes the beneficial owner of thirty percent or more of
the general voting power of Hillhaven stock, or certain events occur which cause
a Hillhaven Acquiring Person's ownership interest being increased by more than
one percent, then each Hillhaven Right holder, excluding Hillhaven Rights
beneficially held by a Hillhaven Acquiring Person, will be entitled to purchase,
for the then-current exercise price of each Hillhaven Right, that number of
shares of Series A Preferred Stock having a market value equal to two times the
exercise price of each Hillhaven Right.
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The Hillhaven Rights could have the effect of discouraging a third party
from making a tender offer or otherwise attempting to obtain control of
Hillhaven, even though such an attempt might be beneficial to Hillhaven and its
stockholders. In addition, because the Hillhaven Rights may discourage
accumulations of large blocks of Hillhaven Common Stock by purchasers whose
objective is to take control of Hillhaven, the Hillhaven Rights could tend to
reduce the likelihood of fluctuations in the market price of the Hillhaven
Common Stock that might result from accumulations of large blocks of stock.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Hillhaven Commons Stock at a higher market price than otherwise
might be the case.
Pursuant to the Merger Agreement, Hillhaven has agreed to take all action
necessary (including, if necessary, amending or terminating the Hillhaven Rights
Agreement) so that the consummation of the Merger and the other transactions
contemplated thereby will not result in the grant of any Hillhaven Rights to any
person under the Hillhaven Rights Agreement or enable or require any outstanding
Hillhaven Rights to be exercised, distributed or triggered. See "The
Merger -- Conduct of Business Prior to Effective Time; Certain Covenants; No
Solicitations of Transactions."
LIMITATION ON DIRECTORS' LIABILITY
Vencor
Section 102 of Delaware Law allows a corporation to limit or eliminate the
personal liability of directors to the corporation and its stockholders for
monetary damages for breach of fiduciary duty as a director. However, this
provision excludes any limitation on liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for intentional or negligent payment of unlawful
dividends or stock purchase or redemption or (iv) for any transaction from which
the director derived an improper personal benefit. The Vencor Certificate
provides for the limitation on directors' liability as permitted by this
statute.
Hillhaven
As permitted under Nevada Law, the Hillhaven Articles provide that a
director or officer shall not be personally liable to Hillhaven or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for liability for acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of the law or for the unlawful payment of
dividends.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Vencor
Section 145 of Delaware Law provides that a corporation may indemnify its
officers and directors who were or are a party to any action, suit or proceeding
by reason of the fact that he or she was a director, officer, or employee of the
corporation by, among other things, a majority vote of a quorum consisting of
directors who were not parties to such action, suit, or proceeding; provided
that such officers and directors acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation. The Vencor Certificate provides for indemnification of officers and
directors as permitted by Delaware Law. The Vencor Certificate also provides for
the payment of expenses incurred by directors and officers in defending a
proceeding in advance of the final disposition of such proceeding as authorized
by the Vencor Board upon receipt of an undertaking by or on behalf of that
person to repay such amounts unless it is ultimately determined that person is
entitled to be indemnified under Delaware Law.
Hillhaven
Under Nevada Law, a corporation may, and in certain circumstances must,
indemnify its officers, directors, employees or agents for expenses, judgments
or settlements, actually and reasonably incurred by them in connection with
suits and other legal proceedings, if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to criminal proceedings, had no reasonable cause
to believe that their conduct was unlawful. A corporation may adopt
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procedures for advancing expenses to directors and officers prior to final
adjudication, as long as they undertake to repay the amounts advanced if it is
ultimately determined that they were not entitled to be indemnified. While the
Hillhaven Articles are silent as to indemnification, the Hillhaven Bylaws
mandate indemnification and, pursuant to certain procedures, mandate advancement
of expenses to the fullest extent permitted by Nevada Law, unless the person
seeking indemnification initiated the proceeding without the approval of the
Hillhaven Board.
NO CUMULATIVE VOTING
Neither Vencor nor Hillhaven permits cumulative voting.
CONFLICT-OF-INTEREST TRANSACTIONS
Vencor
Delaware Law generally permits transactions involving a Delaware
corporation and an interested director or officer of that corporation if (i) the
material facts are disclosed and a majority of disinterested directors consents,
(ii) the material facts are disclosed and a majority of shares entitled to vote
thereon consents or (iii) the transaction is fair to the corporation at the time
it is authorized by the board of directors, a committee, or the stockholders.
Hillhaven
Similar to Delaware Law, Nevada Law generally permits transactions
involving a Nevada corporation and an interested director or officer of that
corporation if (i) the fact of the common directorship, office or financial
interest is known or disclosed to the board of directors and a majority of
disinterested directors consents, (ii) the fact of the common directorship,
office or financial interest is known or disclosed to the stockholders and a
majority of shares entitled to vote thereon consents, (iii) the fact of the
common directorship, office or financial interest is not disclosed or known to
the director or officer at the time the transaction is brought before the board
of directors for action or (iv) the contract or transaction is fair to the
corporation at the time it is authorized or approved.
DIVIDENDS AND OTHER DISTRIBUTIONS
Vencor
Delaware Law generally allows dividends to be paid out of surplus of the
corporation or, in case there is no surplus, out of the net profits of the
corporation for the current fiscal year and/or the prior fiscal year. No
dividends may be paid if it would result in the capital of the corporation being
less than the capital represented by the preferred stock of the corporation.
Hillhaven
Under Nevada Law, a corporation may pay dividends or make other
distributions with respect to its stock unless, after giving effect to the
dividend or distribution, either the corporation would not be able to pay its
debts as they become due in the usual course of business or, except as otherwise
specifically allowed by its articles of incorporation, the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at that time, to
satisfy the preferential rights of stockholders whose rights are superior to
those stockholders receiving the dividend or distribution.
DUTIES OF DIRECTORS
Vencor
Delaware Law does not contain a specific provision elaborating on the
duties of a board of directors with respect to the best interests of the
corporation. Delaware courts have permitted directors to consider various
constituencies provided that there be some rationally related benefit to the
stockholders.
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Hillhaven
Nevada Law permits a board of directors to consider, including in
connection with a change or potential change in control of the corporation, (i)
the interests of the corporation's employees, suppliers, creditors and
customers, (ii) the economy of the state and nation, (iii) the interests of the
community and of society and (iv) the long-term as well as short-term interests
of the corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
Neither Delaware Law nor Nevada Law contains any provision requiring the
issuance of rights or options to officers, directors and employees to be
approved by a stockholder vote.
LOANS TO DIRECTORS
Both Delaware Law and Nevada Law allow loans to and guarantees of
obligations of officers and directors without any stockholder approval.
AMENDMENT TO THE VENCOR CERTIFICATE OF INCORPORATION
At the Vencor Meeting, the holders of Vencor Common Stock will consider and
vote upon a proposal of the Vencor Board to amend Vencor's Certificate of
Incorporation as set forth in Appendix D to this Joint Proxy
Statement/Prospectus (the "Charter Amendment"). If adopted, the Charter
Amendment will increase the number of authorized shares of Vencor Common Stock
from 60,000,000 shares to 180,000,000 shares. See "The Special Meeting." The
Charter Amendment will not be effected unless the Merger is consummated.
Likewise, the Merger cannot be effected absent shareholder approval of the
Charter Amendment.
At August , 1995, there were shares of Vencor Common Stock
outstanding. The number of shares of Vencor Common Stock issuable in exchange
for the outstanding Hillhaven Common Stock shall be determined pursuant to the
Merger Agreement. See "The Merger -- Terms of the Merger."
PURPOSE AND EFFECT OF THE CHARTER AMENDMENT
Vencor's primary purpose for the Charter Amendment is to provide enough
authorized shares of Vencor Common Stock to effect the exchange of Vencor Common
Stock for Hillhaven Common Stock in the Merger and to make available additional
authorized and unissued shares for future use. Without an increase in the number
of authorized shares of Vencor Common Stock, Vencor would not have sufficient
authorized shares to effect the Merger. See "The Merger -- Terms of the Merger."
Vencor intends to use the remaining authorized and unissued shares of
Vencor Common Stock for various corporate purposes, including, but not limited
to, possible future financing and acquisition transactions, stock dividends,
stock splits and other corporate purposes. Authorized and unissued shares of
Vencor Common Stock may be issued for the foregoing purposes by the Vencor Board
without further Vencor stockholder action unless the issuance is in connection
with a transaction for which stockholder approval is otherwise required under
applicable law or for compliance with any agreement with any stock exchange on
which Vencor Common Stock is listed. In addition, under certain circumstances
the Vencor Board may, at its option, exchange all or part of the
then-outstanding Rights for Vencor Common Stock. See "Description of Vencor
Capital Stock -- Vencor Preferred Stock -- Description of Vencor Rights."
The proposed increase in the number of authorized shares of Vencor Common
Stock will not alter the rights of the holders of Vencor Common Stock. Neither
the presently authorized shares of Vencor Common Stock nor additional shares of
Vencor Common Stock that may be authorized pursuant to the Charter Amendment
carry preemptive rights.
The Vencor Board is required to make any determination to issue shares of
Vencor Common Stock based on its judgment as to the best interests of Vencor and
its stockholders. Although the Vencor Board has no present intention of doing
so, the authorized but unissued shares of Vencor Common Stock could be used to
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make it more difficult to effect a change in control of Vencor. Under such
circumstances the availability of authorized and unissued shares of Vencor
Common Stock may make it more difficult for stockholders to obtain an
acquisition premium for their shares. Such shares could be used to create voting
or other impediments or to frustrate persons seeking to gain control of Vencor
by means of a merger, tender offer, proxy contest or other means. Such shares
could be privately placed with purchasers who might cooperate with the Vencor
Board in opposing such an attempt by a third party to gain control of Vencor.
The issuance of new shares of Vencor Common Stock could be used to dilute the
stock ownership of a person or entity seeking to obtain control of Vencor.
AMENDMENT TO VENCOR'S 1987 INCENTIVE COMPENSATION PROGRAM
At the Vencor Meeting, the holders of Vencor Common Stock will consider and
vote upon the Compensation Program Amendment. If approved by the stockholders
the number of shares authorized for issuance upon the exercise of stock options
and pursuant to other stock and cash awards will be increased from 3,162,562
shares to 6,900,000 shares. The Compensation Program Amendment is contingent
upon consummation of the Merger.
The Vencor Compensation Program was approved by Vencor's Board and
stockholders in 1987. The Vencor Compensation Program provides for the award of
a variety of economic incentives (the "Incentives") to Vencor's employees,
including stock options, stock appreciation rights, restricted stock and other
stock and cash awards. The basic features of the Vencor Compensation Program,
and the proposed amendment, are described below.
PURPOSE OF THE INCENTIVE COMPENSATION PROGRAM AMENDMENT
The purpose of the Vencor Compensation Program is to increase stockholder
value and advance the interests of Vencor by furnishing a variety of economic
incentives designed to attract, retain and motivate employees. At June 30, 1995,
Vencor had approximately 9,800 employees. Following the Merger the combined
company will have approximately 55,000 employees. As of June 30, 1995, options
to purchase 1,404,686 shares of Vencor Common Stock were outstanding, and
168,064 restricted and bonus shares had been issued, under the Vencor
Compensation Program. At June 30, 1995, only 814,821 shares remained available
for issuance under the Vencor Compensation Program. Vencor's primary purpose for
the Compensation Program Amendment is to provide a sufficient number of shares
which may be issued under the Vencor Compensation Program in light of the
greater number of Vencor employees following the Merger.
ELIGIBILITY FOR PARTICIPATION
Employees of Vencor are eligible to receive Incentives under the Vencor
Compensation Program when designated by the committee responsible for
administering the Vencor Compensation Program (the "Committee"). The Committee
may designate employees individually or by groups or categories as the Committee
deems appropriate. The Committee must individually approve participation by
officers of Vencor and any performance objectives relating to such officers.
Participation by, and any performance objectives relating to, other employees
may be approved by groups or categories and the Committee may delegate authority
to designate participants who are not officers and to set or modify such
targets.
TYPES OF INCENTIVES
Stock Options
Under the Vencor Compensation Program, the Committee may grant incentive
stock options ("ISOs") and non-qualified stock options ("NQSOs") to eligible
employees to purchase shares of Vencor Common Stock. The Committee has the
discretion to determine the number and purchase price of the shares of Vencor
Common Stock subject to the option, the term of each option and the time or
times during its term when the option becomes exercisable. The maximum number of
options which may be awarded to any participant in any calendar year will be
100,000. No option may be exercised during the first six months of its term,
except in
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the case of death or disability. In addition, the aggregate fair market value of
the shares of Vencor Common Stock for which ISOs are exercisable for the first
time by any participant during any calendar year may not exceed $100,000. The
term of a non-qualified option and ISO may not exceed ten years from the date of
grant. The term of any ISOs granted to an optionee who owns 10% or more of
Vencor's outstanding Common Stock (a "10% Stockholder") may not exceed five
years.
The purchase price of NQSOs and ISOs is determined by the Committee. The
purchase price for an ISO may not be less than the fair market value of the
shares subject to the option on the date of the grant. For ISOs granted to a 10%
Stockholder, the purchase price may not be less than 110% of fair market value
on the date of the grant. The fair market value of the shares is determined by
reference to the closing price on the NYSE on the date of grant.
The Vencor Compensation Program permits the option price to be paid in
cash, check, bank draft or by delivery of shares of Vencor Common Stock valued
at their fair market value at the time of exercise, or as otherwise authorized
by the Committee.
The Committee has the authority to establish the time within which an
unexercised stock option must be exercised or other Incentives expire following
termination of an optionee's employment with Vencor for any reason, including
death. The Committee has the authority to accelerate the exercisability of any
option to a date no earlier than six months following the date it was granted.
The Committee also has the power to approve the purchase by Vencor from a
participant upon mutual agreement of an unexercised option for the difference
between the exercise price and the fair market value of the shares of Vencor
Common Stock covered by such option.
Stock Appreciation Rights
Stock appreciation rights ("SARs") constitute a right to receive, without
payment to Vencor, a number of shares of Vencor Common Stock, cash or any
combination thereof, with a value equal to the appreciation of the shares to
which the SAR relates, determined in accordance with the terms of the Vencor
Compensation Program. Under the Vencor Compensation Program, the Committee may
grant an SAR in conjunction with any option granted under the Vencor
Compensation Program, or alone, without reference to any option. The maximum
number of SARs which may be awarded to any participant in any calendar year will
be 100,000. An SAR granted in conjunction with any option may be granted
concurrently with the grant of such option or at such later time as the
Committee may determine and as to all or any portion of the shares of Vencor
Common Stock subject to the option.
Stock Awards, Performance Shares and Restricted Stock
A stock award consists of the transfer by Vencor to an employee of shares
of Vencor Common Stock, without other payment therefor, as additional
compensation for services to Vencor. Performance shares are awards payable in
shares of Vencor Common Stock, provided performance objectives are met.
Restricted stock consists of shares of Vencor Common Stock which are sold or
transferred by Vencor to an employee at a price which may be below their fair
market value or for no payment, but subject to restrictions on their sale or
other transfer by the employee. The Committee determines the number of shares to
be granted, the sale price (if any) for the shares, any applicable performance
objectives, and the specific restrictions on sale or transfer.
Cash Bonuses
Vencor may pay cash bonuses to employees pursuant to the Vencor
Compensation Program as additional compensation for services to Vencor. The
payment of a cash award may depend on the achievement of performance goals by
Vencor or by individuals. The Committee determines the amount of any cash awards
and applicable performance goals.
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NON-TRANSFERABILITY OF INCENTIVES
No option, SAR, performance share or restricted stock granted under the
Vencor Compensation Program may be transferred, pledged or assigned by its
holder, except in the event of the holder's death, by will or the laws of
descent and distribution. During an employee's lifetime, an Incentive may be
exercised only by the employee. The limitation on the transfer of restricted
stock will lapse upon the expiration of the restrictions.
AMENDMENT OF THE VENCOR COMPENSATION PROGRAM
The Vencor Board may amend or discontinue the Vencor Compensation Program
at any time without stockholder approval. No such amendment or discontinuance,
however, may (a) increase the number of shares of Vencor Common Stock which may
be issued to all participants under the Vencor Compensation Program, (b)
materially modify the requirements as to eligibility for participation under the
Vencor Compensation Program or (c) materially increase the benefits accruing to
participants, in the absence of stockholder approval.
EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH
If a participant ceases to be an employee of Vencor for any reason,
including death, any Incentives may be exercised or shall expire at such times
as may be determined by the Committee.
FEDERAL INCOME TAX CONSEQUENCES
Because tax results may vary due to individual circumstances, participants
in the Vencor Compensation Program are urged to consult their personal tax
advisors regarding the tax consequences of an award of an Incentive or the sale
of any shares received under the Vencor Compensation Program.
Non-Qualified Stock Options
The granting of NQSOs does not produce taxable income to the recipient or a
tax deduction to Vencor. Taxable ordinary income will be recognized by the
holder at the time of exercise in an amount equal to the excess of the fair
market value of the shares of Vencor Common Stock purchased at the time of such
exercise over the aggregate option price. Vencor will be entitled to a
corresponding Federal income tax deduction. The tax basis for the shares
acquired is the option price plus the taxable income recognized.
Incentive Stock Options
The grant of an ISO has no immediate tax consequences to Vencor or the
employee. Furthermore, no income would be recognized by an employee at the time
of exercise of the ISO. If the employee holds the shares acquired upon exercise
of the ISO for at least two years from the date of the grant of the ISO and at
least one year from the date of exercise, the employee would realize taxable
long-term capital gain or long-term capital loss upon a subsequent sale of the
shares at a price different from the option price. If the holding period
described above is met, no deduction would be allowed to Vencor for Federal
income tax purposes at any time. If, however, the employee disposes of the
shares prior to satisfying the holding period described above, (i) the employee
would realize ordinary income in the year of such disposition in an amount equal
to the difference between (a) the fair market value of such shares on the date
of exercise or (b) the sales price, whichever is less, and the option price;
(ii) Vencor would be entitled to a deduction for such year in the amount of the
ordinary income so realized; (iii) the employee would realize capital gain,
short-term or long-term (depending upon whether the shares have been held for
more or less than one year), in an amount equal to the difference between (a)
the amount realized upon such sale or exchange of the shares and (b) the option
price paid, increased by the amount of ordinary income, if any, realized upon
such disposition.
Restricted Stock
An employee who receives restricted stock or performance shares subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of Section 83 of the Code) will normally recognize taxable
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income on the date the shares become transferable or no longer subject to
substantial risk of forfeiture or on the date of their earlier disposition. The
amount of such taxable income will be equal to the amount by which the fair
market value of the shares on the date such restrictions lapse (or any earlier
date on which the shares are disposed of) exceeds their purchase price, if any.
An employee may, however, make a Section 83(b) Election to include in income in
the year of purchase or grant the excess of the fair market value of the shares
(without regard to any restrictions, other than non-lapse restrictions) on the
date of purchase or grant over their purchase price. Vencor will be entitled to
a deduction for compensation paid in the same year and in the same amount as
income is recognized by the employee. An employee's basis for the shares will be
the amount paid for the shares, if any, plus the ordinary income recognized, and
the employee's holding period will commence on the day following the date on
which income is recognized.
Stock and Cash Awards
An employee who receives a stock award will generally recognize ordinary
income in an amount equal to the fair market value of the shares of Vencor
Common Stock on the date of grant. Upon receipt of a cash award, an employee
will recognize ordinary income in an amount equal to the cash award. Vencor will
be entitled to a deduction for compensation paid in the same year and in the
same amount as income is recognized by the employee.
OPTION GRANTS IN LAST FISCAL YEAR
Future benefits under the Vencor Compensation Program are not currently
determinable. The following table sets forth certain information concerning
options to purchase shares of Vencor's Common Stock granted in 1994 to Vencor's
executive officers and other employees.
<TABLE>
<CAPTION>
OPTIONS
NAME GRANTED
----------------------------------------------------------------------------------- -------
<S> <C>
W. Bruce Lunsford.................................................................. 60,000
Michael R. Barr.................................................................... 22,500
W. Earl Reed, III ................................................................. 22,500
Thomas T. Ladt..................................................................... 10,500
All Executive Officers as a Group.................................................. 115,500
All Employees (Excluding Executive Officers)....................................... 194,625
</TABLE>
The exercise price for all options granted in 1994 under the Vencor
Compensation Program was equal to the fair market value of Vencor Common Stock
on the date of grant.
