<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-10989
VENCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-1055020
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KY 40202
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(502) 596-7300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OF COMMON STOCK OUTSTANDING AT JUNE 30, 1997
---------------------------- ----------------------------
Common stock, $.25 par value 69,331,058 shares
</TABLE>
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1 of 20
<PAGE>
VENCOR, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Income--for the quarter and
six months ended June 30, 1997 and 1996....................... 3
Condensed Consolidated Balance Sheet--June 30, 1997 and
December 31, 1996............................................. 4
Condensed Consolidated Statement of Cash Flows--for the six
months ended June 30, 1997 and 1996........................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Item 6. Exhibits and Reports on Form 8-K............................... 17
</TABLE>
2
<PAGE>
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.......................... $778,295 $634,554 $1,458,991 $1,260,891
-------- -------- ---------- ----------
Salaries, wages and benefits...... 449,806 366,705 846,379 739,023
Supplies.......................... 77,328 64,075 143,361 126,183
Rent.............................. 21,783 19,102 40,731 38,269
Other operating expenses.......... 118,935 100,797 228,721 194,952
Depreciation and amortization..... 29,479 24,846 53,851 49,639
Interest expense.................. 20,674 12,141 31,334 24,621
Investment income................. (1,746) (3,300) (3,313) (6,878)
-------- -------- ---------- ----------
716,259 584,366 1,341,064 1,165,809
-------- -------- ---------- ----------
Income from operations before
income taxes..................... 62,036 50,188 117,927 95,082
Provision for income taxes........ 25,026 19,323 46,935 36,607
-------- -------- ---------- ----------
Income from operations............ 37,010 30,865 70,992 58,475
Extraordinary loss on
extinguishment of debt, net of
income tax benefit............... (1,590) - (3,849) -
-------- -------- ---------- ----------
Net income.................... $ 35,420 $ 30,865 $ 67,143 $ 58,475
======== ======== ========== ==========
Earnings per common and common
equivalent share:
Primary:
Income from operations.......... $ 0.52 $ 0.43 $ 1.00 $ 0.82
Extraordinary loss on
extinguishment of debt......... (0.02) - (0.05) -
-------- -------- ---------- ----------
Net income.................... $ 0.50 $ 0.43 $ 0.95 $ 0.82
======== ======== ========== ==========
Fully diluted:
Income from operations.......... $ 0.52 $ 0.43 $ 1.00 $ 0.82
Extraordinary loss on
extinguishment of debt......... (0.02) - (0.05) -
-------- -------- ---------- ----------
Net income.................... $ 0.50 $ 0.43 $ 0.95 $ 0.82
======== ======== ========== ==========
Shares used in computing earnings
per common and common equivalent
share:
Primary.......................... 71,016 71,373 70,678 71,415
Fully diluted.................... 71,144 71,373 71,037 71,415
</TABLE>
See accompanying notes.
3
<PAGE>
VENCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 106,476 $ 112,466
Accounts and notes receivable less allowance for loss
of $52,687--June 30 and $23,915--December 31........ 639,889 420,758
Inventories.......................................... 36,525 24,939
Income taxes......................................... 103,556 67,808
Other................................................ 52,200 35,162
---------- ----------
938,646 661,133
Property and equipment, at cost....................... 2,050,914 1,609,770
Accumulated depreciation.............................. (462,968) (416,608)
---------- ----------
1,587,946 1,193,162
Intangible assets less accumulated amortization of
$29,238--June 30 and $25,218--December 31............ 699,671 31,608
Investments in affiliates............................. 85,974 7,965
Other................................................. 97,820 74,988
---------- ----------
$3,410,057 $1,968,856
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 146,427 $ 103,518
Salaries, wages and other compensation............... 153,304 111,366
Other accrued liabilities............................ 132,631 71,434
Long-term debt due within one year................... 24,747 54,692
---------- ----------
457,109 341,010
Long-term debt........................................ 1,935,019 710,507
Deferred credits and other liabilities................ 97,503 84,053
Minority interest in equity of consolidated entities.. 42,839 36,195
Stockholders' equity:
Common stock, $.25 par value; authorized 180,000
shares; issued 72,859 shares--June 30 and 72,615
shares--December 31................................. 18,215 18,154
Capital in excess of par value....................... 724,294 713,527
Retained earnings.................................... 218,013 150,870
---------- ----------
960,522 882,551
Common treasury stock; 3,528 shares--June 30 and
3,730 shares--December 31........................... (82,935) (85,460)
---------- ----------
877,587 797,091
---------- ----------
$3,410,057 $1,968,856
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 67,143 $ 58,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 53,851 49,639
Extraordinary loss on extinguishment of debt....... 6,265 -
Deferred income taxes.............................. 5,935 2,671
Other.............................................. 3,143 11,430
Changes in operating assets and liabilities:
Accounts and notes receivable..................... (53,838) (26,458)
Inventories and other assets...................... (3,694) 1,332
Accounts payable.................................. 23,832 5,151
Income taxes...................................... 26,932 28,127
Other accrued liabilities......................... (5,825) (13,341)
----------- -----------
Net cash provided by operating activities........ 123,744 117,026
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.................. (132,900) (61,454)
Acquisition of TheraTx, Incorporated................ (354,647) -
Acquisition of Transitional Hospitals Corporation... (574,971) -
Acquisition of other healthcare businesses and
previously leased facilities....................... (25,030) (5,182)
Sale of assets...................................... 12,165 6,171
Collection of notes receivable...................... 390 23,366
Net change in investments........................... (4,845) (532)
Other............................................... (2,381) (3,895)
----------- -----------
Net cash used in investing activities............ (1,082,219) (41,526)
----------- -----------
Cash flows from financing activities:
Net change in borrowings under revolving lines of
credit............................................. 1,075,250 (40,600)
Issuance of long-term debt.......................... 2,818 1,677
Repayment of long-term debt......................... (122,835) (18,471)
Payment of deferred financing costs................. (5,483) -
Issuance of common stock............................ 2,813 928
Other............................................... (78) 146
----------- -----------
Net cash provided by (used in) financing
activities...................................... 952,485 (56,320)
----------- -----------
Change in cash and cash equivalents.................. (5,990) 19,180
Cash and cash equivalents at beginning of period..... 112,466 35,182
----------- -----------
Cash and cash equivalents at end of period........... $ 106,476 $ 54,362
=========== ===========
Supplemental information:
Interest payments................................... $ 32,919 $ 24,704
Income tax payments................................. 23,353 7,071
</TABLE>
See accompanying notes.