DURATION
The Vencor Compensation Program will remain in effect until all incentives
granted under the Vencor Compensation Program have either been satisfied by the
issuance of shares of Vencor Common Stock or the payment of cash or have been
terminated under the terms of the Vencor Compensation Program and all
restrictions imposed on shares of Vencor Common Stock in connection with their
issuance under the Vencor Compensation Program have lapsed. All ISOs must be
granted before May 27, 1997, ten years from the date on which the Vencor Board
adopted the Vencor Compensation Program. All other incentives must be granted
prior to June 18, 1997, the tenth anniversary of the date the stockholders
approved the Vencor Compensation Program.
EXPERTS
The consolidated financial statements of Vencor as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994
incorporated by reference in this Joint Proxy Statement/ Prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their reports
thereon. The financial statements audited by Ernst & Young LLP have been
incorporated herein by reference in reliance upon their report given upon their
authority as experts in accounting and auditing.
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The consolidated financial statements of Hillhaven as of May 31, 1994 and
1993 and for each of the three years in the period ended May 31, 1994
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by KPMG Peat Marwick LLP, independent auditors. The financial statements
audited by KPMG Peat Marwick LLP have been incorporated herein by reference in
reliance upon their report given upon their authority as experts in accounting
and auditing.
The report of KPMG Peat Marwick LLP covering the May 31, 1994 consolidated
financial statements refers to a change in the methodology of providing income
taxes by adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
The financial statements of Nationwide Care, Inc. as of September 30, 1994
and 1993 and for each of the three years in the period ended September 30, 1994
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
thereon. The financial statements audited by Ernst & Young LLP have been
incorporated herein by reference in reliance upon their report given upon their
authority as experts in accounting and auditing.
VALIDITY OF SHARES
The validity of the Vencor Common Stock to be issued pursuant to the Merger
will be passed upon for Vencor by Greenebaum Doll & McDonald PLLC, Louisville,
Kentucky. William C. Ballard Jr., a director of Vencor, is of counsel to such
firm and at May 5, 1995 beneficially owned 26,094 shares of Vencor Common Stock.
In addition, at May 5, 1995 an attorney with Greenebaum Doll & McDonald who
participated in the preparation of this Joint Proxy Statement/Prospectus
beneficially owned approximately 5,700 shares of Vencor Common Stock.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders of Vencor may submit proposals to be considered for
stockholder action at the Vencor Annual Meeting of Stockholders to be held in
1996 if they do so in accordance with the Vencor Certificate, the Vencor Bylaws
and applicable regulations of the Commission. Any such proposals must be
submitted to the Secretary of Vencor no later than November 30, 1995, in order
to be considered for inclusion in Vencor's 1996 proxy materials.
Hillhaven will hold a 1995 Annual Meeting of Stockholders only if the
Merger is not consummated before the time of such meeting. The last date for the
submission of stockholder proposals to Hillhaven for consideration for inclusion
in Hillhaven's 1995 proxy materials was April 26, 1995.
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APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
DATED AS OF
APRIL 23, 1995
AMONG
THE HILLHAVEN CORPORATION
AND
VENCOR, INC.
A-1
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE I THE MERGER........................................................ A-5
SECTION 1.01. The Merger........................................................ A-5
SECTION 1.02. Conversion of Shares.............................................. A-5
SECTION 1.03. Surrender and Payment............................................. A-6
SECTION 1.04. Stock Options..................................................... A-8
SECTION 1.05. Adjustments....................................................... A-9
SECTION 1.06. Fractional Shares................................................. A-9
ARTICLE II THE SURVIVING CORPORATION; VENCOR DIRECTORS....................... A-9
SECTION 2.01. Certificate of Incorporation...................................... A-9
SECTION 2.02. Bylaws............................................................ A-9
SECTION 2.03. Directors and Officers............................................ A-9
SECTION 2.04. Vencor Directors.................................................. A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... A-10
SECTION 3.01. Corporate Existence and Power..................................... A-10
SECTION 3.02. Corporate Authorization........................................... A-10
SECTION 3.03. Governmental Authorization........................................ A-10
SECTION 3.04. Non-Contravention................................................. A-10
SECTION 3.05. Capitalization.................................................... A-11
SECTION 3.06. Subsidiaries...................................................... A-12
SECTION 3.07. Reports........................................................... A-12
SECTION 3.08. Financial Statements; No Undisclosed Liabilities.................. A-13
SECTION 3.09. Joint Proxy Statement/Prospectus; Registration Statement.......... A-13
SECTION 3.10. Absence of Certain Changes........................................ A-13
SECTION 3.11. Litigation........................................................ A-14
SECTION 3.12. Articles of Incorporation and Bylaws.............................. A-14
SECTION 3.13. ERISA............................................................. A-14
SECTION 3.14. Taxes............................................................. A-15
SECTION 3.15. Tax Matters; Pooling.............................................. A-15
SECTION 3.16. Finders and Investment Bankers.................................... A-16
SECTION 3.17. Opinion of Financial Advisor...................................... A-16
SECTION 3.18. Vote Required..................................................... A-16
SECTION 3.19. Acquiring Person.................................................. A-16
SECTION 3.20. Medicare and Medicaid............................................. A-16
SECTION 3.21. Takeover Statutes................................................. A-17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF VENCOR.......................... A-17
SECTION 4.01. Corporate Existence and Power..................................... A-17
SECTION 4.02. Corporate Authorization........................................... A-17
SECTION 4.03. Governmental Authorization........................................ A-17
SECTION 4.04. Non-Contravention................................................. A-17
SECTION 4.05. Capitalization.................................................... A-18
SECTION 4.06. Subsidiaries...................................................... A-19
SECTION 4.07. Reports........................................................... A-19
SECTION 4.08. Financial Statements; No Undisclosed Liabilities.................. A-19
SECTION 4.09. Joint Proxy Statement/Prospectus; Registration Statement.......... A-20
SECTION 4.10. Absence of Certain Changes........................................ A-20
SECTION 4.11. Litigation........................................................ A-20
SECTION 4.12. Articles of Incorporation and Bylaws.............................. A-20
SECTION 4.13. ERISA............................................................. A-20
SECTION 4.14. Taxes............................................................. A-21
</TABLE>
A-2
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<TABLE>
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SECTION 4.15. Tax Matters; Pooling.............................................. A-21
SECTION 4.16. Finders and Investment Bankers.................................... A-21
SECTION 4.17. Opinion of Financial Advisor...................................... A-21
SECTION 4.18. Vote Required..................................................... A-21
SECTION 4.19. No Change of Control.............................................. A-22
SECTION 4.20. Medicare and Medicaid............................................. A-22
SECTION 4.21. Acquiring Person.................................................. A-22
ARTICLE V COVENANTS OF THE COMPANY.......................................... A-22
SECTION 5.01. Conduct of the Company............................................ A-22
SECTION 5.02. Access to Information............................................. A-23
SECTION 5.03. Other Offers...................................................... A-24
SECTION 5.04. Notices of Certain Events......................................... A-24
SECTION 5.05. Tax Letters....................................................... A-24
SECTION 5.06. Rights Agreement.................................................. A-25
SECTION 5.07. Financial Statements.............................................. A-25
ARTICLE VI COVENANTS OF VENCOR............................................... A-25
SECTION 6.01. Conduct of Vencor................................................. A-25
SECTION 6.02. Access to Information............................................. A-26
SECTION 6.03. [Reserved]........................................................ A-26
SECTION 6.04. Director and Officer Liability.................................... A-26
SECTION 6.05. Stock Exchange Listing............................................ A-27
SECTION 6.06. Vencor Acquisition Proposals...................................... A-27
SECTION 6.07. Notice of Certain Events.......................................... A-27
SECTION 6.08. Employee Benefits................................................. A-27
ARTICLE VII COVENANTS OF VENCOR AND THE COMPANY............................... A-28
SECTION 7.01. Best Reasonable Efforts........................................... A-28
SECTION 7.02. Certain Filings................................................... A-28
SECTION 7.03. Public Announcements.............................................. A-28
SECTION 7.04. Further Assurances................................................ A-28
SECTION 7.05. Stockholders Meetings............................................. A-28
SECTION 7.06. Preparation of the Joint Proxy Statement/Prospectus and
Registration Statement.......................................... A-29
SECTION 7.07. State Takeover Laws............................................... A-29
SECTION 7.08. Pooling........................................................... A-29
SECTION 7.09. Consents.......................................................... A-29
SECTION 7.10. Affiliates........................................................ A-29
ARTICLE VIII CONDITIONS TO THE MERGER.......................................... A-30
SECTION 8.01. Conditions to the Obligations of Each Party....................... A-30
SECTION 8.02. Conditions to the Obligations of Vencor........................... A-31
SECTION 8.03. Conditions to the Obligations of the Company...................... A-31
ARTICLE IX TERMINATION....................................................... A-32
SECTION 9.01. Termination....................................................... A-32
SECTION 9.02. Effect of Termination............................................. A-33
ARTICLE X MISCELLANEOUS..................................................... A-33
SECTION 10.01. Notices........................................................... A-33
SECTION 10.02. Survival.......................................................... A-34
SECTION 10.03. Amendments; No Waivers............................................ A-34
SECTION 10.04. Fees and Expenses................................................. A-34
SECTION 10.05. Successors and Assigns............................................ A-35
SECTION 10.06. Governing Law..................................................... A-35
</TABLE>
A-3
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<TABLE>
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SECTION 10.07. Counterparts; Effectiveness....................................... A-35
SECTION 10.08. Entire Agreement.................................................. A-35
SECTION 10.09. Headings.......................................................... A-36
SECTION 10.10. Severability...................................................... A-36
SECTION 10.11. Specific Performance.............................................. A-36
EXHIBITS
Exhibit A Form of Company Affiliate Agreement...............................
Exhibit B Form of Vencor Affiliate Agreement................................
SCHEDULES
Schedule 3.03 Company Governmental Authorization................................
Schedule 3.04 Company Non-Contravention.........................................
Schedule 3.05 Company Capitalization............................................
Schedule 3.06 Company Subsidiaries..............................................
Schedule 3.10 Absence of Certain Changes to Company.............................
Schedule 3.11 Company Litigation................................................
Schedule 3.13 Company ERISA.....................................................
Schedule 3.20 Company Medicare and Medicaid.....................................
Schedule 4.03 Vencor Governmental Authorization.................................
Schedule 4.05 Vencor Capitalization.............................................
Schedule 4.06 Vencor Subsidiaries...............................................
Schedule 4.10 Absence of Certain Changes to Vencor..............................
Schedule 4.11 Vencor Litigation.................................................
Schedule 4.19 No Change of Control..............................................
Schedule 5.01 Conduct of the Company............................................
Schedule 6.01 Conduct of Vencor.................................................
Schedule 6.09 Employee Benefits.................................................
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of April 23,
1995 and as amended and restated as of July 31, 1995, between THE HILLHAVEN
CORPORATION, a Nevada corporation (the "Company"), and VENCOR, INC., a Delaware
corporation ("Vencor" or "Parent").
WHEREAS, the Company, Vencor and Veritas Holdings Corp., a Delaware
corporation and a wholly-owned subsidiary of Vencor ("Merger Subsidiary"), have
entered into that certain Agreement and Plan of Merger dated as of April 23,
1995, that provides for a business combination in which the Company would be
merged with and into Merger Subsidiary, which would be the surviving entity in
the merger and remain a wholly-owned subsidiary of Vencor;
WHEREAS, the Boards of Directors of Vencor, Merger Subsidiary and the
Company deem it advisable and in the best interests of their respective
stockholders that the business combination transaction provided for in the
Agreement and Plan of Merger be enacted so that the Company would merge with and
into Vencor (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 1.01(b)), the Company
shall be merged with and into Vencor in accordance with (i) the General
Corporation Law of the State of Delaware ("Delaware Law") and (ii) the
corporation law of the State of Nevada ("Nevada Law"). As a result of the
Merger, the separate existence of the Company shall cease and Vencor shall be
the surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions set forth in Article VIII to the Merger, the
parties hereto shall cause (i) a certificate of merger in such form as is
required by, and executed in accordance with, Delaware Law to be duly filed with
the Secretary of State of the State of Delaware and (ii) articles of merger in
such form as is required by, and executed in accordance with, Nevada Law to be
duly filed with the Secretary of State of the State of Nevada. The Merger shall
become effective at such time as both the certificate of merger is duly filed
with the Secretary of State of the State of Delaware and the articles of merger
are duly filed with the Secretary of State of the State of Nevada (the
"Effective Time").
(c) From and after the Effective Time, the Merger shall have the effects
specified in Delaware Law and Nevada Law.
(d) The closing of the Merger (the "Closing") will take place at 10:00 a.m.
on the first business day on which all conditions set forth in Article VIII are
satisfied or, to the extent permitted hereunder, waived at the offices of Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, NY 10004, or on
such other date or at such other place as the parties may agree.
SECTION 1.02. Conversion of Shares.
At the Effective Time:
(a) each share of common stock of Vencor issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
and be unchanged by the Merger;
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(b) each share of common stock, $.75 par value per share, of the
Company (the "Company Common Stock") issued and outstanding immediately
prior to the Effective Time shall, except as otherwise provided in Section
1.02(e) and Section 1.06, be converted into the right to receive that
number of fully paid and nonassessable shares of the common stock, par
value $0.25 per share, of Vencor (the "Vencor Common Stock") equal to the
"Conversion Number" (as defined below). The "Conversion Number" shall be
determined by dividing $32.25 by the "Vencor Average Price" (as defined
below), rounded to three decimal places; provided that the Conversion
Number shall not be less than .768 nor more than .977 (subject to Section
9.01(vii) hereof). The "Vencor Average Price" means the average closing
price on the New York Stock Exchange (the "NYSE") of Vencor Common Stock
(as reported in the New York Stock Exchange Composite Transactions
reporting system as published in The Wall Street Journal or, if not
published therein, in another authoritative source) for the 10 consecutive
trading days ending with the second trading day immediately preceding the
Effective Time;
(c) each share of Series C Preferred Stock, par value $.15 per share,
of the Company (the "Series C Preferred Stock") issued and outstanding
immediately prior to the Effective Time shall, except as otherwise provided
in Section 1.02(e), be converted into the right to receive in cash $900 per
share, plus accrued and unpaid dividends to the Effective Time (the "Series
C Merger Consideration");
(d) each share of Series D Preferred Stock, par value $.15 per share,
of the Company (the "Series D Preferred Stock") issued and outstanding
prior to the Effective Time shall, except as otherwise provided in Section
1.02(e), be converted into the right to receive in cash $900 per share,
plus accrued and unpaid dividends to the Effective Time (the "Series D
Merger Consideration"); and
(e) each outstanding share of the Company Common Stock, the Series C
Preferred Stock and the Series D Preferred Stock (collectively, the
"Company Stock") held by the Company as treasury stock or owned by Vencor
or any subsidiary of Vencor immediately prior to the Effective Time shall
be canceled, and no payment shall be made with respect thereto.
SECTION 1.03. Surrender and Payment.
(a) Prior to the Effective Time, Vencor shall appoint an agent reasonably
acceptable to the Company (the "Exchange Agent") for the purpose of exchanging
certificates representing shares of Company Stock. Vencor shall deposit with the
Exchange Agent for the benefit of the holders of Company Stock (other than the
Company, Vencor or any Subsidiary of Vencor), for exchange in accordance with
this Section 1.03 through the Exchange Agent, (i) as of the Effective Time, (x)
certificates representing the shares of Vencor Common Stock to be issued
pursuant to Section 1.02 in exchange for outstanding shares of Company Common
Stock and (y) cash in an amount equal to the sum of (A) the aggregate Series C
Merger Consideration to be paid to the holders of the Series C Preferred Stock
(including the aggregate amount of any accrued and unpaid dividends) and (B) the
aggregate Series D Merger Consideration to be paid to the holders of the Series
D Preferred Stock (including the aggregate amount of any accrued and unpaid
dividends), and (ii) from time to time as necessary to make payments, cash to be
paid in lieu of fractional shares pursuant to Section 1.06 (such certificates
for shares of Vencor Common Stock and such cash being hereinafter referred to as
the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver Vencor Common Stock (and any dividends or distributions
related thereto) and/or cash in exchange for surrendered certificates
representing Company Shares pursuant to Section 1.02 out of the Exchange Fund.
Except as contemplated by Section 1.03(f), the Exchange Fund shall not be used
for any other purpose.
(b) Promptly after the Effective Time, Vencor will send, or will cause the
Exchange Agent to send, to each holder of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of
Company Stock ("Certificates") a letter of transmittal and instructions for use
in effecting such exchange of the Certificates for Vencor Common Stock and/or
cash. Provision also shall be made for holders of Certificates to procure a
letter of transmittal and instructions and deliver such letter of transmittal
and Certificates in exchange for Vencor Common Stock and/or cash in person
immediately after the Effective Time.
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(c) After the Effective Time, Certificates shall represent the right, upon
surrender thereof to the Exchange Agent, together with a duly executed and
properly completed letter of transmittal relating thereto, to receive in
exchange therefor that number of whole shares of Vencor Common Stock and/or cash
which such holder has the right to receive pursuant to Sections 1.02 and 1.06
after giving effect to any required tax withholding, and the Certificate or
Certificates so surrendered shall be canceled. No interest will be paid or will
accrue on any cash amount payable upon the surrender of any such Certificates.
Until so surrendered, each such Certificate shall, after the Effective Time,
represent for all purposes only the right to receive upon such surrender the
shares of Vencor Common Stock and/or cash as contemplated by this Article I.
(d) If any shares of Vencor Common Stock are to be issued and/or cash to be
paid to a Person other than the registered holder of the Certificate or
Certificates surrendered in exchange therefor, it shall be a condition to such
issuance that the Certificate or Certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such issuance shall pay to the Exchange Agent any transfer or other
taxes required as a result of such issuance to a Person other than the
registered holder or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. For purposes of this Agreement,
"Person" means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(e) At and after the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of Company Stock outstanding prior to the Effective Time. If, at or after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged as provided for, and in accordance with the
procedures set forth, in this Article I.
(f) Any shares of Vencor Common Stock and/or cash in the Exchange Fund that
remain unclaimed by the holders of Company Stock six months after the Effective
Time shall be returned to Vencor, upon demand, and any such holder who has not
exchanged his shares of Company Stock in accordance with this Section 1.03 prior
to that time shall thereafter look only to Vencor, as general creditors thereof,
to exchange such shares or amounts to which they are entitled pursuant to
Section 1.02. If outstanding Certificates are not surrendered prior to six years
after the Effective Time (or, in any particular case, prior to such earlier date
on which shares of Vencor Common Stock issuable in respect of such Certificates
or the dividends and other distributions, if any, described below would
otherwise escheat to or become the property of any governmental unit or agency),
the shares of Vencor Common Stock issuable in respect of such Certificates, and
the amount of dividends and other distributions, if any, which have become
payable and which thereafter become payable on Vencor Common Stock evidenced by
such Certificates as provided herein shall, to the extent permitted by
applicable law, become the property of Vencor, free and clear of all claims or
interest of any Person previously entitled thereto. Notwithstanding the
foregoing, Vencor shall not be liable to any holder of Company Stock for any
amount paid, or any shares of Vencor Common Stock, cash or dividends delivered,
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(g) No dividends or other distributions on shares of Vencor Common Stock
shall be paid to the holder of any unsurrendered Certificates with respect to
the shares of Vencor Common Stock represented thereby until such Certificates
are surrendered as provided in this Section 1.03. Following such surrender,
there shall be paid, without interest, to the Person in whose name the
certificates representing the shares of Vencor Common Stock issued in exchange
therefor are registered, (i) promptly all dividends and other distributions paid
in respect of such Vencor Common Stock with a record date on or after the
Effective Time and theretofore paid, and (ii) at the appropriate date, all
dividends or other distributions in respect of such Vencor Common Stock with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender.
(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation, the
posting by such Person of a bond in such reasonable amount as Vencor may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Vencor Common Stock
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and/or cash and unpaid dividends and other distributions on shares of Vencor
Common Stock deliverable in respect thereof pursuant to this Agreement.
SECTION 1.04. Stock Options.
(a) At the Effective Time, (i) each outstanding option to purchase Company
Common Stock, stock appreciation right or other similar right (each an "Option")
granted under the Company's 1990 Stock Incentive Plan and the Company's
Directors' Stock Option Plan (the "Company Option Plans"), whether or not
exercisable, and whether or not vested, shall become fully exercisable and
vested, (ii) each Option which is then outstanding shall be canceled and (iii)
in consideration of such cancellation, Vencor shall deliver to each Optionholder
in respect of each Option held by such holder the number of shares of Vencor
Common Stock equal to the product of (x) the result of multiplying (A) the
Conversion Number by (B) a fraction, the numerator of which is the excess, if
any, of the Transaction Value (as defined below) over the exercise or strike
price of such Option and the denominator of which is the Transaction Value and
(y) the number of shares of Company Common Stock subject to such Option.
"Transaction Value" means the product of the Conversion Number and the Vencor
Average Price.
(b) At the Effective Time, (i) each investment option to purchase PIP
Convertible Debentures (as defined in Section 3.05) (the "PIP Options") granted
pursuant to the Company's Performance Incentive Plan, whether or not
exercisable, and whether or not vested, shall become fully exercisable and
vested, (ii) each PIP Option which is then outstanding will be canceled and
(iii) in consideration of such cancellation, Vencor shall deliver to each PIP
Optionholder the number of shares of Vencor Common Stock having a value equal to
the value which a PIP Optionholder would realize had he exercised an option
immediately prior to the Effective Time, which is equal to the number of shares
of Vencor Common Stock equal to the product of (x) the result of multiplying (A)
the Conversion Number by (B) a fraction, the numerator of which is the excess,
if any, of the Transaction Value over $15.7105 and the denominator of which is
the Transaction Value and (y) the number of shares of Company Common Stock
subject to such PIP Option (upon conversion of the underlying PIP Convertible
Debentures (as defined below) and Series B Preferred Stock).
(c) At the Effective Time, each restricted share representing a share of
Company Common Stock granted under the Company Option Plans, whether or not
vested, shall become fully vested and shall be entitled to receive the
consideration in the Merger for shares of Company Common Stock specified in
Section 1.02(b).
(d) Each performance share award under the Company Option Plans shall at
the Effective Time be converted into a performance share award with respect to
the number of full shares of Vencor Common Stock equal to the product of (i) .75
times the Conversion Number, multiplied by (ii) the number of shares of Company
Common Stock subject to such award (which represents the fair value of such
awards as of the Effective Time).
(e) Notwithstanding the foregoing, payments to award and Optionholders
contemplated by this Section 1.04 may be withheld in respect of any award or
Option until any necessary consent or release is obtained or any necessary
amendment to any Option Plan has been made. Vencor shall take all necessary
action in order to effect the provisions of this Section 1.04 as of the
Effective Time, including, if necessary, obtaining stockholder approval by the
stockholders of Vencor and amending existing stock option plans of Vencor.
(f) Any action taken by the Company to effect this Section 1.04 shall
provide that such action shall be ineffective to the extent it would interfere
with accounting for the Merger or the acquisition of Nationwide Care, Inc. and
related entities as a "pooling of interests". The parties shall cooperate to
restructure any of the actions taken pursuant to this Section 1.04 if the effect
of such actions would prevent the Merger from qualifying as a "pooling of
interests" for financial reporting purposes, provided that the parties will
endeavor to ensure that such restructuring shall have substantially the same
economic effect to the former Optionholders or holders of restricted or
performance shares.
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SECTION 1.05. Adjustments.
If at any time during the period between the date of this Agreement and the
Effective Time, any change in the outstanding shares of Vencor Common Stock
shall occur, including by reason of any reclassification, recapitalization,
stock split or combination, exchange or readjustment of shares, or any stock
dividend thereon with a record date during such period, the Conversion Number
shall be appropriately adjusted.
SECTION 1.06. Fractional Shares.
No fractional shares of Vencor Common Stock shall be issued in the Merger
and fractional share interests shall not entitle the owner thereof to vote or to
any rights of a stockholder of Vencor. All fractional shares of Vencor Common
Stock that a holder of Company Common Stock or a holder of Options or PIP
Options would otherwise be entitled to receive as a result of the Merger shall
be aggregated and if a fractional share results from such aggregation, such
holder shall be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying the Vencor Average Price by the fraction of a share of
Vencor Common Stock to which such holder would otherwise have been entitled.
ARTICLE II
THE SURVIVING CORPORATION; VENCOR DIRECTORS
SECTION 2.01. Certificate of Incorporation.
The certificate of incorporation of Vencor in effect at the Effective Time
shall be the certificate of incorporation of Vencor after the consummation of
the Merger until amended in accordance with applicable law.
SECTION 2.02. Bylaws.
The bylaws of Vencor in effect at the Effective Time shall be the bylaws of
Vencor after the consummation of the Merger until amended in accordance with
applicable law.
SECTION 2.03. Directors and Officers.
From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable law, subject to Section
2.04, the directors and officers of Vencor at the Effective Time shall be the
directors and officers of Vencor after the consummation of the Merger.
SECTION 2.04. Vencor Directors.
Vencor shall take such action as shall be necessary so that, at the
Effective Time, the number of directors comprising the full Board of Directors
of Vencor shall be increased so that 3 persons shall be selected prior to the
Effective Time by the Company's Board of Directors from among the present
directors of the Company two of whom are neither officers of the Company nor
designees of any affiliate of the Company and the third of whom shall be Bruce
L. Busby (the "Designated Directors") to be appointed to the Board of Directors
of Vencor to fill the vacancies created by such newly created directorships to
have terms expiring at the Company's annual meeting of stockholders to be held
in 1996. Vencor hereby agrees to cause the Designated Directors to be nominated
for election to the Board of Directors of Vencor at the 1996 annual meeting of
Vencor's stockholders.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Vencor that:
SECTION 3.01. Corporate Existence and Power.
The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Nevada, and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business substantially as now conducted, except where the failure
to do so would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the condition (financial or otherwise),
business, assets or results of operations of the Company and its Subsidiaries
(as defined in Section 3.06(a) hereof) taken as a whole (a "Company Material
Adverse Effect"). The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.02. Corporate Authorization.
The execution, delivery and performance by the Company of this Agreement
and the consummation of the Merger and the transactions contemplated hereby by
the Company, but excluding any amendments to any existing agreements with
directors, officers and other employees of the Company required by this
Agreement which require the consent of such persons, by the Company are within
the Company's corporate power and authority and, except for any required
approval by the Company's stockholders in connection with the consummation of
the Merger, have been duly authorized by all necessary corporate action on the
part of the Company. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery thereof by
Vencor and Merger Subsidiary, constitutes a legal, valid and binding agreement
of the Company.
SECTION 3.03. Governmental Authorization.
The execution, delivery and performance by the Company of this Agreement
and the consummation of the Merger and the transactions contemplated hereby by
the Company do not require any consent, approval, authorization or permit of or
other action by, or filing with, any governmental body, agency, official or
authority other than (i) as set forth on Schedule 3.03, (ii) the filing of
appropriate merger documents in accordance with Delaware Law and Nevada Law and
(iii) compliance with applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the Securities Act of 1933 and the
rules and regulations promulgated thereunder (the "Securities Act"), the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act"), and any applicable state securities or "blue
sky" laws, except where the failure of any such action to be taken or filing to
be made would not be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect or prevent or delay consummation of
the Merger.
SECTION 3.04. Non-Contravention.
The execution, delivery and performance by the Company of this Agreement
and the consummation of the Merger and the transactions contemplated hereby by
the Company do not and will not (i) contravene or conflict with the Articles of
Incorporation or By-Laws of the Company, (ii) assuming compliance with the
matters referred to in Section 3.03, contravene or conflict with or constitute a
violation of any provision of any law, rule, regulation, judgment, injunction,
order or decree binding upon or applicable to the Company or any of its
Subsidiaries, (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries or to a loss of any benefit to which the
Company or any of its Subsidiaries is entitled under any provision of any
material agreement or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit or
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other similar authorization held by the Company or any of its Subsidiaries, or
(iv) result in the creation or imposition of any Lien on any material asset of
the Company or any of its Subsidiaries, except as set forth in Schedule 3.04 and
except for any occurrences or results referred to in clauses (ii), (iii), and
(iv) which would not be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect or prevent or delay consummation of
the Merger. For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance or
right of another to or adverse claim of any kind in respect of such asset.
Notwithstanding the foregoing, no representation is made with respect to any
agreement or instrument individually relating to $5,000,000 or less in
indebtedness or value ("Third Party Agreement") or assets individually having a
value of $5,000,000 or less.
SECTION 3.05. Capitalization.
(a) The authorized capital stock of the Company consists of (i) 60,000,000
shares of Company Common Stock, of which, as of February 28, 1995: (A)
32,848,463 were issued and outstanding (of which up to 4,200,000 were held by
the grantor trust established by the Company on January 16, 1995), (B) 472,356
were reserved for future issuance pursuant to outstanding Options granted
pursuant to the Company Option Plans, (C) 1,067,325 shares were reserved for
future issuance pursuant to performance shares awarded pursuant to the 1990
Stock Incentive Plan, (D) 3,500,750 shares were reserved for issuance upon
conversion of the Company's Series B Preferred Stock pursuant to the terms of
the Company's Performance Investment Plan, (E) 4,450,730 shares were reserved
for issuance upon conversion of the Company's 7 3/4% Convertible Subordinated
Debentures due 2002 (the "7 3/4% Convertible Debentures"), (F) 5,500,000 shares
were reserved for issuance in connection with the proposed merger with
Nationwide Care, Inc. and (G) except for 500,000 shares of Company Common Stock
held in the COLI Trust none was issued and held in treasury, and (ii) 25,000,000
shares of preferred stock, par value $.15 per share, of which, as of February
28, 1995, the following series had been designated: (A) 3,000,000 shares of
Series A Junior Participating Preferred Stock, of which no shares are issued and
outstanding; (B) 950 shares of Series B Preferred Stock, of which no shares are
issued or outstanding and of which 618 shares have been designated as Subseries
1 and are reserved for issuance upon the conversion of the Company's Convertible
Debentures due May 29, 1999 (the "PIP Convertible Debentures") pursuant to the
terms of the Company's Performance Investment Plan; (C) 35,000 shares of Series
C Preferred Stock, all of which are issued and outstanding; and (D) 300,000
shares of Series D Preferred Stock, of which 61,467 are issued and outstanding.
Except as described in this Section 3.05 or in Schedule 3.05, as of the date of
this Agreement, no shares of capital stock of the Company are reserved for
issuance for any other purpose. Since February 28, 1995, no shares of capital
stock have been issued by the Company except pursuant to agreements for which
shares are adequately reserved under subclause (B), (C), (D) or (E) of clause
(i) of this paragraph (a). Since February 28, 1995 the Company has not granted
any options for, or other rights to purchase, any shares of capital stock of the
Company except for the award of options to purchase 12,000 shares of Company
Common Stock and awards of 24,000 restricted shares pursuant to the 1990 Stock
Incentive Plan and the Directors' Option Plan. Each of the issued shares of
capital stock of the Company is duly authorized, validly issued and fully paid
and nonassessable, and has not been issued in violation of (nor are any of the
authorized shares of capital stock subject to) any preemptive or similar rights
created by statute, the Articles of Incorporation or Bylaws of the Company or
any agreement to which the Company is a party or is bound. The Company has no
outstanding bonds, notes or other obligations the holders of which have the
right to vote with the stockholders of the Company on any matter.
(b) Except (i) as set forth in paragraph (a) above or as set forth on
Schedule 3.05, (ii) and the Company's obligations under a Purchase and Sale
Agreements relating to Windsor Estates L.P. and Westfield Partnership L.P. or
(iii) pursuant to the terms of that certain Rights Agreement dated as of January
31, 1990 by and between the Company and Manufacturers Hanover Trust Company of
California (the "Company Rights Agreement"), there are no options, warrants or
other rights (including registration rights), agreements, arrangements or
commitments of any character to which the Company is a party relating to the
issued or unissued capital stock of the Company or obligating the Company to
grant, issue or sell any shares of the capital stock of the Company. Except in
accordance with the terms of the Series C and Series D Preferred Stock and as
set forth in Schedule 3.05, there are no obligations, contingent or otherwise,
of the Company to (i) repurchase, redeem or otherwise acquire any shares of
Company Common Stock or other capital stock of
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the Company, or the capital stock or other equity interests of any Subsidiary of
the Company; or (ii) (other than advances to Subsidiaries in the ordinary course
of business) provide material funds to, or make any material investment in (in
the form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any Subsidiary of the Company or any other
Person.
(c) The Company has delivered to Vencor complete and correct copies of (i)
the form of PIP Options to purchase PIP Convertible Debentures and (ii) the
Company Option Plans and all forms of Options issued pursuant to the Company
Option Plans, including all amendments thereto. The Company has previously
delivered to Vencor a complete and correct list setting forth, as of the date
set forth on such list, (i) the number of Options outstanding and (ii) the
exercise price of each outstanding Option.
SECTION 3.06. Subsidiaries.
(a) Each Subsidiary of the Company is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or is a partnership duly constituted under its governing law, has
all requisite corporate or partnership power and authority to own, lease and
operate its properties and to carry on its business substantially as now
conducted and is duly qualified to do business as a foreign corporation or
partnership and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where failure to be so would not be reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. For purposes of this Agreement, "Subsidiary" of any Person means (i) any
corporation or other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned by
such Person, and (ii) any partnership of which such Person is a general partner.
(b) Except for certain partnerships of which the Company is the general
partner disclosed in the Company SEC Reports and except as set forth on Schedule
3.06, each Subsidiary of the Company is wholly-owned by the Company, directly or
indirectly, free and clear of any Lien and free and clear of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other ownership interests). Except
as set forth in the Company SEC Reports or on Schedule 3.06, there are no
outstanding (i) securities of the Company or any of its Subsidiaries convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any such Subsidiary of the Company, or (ii) options or
other rights to acquire from the Company or any of its Subsidiaries, and no
other obligation of the Company or any of its Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any such Subsidiary of the Company (the items in clauses
(i) and (ii) being referred to collectively as the "Company Subsidiary
Securities"). There are no outstanding obligations of the Company or any of such
Subsidiaries to repurchase, redeem or otherwise acquire any outstanding Company
Subsidiary Securities.
SECTION 3.07. Reports.
Since May 31, 1992, the Company and its Subsidiaries have filed (i) all
forms, reports, statements and other documents required to be filed with (A) the
Securities and Exchange Commission (the "SEC"), including without limitation (1)
all Annual Reports on Form 10-K, (2) all Quarterly Reports on Form 10-Q, (3) all
proxy statements relating to meetings of stockholders (whether annual or
special), (4) all Current Reports on Form 8-K and (5) all other reports,
schedules, registration statements or other documents (collectively referred to
as the "Company SEC Reports"), and (B) any other applicable state securities
authorities and (ii) all forms, reports, statements and other documents required
to be filed with any other applicable federal or state regulatory authorities,
including, without limitation, state insurance and health regulatory
authorities, except where the failure to file any such forms, reports,
statements or other documents would not be reasonably likely to have a Company
Material Adverse Effect (all such forms, reports, statements and other documents
in clauses (i) and (ii) of this Section 3.07 being referred to herein,
collectively, as the "Company Reports"). The Company Reports (i) were prepared
in all material respects in accordance with the requirements of applicable law
(including, with respect to the Company SEC Reports,
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the Securities Act or the Exchange Act, as the case may be) and (ii) did not at
the time they were filed contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
SECTION 3.08. Financial Statements; No Undisclosed Liabilities.
The audited consolidated financial statements and unaudited consolidated
interim financial statements (including the related notes and schedules) of the
Company and its consolidated Subsidiaries included or incorporated by reference
in the Company SEC Reports, including reports on Forms 10-K and 10-Q, (the
"Company Financial Statements") were prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), and fairly present the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments, none of which would, individually or
in the aggregate, be reasonably likely to have a Company Material Adverse
Effect). Neither the Company nor its Subsidiaries has any liabilities, whether
or not accrued, contingent or otherwise, that individually or in the aggregate,
are reasonably likely to have a Company Material Adverse Effect other than
liabilities disclosed in the Schedules hereto or in the Company SEC Reports, or
for which the Company has made adequate reserves as reflected in the Company
Financial Statements.
SECTION 3.09. Joint Proxy Statement/Prospectus; Registration Statement.
None of the information to be supplied by the Company for inclusion in (a)
the joint proxy statement relating to the meetings of the Company's and Vencor's
stockholders to be held in connection with the Merger (also constituting the
prospectus in respect of Vencor Common Stock to be exchanged for shares of
Company Common Stock in the Merger) (the "Joint Proxy Statement/Prospectus"), to
be filed by the Company and Vencor with the SEC, and any amendments or
supplements thereto, or (b) the Registration Statement on Form S-4 (the
"Registration Statement") to be filed by Vencor with the SEC in connection with
the Merger, and any amendments or supplements thereto, will, at the respective
times such documents are filed, and, in the case of the Joint Proxy
Statement/Prospectus, at the time the Joint Proxy Statement/Prospectus or any
amendment or supplement thereto is first mailed to stockholders of the Company,
at the time such stockholders vote on approval and adoption of this Agreement
and at the Effective Time, and, in the case of the Registration Statement, when
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
SECTION 3.10. Absence of Certain Changes.
Except as contemplated hereby or as described in any Company SEC Report
filed prior to the date hereof or as disclosed in Schedule 3.10 or any other
Schedule to this Agreement, since May 31, 1994 (a) the Company and its
Subsidiaries have conducted their business in all material respects in the
ordinary course consistent with past practices (other than in connection with
the proposal of Horizon Healthcare Corp. to acquire the Company, litigation
relating thereto, and the Company's process of exploring strategic
alternatives), (b) there has not been any change or development, or combination
of changes or developments which, individually or in the aggregate, are
reasonably likely to have a Company Material Adverse Effect, (c) there has not
been any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company (other
than any dividends on the Series C or Series D Preferred Stock in accordance
with the terms thereof), or any repurchase, redemption or other acquisition by
the Company or any of its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, the Company or
any of its Subsidiaries, (d) there has not been any amendment of any term of any
outstanding security of the Company or any of its Subsidiaries, (e) there has
not been any incurrence, assumption or guarantee by the Company or any of its
Subsidiaries of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practices;
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(f) there has not been any creation or assumption by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the ordinary course
of business consistent with past practices (including the sale, pledging or
assignment of receivables); (g) there has not been any change in any method of
accounting or accounting practice by the Company or any of its Subsidiaries,
except for any such change required by reason of a concurrent change in
generally accepted accounting principles or to conform a Subsidiary's accounting
policies and practices to those of the Company; and (h) except for contractual
obligations disclosed in any Company SEC Report filed prior to the date hereof
or in any Schedule to this Agreement there has not been any (i) grant of any
severance or termination pay to any director, executive officer or key employee
of the Company or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, executive officer or key employee of the
Company or any of its Subsidiaries, except in the ordinary course of business
consistent with past practice and except for commitments to make loans to assist
such persons in making tax payments in connection with stock-based compensation,
which loans shall be on terms consistent with similar loans made in the past;
provided that the maturity of any such loan shall be six months after the date
on which Vencor publishes financial results covering at least 30 days of
combined operations of Vencor and the Company, (iii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements with any director, executive officer or key employee of the Company
or any of its Subsidiaries or (iv) increase in compensation, bonus or other
benefits payable to directors, executive officers or key employees of the
Company or any of its Subsidiaries.
SECTION 3.11. Litigation.
Except as disclosed in Schedule 3.11, there are no actions, suits,
investigations or proceedings pending against the Company or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which, individually or
in the aggregate, are reasonably likely to have a Company Material Adverse
Effect.
SECTION 3.12. Articles of Incorporation and Bylaws.
The Company has heretofore furnished to Vencor complete and correct copies
of the Articles of Incorporation and the Bylaws or the equivalent organizational
documents, in each case as amended or restated, of the Company and each of its
Subsidiaries.
SECTION 3.13. ERISA.
(a) "Employee Plans" shall mean each "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
which (i) is subject to any provision of ERISA and (ii) is maintained,
administered or contributed to by the Company or any affiliate (as defined
below) and covers any employee or former employee of the Company or any
affiliate or under which the Company or any affiliate has any liability. Copies
of such plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof and the most recent Forms 5500
required to be filed with respect thereto will be promptly furnished to Vencor
after the date of this Agreement. For purposes of this Section and Section 4.13,
"affiliate" of any Person means any other Person which, together with such
Person, would be treated as a single employer under Section 414 of the United
States Internal Revenue Code of 1986, as amended (the "Code"). Except for the
Supplemental Executive Retirement Plan, no Employee Plan individually or
collectively constitutes a "defined benefit plan" as defined in Section 3(35) of
ERISA.