5
<PAGE>
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--REPORTING ENTITY
Vencor, Inc. ("Vencor" or the "Company") operates an integrated network of
healthcare services in 46 states primarily focused on the needs of the
elderly. At June 30, 1997, Vencor operated 58 hospitals (5,107 licensed beds),
311 nursing centers (40,869 licensed beds), a contract services business
("Vencare") which provides respiratory and rehabilitation therapies, medical
services and pharmacy management services to nursing centers and other
healthcare providers, and through its affiliate, Atria Communities, Inc.
("Atria"), 40 assisted and independent living communities with 3,977 units.
On March 21, 1997, Vencor completed the acquisition of TheraTx, Incorporated
("TheraTx"), a provider of rehabilitation and respiratory therapy management
services and operator of nursing centers (the "TheraTx Merger") in a cash-for-
stock transaction. See Note 5.
On June 24, 1997, Vencor acquired substantially all of the outstanding
common stock of Transitional Hospitals Corporation ("Transitional"), an
operator of 19 long-term acute care hospitals (the "Transitional Acquisition")
in a cash-for-stock transaction. See Note 6.
NOTE 2--BASIS OF PRESENTATION
The TheraTx Merger and Transitional Acquisition have been accounted for by
the purchase method. Accordingly, the accompanying condensed consolidated
financial statements include the operations of TheraTx and Transitional since
March 21, 1997 and June 24, 1997, respectively.
The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally required in annual reports on Form 10-K.
Accordingly, these statements should be read in conjunction with the audited
consolidated financial statements of Vencor for the year ended December 31,
1996 filed with the Securities and Exchange Commission on Form 10-K.
The accompanying condensed consolidated financial statements have been
prepared in accordance with Vencor's customary accounting practices and have
not been audited. Management believes that the financial information included
herein reflects all adjustments necessary for a fair presentation of interim
results and that all such adjustments are of a normal and recurring nature.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
NOTE 3--REVENUES
Revenues are recorded based upon estimated amounts due from patients and
third-party payors for healthcare services provided, including anticipated
settlements under reimbursement agreements with Medicare, Medicaid and other
third-party payors.
A summary of revenues by payor type follows (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Medicare....................... $246,134 $204,755 $ 479,267 $ 401,483
Medicaid....................... 206,868 199,022 406,374 398,857
Private and other.............. 344,115 241,939 603,892 479,954
-------- -------- ---------- ----------
797,117 645,716 1,489,533 1,280,294
Elimination.................... (18,822) (11,162) (30,542) (19,403)
-------- -------- ---------- ----------
$778,295 $634,554 $1,458,991 $1,260,891
======== ======== ========== ==========
</TABLE>
6
<PAGE>
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--EARNINGS PER SHARE
The computation of earnings per common and common equivalent share is based
upon the weighted average number of common shares outstanding adjusted for the
dilutive effect of common stock equivalents consisting primarily of stock
options.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share," which will require Vencor to change the current
method of computing earnings per common share and restate all prior periods.
Statement No. 128 is required to be adopted on December 31, 1997 and requires,
among other things, that the calculation of primary earnings per common share
exclude the dilutive effect of common stock options. The change in the
calculation method is not expected to have a material impact on previously
reported earnings per common share.
NOTE 5--THERATX MERGER
On March 21, 1997, the TheraTx Merger was consummated following a cash
tender offer in which Vencor paid $17.10 for each outstanding share of TheraTx
common stock. A summary of the TheraTx Merger follows (dollars in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $627,167
Fair value of liabilities assumed................................ 257,605
--------
Net assets acquired............................................ 369,562
Cash received from acquired entity............................... (14,915)
--------
Net cash paid.................................................. $354,647
========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets acquired (to be amortized over 40 years by the straight-line method)
aggregated $322 million.