(b) No Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, and no Employee Plan is maintained in connection with
any trust described in Section 501(c)(9) of the Code except for The Hillhaven
Corporation Voluntary Participation Benefit Trust. Except as set forth on
Schedule 3.13, or in respect of no more than 5 individuals, no Employee Plan
provides retiree medical or life insurance benefits. No Employee Plan is subject
to Title IV of ERISA. Neither the Company nor any of its affiliates has
incurred, nor has reason to expect to incur, any liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan previously covered by Title IV of ERISA that would
have, individually or in the aggregate, a Company Material Adverse Effect.
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Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make the Company or
any of its Subsidiaries or any officer or director of the Company or any of its
Subsidiaries subject to any liability under Title I of ERISA or liable for any
tax pursuant to Section 4975 of the Code that would have, individually or in the
aggregate, a Company Material Adverse Effect.
(c) Except to the extent it would not have, individually or in the
aggregate, a Company Material Adverse Effect, (i) each Employee Plan which is
intended to be qualified under Section 401(a) of the Code is so qualified and
has been so qualified during the period from its adoption to date, and each
trust forming a part thereof is exempt from tax pursuant to Section 501 (a) of
the Code, and (ii) each Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
final rules and final regulations, including but not limited to ERISA and the
Code, which are applicable to such Employee Plan.
(d) "Benefit Arrangement" shall mean each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for compensation, bonus, profit-sharing, stock option, or other
stock related rights or other forms of incentive or deferred compensation, which
(i) is not an Employee Plan, (ii) is entered into, maintained or contributed to,
as the case may be, by the Company or any of its affiliates, and (iii) covers
any employee or former employee or director or former director of the Company or
any of its affiliates. Schedule 3.13 lists each Benefit Arrangement currently in
effect (other than any immaterial arrangement available to employees or groups
of employees generally or as disclosed in any Company SEC Report filed prior to
the date hereof) provided to any director or executive officer of the Company or
any former director or executive officer of the Company and sets forth each
Benefit Arrangement with respect to which benefits will be accelerated or paid
as a result of the transactions contemplated by this Agreement. Copies of all
such Benefit Arrangements and all amendments thereto will be promptly furnished
to Vencor after the date of this Agreement. Except to the extent that it would
not, individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect, each Benefit Arrangement has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Benefit
Arrangement.
SECTION 3.14. Taxes.
Except for such matters that would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect, (a) the
Company and its Subsidiaries have timely filed all returns and reports required
to be filed by them with any taxing authority with respect to taxes for all
periods heretofore ended, taking into account any extension of time to file
granted to or obtained on behalf of the Company and its Subsidiaries, (b) all
taxes required to be paid with respect to the periods covered by such returns or
reports that are due prior to the Effective Time have been paid or will be paid
by the Effective Time, (c) as of the date hereof, no deficiency for any amount
of tax has been asserted or assessed by a taxing authority against the Company
or any of its Subsidiaries, except for amounts for which the Company has made an
adequate reserve as reflected in the Company Financial Statements, (d) all
liability for taxes of the Company or any of its Subsidiaries that are or will
become due or payable with respect to periods covered by the financial
statements referred to in Section 3.08 have been paid or adequately reserved for
on such financial statements to the extent required by generally accepted
accounting principles, and (e) the Company and its Subsidiaries are not liable
for any taxes arising out of membership or participation in any consolidated,
affiliated, combined or unitary group in which it or any of its Subsidiaries was
at any time a member, other than such group the parent of which is the Company
or for which the Company and its Subsidiaries have a right of indemnification
pursuant to a Tax Sharing Agreement with National Medical Enterprises, Inc.
entered into in 1990.
SECTION 3.15. Tax Matters; Pooling.
Neither the Company nor, to the knowledge of the Company, any of its
affiliates has taken or agreed to take any action that would prevent (a) the
Merger from constituting a reorganization qualifying under the provisions of
Section 368 of the Code or (b) the Merger from being treated for financial
accounting purposes
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as a "pooling of interests" in accordance with generally accepted accounting
principals and the rules, regulations and interpretations of the SEC (a "Pooling
Transaction").
SECTION 3.16. Finders and Investment Bankers.
Except for Merrill Lynch & Co. ("Merrill Lynch"), whose fees will be paid
by the Company, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company or any of its Subsidiaries who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
SECTION 3.17. Opinion of Financial Advisor.
The Company has received the opinion of Merrill Lynch to the effect that,
as of the date of such opinion, the consideration to be received in the Merger
by the holders of Company Common Stock is fair to such stockholders from a
financial point of view.
SECTION 3.18. Vote Required.
The only votes of the holders of any class or series of Company capital
stock necessary to approve the Merger are the affirmative votes, on a
class-by-class basis, of the holders of a majority of the outstanding shares of
the Company Common Stock and of 66 2/3% of the outstanding shares of each of the
Series C Preferred Stock and the Series D Preferred Stock and the affirmative
vote, as a single class, of a majority of the outstanding shares of the
Company's Common Stock, the Series C Preferred Stock and the Series D Preferred
Stock.
SECTION 3.19. Acquiring Person.
Parent is not an "Acquiring Person" (as defined in the Company Rights Plan)
or will become an "Acquiring Person" as a result of any of the transactions
contemplated by this Agreement. The Company has taken all necessary actions to
ensure that, for the purposes of the Company Rights Plan, the execution of this
Agreement does not, and the consummation of the Merger and the other
transactions contemplated hereby will not, result in the grant of any rights to
any person under the Company Rights Agreement or enable or require any
outstanding rights to be exercised, distributed or triggered, and that the
Rights (as defined in the Company Rights Plan) will expire without any further
force or effect as of the Effective Time.
SECTION 3.20. Medicare and Medicaid.
The Company and its Subsidiaries have complied with all Medicare and
Medicaid laws, rules and regulations and have filed all returns, cost reports
and other filings in any manner prescribed, except where the failure to do so
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. All returns, cost reports and other filings
made by the Company and its Subsidiaries to Medicare, Medicaid or any other
governmental health or welfare related entity or third party payor are true and
complete except where the failure to be so true and complete would not be
reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect. No deficiency in any such returns, cost reports and
other filings, including deficiencies for late filings, has been asserted or to
the best of the Company's knowledge, after reasonable investigation, threatened
by any Federal or state agency or instrumentality or other provider
reimbursement entities relating to Medicare or Medicaid or third party payor
claims, except as disclosed on Schedule 3.20, and to the best of the Company's
knowledge, after reasonable investigation, there is no basis for any successful
claims or requests for reimbursement from any such agency, instrumentality,
entity or third party payor except for any deficiencies which would not be
reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as disclosed on Schedule 3.20, neither the
Company nor any of its Subsidiaries has been subject to any audit relating to
fraudulent Medicare or Medicaid procedure or practices and except audits which
would not be reasonably expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
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SECTION 3.21. Takeover Statutes.
No "fair price," "moratorium," "control share acquisition" or other similar
antitakeover statute or regulation enacted under state or federal laws in the
United States applicable to the Company (including, without limitation, the
Nevada Control Share Acquisition Act) is applicable to the Merger or the other
transactions contemplated hereby. The Board of Directors of the Company has
taken all appropriate action to exempt the transactions contemplated in this
Agreement, from the Nevada Combination Moratorium Statute and Articles Twelfth
and Fifteenth of the Company's Certificate of Incorporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VENCOR
Vencor represents and warrants to the Company that:
SECTION 4.01. Corporate Existence and Power.
Vencor is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business substantially as now conducted, except where the failure to do so would
not reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the condition (financial or otherwise), business, assets or
results of operations of Vencor and its Subsidiaries taken as a whole (a "Vencor
Material Adverse Effect"). Vencor is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have, individually or in the aggregate, a Vencor Material
Adverse Effect.
SECTION 4.02. Corporate Authorization.
The execution, delivery and performance by Vencor of this Agreement and the
consummation of the Merger and the transactions contemplated hereby by Vencor
are within the corporate powers and authority of Vencor and have been duly
authorized by all necessary corporate action on the part of Vencor, except for
any required approval by Vencor's stockholders of the Agreement and the
transactions contemplated thereby. This Agreement has been duly executed and
delivered by Vencor and, assuming the due authorization, execution and delivery
thereof by the Company, constitutes a legal, valid and binding agreement of
Vencor.
SECTION 4.03. Governmental Authorization.
The execution, delivery and performance by Vencor of this Agreement and the
consummation of the Merger and the transactions contemplated hereby by Vencor do
not require any consent, approval, authorization or permit of or other action by
or filing with, any governmental body, agency, official or authority other than
(i) as set forth on Schedule 4.03, (ii) the filing of appropriate merger
documents in accordance with Delaware Law and Nevada Law and (iii) compliance
with any applicable requirements of the HSR Act, the Exchange Act, the
Securities Act, any applicable state securities or "blue sky" laws, except where
the failure of any such action to be taken or filing to be made would not be
reasonably likely to have, individually or in the aggregate, a Vencor Material
Adverse Effect or prevent or delay consummation of the Merger.
SECTION 4.04. Non-Contravention.
The execution, delivery and performance by Vencor of this Agreement and the
consummation of the Merger and the transactions contemplated hereby by Vencor do
not and will not (i) contravene or conflict with the certificate of
incorporation or bylaws of Vencor, (ii) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of law, rule, regulation, judgment, injunction, order
or decree binding upon or applicable to Vencor or any of its Subsidiaries, (iii)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Vencor or any of its
Subsidiaries or to a loss of any benefit to which Vencor or any of its
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Subsidiaries is entitled under any provision of any material agreement or other
instrument binding upon Vencor or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by Vencor or any of its
Subsidiaries, or (iv) result in the creation or imposition of any Lien on any
material asset of Vencor or any of its Subsidiaries, except for any occurrences
or results referred to in clauses (ii), (iii) and (iv) which would not be
reasonably likely to have, individually or in the aggregate, a Vencor Material
Adverse Effect or prevent or delay consummation of the Merger.
SECTION 4.05. Capitalization.
(a) The authorized capital stock of Vencor consists of (i) 60,000,000
shares of Vencor Common Stock, of which, as of March 31, 1995, (A) 27,869,980
shares were issued and outstanding and (B) 2,137,352 shares were issued and held
in treasury and, as of April 21, 1995, (C) 2,228,884 shares were reserved for
future issuance pursuant to Vencor's Non-Qualified Incentive Compensation Plan
and ISO Incentive Compensation Plan and (D) 139,921 shares were reserved for
future issuance pursuant to Vencor's Non-Employee Directors Plan and (E) 1,500
shares were reserved for issuance pursuant to options outside the plans and (ii)
1,000,000 shares of Preferred Stock, of which, as of March 31, 1995, (A) no
shares were issued and outstanding and (B) 300,000 shares had been designated as
Series A Participation Preferred Stock with respect to the Vencor Rights
Agreement (as defined below). Except as described in this Section 4.05 or in
Schedule 4.05, as of the date of this Agreement, no shares of capital stock of
Vencor are reserved for issuance for any other purpose. Since March 31, 1995, no
shares of capital stock have been issued by Vencor except shares that are
adequately reserved as described under subclauses (C), (D) and (E) of clause (i)
of this paragraph (a). Except for stock option grants to employees in the
ordinary course of business consistent with past practice, since March 31, 1995,
Vencor has not granted any options for, or other rights to purchase, any shares
of capital stock of Vencor. Each of the issued shares of capital stock of Vencor
is duly authorized, validly issued and fully paid and nonassessable, and has not
been issued in violation of (nor are any of the authorized shares of capital
stock subject to) any preemptive or similar rights created by statute, the
Certificate of Incorporation or Bylaws of Vencor, or any agreement to which
Vencor is a party or is bound. Vencor has no outstanding bonds, notes or other
obligations the holders of which have the right to vote with the stockholders of
Vencor on any matter.
(b) Except (i) as set forth in paragraph (a) above, (ii) as set forth in
Schedule 4.05 or (iii) pursuant to the terms of that certain Rights Agreement
dated as of July 20, 1993 by and between Vencor and National City Bank, as
Rights Agent (the "Vencor Rights Agreement"), there are no options, warrants or
other rights (including registration rights), agreements, arrangements or
commitments of any character to which Vencor is a party relating to the issued
or unissued capital stock of Vencor or obligating Vencor to grant, issue or sell
any shares of its capital stock. Except as set forth in Schedule 4.05, there are
no obligations, contingent or otherwise, of Vencor to (i) repurchase, redeem or
otherwise acquire any shares of Vencor Common Stock or other capital stock of
Vencor, or the capital stock or other equity interests of any Subsidiary of
Vencor; or (ii) (other than advances to Subsidiaries in the ordinary course of
business) provide material funds to, or make any material investment in (in the
form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any Subsidiary of Vencor or any other
Person.
(c) Vencor will deliver to the Company complete and correct copies of
Vencor's stock option plans and all forms of options issued pursuant thereto,
including all amendments thereto. Vencor has previously delivered to the Company
a complete and correct list setting forth as of April 21, 1995, (i) the number
of options outstanding, (ii) the exercise price of each outstanding option, and
(iii) the number of options exercisable.
(d) The shares of Vencor Common Stock to be exchanged for shares of Company
Common Stock in the Merger have been duly authorized, except for any required
approval by Vencor's stockholders of the increase in the authorized Vencor
Common Stock and the issuance of Vencor Common Stock in connection with the
Merger, and when issued and delivered in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable and the issuance thereof is not subject to any preemptive or other
similar right.
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SECTION 4.06. Subsidiaries.
(a) Each Subsidiary of Vencor is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or is a partnership duly constituted under its governing law, has
all requisite corporate or partnership power and authority to own, lease and
operate its properties and to carry on its business substantially as now
conducted and is duly qualified to do business as a foreign corporation or
partnership and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where failure to be would not, individually or
in the aggregate, be reasonably likely to have a Vencor Material Adverse Effect.
(b) Except as set forth on Schedule 4.06, all of the outstanding capital
stock of, or other ownership interests in, each Subsidiary of Vencor is owned by
Vencor, directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other ownership interests). Except
as set forth in any Vencor SEC Report or on Schedule 4.06, there are no
outstanding (i) securities of Vencor or any of its Subsidiaries convertible into
or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of Vencor, or (ii) options or other rights
to acquire from Vencor or any of its Subsidiaries, and no other obligation of
Vencor or any of its Subsidiaries to issue, any capital stock, voting securities
or other ownership interests in, or any securities convertible into or
exchangeable for any capital stock, voting securities or ownership interests in,
any Subsidiary of Vencor (the items in clauses (i) and (ii) being referred to
collectively as the "Vencor Subsidiary Securities"). There are no outstanding
obligations of Vencor or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding Vencor Subsidiary Securities.
SECTION 4.07. Reports.
Since December 31, 1992, Vencor and its Subsidiaries have filed (i) all
forms, reports, statements and other documents required to be filed with (A) the
SEC, including without limitation (1) all Annual Reports on Form 10-K, (2) all
Quarterly Reports on Form 10-Q, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Current Reports on Form 8-K
and (5) all other reports, schedules, registration statements or other documents
(collectively referred to as the "Vencor SEC Reports"), and (B) any other
applicable state securities authorities and (ii) all forms, reports, statements
and other documents required to be filed with any other applicable federal or
state regulatory authorities, including, without limitation, state insurance and
health regulatory authorities, except where the failure to file any such forms,
reports, statements or other documents would not be reasonably likely to have a
Vencor Material Adverse Effect (all such forms, reports, statements and other
documents in clauses (i) and (ii) of this Section 4.07 being referred to herein,
collectively, as the "Vencor Reports"). The Vencor Reports (i) were prepared in
all material respects in accordance with the requirements of applicable law
(including, with respect to the Vencor SEC Reports, the Securities Act or the
Exchange Act, as the case may be) and (ii) did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 4.08. Financial Statements; No Undisclosed Liabilities.
The audited consolidated financial statements and unaudited consolidated
interim financial statements (including the related notes and schedules) of
Vencor and its consolidated Subsidiaries included or incorporated by reference
in the Vencor SEC Reports, including reports on Forms 10-K and 10-Q (the "Vencor
Financial Statements"), were prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), and fairly present the consolidated financial position of
Vencor and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments, none of which would individually or
in the aggregate, be reasonably likely to have a Vencor Material Adverse
Effect). Except as disclosed in the Schedules hereto or in the Vencor SEC
Reports neither Vencor nor its Subsidiaries has any
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liabilities, whether or not accrued, contingent or otherwise, that individually
or in the aggregate are reasonably likely to have a Vencor Material Adverse
Effect.
SECTION 4.09. Joint Proxy Statement/Prospectus; Registration Statement.
None of the information to be supplied by Vencor for inclusion in (a) the
Joint Proxy Statement/Prospectus to be filed by the Company and Vencor with the
SEC and any amendments or supplements thereto, or (b) the Registration Statement
to be filed by Vencor with the SEC and any amendments or supplements thereto,
will, at the respective times when such documents are filed, and, in the case of
the Joint Proxy Statement/Prospectus, at the time the Joint Proxy
Statement/Prospectus or any amendment or supplement thereto is first mailed to
stockholders of Vencor, at the time such stockholders vote on approval and
adoption of the proposals contained in the Joint Proxy Statement/Prospectus and
at the Effective Time, and, in the case of the Registration Statement, when it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
SECTION 4.10. Absence of Certain Changes.
Except as contemplated hereby or as described in any Vencor SEC Report
filed prior to the date hereof or as disclosed in Schedule 4.10 or any other
Schedule to this Agreement, since December 31, 1994, (a) Vencor and its
Subsidiaries have conducted their business in all material respects in the
ordinary course consistent with past practices, (b) there has not been any
change or development, or combination of changes or developments which,
individually or in the aggregate, are reasonably likely to have a Vencor
Material Adverse Effect, (c) there has not been any declaration, setting aside
or payment of any dividend or other distribution with respect to any shares of
capital stock of Vencor, or any repurchase, redemption or other acquisition by
Vencor or any of its Subsidiaries of any outstanding shares of capital stock or
other securities of, or other ownership interests in, Vencor or any of its
Subsidiaries, (d) there has not been any amendment of any term of any
outstanding security of Vencor or any of its Subsidiaries, (e) there has not
been any incurrence, assumption or guarantee by Vencor or any of its
Subsidiaries of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practices;
(f) there has not been any creation or assumption by Vencor or any of its
Subsidiaries of any Lien on any material asset other than in the ordinary course
of business consistent with past practices (including the sale, pledging or
assignment of receivables); and (g) there has not been any change in any method
of accounting or accounting practice by Vencor or any of its Subsidiaries,
except for any such change required by reason of a concurrent change in
generally accepted accounting principles or to conform a Subsidiary's accounting
policies and practices to those of Vencor.
SECTION 4.11. Litigation.
Except as described in Schedule 4.11, there are no actions, suits,
investigations or proceedings pending against Vencor or any of its Subsidiaries
or any of their respective properties before any court or arbitrator or any
governmental body, agency or official which, individually or in the aggregate
are reasonably likely to have a Vencor Material Adverse Effect.
SECTION 4.12. Articles of Incorporation and Bylaws.
Vencor has heretofore furnished to the Company complete and correct copies
of the Articles of Incorporation and the Bylaws of Vencor and each of its
Subsidiaries.
SECTION 4.13. ERISA.
(a) "Vencor Employee Plans" shall mean each "employee benefit plan," as
defined in Section 3(3) of ERISA, which (i) is subject to any provision of ERISA
and (ii) is maintained, administered or contributed to by Vencor or any
affiliate (as defined in Section 3.13) and covers any employee or former
employee of Vencor
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or any affiliate or under which Vencor or any affiliate has any liability. No
Vencor Employee Plan individually or collectively constitutes a "defined benefit
plan" as defined in Section 3(35) of ERISA.
(b) No Vencor Employee Plan constitutes a multiemployer plan.
(c) Except to the extent it would not have, individually or in the
aggregate, a Vencor Material Adverse Effect, (i) each Vencor Employee Plan which
is intended to be qualified under Section 401(a) of the Code is so qualified and
has been so qualified during the period from its adoption to date, and each
trust forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code, and (ii) each Vencor Employee Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, final rules and final regulations, including but not limited to ERISA
and the Code, which are applicable to such Vencor Employee Plan.
SECTION 4.14. Taxes.
Except for such matters that would not have, individually or in the
aggregate, a Vencor Material Adverse Effect, (a) Vencor and its Subsidiaries
have timely filed all returns and reports required to be filed by them with any
taxing authority with respect to taxes for all periods heretofore ended, taking
into account any extension of time to file granted to or obtained on behalf of
Vencor and it Subsidiaries, (b) all taxes required to be paid with respect to
the periods covered by such returns or reports that are due prior to the
Effective Time have been paid or will be paid by the Effective Date, (c) as of
the date hereof, no deficiency for any amount of tax has been asserted or
assessed by a taxing authority against Vencor or any of its Subsidiaries except
for amounts for which Vencor has made an adequate reserve as reflected in the
Vencor Financial Statements, (d) all liability for taxes of Vencor or any of its
Subsidiaries that are or will become due or payable with respect to periods
covered by the financial statements referred to in Section 4.08 of this
Agreement have been paid or adequately reserved for on such financial statements
to the extent required by generally accepted accounting principals, and (e)
Vencor and its Subsidiaries are not liable for any taxes arising out of
membership or participation in any consolidated, affiliated, combined or unitary
group in which it or any of its Subsidiary was at any time a member, other than
such group the parent of which is Vencor.
SECTION 4.15. Tax Matters; Pooling.
Neither Vencor nor, to the knowledge of Vencor, any of its affiliates has
taken or agreed to take any action that would prevent (a) the Merger from
constituting a reorganization qualifying under the provisions of Section 368 of
the Code or (b) the Merger from being treated for financial accounting purposes
as a Pooling Transaction.
SECTION 4.16. Finders and Investment Bankers.
Except for CS First Boston Corporation ("First Boston") whose fees will be
paid by Vencor, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Vencor or any of its Subsidiaries who might be entitled to any fee or commission
in connection with the transactions contemplated by this Agreement.
SECTION 4.17. Opinion of Financial Advisor.
Vencor has received the opinion of First Boston to the effect that, as of
the date of such opinion, the consideration to be paid by Vencor in the Merger
is fair to Vencor from a financial point of view.
SECTION 4.18. Vote Required.
The approval of the Merger Agreement and the transactions contemplated
thereby and the increase in the authorized Vencor Common Stock requires the
affirmative vote of the holders of a majority of the shares of Vencor Common
Stock entitled to vote at a meeting of stockholders and the affirmative vote of
a majority of the shares of Vencor Common Stock present in person or by proxy,
at a meeting of stockholders is necessary to increase in the number of shares
authorized for issuance under, and any necessary amendment to
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the Vencor's stock option plans to effect the transactions contemplated by this
Agreement (the "Option Plan Amendment").
SECTION 4.19. No Change of Control.
Except as set forth on Schedule 4.19, the consummation of the Merger and
the transactions contemplated by this Agreement will not constitute a change of
control under any severance, employment or similar agreements of Vencor or any
of its Subsidiaries which will result in the acceleration of or payment of any
benefits to participants under such agreements.
SECTION 4.20. Medicare and Medicaid.
Vencor and its Subsidiaries have complied with all Medicare and Medicaid
laws, rules and regulations and have filed all returns, cost reports and other
filings in any manner prescribed, except where the failure to do so would not
reasonably be expected to have, individually or in the aggregate, a Vencor
Material Adverse Effect. All returns, cost reports and other filings made by
Vencor and its Subsidiaries to Medicare, Medicaid or any other governmental
health or welfare related entity or third party payor are true and complete
except where the failure to be so true and complete would not be reasonably
expected to have, individually or in the aggregate, a Vencor Material Adverse
Effect. No deficiency in any such returns, cost reports and other filings,
including deficiencies for late filings, has been asserted or to the best of
Vencor's knowledge, after reasonable investigation, threatened by any Federal or
state agency or instrumentality or other provider reimbursement entities
relating to Medicare or Medicaid or third party payor claims, and to the best of
Vencor's knowledge, after reasonable investigation, there is no basis for any
successful claims or requests for reimbursement from any such agency,
instrumentality, entity or third party payor except for any deficiencies which
would not be reasonably expected to have, individually or in the aggregate, a
Vencor Material Adverse Effect.
SECTION 4.21. Acquiring Person.
Neither the Company nor any stockholder of the Company is an "Acquiring
Person" (as defined in the Vencor Rights Plan) or will become an "Acquiring
Person" as a result of any of the transactions contemplated by this Agreement.
Vencor has taken all necessary actions to ensure that, for the purposes of the
Vencor Rights Plan, the execution of this Agreement does not, and the
consummation of the Merger and the other transactions contemplated hereby will
not, result in the grant of any rights to any person under the Vencor Rights
Agreement or enable or require any outstanding rights to be exercised,
distributed or triggered.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. Conduct of the Company.
Except as expressly contemplated by this Agreement or, as disclosed on
Schedule 5.01 hereto or on the other Schedules hereto, from the date hereof
until the Effective Time, the Company and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and key employees. Except as otherwise approved in writing by
Vencor or as expressly contemplated by this Agreement, and without limiting the
generality of the foregoing, from the date hereof until the Effective Time:
(a) the Company will not adopt or propose any change or amendment in
its Articles of Incorporation or Bylaws or the Company Rights Agreement;
(b) the Company will not, and will not permit any of its Subsidiaries
to, merge, consolidate or enter into a share exchange with any other Person
or acquire any stock or any material amount of assets of any
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other Person or sell, lease, license, mortgage, pledge or otherwise dispose
of any material assets or property except (i) pursuant to existing
contracts or commitments, (ii) in the ordinary course consistent with past
practice or (iii) transfers between the Company and/or its wholly-owned
Subsidiaries;
(c) the Company will not declare, set aside, or pay any dividends or
make any distributions on Company Common Stock or pay any dividends on
Series C Preferred Stock or Series D Preferred Stock except in accordance
with the terms thereof and in a form of consideration consistent with past
practice;
(d) the Company will not, and will not permit any of its Subsidiaries
to, (i) issue, deliver, sell, encumber or authorize or propose the
issuance, delivery, sale or encumbrance of, any capital stock or other
securities of the Company or any Company Subsidiary Securities, other than
the issuance of shares of Company Common Stock either upon the exercise of
Options or to fulfill existing obligations to issue such shares in each
case as described in Section 3.05 or in respect of performance share awards
scheduled to vest prior to the Effective Time, (ii) split, combine or
reclassify any Company Stock or Company Subsidiary Securities or (iii)
except as required or permitted by this Agreement or as disclosed in
Section 3.05, repurchase, redeem or otherwise acquire any Company Stock or
any Company Subsidiary Securities;
(e) except as otherwise expressly permitted hereby, the Company will
not make any commitment or enter into any contract or agreement material to
the Company and its Subsidiaries taken as a whole except in the ordinary
course of business consistent with past practice and shall consult with
Vencor before making or committing to make any capital expenditure of
$500,000 or more;
(f) the Company will not, and will not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing;
(g) the Company will not, and will not permit any of its Subsidiaries
to, take or agree to commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or
which is reasonably likely to result in a delay in consummation of the
Merger, including delaying the effectiveness of the Joint Proxy
Statement/Prospectus and the mailing thereof;
(h) except to the extent required by law, the Company will not
increase in any manner the compensation or fringe benefits of any of its
directors, officers and other key employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any
such employees, or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit or any employee, other than
general increases in the compensation of key employees (excluding any
executive officers of the Company) in the ordinary course of business
consistent with past practice, or voluntarily accelerate the vesting of any
compensation or benefit or take any action with respect to any Employee
Plan or Benefit Arrangement which could prevent the Merger from being
treated for financial accounting purposes as a Pooling Transaction;
provided, however, that (i) the Company bonus payments typically paid as of
May 31 may be paid consistent with past practice and (ii) the Company can
increase the compensation of the one individual previously identified to
Vencor; or
(i) the Company will not amend or waive any provision of the agreement
relating to the acquisition of Nationwide Care, Inc., and related entities.
SECTION 5.02. Access to Information.
From the date hereof until the Effective Time, the Company will, upon
reasonable notice, give Vencor, its counsel, financial advisors, auditors and
other authorized representatives access to the offices, properties, books and
records of the Company and its Subsidiaries, will furnish to Vencor, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request and will instruct the Company's employees, counsel and
financial advisors to cooperate with Vencor in its investigation of the business
of the Company and its Subsidiaries; provided that no investigation pursuant to
this Section shall affect any representation or warranty given by the Company to
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Vencor hereunder. All nonpublic information provided to, or obtained by, Vencor
in connection with the transactions contemplated hereby shall be "Information"
for purposes of the Confidentiality Agreement dated March 23, 1995 between
Vencor and the Company. Notwithstanding the foregoing, the Company shall not be
required to provide any information which it reasonably believes it may not
provide to Vencor by reason of applicable law, rules or regulations, which
constitutes information protected by attorney/client privilege, or which the
Company or any Subsidiary is required to keep confidential by reason of contract
or, agreement with third parties.
SECTION 5.03. Other Offers.
From the date hereof until the termination of this Agreement, the Company
and its Subsidiaries will not, and will use their reasonable best efforts to
cause their officers, directors, employees or other agents not to, directly or
indirectly, (i) take any action to solicit or initiate any Company Acquisition
Proposal (as defined below) or (ii) engage in negotiations with, or disclose any
nonpublic information relating to the Company or any of its Subsidiaries or
afford access to the properties, books or records of the Company or any of its
Subsidiaries to any Person, unless with respect to the actions referred to in
this clause (ii) otherwise required in accordance with the fiduciary duties of
the Board of Directors under applicable law as advised by independent legal
counsel to the Company, in response to a Person that has made a Company
Acquisition Proposal in writing. (Nothing herein shall prohibit the Company from
amending or waiving the provisions of confidentiality agreements it has entered
into with third persons in respect of the ability of such persons to submit a
Company Acquisition Proposal to the Company or its stockholders and the Company
has done so.) The Company will promptly as reasonably practicable notify Vencor
after receipt of any Company Acquisition Proposal or any indication that any
Person is considering making a Company Acquisition Proposal and identify the
party with whom it has negotiated or to whom it has disclosed confidential
information. For purposes of this Agreement, "Company Acquisition Proposal"
means any good faith offer or proposal for a merger or other business
combination involving the Company or any of its Subsidiaries or the acquisition
of any equity interest in, or a substantial portion of the assets of, the
Company or any of its Subsidiaries, other than the transactions contemplated by
this Agreement.
SECTION 5.04. Notices of Certain Events.
The Company shall promptly as reasonably practicable notify Vencor of:
(i) any notice or other communication from any Person alleging that
the consent of such Person (or another Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting the Company or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 3.11 or which relate to the
consummation of the transactions contemplated by this Agreement;
(iv) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by the Company or any of its Subsidiaries subsequent to the date
of this Agreement, under any material agreement; and
(v) any Company Material Adverse Effect or the occurrence of any event
which is reasonably likely to result in a Company Material Adverse Effect.
SECTION 5.05. Tax Letters.
If the parties hereto reasonably believe it appropriate, the Company will
cooperate with Vencor in requesting of its directors and officers and such other
persons as Vencor may reasonably request, at or before
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the Effective Time, a representation letter stating that such person has no
present plan or intention to sell any of the shares of Vencor Common Stock which
such stockholder receives in the Merger. The refusal of any such person who is
not a director or employee of the Company or one of its Subsidiaries to provide
such a letter shall not be a breach by the Company of its obligations hereunder.
SECTION 5.06. Rights Agreement.
The Company shall take all action (including, if necessary, amending or
terminating the Company Rights Agreement) so that the execution of this
Agreement and any agreements between the Company and Vencor and the consummation
of the Merger and the other transactions contemplated hereby, do not and will
not result in the grant of any rights to any person under the Company Rights
Agreement or enable or require any outstanding rights to be exercised,
distributed or triggered.
SECTION 5.07. Financial Statements.
The Company agrees to prepare, and to cause KPMG Peat Marwick to take
appropriate action with respect to such consolidated financial statements of the
Company and its Subsidiaries as are required to be included in or necessary for
the preparation of the Joint Proxy Statement/Prospectus.
ARTICLE VI
COVENANTS OF VENCOR
Vencor agrees that:
SECTION 6.01. Conduct of Vencor.
Except as expressly contemplated by this Agreement or as described on
Schedule 6.01 hereto, from the date hereof until the Effective Time, Vencor and
its Subsidiaries shall conduct their business in the ordinary course consistent
with past practice and shall use their reasonable best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of their present officers and key employees. Except
as otherwise approved in writing by the Company or as expressly contemplated by
this Agreement, and without limiting the generality of the foregoing, from the
date hereof until the Effective Time:
(a) Vencor will not adopt or propose any change in its certificate of
incorporation or bylaws;
(b) Vencor will not, and will not permit any of its Subsidiaries to,
merge or consolidate with any other Person (other than another Subsidiary)
or, acquire a material amount of stock or assets of any other Person;
provided that Vencor and its Subsidiaries may merge or consolidate with, or
acquire the stock or assets of a Person primarily engaged in a business in
which Vencor or any of its Subsidiaries is presently engaged, provided that
such transaction may not be undertaken if it would require the preparation
of pro forma financial statements in accordance with applicable rules and
regulations of the SEC or might reasonably be expected to delay the
transactions contemplated by this Agreement;
(c) Vencor will not, and will not permit any of its Subsidiaries to
sell, lease, license, mortgage, pledge or otherwise dispose of any material
assets or property except (i) pursuant to existing contracts or
commitments, (ii) in the ordinary course consistent with past practice or
(iii) transfers between Vencor and/or its wholly-owned Subsidiaries;
(d) Vencor will not declare or pay any dividends or make any
distributions on Vencor Common Stock;
(e) Vencor will not, and will not permit any of its Subsidiaries to
(i) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any capital stock of Vencor or Vencor Subsidiary Securities,
other than to increase the total number of authorized shares of Vencor
Common Stock up to 200,000,000 (the "Charter Amendment"), the Option Plan
Amendment or the issuance of Vencor Common Stock upon the exercise of
employee stock options or convertible securities or to fulfill obligations
to issue shares of Vencor Common Stock in each case as described in Section
4.05, or to
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consummate a transaction permitted by Section 6.01(b) above or to the
Vencor Foundation in accordance with past practice, (ii) split, combine or
reclassify any capital stock of Vencor or Vencor Subsidiary Securities or
(iii) repurchase, redeem or otherwise acquire any capital stock of Vencor
or Vencor Subsidiary Securities;
(f) Vencor will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing except that Vencor may grant
stock options to employees in the ordinary course of business consistent
with past practice;
(g) Vencor will not, and will not permit any of its Subsidiaries to,
take or agree or commit to take any action that would make any
representation and warranty of Vencor hereunder inaccurate in any material
respect at, or as of any time prior to, the Effective Time or which is
reasonably likely to result in a delay in consummation of the Merger,
including delaying the effectiveness of the Joint Proxy
Statement/Prospectus and the mailing thereof; or
(h) except to the extent required by law, Vencor will not voluntarily
accelerate the vesting of any compensation or benefit or take any action
with respect to any Vencor Employee Plan or Benefit Arrangement which could
prevent the Merger from being treated for financial accounting purposes as
a Pooling Transaction.
Section 6.02. Access to Information.
From the date hereof until the Effective Time, Vencor will, upon reasonable
notice, give the Company, its counsel, financial advisors, auditors and other
authorized representatives access to the offices, properties, books and records
of Vencor and its Subsidiaries, will furnish to the Company, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such Persons may reasonably request
and will instruct Vencor's employees, counsel and financial advisors to
cooperate with the Company in its investigation of the business of Vencor and
its Subsidiaries; provided that no investigation pursuant to this Section shall
affect any representation or warranty given by Vencor to the Company hereunder.
All nonpublic information provided to, or obtained by, the Company in connection
with the transactions contemplated hereby shall be "Information" for purposes of
the Confidentiality Agreement dated March 23, 1995 between Vencor and the
Company. Notwithstanding the foregoing, Vencor shall not be required to provide
any information which it reasonably believes it may not provide to the Company
by reason of applicable law, rules or regulations, which constitutes information
protected by attorney/client privilege, or which Vencor or any Subsidiary is
required to keep confidential by reason of contract or agreement with third
parties.
SECTION 6.03. [Reserved.]
SECTION 6.04. Director and Officer Liability.
From and after the Effective Time, (a) Vencor shall indemnify, defend and
hold harmless the present and former officers and directors of the Company and
its Subsidiaries against all losses, claims, damages and liability in respect of
acts or omissions occurring at or prior to the Effective Time to the fullest
extent that the Company or such Subsidiary would have been permitted under
applicable law and the certificate of incorporation and by-laws of the Company
or such Subsidiary in effect on the date hereof to indemnify such person. For at
least six years after the Effective Time, Vencor will use its best efforts to,
without any lapse in coverage, provide officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the Effective Time
covering each such Person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date hereof;
provided, that in no event shall Vencor be required to pay more than 200% of the
premium paid by the Company in its most recently ended fiscal year. Vencor shall
reimburse all expenses including reasonable attorney's fees, incurred by any
person to enforce successfully the obligations of Vencor under this Section
6.04.
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SECTION 6.05. Stock Exchange Listing.
Vencor shall use its best efforts to cause the shares of Vencor Common
Stock to be issued in the Merger to be approved for listing on the New York
Stock Exchange, subject to official notice of issuance, prior to the Effective
Time.
SECTION 6.06. Vencor Acquisition Proposals.
From the date hereof until the termination of this Agreement, Vencor and
its Subsidiaries will not, and will use their best efforts to cause their
officers, directors, employees or the agents not to, directly or indirectly, (i)
take any action to solicit or initiate any Vencor Acquisition Proposal (as
defined below) or (ii) engage in negotiations with, or disclose any nonpublic
information relating to Vencor or any of its Subsidiaries or afford access to
the properties, books or records of Vencor or any of its Subsidiaries to, any
Person unless with respect to the actions referred to in this clause (ii)
otherwise required in accordance with the fiduciary duties of the Board of
Directors under applicable law as advised by independent legal counsel to
Vencor, in response to a Person that has made a Vencor Acquisition Proposal in
writing. Vencor will promptly as reasonably practicable notify the Company after
receipt of any Vencor Acquisition Proposal and identify the party with whom it
has negotiated and to whom it has disclosed confidential information. For
purposes of this Agreement, "Vencor Acquisition Proposal" means any good faith
offer or proposal for a merger or proposal for, or combination involving Vencor
or any of its Subsidiaries or the acquisition of any equity interest in, or a
substantial portion of the assets of Vencor and its Subsidiaries taken as a
whole, other than the transactions contemplated by this Agreement.
SECTION 6.07. Notice of Certain Events.
Vencor shall promptly as reasonably practicable notify the Company of:
(i) any notice or other communication from any Person alleging that
the consent of such Person (or other Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting it or any of its Subsidiaries which, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 4.12 or which relate to the consummation
of the transactions contemplated by this Agreement;
(iv) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by Vencor or any of its Subsidiaries subsequent to the date of
this Agreement, under any material agreement; and
(v) any Vencor Material Adverse Effect or the occurrence of any event
which is reasonably likely to result in a Vencor Material Adverse Effect.
SECTION 6.08. Employee Benefits.
(a) It is the intention of Vencor that, following the Effective Time
through December 31, 1995, Vencor will continue, to the extent practicable and
appropriate, the existing level of employee benefits provided by the Company and
its Subsidiaries (other than employee benefit plans based on Company capital
stock) and thereafter to provide to officers and employees of the Company and
its Subsidiaries benefits comparable to those provided to similarly situated
employees of Vencor and its Subsidiaries under the Vencor's employee benefit
plans; (b) Vencor agrees to honor and perform all severance, indemnification and
similar agreements of the Company disclosed in Schedule 6.09 hereof (including
the Directors' Retirement Plan with respect to the directors of the Company
whether or not they continue as Designated Directors); provided that the Company
shall use its best efforts to amend all severance agreements to eliminate, as a
basis upon which
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severance benefits may be paid, all references to title; (c) for purposes of the
Company's Supplemental Executive Retirement Plan, the Effective Time shall be
deemed to be a change in control.
ARTICLE VII
COVENANTS OF VENCOR AND THE COMPANY
The parties hereto agree that:
SECTION 7.01. Best Reasonable Efforts.
Subject to the terms and conditions of this Agreement, each party will use
its best reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement.
SECTION 7.02. Certain Filings.
The Company and Vencor shall cooperate with one another (a) in connection
with the preparation of the Registration Statement and Joint Proxy
Statement/Prospectus, (b) in determining whether any action by or in respect of,
or filing with, any governmental body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (c) in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Registration Statement and Joint Proxy Statement/Prospectus and seeking timely
to obtain any such actions, consents, approvals or waivers. Vencor and the
Company shall each promptly file Notification and Report Forms under the HSR Act
and each of Vencor and the Company agrees to use its best reasonable efforts to
respond as promptly as practicable to all inquiries received from the Antitrust
Division of the United States Department of Justice or the Federal Trade
Commission for additional information or documentation. Vencor and the Company
each shall consult with the other in connection with the foregoing and each
shall use its best reasonable efforts to take any steps as may be necessary in
order to obtain any consents, approvals, permits or authorizations required in
connection with the Merger, including negotiating a resolution of disputes with
governmental or regulatory authorities and performing the resolution as
negotiated.
SECTION 7.03. Public Announcements.
Vencor and the Company will consult with each other before issuing any
press release or making any public statement with respect to this Agreement and
the transactions contemplated hereby and, except as may be required by
applicable law or any listing agreement with the NYSE, will not issue any such
press release or make any such public statement prior to such consultation.
SECTION 7.04. Further Assurances.
At and after the Effective Time, the officers and directors of Vencor will
be authorized to execute and deliver, in the name and on behalf of the Company,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of the Company, any other actions and things to vest, perfect
or confirm of record or otherwise in Vencor any and all right, title and
interest in, to and under any of the rights, properties or assets of the Company
acquired or to be acquired by Vencor as a result of, or in connection with, the
Merger. Neither Vencor nor the Company will knowingly take or agree to take any
action that would prevent Vencor from accounting for the business combination to
be effected by the Merger as a pooling of interests.
SECTION 7.05. Stockholders Meetings.
Each of Vencor and the Company shall cause a meeting of its stockholders
(each, a "Stockholder Meeting") to be duly called and held as soon as reasonably
practicable for the purpose of voting on the
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approval and adoption of this Agreement and the Merger, and in the case of the
Charter Amendment and the Option Plan Amendment. The Directors of Vencor and the
Directors of the Company shall, unless otherwise required in accordance with
their fiduciary duties as advised by outside counsel, recommend such approval
and adoption or issuance. In connection with such meetings, each of Vencor and
the Company will, subject to the foregoing, use its best efforts to obtain the
necessary approvals by its stockholders of this Agreement, the transactions
contemplated hereby and such other matters as are contemplated by the terms of
this Agreement or required by Delaware Law or Nevada Law, as the case may be,
and will otherwise comply with all legal requirements applicable to such
meetings.
SECTION 7.06. Preparation of the Joint Proxy Statement/Prospectus and
Registration Statement.
Vencor and the Company shall promptly prepare and file with the SEC a
preliminary version of the Joint Proxy Statement/Prospectus and will use their
best efforts to respond to the comments of the SEC in connection therewith and
to furnish all information required to prepare the definitive Joint Proxy
Statement/Prospectus. After receiving comments from the SEC, Vencor shall
promptly file with the SEC the Registration Statement containing the Joint Proxy
Statement/Prospectus. Each of Vencor and the Company shall use its best efforts
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing. Vencor shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified or filing a general consent to service of process in any
jurisdiction) required to be taken under any applicable state securities laws in
connection with the issuance of Vencor Common Stock in the Merger and the
Company shall furnish all information concerning the Company and the holders of
shares of Company Stock as may be reasonably requested in connection with any
such action. Promptly after the effectiveness of the Registration Statement,
each party will cause the Joint Proxy Statement/Prospectus to be mailed to its
stockholders, and if necessary, after the definitive Joint Proxy
Statement/Prospectus shall have been mailed, promptly circulate amended,
supplemented or supplemental proxy materials and, if required in connection
therewith, resolicit proxies.
SECTION 7.07. State Takeover Laws.
If any "fair price" or "control share acquisition" statute or other similar
statute or regulation shall become applicable to the transactions contemplated
by this Agreement, the Company and Vencor and their respective Boards of
Directors shall use their reasonable best efforts to grant such approvals and
take such actions as are necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to minimize the effects of such statute or regulation on the
transactions contemplated hereby.
SECTION 7.08. Pooling.
If it is determined at any time prior to the Effective Time that any action
or inaction by any party hereto or one of its respective affiliates has had the
effect of causing the condition set forth in Section 8.01(vii) to be unable to
be satisfied, such party shall, consistent with the terms and conditions of this
Agreement, use its best efforts to cause the condition set forth in Section
8.01(vii) to be satisfied.
SECTION 7.09. Consents.
The Company and Vencor shall use their best efforts to obtain any approval,
consent or waiver with respect to any Third Party Agreements or to refinance
such agreements in order to facilitate consummation of the Merger ("Third Party
Consents") necessary to consummate the transactions contemplated by the Merger
prior to the Effective Time.
SECTION 7.10. Affiliates.
Prior to the Effective Time, the Company shall cause to be delivered to
Vencor a list identifying each person who might at the time of the meeting of
the Company's stockholders be deemed to be an "affiliate" of the Company for
purposes of (i) Rule 145 under the Securities Act or (ii) for purposes of the
SEC's
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Accounting Series Releases concerning "pooling of interests" treatment for
business combinations (each, a "Company Affiliate"). The Company shall use its
best efforts to obtain from each person who is identified as a possible Company
Affiliate prior to the Effective Time an agreement (a "Company Affiliate
Agreement") in the form attached hereto as Exhibit A. Vencor shall cause to be
delivered to the Company a list identifying each person who might at the time of
the meeting of the stockholders of the Vencor be deemed an "affiliate" (each, a
"Vencor Affiliate"). Vencor shall use its best efforts to obtain from each
person who is identified as a possible Vencor Affiliate from the Vencor prior to
the Effective Time an agreement (a "Vencor Affiliate Agreement") in the form
attached hereto as Exhibit B.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party.
The obligations of the Company and Vencor to consummate the Merger are
subject to the satisfaction of the following conditions:
(i) this Agreement and the Merger shall have been approved by the
requisite vote of the stockholders of the Company in accordance with Nevada
Law;
(ii) the waiting period under the HSR Act relating to the Merger shall
have expired or been terminated;
(iii) no provision of any applicable domestic law or regulation and no
judgment, injunction, order or decree of a court or governmental agency or
authority of competent jurisdiction which has the effect of making the
Merger illegal or shall otherwise restrain or prohibit the consummation of
the Merger is in effect (each party agreeing to use its best reasonable
efforts, including appeals to higher courts, to have any judgment,
injunction, order or decree lifted);
(iv) there shall have been approved, by the requisite vote of Vencor's
stockholders, this Agreement and the transactions contemplated thereby,
Charter Amendment and the Option Plan Amendment;
(v) the Registration Statement shall have been declared effective
under the Securities Act and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceedings for such
purpose shall have been initiated or threatened by the SEC;
(vi) the shares of Vencor Common Stock to be issued in the Merger
shall have been approved for listing on the NYSE, subject to official
notice of issuance;
(vii) receipt by Vencor and the Company of an opinion, in form and
substance reasonably satisfactory to Vencor and the Company, dated the
effective date of the Merger, from KPMG Peat Marwick and Ernst & Young to
the effect that the Merger will qualify as a "pooling of interests"
transaction under the relevant Accounting Principles Board guidelines and
the SEC shall not have objected to such accounting treatment; and
(viii) all consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
the filings in connection with the Merger contemplated by Section 1.01(b)
and any other documents required to be filed after the Effective Time and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not be
reasonably likely to have a Company Material Adverse Effect or a Vencor
Material Adverse Effect, as the case may be, following the Effective Time
or would render the Merger illegal or provide a reasonable basis to
conclude that the parties hereto or their affiliates or any of their
respective directors or officers will be subject to the risk of criminal
liability.
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(ix) all Third Party Consents shall have been obtained except where
the failure of the Company to obtain any Third Party Consents, individually
or in the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 8.02. Conditions to the Obligations of Vencor.
The obligations of Vencor to consummate the Merger are subject to the
satisfaction of the further conditions:
(i) that the Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to
the Effective Time, the representations and warranties of the Company
contained in this Agreement shall be true in all material respects at and
as of the Effective Time as if made at and as of such time except to the
extent that any representation or warranty is made as of a specified date,
in which case such representation or warranty shall be true as of such
date, and Vencor shall have received a certificate signed by an executive
officer and by the chief financial officer of the Company to the foregoing
effect;
(ii) Vencor shall have received from the Company "cold comfort"
letters of KPMG Peat Marwick of the kind contemplated by the Statement of
Auditing Standards with respect to Letters to Underwriters promulgated by
the American Institute of Certified Public Accountants (the "AICPA
Statement") dated the date on which the Registration Statement shall become
effective and the Effective Time, respectively, and addressed to Vencor, in
form and substance reasonably satisfactory to Vencor, in connection with
the procedures undertaken by them with respect to the financial statements
of the Company and its Subsidiaries contained in the Registration Statement
and the other matters contemplated by the AICPA Statement and customarily
included in comfort letters relating to transactions similar to the Merger;
and
(iii) Vencor shall have received two opinions of Sullivan & Cromwell
(or such other counsel selected by Vencor) in form and substance reasonably
satisfactory to it, based, in each case, upon representation letters dated
on or about the date of such opinions from persons reasonably requested to
provide such letters, and such other assumptions and representations as
counsel may reasonably deem relevant, to the effect that the Merger for
federal income tax purposes as a reorganization within the meaning of
Section 368 of the Code, the first of which shall be dated on or about the
date that is two business days prior to the date of the Joint Proxy
Statement/Prospectus and the second of which shall be dated as of the
Effective Time.
SECTION 8.03. Conditions to the Obligations of the Company.
The obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(i) Vencor shall have performed in all material respects all of their
respective obligations hereunder required to be performed by them at or
prior to the Effective Time, the representations and warranties of Vencor
contained in this Agreement shall be true in all material respects at and
as of the Effective Time as if made at and as of such time, and the Company
shall have received a certificate signed by the chief financial officer of
Vencor to the foregoing effect;
(ii) the Company shall have received two opinions of Fried, Frank,
Harris, Shriver & Jacobson (or such other counsel selected by the Company)
in form and substance reasonably satisfactory to it, based, in each case,
upon representation letters dated on or about the dates of such opinions
from persons reasonably requested to provide such letters and such other
facts and representations as counsel may reasonably deem relevant, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368 of the Code,
the first of which shall be dated on or about the date that is two business
days prior to the date of the Joint Proxy Statement/Prospectus and the
second of which shall be dated as of the Effective Time;
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(iii) the Designated Directors shall have been elected to the Board of
Directors of Vencor effective as of the Effective Time;
(iv) the Company shall have received from Vencor "cold comfort"
letters of Ernst & Young of the kind contemplated by the AICPA Statement
dated the date on which the Registration Statement shall become effective
and the Effective Time, respectively, and addressed to the Company, in form
and substance reasonably satisfactory to the Company, in connection with
the procedures undertaken by them with respect to the financial statements
of Vencor and the Vencor Subsidiaries contained in the Registration
Statement and the other matters contemplated by the AICPA Statement and
customarily included in comfort letters relating to transactions similar to
the Merger.
ARTICLE IX
TERMINATION
SECTION 9.01. Termination.
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time (notwithstanding any approval of this Agreement
by the stockholders of the Company or Vencor):
(i) by mutual written consent of the Company and Vencor, by action of
their respective Boards of Directors;
(ii) by action of the Board of Directors of either the Company or
Vencor, if the Merger has not been consummated by December 31, 1995
(provided that the right to terminate this Agreement under this clause (ii)
shall not be available to any party who at such time is in material breach
of any of its obligations under this Agreement);
(iii) by action of the Board of Directors of either the Company or
Vencor, if there shall be any applicable domestic law, rule or regulation
that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree of a court or governmental agency or authority
of competent jurisdiction shall restrain or prohibit the consummation of
the Merger, and such judgment, injunction, order or decree shall become
final and nonappealable;
(iv) by action of the Board of Directors of either the Company or
Vencor, if any of the stockholder approvals referred to in Section 8.01(i)
or (iv) shall not have been obtained by reason of the failure to obtain the
requisite vote upon a vote at a duly held meeting of stockholders or at any
adjournment or postponement thereof;
(v) by action of the Board of Directors of either the Company or
Vencor, if (x) there shall have been a material breach of any
representation or warranty contained in this Agreement on the part of the
other party which breach by its nature cannot be cured prior to the
Effective Time and which breach is reasonably likely to have a Vencor
Material Adverse Effect or Company Material Adverse Effect, as the case may
be, or (y) there shall have been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of the other party,
which breach by its nature cannot be cured or, if curable, is not cured
within 30 days after written notice of such breach is given by the
terminating party to the other party;
(vi) (A) by action of the Board of Directors of Vencor, if the Board
of Directors of the Company does not publicly recommend in the Joint Proxy
Statement/Prospectus that the Company's stockholders approve and adopt this
Agreement and the Merger, or if it shall have withdrawn, modified or
changed such recommendation in any manner adverse to Vencor, or (B) by
action of the Board of Directors of the Company, if the Board of Directors
of Vencor does not publicly recommend in the Joint Proxy
Statement/Prospectus that Vencor's stockholders approve and adopt this
Agreement and the Merger;
(vii) by the Company, if the product of the Vencor Average Price times
the Conversion Number is less than $31.00 per share, provided, however,
that the Company may not terminate this Agreement if it
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has been advised in writing by Vencor that the Conversion Number shall be
determined by dividing $31.00 by the Vencor Average Price (without regard
to any maximum imposed on the Conversion Number absent this clause by
Section 1.02(b) hereof); or
(viii) by the Company, if the Company receives an unsolicited written
proposal with respect to a Company Acquisition Proposal that the Board of
Directors of the Company determines in good faith, after consultation with
its legal and financial advisors is reasonably likely to lead to a merger,
acquisition, consolidation or similar transaction that is more favorable to
the stockholders of the Company than this Agreement and the Merger and that
failure to take such action would constitute a breach of the fiduciary
duties of the Board of Directors of the Company and the Company accepts
such Company Acquisition Proposal; provided, however, that the Company
shall not be permitted to terminate this Agreement pursuant to this Section
9.01(viii) unless it has provided Vencor and Merger Subsidiary with five
business days prior written notice of its intent to so terminate this
Agreement together with a detailed summary of the terms and conditions of
such Company Acquisition Proposal; provided, further, that Vencor shall
receive the fees set forth in Section 10.04 immediately prior to any
termination pursuant to this Section 9.01(viii) by wire transfer in same
day funds.
SECTION 9.02. Effect of Termination.
If this Agreement is terminated and the Merger is abandoned pursuant to
Section 9.01, no party hereto (or any of its directors or officers) shall have
any liability or further obligation to any other party hereto except (a) as
provided in Section 10.04, (b) that the agreements contained in Section 10.04 in
the last sentence of Section 5.02 and the last sentence of Section 6.02 shall
survive the termination hereof and (c) that nothing herein will relieve any
party from liability for any breaches hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices.
All notices, requests and other communications to any party hereunder shall
be in writing (including telecopy, telex or similar writing) and shall be given,
if to Vencor, to:
Vencor, Inc.
3300 Providian Center
4000 West Market Street
Louisville, KY 40202
Telephone: (502) 569-7300
Telecopy: (502) 569-1104
Attention: Jill L. Force
General Counsel
with a copy to:
Joseph B. Frumkin, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Telephone: (212) 558-4101
Telecopy: (212) 558-3588
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if to the Company, to:
1148 Broadway Plaza
Tacoma, WA 98402
Telephone: (206) 572-4901
Telecopy: (206) 756-4845
Attention: Richard P. Adcock
Senior Vice President
and General Counsel
with a copy to:
Peter Golden, Esq.
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, NY 10004
Telephone: (212) 859-8112
Telecopy: (212) 859-4000
or such other address or telex or telecopy number as such party may hereafter
specify for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by telecopy, when
such telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received or (ii) if given by any other means, when
delivered at the address specified in this Section.
SECTION 10.02. Survival.
The representations and warranties and agreements contained herein and in
any certificate or other writing delivered pursuant hereto shall not survive the
Effective Time, except Sections 6.04, 6.08, 6.09, 7.04 and Article I.
SECTION 10.03. Amendments; No Waivers.
(a) Subject to the applicable provisions of Delaware Law and Nevada Law any
provision of this Agreement may be amended or waived prior to the Effective Time
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by the Company, and Vencor or, in the case of a waiver, by the
party against whom the waiver is to be effective; provided that any waiver or
amendment shall be effective against a party only if the Board of Directors of
such party approves such waiver or amendment.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.04. Fees and Expenses.
(a) Subject to paragraphs (b) and (c) of this Section, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense, except that Vencor and the Company shall each
pay one-half of all printing, filing and mailing costs for the Registration
Statement and the Joint Proxy Statement/Prospectus and all SEC and other
regulatory filing fees.
(b) If this Agreement is terminated (i) by the Company pursuant to Section
9.01(viii) or a Company Acquisition Proposal shall have been made and thereafter
this Agreement is terminated pursuant to Section 9.01(ii) or 9.01(iv) because
the stockholders of the Company shall have failed to approve this Agreement or a
Company Acquisition Proposal shall have been made and thereafter this Agreement
is terminated pursuant to Section 9.01(vi)(A) or (ii) a bonafide Vencor
Acquisition Proposal shall have been made and thereafter this Agreement is
terminated pursuant to Section 9.01(ii) or 9.01(iv) because the
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stockholders of Vencor shall have failed to approve the issuance of Vencor
Common Stock pursuant to this Agreement or a Company Acquisition Proposal shall
have been made and thereafter this Agreement is terminated pursuant to Section
9.01(vi)(B), then, in the case of clause (i) above, the Company shall pay Vencor
and, in the case of clause (ii) above, Vencor shall pay the Company, a cash fee
of $35,000,000; provided, that, if the proposed Company Acquisition Transaction
or Vencor Acquisition Transaction, respectively, is intended to be accounted for
as a "pooling of interests" for accounting purposes, then the amount of the cash
fee shall be reduced to $13,500,000.
The Company shall reimburse Vencor for all of its out-of-pocket expenses
and fees (subject to a maximum reimbursement obligation of $5,000,000) actually
incurred by Vencor in connection with the Transactions contemplated by this
Agreement prior to the termination of this Agreement (including, without
limitation, all fees and expenses of counsel, financial advisors, accountants,
environmental and other experts and consultants to Vencor and its affiliates,
and all printing and advertising expenses) and in connection with the
negotiation, preparation, execution, performance and termination of this
Agreement, the structuring of the transactions contemplated by this Agreement,
any agreements relating thereto and any filings to be made in connection
therewith if this Agreement is terminated pursuant to Section 9.01(iv) because
the stockholders of the Company shall have failed to approve this Agreement and
no Company Transaction Proposal shall be outstanding at the time of such vote.
Vencor shall reimburse the Company for all of its out-of-pocket expenses
and fees (subject to a maximum reimbursement obligation of $5,000,000) actually
incurred by the Company in connection with the Transactions contemplated by this
Agreement prior to the termination of this Agreement (including, without
limitation, all fees and expenses of counsel, financial advisors, accountants,
environmental and other experts and consultants to the Company and its
affiliates, and all printing and advertising expenses) and in connection with
the negotiation, preparation, execution, performance and termination of this
Agreement, the structuring of the transactions contemplated by this Agreement,
any agreements relating thereto and any filings to be made in connection
therewith if this Agreement is terminated pursuant to Section 9.01(iv) because
the stockholders of Vencor shall have failed to approve this Agreement and no
Vencor Acquisition Proposal shall be outstanding at the time of such vote.
SECTION 10.05. Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of the other
parties hereto.
SECTION 10.06. Governing Law.
This Agreement shall be construed in accordance with and governed by the
law of the State of Nevada without regard to principles of conflict of laws.
SECTION 10.07. Counterparts; Effectiveness.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received counterparts hereof signed by all of the
other parties hereto.
SECTION 10.08. Entire Agreement.
This Agreement and the Confidentiality Agreement dated March 23, 1995
between Vencor and the Company constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements, understandings and negotiations, both written and oral, between the
parties with respect to the subject matter of this Agreement. No representation,
inducement, promise, understanding, condition or warranty not set forth herein
has been made or relied upon by either party hereto. Neither this Agreement nor
any provision hereof is intended to confer upon any Person other than the
parties hereto any
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rights or remedies hereunder except for the provisions of Section 6.04, which
are intended for the benefit of the Company's former and present officers,
directors, employees and agents and the provisions of Article I, which is
intended for the benefit of the Company's stockholders, including holders of
Company Options.
SECTION 10.09. Headings.
The headings contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
SECTION 10.10. Severability.
If any term or other provision of this Agreement is invalid, illegal or
unenforceable, all other provisions of this Agreement shall remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
SECTION 10.11. Specific Performance.
The parties hereto agree that irreparable damage would occur in the event
any of the provisions of this Agreement were not to be performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof in addition to any other remedies at law or in
equity.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be duly executed by their respective authorized officers
as of the day and year first above written.
THE HILLHAVEN CORPORATION
By: /s/ ROBERT F. PACQUER
------------------------------------
Name: Robert F. Pacquer
Title: Senior Vice President and
Chief Financial Officer
VENCOR, INC.
By: /s/ JILL L. FORCE
------------------------------------
Name: Jill L. Force
Title: General Counsel and Secretary
ACKNOWLEDGED AND AGREED:
The undersigned agrees to the
amendment effected to this Amended and
Restated Agreement, including the
withdrawal of the undersigned as a
party hereto.
VERITAS HOLDINGS CORP.
By: /s/ JILL L. FORCE
----------------------------------
Name: Jill L. Force
Title: Secretary
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<PAGE> 150
APPENDIX B
OPINION OF CS FIRST BOSTON CORPORATION
[TO COME]
B-1
<PAGE> 151
APPENDIX C
OPINION OF MERRILL, LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
[TO COME]
C-1
<PAGE> 152
APPENDIX D
AMENDMENT TO VENCOR'S CERTIFICATE OF
INCORPORATION
D-1
<PAGE> 153
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VENCOR, INC.
Vencor, Inc., a Delaware corporation, hereby certifies as follows:
FIRST. The Board of Directors of said corporation duly adopted a
resolution setting forth and declaring advisable the amendment of the first
paragraph of Article IV of the certificate of incorporation of said corporation
to increase the total number of shares which the corporation shall have
authority to issue from 61,000,000 shares, of which 60,000,000 was shares of
Common Stock of the par value of $.25 per share and 1,000,000 was shares of
Preferred Stock of the par value of $1.00 per share, to 181,000,000, of which
180,000,000 shall be shares of Common Stock of the par value of $.25 per share
and 1,000,000 shall be shares of Preferred Stock of the par value of $1.00 per
share, so that, as amended, the first paragraph of said Article shall read as
follows:
"ARTICLE IV
CAPITAL STOCK
The total number of shares of stock that the Corporation shall have
authority to issue is 181,000,000 shares, of which 180,000,000 shall be
shares of common stock, having a par value of twenty-five cents per share
(the "Common Shares"), and 1,000,000 shall be shares of preferred stock,
having a par value of one dollar per share (the "Preferred Shares"). The
designations, voting powers and relative rights and preferences of the two
classes of shares of stock shall be as set forth below."
SECOND. The foregoing amendment has been duly adopted by the favorable
vote of the holders of a majority of the outstanding stock entitled to vote
thereon in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Vencor, Inc. has caused this certificate to be signed
by , its , on the day of [September, 1995].
VENCOR, INC.
By
--------------------------------------
Name:
Title:
D-2
<PAGE> 154
APPENDIX E
SECTIONS 78.471 TO 78.502 OF NEVADA REVISED STATUTES
E-1
<PAGE> 155
APPENDIX E
[RIGHTS OF DISSENTING STOCKHOLDERS]
78.471 [DEFINITIONS AS USED IN NRS 78.472 TO 78.479]. As used in NRS
78.471 to 78.502, inclusive, the words and terms defined in NRS 78.472 to
78.479, inclusive, have the meanings ascribed to them in those sections. (Added
by Ch. 442, L. '91, eff. 10-1-91.)
78.472 ["BENEFICIAL STOCKHOLDER" DEFINED]. "Beneficial stockholder" means
the person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record. (Added by Ch. 442, L. '91, eff. 10-1-91.)
78.473 ["CORPORATION" DEFINED]. "Corporation" means the issuer of the
shares held by a dissenter before the corporate action, or the surviving or
acquiring corporation of that issuer by merger or exchange of shares. (Added by
Ch. 442, L. '91, eff. 10-1-91.)
78.474 ["DISSENTER" DEFINED). "Dissenter" means a stockholder who is
entitled to dissent from corporate action under NRS 78.481 and who exercises
that right when and in the manner required by NRS 78.491 to 78.499. (Added by
Ch. 442, L. '91, eff. 10-1-91.)
78.476 ["FAIR VALUE" DEFINED]. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
(Added by Ch. 422, L. '91, eff. 10-1-91.)
78.477 ["INTEREST" DEFINED]. "Interest" means interest from the effective
date of the corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans, or, if none, at a
rate that is fair and equitable under all of the circumstances. (Added by Ch.
442, L. '91, eff. 10-1-91.)
78.478 ["STOCKHOLDER" DEFINED]. "Stockholder" means the stockholder of
record or the beneficial stockholder. (Added by Ch. 442, L. '91, eff. 10-1-91.)
78.479 ["STOCKHOLDER OF RECORD" DEFINED]. "Stockholder of record" means
the person in whose name shares are registered in the records of a corporation
or the beneficial owner of shares to the extent of the rights granted by a
nominee's certificate on file with the corporation. (Added by Ch. 442, L. '91,
eff. 10-1-91.)
78.481 [STOCKHOLDER'S RIGHT TO DISSENT AND OBTAIN PAYMENT: CONDITIONS;
CHALLENGE OF ACTION]. 1. Except as otherwise provided in NRS 78.482, a
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
(1) If approval by the stockholders is required for the merger by
section 11 of this act or the articles of incorporation and the
stockholder is entitled to vote on the merger; or
(2) If the corporation is a subsidiary and is merged with its
parent under NRS 78.457.
(b) Consummation of a plan of exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the stockholder
is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the extent that the articles of incorporation, bylaws or a resolution of
the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
78.471 to 78.502 may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the stockholder or
the corporation. (Added by Ch. 442, L. '91, eff. 10-1-91.)
E-2
<PAGE> 156
78.482 [RIGHT TO DISSENT WITH RESPECT TO PLAN OF MERGER OR SHARE
EXCHANGE]. There is no right of dissent with respect to a plan of merger or
exchange in favor of holders of shares of any class or series which, at the
record date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting at which the plan of merger or exchange is to be
acted on, were either listed on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless:
1. The articles of incorporation of the corporation issuing the shares
provide otherwise; or
2. The holders of the class or series are required under the plan of
merger or exchange to accept for such shares anything except:
(a) Cash, shares or shares and cash in lieu of fraction shares of:
(1) The surviving or acquiring corporation; or
(2) Any other corporation which, at the effective date of the
plan of merger or exchange, were either listed on a national securities
exchange, designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by at least 2,000 stockholders of
record; or
(b) A combination of cash and shares of the kind described in
subparagraphs (1) and (2) of paragraph (a). (Last amended by Ch. 337, L.
'93, eff. 10-1-93.)
78.483 [ASSERTING DISSENTER'S RIGHTS]. 1. A stockholder of record may
assert dissenter's rights as to fewer than all of the shares registered in his
name only if he dissents with respect to all shares beneficially owned by any
one person and notifies the corporation in writing of the name and address of
each person on whose behalf he asserts dissenter's rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of different
stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added by Ch. 442, L. '91, eff. 10-1-91.)
78.491 [DISSENTERS' RIGHTS: NOTICE OF STOCKHOLDERS' MEETING; PROPOSED
CORPORATE ACTION TO CREATE RIGHTS]. 1. If the proposed corporate action
creating dissenters' rights is submitted to a vote at a stockholders' meeting,
the notice of the meeting must state that stockholders are or may be entitled to
assert dissenters' rights under NRS 78.471 to 78.502, inclusive, and be
accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken without a
vote of the stockholders, the corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was taken and
send them the dissenter's notice described in NRS 78.493. (Added by Ch. 422, L.
'91, eff. 10-1-91.)
78.492 [DISSENTERS' RIGHTS: NOTICE OF STOCKHOLDER'S MEETING; WRITTEN NOTICE
OF INTENT TO DEMAND PAYMENT OF SHARES]. 1. If the proposed corporate action
creating dissenters' rights is submitted to a vote at a stockholders' meeting, a
stockholder who wishes to assert dissenters' rights:
(a) Must deliver to the corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
E-3
<PAGE> 157
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter. (Added by Ch. 422, L.
'91, eff. 10-1-91.)
78.493 [DISSENTERS' NOTICE: STOCKHOLDERS WHO SATISFIED REQUIREMENTS TO
ASSERT RIGHTS]. 1. If the proposed corporate action creating dissenters' rights
is authorized at a stockholders' meeting, the corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform the holders of uncertificated shares as to what extent the
transfer of the shares will be restricted after the demand for payment is
received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed corporate action requires that the person asserting
dissenter's rights certify whether or not he acquired beneficial ownership
of the shares before that date;
(d) Set a date by which the corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 78.471 to 78.502, inclusive.
(Added by Ch. 442, L. '91, eff. 10-1-91.)
78.494 [DISSENTERS' NOTICE; DEMAND PAYMENT; DEPOSIT OF DISSENTER'S
CERTIFICATES]. 1. A stockholder to whom a dissenter's notice was sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates
retains all other rights of a stockholder until those rights are canceled or
modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under NRS 78.471 to 78.502, inclusive. (Added
by Ch. 442, L. '01, eff. 10-1-91.)
78.496 [RESTRICTION ON TRANSFER OF UNCERTIFICATED SHARES]. 1. The
corporation may restrict the transfer of uncertificated shares from the date the
demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to uncertificated
rights retains all other rights of a stockholder until those rights are canceled
or modified by the taking of the proposed corporate action. (Added by Ch. 422,
L. '91, eff. 10-1-91.)
78.497 [PAYMENT TO DISSENTER AFTER RECEIPT OF DEMAND FOR PAYMENT OF AMOUNT
ESTIMATED TO BE FAIR VALUE OF SHARES]. 1. Except as otherwise provided in NRS
78.498, within 30 days after receipt of a demand for payment, the corporation
shall pay each dissenter who complied with NRS 78.494 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the corporation under this subsection may be enforced by the
district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in Nevada, of the county where the dissenter resides or has its
registered office.
E-4
<PAGE> 158
The Court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity
for that year, and the latest available interim financial statements, if
any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
78.499 ; and
(e) A copy of NRS 78.471 to 78.502, inclusive. (Last amended by Ch.
337, L. '93, eff. 10-1-93.)
78.498 [ELECTION BY CORPORATION TO WITHHOLD PAYMENT FROM A DISSENTER]. 1. A
corporation may elect to withhold payment from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenter's
notice as the date of the first announcement to the news media or to the
stockholders of the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment, after taking
the proposed corporate action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The corporation shall
send with its offer a statement of its estimate of the fair value of the shares,
an explanation of how the interest was calculated, and a statement of the
dissenters' right to demand payment pursuant to NRS 78.499. (Added by. Ch. 442,
L. '91, eff. 10-1-91.)
78.499 [WRITTEN NOTIFICATION OF DISSENTER TO CORPORATION OF DISSENTER'S
ESTIMATE OF FAIR VALUE OF HIS SHARES; WAIVER OF RIGHT TO DEMAND PAYMENT]. 1. A
dissenter may notify the corporation in writing of his own estimate of the fair
value of his shares and the amount of interest due, and demand payment of his
estimate, less any payment pursuant to NRS 78.497, or reject the corporation's
offer pursuant to NRS 78.498 and demand payment of the fair value of his shares
and interest due, if he believes that the amount paid pursuant to NRS 78.497 or
offered pursuant to NRS 78.498 is less than the fair value of his shares or that
the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the corporation of his demand in writing within 30 days after
the corporation made or offered payment for his shares. (Added by Ch. 442, L.
'91, eff. 10-1-91.)
78.501 [DEMAND FOR PAYMENT; PROCEEDING; VENUE; PARTIES TO PROCEEDING;
JUDGMENT]. 1. If a demand for payment remains unsettled, the corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the 60-day period, it shall
pay each dissenter whose demand remains unsettled the amount demanded.
2. A corporation shall commence the proceeding in the district court of the
county where a corporation's registered office is located. If the corporation is
a foreign corporation without a resident agent in the state, it shall commence
the proceeding in the county where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
3. The corporation shall make all dissenters, whether or not residents of
Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
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<PAGE> 159
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment pursuant to
NRS 78.498. (Added by Ch. 442, L. '91, eff. 10-1-91.)
78.502 [PROCEEDING TO DETERMINE FAIR VALUE; ASSESSMENT OF COSTS, FEES AND
EXPENSES; EXCEPTIONS]. 1. The court in a proceeding to determine fair value
shall determine all of the costs of the proceeding, including the reasonable
compensation and expenses of any appraisers appointed by the court. The court
shall assess the costs against the corporation, except that the court may assess
costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of all dissenters if the
court finds the corporation did not substantially comply with the
requirements of NRS 78.491 to 78.499, inclusive; or
(b) Against either the corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by NRS 78.471 to 78.502, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to those counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
4. In a proceeding commenced pursuant to subsection 1 of NRS 78.497, the
court may assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 78.501 or subsection 1 of NRS 78.497 from applying the
provisions of N.R.C.P. 68 or NRS 17.115. (Added by Ch. 442, L. '91 eff.
10-1-91.)
E-6
<PAGE> 160
APPENDIX F
AMENDMENT TO VENCOR'S 1987 INCENTIVE COMPENSATION PROGRAM
F-1
<PAGE> 161
AMENDMENT TO THE VENCOR, INC. 1987
INCENTIVE COMPENSATION PROGRAM
[SEPTEMBER , 1995]
The undersigned, JILL L. FORCE, the duly elected and acting Secretary of
VENCOR, INC., a Delaware corporation (the "Company"), hereby certifies that set
forth below is an Amendment to the Vencor, Inc. 1987 Incentive Compensation
Program (the "Program"), which Amendment became effective [ ,
1995]:
Section 5.1 is hereby amended in its entirety to read as follows:
"5.1 Number of Shares. Subject to adjustment as provided in Section
11.6, the number of shares of Common Stock which may be issued under the
Program shall not exceed 6,900,000 shares of Common Stock."
WITNESS the signature of the undersigned Secretary of the Company as of
[September , 1995].
--------------------------------------
Jill L. Force
Secretary
F-2
<PAGE> 162
VENCOR, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Stockholders (the "Vencor Special Meeting") of Vencor, Inc., a
Delaware corporation ("Vencor"), to be held at the [Hyatt Regency, 320 West
Jefferson Street, Louisville, Kentucky] on September , 1995 at 1:00 p.m., local
time, and the Joint Proxy Statement/Prospectus in connection therewith, and (2)
appoints [ and ,] and each of them, his
or her proxies with full power of substitution for and in the name, place, and
stead of the undersigned, to vote upon and act with respect to all of the shares
of common stock, par value $.25 per share, of Vencor ("Vencor Common Stock")
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the Vencor Special Meeting and at
any adjournments or postponements thereof.
The undersigned directs that this proxy be voted as follows:
<TABLE>
<S> <C>
(1) To adopt and approve an Amended and Restated Agreement and Plan of Merger, dated as of April 23, 1995 and as amended and
restated as of July 31, 1995, as it may be further amended, supplemented or modified from time to time (the "Merger
Agreement"), between Vencor and The Hillhaven Corporation, a Nevada corporation, and to approve the transactions contemplated
by the Merger Agreement, including the issuance of shares of Vencor Common Stock pursuant to the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
(2) To amend Vencor's Certificate of Incorporation to increase the authorized number of shares of Vencor Common Stock from
60,000,000 shares to 180,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(3) To amend Vencor's 1987 Incentive Compensation Program to increase the number of shares of Vencor Common Stock which may be
issued upon the exercise of stock options and other stock and cash awards granted under the program from 3,162,562 shares to
6,900,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on reverse side)
(Continued from other side)
(4) To adjourn and postpone of the Vencor Special Meeting to solicit additional proxies in favor of the proposal to approve and
adopt the Merger Agreement in the event that there are not sufficient votes to approve the Merger Agreement at the Vencor
Special Meeting.
/ / FOR / / AGAINST / / ABSTAIN
(5) In the discretion of the proxies, on such other business as may properly come before the meeting or any adjournments or
postponements thereof.
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS. THE
PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
NOTWITHSTANDING STOCKHOLDER APPROVAL OF THE FOREGOING PROPOSALS, VENCOR
RESERVES THE RIGHT TO ABANDON THE MERGER AT ANY TIME PRIOR TO THE CONSUMMATION
OF THE MERGER, SUBJECT TO THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT.
HOLDERS OF VENCOR COMMON STOCK WILL NOT BE ENTITLED TO APPRAISAL OR
DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN TO VOTE OR ACT WITH
RESPECT TO THE VENCOR COMMON STOCK AND HEREBY RATIFIES AND CONFIRMS ALL THAT THE
PROXIES, THEIR SUBSTITUTES, OR ANY OF THEM MAY LAWFULLY DO BY VIRTUE HEREOF.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
DATE: , 199
----------------- --
------------------------------
SIGNATURE OF STOCKHOLDER
------------------------------
SIGNATURE OF STOCKHOLDER (IF
JOINTLY HELD)
PLEASE DATE THIS PROXY AND
SIGN YOUR NAME EXACTLY AS IT
APPEARS HEREON. WHERE THERE IS
MORE THAN ONE OWNER, EACH
SHOULD SIGN. WHEN SIGNING AS
AN ATTORNEY, ADMINISTRATOR,
EXECUTOR, GUARDIAN, OR
TRUSTEE, PLEASE ADD YOUR TITLE
AS SUCH. IF EXECUTED BY A
CORPORATION, THE PROXY SHOULD
BE SIGNED BY A DULY AUTHORIZED
OFFICER AND STATE THE FULL
NAME OF THE CORPORATION.
<PAGE> 163
THE HILLHAVEN CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE HILLHAVEN CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Stockholders (the "Hillhaven Special Meeting") of The Hillhaven
Corporation, a Nevada corporation ("Hillhaven"), to be held at the corporate
headquarters of Hillhaven, 1148 Broadway Plaza, First Floor, Tacoma, Washington
on September , 1995 at 10:00 a.m., local time, and the Joint Proxy
Statement/Prospectus in connection therewith, and (2) appoints Bruce L. Busby,
Christopher J. Marker and Richard P. Adcock, and each of them, his or her
proxies with full power of substitution for and in the name, place, and stead of
the undersigned, to vote upon and act with respect to all of the shares of
common stock, par value $.75 per share, of Hillhaven ("Hillhaven Common Stock")
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the Hillhaven Special Meeting and at
any adjournments or postponements thereof.
The undersigned directs that this proxy be voted as follows:
<TABLE>
<S> <C>
(1) To approve and adopt an Amended and Restated Agreement and Plan of Merger, dated as of April 23, 1995 and as amended and
restated as of July 31, 1995 (the "Merger Agreement"), between Vencor, Inc., a Delaware corporation, and Hillhaven and to
approve the transactions contemplated thereby.
/ / FOR / / AGAINST / / ABSTAIN
(2) To adjourn or postpone of the Hillhaven Special Meeting to solicit additional proxies in favor of the proposal to approve and
adopt the Merger Agreement in the event that there are not sufficient votes to approve the Merger Agreement at the Hillhaven
Special Meeting.
/ / FOR / / AGAINST / / ABSTAIN
(3) In the discretion of the proxies, on such other business as may properly come before the Hillhaven Special Meeting or any
adjournments or postponements thereof.
</TABLE>
(Continued on reverse side)
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS. THE
PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN TO VOTE OR ACT WITH
RESPECT TO THE HILLHAVEN COMMON STOCK AND HEREBY RATIFIES AND CONFIRMS ALL THAT
THE PROXIES, THEIR SUBSTITUTES, OR ANY OF THEM MAY LAWFULLY DO BY VIRTUE HEREOF.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
DATE: 199
-------------------------,
------------------------------
SIGNATURE OF STOCKHOLDER
------------------------------
SIGNATURE OF STOCKHOLDER (IF
JOINTLY HELD)
PLEASE DATE THIS PROXY AND
SIGN YOUR NAME EXACTLY AS IT
APPEARS HEREON. WHERE THERE IS
MORE THAN ONE OWNER, EACH
SHOULD SIGN. WHEN SIGNING AS
AN ATTORNEY, ADMINISTRATOR,
EXECUTOR, GUARDIAN, OR
TRUSTEE, PLEASE ADD YOUR TITLE
AS SUCH. IF EXECUTED BY A
CORPORATION, THE PROXY SHOULD
BE SIGNED BY A DULY AUTHORIZED
OFFICER AND STATE THE FULL
NAME OF THE CORPORATION.
<PAGE> 164
THE HILLHAVEN CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE HILLHAVEN CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Stockholders (the "Hillhaven Special Meeting") of The Hillhaven
Corporation, a Nevada corporation ("Hillhaven"), to be held at the corporate
headquarters of Hillhaven, 1148 Broadway Plaza, First Floor, Tacoma, Washington
on September , 1995 at 10:00 a.m., local time, and the Joint Proxy
Statement/Prospectus in connection therewith, and (2) appoints Bruce L. Busby,
Christopher J. Marker and Richard P. Adcock, and each of them, his or her
proxies with full power of substitution for and in the name, place, and stead of
the undersigned, to vote upon and act with respect to all of the shares of
Series C Preferred Stock, par value $.15 per share, and Series D Preferred
Stock, par value $.15 per share, of Hillhaven (together, "Hillhaven Preferred
Stock") standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the Hillhaven Special Meeting and at
any adjournments or postponements thereof.
The undersigned directs that this proxy be voted as follows:
<TABLE>
<S> <C>
(1) To approve and adopt an Amended and Restated Agreement and Plan of Merger, dated as of April 23, 1995 and as amended
and restated as of July 31, 1995 (the "Merger Agreement"), between Vencor, Inc., a Delaware corporation, and
Hillhaven and to approve the transactions contemplated thereby.
/ / FOR / / AGAINST /
/ ABSTAIN
(2) In the discretion of the proxies, on such other business as may be properly come before the Hillhaven Special
Meeting or any adjournments or postponements thereof.
</TABLE>
(Continued on reverse side)
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS. THE
PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN TO VOTE OR ACT
WITH RESPECT TO THE HILLHAVEN PREFERRED STOCK AND HEREBY RATIFIES AND CONFIRMS
ALL THAT THE PROXIES, THEIR SUBSTITUTES, OR ANY OF THEM MAY LAWFULLY DO BY
VIRTUE HEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
DATE: ---------------, 199
------------------------------
SIGNATURE OF STOCKHOLDER
------------------------------
SIGNATURE OF STOCKHOLDER (IF
JOINTLY HELD)
PLEASE DATE THIS PROXY AND
SIGN YOUR NAME EXACTLY AS IT
APPEARS HEREON. WHERE THERE IS
MORE THAN ONE OWNER, EACH
SHOULD SIGN. WHEN SIGNING AS
AN ATTORNEY, ADMINISTRATOR,
EXECUTOR, GUARDIAN, OR
TRUSTEE, PLEASE ADD YOUR TITLE
AS SUCH. IF EXECUTED BY A
CORPORATION, THE PROXY SHOULD
BE SIGNED BY A DULY AUTHORIZED
OFFICER AND STATE THE FULL
NAME OF THE CORPORATION.
<PAGE> 165
THE HILLHAVEN CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
, , 1995
10:00 A.M.
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA, FIRST FLOOR
TACOMA, WASHINGTON
ADMISSION TICKET
NON-TRANSFERABLE THIS CARD IS
REQUIRED FOR
ADMISSION TO
THE MEETING
LOGO HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE HILLHAVEN CORPORATION
The undersigned hereby appoints BRUCE L. BUSBY, CHRISTOPHER J. MARKER AND
RICHARD P. ADCOCK, or any one of them, each with full power of substitution, as
the lawful proxies of the undersigned and hereby authorizes such persons to
represent and to vote as designated on the reverse side hereof all shares of
common stock of The Hillhaven Corporation which the undersigned would be
entitled to vote if personally present at the Special Meeting of Stockholders
to be held , , 1995 at 10:00 a.m. Pacific Daylight Savings Time, at 1148
Broadway Plaza, First Floor, Tacoma, Washington, and at any adjournments
thereof on the items set forth on the reverse hereof and on such other business
as may properly come before the meeting. The shares represented by this proxy
will be voted as directed by the undersigned stockholder. If no direction is
given when the duly authorized proxy is returned, such shares will be voted
"FOR" each of the proposals.
IMPORTANT--PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.
IF YOU RECEIVED MORE THAN ONE PROXY CARD,
PLEASE SIGN AND RETURN ALL CARDS RECEIVED.
------------------------------------------
COMMENTS / ADDRESS CHANGE:
Please mark comments / address
box on reverse side.
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 166
<TABLE>
<S> <C>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. IF NO DIRECTION Please mark
IS GIVEN WHEN THE DULY AUTHORIZED PROXY IS RETURNED, SUCH SHARES WILL BE VOTED "FOR" EACH OF THE / X / your vote
PROPOSALS. this way
</TABLE>
<TABLE>
<S> <C> <C> <C>
-------------
COMMON SHARES
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS.
FOR AGAINST ABSTAIN
ITEM 1. To approve and adopt an Amended and Restated Agreement and / / / / / / I PLAN TO ATTEND MEETING / /
Plan of Merger, dated as of April 23, 1995 and as amended
and restated on July 31, 1995 (the "Merger Agreement"),
between Vencor, Inc., a Delaware corporation, and The COMMENTS/ADDRESS CHANGE / /
Hillhaven Corporation and to approve the transactions Please mark this box if
contemplated thereby. you have any written
comments/address change
ITEM 2. To adjourn or postpone the Hillhaven Special Meeting to / / / / / / on the reverse side.
solicit additional proxies in favor of the proposal to
approve and adopt the Merger Agreement in the event that The undersigned acknowledges
there are not sufficient votes to approve the Merger receipt of the Notice of Special
Agreement at the Hillhaven Special Meeting. Meeting of Stockholders and the
Joint Proxy Statement/Prospectus.
ITEM 3. In the discretion of the proxies, on such other business
as may properly come before the Hillhaven Special Meeting Dated: , 1995
of Stockholders or any adjournment or postponement thereof. --------------------
--------------------------------
Signature of Stockholder
--------------------------------
Signature of Stockholder
(if held jointly)
PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON.
This proxy should be dated and
signed by the stockholder or the
attorney in writing or in any
other permitted by law, if shares
are held by two or more persons,
both should sign. If signing as
executor, administrator, trustee,
or partner or corporate officer,
please give full title. If the
signatory is a corporation,
please sign full corporate name by
duly authorized officer. If a
partnership, please sign in
partnership name by authorized
party.
</TABLE>
-------------------------------------------------------------------------------
FOLD AND DETACH PROXY CARD HERE
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER
SIGNING AND DATING
ADMISSION TICKET
THE HILLHAVEN CORPORATION
Special Meeting of Stockholders
to be held on
________ , ________ , 1995
10:00 a.m.
The Hillhaven Corporation
114B Broadway Plaza, First Floor
Tacoma, Washington
ADMISSION TICKET
Non-Transferable This Card is Required
For Admission To
The Meeting
<PAGE> 167
PART II
INFORMATION NOT REQUIRED IN THE
PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides that, to the fullest
extent authorized by the Delaware General Corporation Law ("Delaware Law"), the
Registrant shall indemnify each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding") because he is or was a director or officer of the Registrant, or
is or was serving at the request of the Registrant as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expenses, liabilities and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred or suffered
by him in connection with such Proceeding.
Under Section 145 of Delaware Law, a corporation may indemnify a director,
officer, employee or agent of the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed Proceeding (other than an action by or in the right of the
corporation) if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In the case of an action brought by or in the
right of the corporation, the corporation may indemnify a director, officer,
employee or agent of the corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of any threatened, pending or completed action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that a
court determines upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
The Registrant's Certificate of Incorporation also provide that expenses
incurred by a person in his capacity as director of the Registrant in defending
a Proceeding may be paid by the Registrant in advance of the final disposition
of such Proceeding as authorized by the Board of Directors of the Registrant
upon receipt of an undertaking by or on behalf of such person to repay such
amounts unless it is ultimately determined that such person is entitled to be
indemnified by the Registrant pursuant to Delaware Law. Under Section 145 of
Delaware Law, a corporation must indemnify a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense of a Proceeding if
he has been successful on the merits or otherwise in the defense thereof.
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for breach of a director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Delaware Law for the willful or negligent unlawful payment of
dividends, stock purchase or stock redemption or (iv) for any transaction from
which a director derived an improper personal benefit.
The Registrant maintains directors' and officers' liability insurance which
insures against liabilities that directors and officers of the Registrant may
incur in such capacities.
If the proposed merger is consummated, the Registrant would continue to be
governed by Delaware Law and the Registrant's Certificate of Incorporation.
II-1
<PAGE> 168
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C>
2 -- Amended and Restated Agreement and Plan of Merger (attached as Appendix A to the
Joint Proxy Statement/Prospectus).
3.1 -- Certificate of Incorporation, as amended, of the Registrant (filed as Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1 (Reg. No. 33-51372), and
incorporated herein by reference).
3.2 -- Certificate of Ownership and Merger (amending the Registrant's Certificate of
Incorporation in connection with its corporate name change) filed as Exhibit 2.1 to
the Registrant's Current Report on Form 8-K, dated September 10, 1993 (Commission
File No. 1-10989), and incorporated herein by reference).
3.3 -- Amended and Restated Bylaws of the Registrant (filed as Exhibit 4.2 to the
Registrant's Form 8-K dated July 21, 1993 (Commission File No. 1-10989), and
incorporated herein by reference).
4.1 -- Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3 (Reg. No. 33-71910), and incorporated herein by
reference).
4.2 -- Article IV of the Certificate of Incorporation of the Registrant (included in
Exhibit 3.1).
4.3 -- Indenture relating to the Registrant's 6% Convertible Subordinated Notes Due 2002
(including form of Note) (filed as Exhibit 4(a) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1992 (Commission File No. 1-10989),
and incorporated herein by reference).
4.4 -- Fourth Amended and Restated Loan Agreement dated as of January 20, 1995 by and
between National City Bank, Kentucky, NBD Bank, PNC Bank Kentucky, Inc., Bank One
Columbus, N.A., NationsBank of Georgia, First Union National Bank of North Carolina,
Mellon Bank, N.A., Wachovia Bank of Georgia, N.A. and the Registrant (filed as
Exhibit 4.4 to the Registrant's Form 10-K for the fiscal year ended December 31,
1994 (Commission File No. 1-10989), and incorporated herein by reference).
4.5 -- Other Debt Instruments -- Copies of debt instruments for which the related debt is
less than 10% of total assets will be furnished to the Commission upon request.
4.6 -- Rights Agreement, dated July 20, 1993, between the Registrant and National City Bank
of Cleveland, Ohio, as Rights Agent (filed as Exhibit 4.4 to the Registrant's
Current Report on Form 8-K, dated July 20, 1993 (Commission File No. 1-10989), and
incorporated herein by reference).
5 -- Opinion of Greenebaum Doll & McDonald PLLC, regarding legality.*
8.1 -- Opinion of Sullivan & Cromwell regarding tax matters.*
8.2 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson regarding tax matters.*
10.1 -- 1987 Incentive Compensation Program (filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-30212) and incorporated herein by
reference).
10.2 -- Amendment to the Registrant's 1987 Incentive Compensation Program dated May 15, 1991
(filed as Exhibit 4.4 to the Registrant's Registration Statement of Form S-8 (Reg.
No. 33-40949) and incorporated herein by reference).
10.3 -- Amendments to the Registrant's 1987 Incentive Compensation Program dated May 18,
1994, (filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K
(Commission File No. 1-10989) and incorporated herein by reference).
10.4 -- Amendment to the Registrant's 1987 Incentive Compensation Program dated February 15,
1995 (filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K
(Commission File No. 1-10989) and incorporated herein by reference).
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Ernst & Young LLP.
23.4 -- Consent of Greenebaum Doll & McDonald PLLC (included in Exhibit 5).
23.5 -- Consent of Sullivan & Cromwell (included in Exhibit 8.1).
23.6 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 8.2).
23.7 -- Consent of CS First Boston Corporation.*
23.8 -- Consent of Merrill, Lynch, Pierce, Fenner & Smith Incorporated.*
23.9 -- Consent of Bruce L. Busby.*
23.10 -- Consent of Walter F. Beran.*
23.11 -- Consent of Jack O. Vance.*
24 -- Power of Attorney (See page II-5).**
</TABLE>
---------------
* To be filed by amendment.
** Previously filed.
II-2
<PAGE> 169
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant undertakes
that such reoffering prospectus will contain the information called for by
Form S-4 with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of Form S-4.
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(6) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-3
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Louisville, State of Kentucky, on the 1st day of August, 1995.
VENCOR, INC.
By: /s/ JILL L. FORCE
------------------------------------
Jill L. Force
General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ------------------------------- ----------------
<S> <C> <C>
* Chairman of the Board, August 1, 1995
--------------------------------------------- President, Chief Executive
W. Bruce Lunsford Officer and Director
(Principal Executive Officer)
* Vice Chairman of the Board and August 1, 1995
--------------------------------------------- Director
R. Gene Smith
* Vice President, Operations and August 1, 1995
--------------------------------------------- Director
Michael R. Barr
* Vice President, Finance and August 1, 1995
--------------------------------------------- Development and Director
W. Earl Reed, III (Principal Financial and
Accounting Officer)
* Director August 1, 1995
---------------------------------------------
William H. Lomicka
* Director August 1, 1995
---------------------------------------------
William C. Ballard Jr.
* Director August 1, 1995
---------------------------------------------
Greg D. Hudson
* Director August 1, 1995
---------------------------------------------
Donna R. Ecton
*By: /s/ JILL L. FORCE
---------------------------------------------
Jill L. Force
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 171
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
-------- ------------------------------------------------------------------------------ ----
<S> <C>
2 -- Amended and Restated Agreement and Plan of Merger (attached as Appendix A to
the Joint Proxy Statement/Prospectus).........................................
3.1 -- Certificate of Incorporation, as amended, of the Registrant (filed as Exhibit
3.1 to the Registrant's Registration Statement on Form S-1 (Reg. No.
33-51372), and incorporated herein by reference)..............................
3.2 -- Certificate of Ownership and Merger (amending the Registrant's Certificate of
Incorporation in connection with its corporate name change) filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated September 10, 1993
(Commission File No. 1-10989), and incorporated herein by reference)..........
3.3 -- Amended and Restated Bylaws of the Registrant (filed as Exhibit 4.2 to the
Registrant's Form 8-K dated July 21, 1993 (Commission File No. 1-10989), and
incorporated herein by reference).............................................
4.1 -- Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3 (Reg. No. 33-71910), and incorporated
herein by reference)..........................................................
4.2 -- Article IV of the Certificate of Incorporation of the Registrant (included in
Exhibit 3.1)..................................................................
4.3 -- Indenture relating to the Registrant's 6% Convertible Subordinated Notes Due
2002 (including form of Note) (filed as Exhibit 4(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1992
(Commission File No. 1-10989), and incorporated herein by reference)..........
4.4 -- Fourth Amended and Restated Loan Agreement dated as of January 20, 1995 by and
between National City Bank, Kentucky, NBD Bank, PNC Bank Kentucky, Inc., Bank
One Columbus, N.A., Nationsbank of Georgia, First Union National Bank of North
Carolina, Mellon Bank, N.A., Wachovia Bank of Georgia, N.A. and the Registrant
(filed as Exhibit 4.4 to the Registrant's Form 10-K for the fiscal year ended
December 31, 1994 (Commission File No. 1-10989), and incorporated herein by
reference)....................................................................
4.5 -- Other Debt Instruments -- Copies of debt instruments for which the related
debt is less than 10% of total assets will be furnished to the Commission upon
request.......................................................................
4.6 -- Rights Agreement, dated July 20, 1993, between the Registrant and National
City Bank of Cleveland, Ohio, as Rights Agent (filed as Exhibit 4.4 to the
Registrant's Current Report on Form 8-K, dated July 20, 1993 (Commission File
No. 1-10989), and incorporated herein by reference)...........................
5 -- Opinion of Greenebaum Doll & McDonald PLLC, regarding legality.*..............
8.1 -- Opinion of Sullivan & Cromwell regarding tax matters.*........................
8.2 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson regarding tax matters.*...
10.1 -- 1987 Incentive Compensation Program (filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-30212) and incorporated herein
by reference).................................................................
10.2 -- Amendment to the Registrant's 1987 Incentive Compensation Program dated May
15, 1991 (filed as Exhibit 4.4 to the Registrant's Registration Statement on
Form S-8 (Reg. No. 33-40949) and incorporated herein by reference)............
10.3 -- Amendments to the Registrant's 1987 Incentive Compensation Program dated May
18, 1994 (filed as Exhibit 10.13 to the Registrant's Annual Report on Form
10-K (Commission File No. 1-10989) and incorporated herein by reference)......
</TABLE>
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
-------- ------------------------------------------------------------------------------ ----
<S> <C>
10.4 -- Amendment to the Registrants's 1987 Incentive Compensation Program dated
February 15, 1995 (filed as Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K (Commission File No. 1-10989) and incorporated herein by
reference)....................................................................
23.1 -- Consent of Ernst & Young LLP..................................................
23.2 -- Consent of KPMG Peat Marwick LLP..............................................
23.3 -- Consent of Ernst & Young LLP..................................................
23.4 -- Consent of Greenebaum Doll & McDonald PLLC (included in Exhibit 5)............
23.5 -- Consent of Sullivan & Cromwell (included in Exhibit 8.1)......................
23.6 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit
8.2)..........................................................................
23.7 -- Consent of CS First Boston Corporation.*......................................
23.8 -- Consent of Merrill, Lynch, Pierce, Fenner & Smith Incorporated.*..............
23.9 -- Consent of Bruce L. Busby.*...................................................
23.10 -- Consent of Walter F. Beran.*..................................................
23.11 -- Consent of Jack O. Vance.*....................................................
24 -- Power of Attorney (See page II-5)**...........................................
</TABLE>
---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Information" in Amendment No. 2 to the
Registration Statement (Form S-4) and related Prospectus of Vencor, Inc. for the
registration of its common stock to be issued pursuant to the merger with The
Hillhaven Corporation and to the incorporation by reference therein of our
report dated January 30, 1995 with respect to the consolidated financial
statements of Vencor, Inc. incorporated by reference in its Annual Report (Form
10-K) for the year ended December 31, 1994, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Louisville, Kentucky
July 31, 1995
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Hillhaven Corporation:
We consent to incorporation by reference in the Registration Statement on
Form S-4 of Vencor, Inc. of our report dated July 8, 1994 relating to the
consolidated balance sheets of The Hillhaven Corporation and subsidiaries as of
May 31, 1994 and 1993, and the related consolidated statements of operations,
cash flows, and stockholders' equity for each of the years in the three-year
period ended May 31, 1994, and all related schedules, which report appears in
the May 31, 1994 annual report on Form 10-K of The Hillhaven Corporation and to
the reference to our firm under the headings "Selected Historical Consolidated
and Combined Financial Data -- Hillhaven" and "Experts" in the Joint Proxy
Statement/Prospectus.
Our report refers to a change in the method of accounting for income taxes
effective June 1, 1992.
KPMG Peat Marwick LLP
Seattle, Washington
August 1, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-4) and related Prospectus
of Vencor, Inc. for the registration of its common stock to be issued pursuant
to the merger with The Hillhaven Corporation and to the incorporation by
reference therein of our report dated November 10, 1994 except for Note 9 as to
which the date is February 27, 1995, with respect to the financial statements of
Nationwide Care, Inc. for the year ended September 30, 1994 included in the
Registration Statement (Form S-4) and related prospectus of The Hillhaven
Corporation for the registration of its common stock issued pursuant to the
merger with Nationwide Care, Inc. for the year ended September 30, 1994, filed
with the Securities and Exchange Commission.
Ernst & Young LLP
Indianapolis, Indiana
July 31, 1995