NOTE 6--TRANSITIONAL ACQUISITION
On June 24, 1997, Vencor acquired approximately 95% of the outstanding
shares of common stock of Transitional through a cash tender offer in which
Vencor paid $16.00 per common share. Vencor expects to complete the merger of
its wholly-owned subsidiary with and into Transitional in the third quarter of
1997. A summary of the Transitional Acquisition follows (dollars in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $713,097
Fair value of liabilities assumed................................ 85,252
--------
Net assets acquired............................................ 627,845
Cash received from acquired entity............................... (52,874)
--------
Net cash paid.................................................. $574,971
========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets acquired (to be amortized over 40 years by the straight-line method)
aggregated $333 million.
7
<PAGE>
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7--PRO FORMA INFORMATION
The pro forma effect of the TheraTx Merger and Transitional Acquisition
assuming that the transactions occurred on January 1, 1996 follows (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues............................................ $1,707,261 $1,719,622
Income from operations.............................. 53,709 52,817
Net income.......................................... 49,860 52,817
Earnings per common and common equivalent share:
Primary:
Income from operations............................ $ 0.76 $ 0.74
Net income........................................ 0.71 0.74
Fully diluted:
Income from operations............................ $ 0.75 $ 0.74
Net income........................................ 0.70 0.74
</TABLE>
For both periods presented, pro forma financial data have been derived by
combining the financial results of Vencor and TheraTx (based upon six month
reporting periods ending on June 30) and Transitional (based upon six month
reporting periods ending on May 31).
Pro forma income from operations for 1997 includes costs incurred by both
TheraTx and Transitional in connection with the acquisitions which reduced net
income by $10.3 million.
NOTE 8--LONG-TERM DEBT
In connection with the TheraTx Merger, Vencor entered into a new five-year
bank credit facility (the "Vencor Credit Facility") aggregating $1.75 billion
on March 31, 1997, replacing a $1.0 billion bank credit facility. On June 24,
1997, the Vencor Credit Facility was amended to increase the amount of the
credit to $2.0 billion. Interest is payable, depending on certain leverage
ratios and the period of borrowing, at rates up to either (i) the prime rate
plus 1/2% or the daily federal funds rate plus 1%, (ii) LIBOR plus 1 1/8% or
(iii) the bank certificate of deposit rate plus 1 1/4%. The Vencor Credit
Facility is collateralized by the capital stock of certain subsidiaries and
intercompany borrowings and contains covenants which require, among other
things, maintenance of certain financial ratios and limit amounts of
additional debt and repurchases of common stock. Outstanding borrowings under
the Vencor Credit Facility aggregated $1.79 billion at June 30, 1997.
During the second quarter of 1997, Vencor repurchased substantially all of
the outstanding TheraTx $100 million 8% Convertible Subordinated Notes Due
2002 assumed in connection with the TheraTx Merger. The after-tax loss
associated with this transaction approximated $1.6 million.
During the first quarter of 1997, the Company recorded an after-tax charge
of $2.3 million in connection with the refinancing of the bank credit
agreements of both Vencor and TheraTx.
The Company entered into certain interest rate swap agreements in the fourth
quarter of 1995 to eliminate the impact of changes in interest rates on $400
million of floating rate debt outstanding. The agreements expire in varying
amounts through April 1998 and provide for fixed rates at 5.7% plus 3/8% to 1
1/8%. In addition, the Company entered into interest rate swap agreements in
May 1997 on $300 million of floating rate debt. These agreements expire in
$100 million increments in May 1999, November 1999 and May 2000, and provide
for
fixed rates at 6.4% plus 3/8% to 1 1/8%. The fair values of the swap
agreements are not recognized in the condensed consolidated financial
statements.
8
<PAGE>
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9--LITIGATION
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in
a qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice intervened in the suit which was brought
under the Federal Civil False Claims Act. AXR provides portable X-ray services
to nursing facilities (including those operated by the Company) and other
healthcare providers. The Company acquired an interest in AXR when The
Hillhaven Corporation was merged into the Company in September 1995 and
purchased the remaining interest in AXR in February 1996. The suit alleges
that AXR submitted false claims to the Medicare and Medicaid programs. In
conjunction with the qui tam action, the United States Attorney's office for
the Eastern District of Arkansas also is conducting a criminal investigation
into the allegations contained in the qui tam complaint. The Company is
cooperating fully in the investigation.
On June 19, 1997, a class action lawsuit was filed in the United States
District Court for the District of Nevada on behalf of a class consisting of
all persons who sold shares of Transitional during the period from February
26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional was purchasing shares of its common stock from members of the
investing public after it had received a written offer to acquire all of
Transitional's common stock and without making the required disclosure that
such an offer had been made. The complaint further alleges that defendants
disclosed that there were "expressions of interest" in acquiring Transitional
when, in fact, at that time, the negotiations had reached an advanced stage
with actual firm offers at substantial premiums to the trading price of
Transitional's stock having been made which were actively being considered by
Transitional's Board of Directors. The complaint asserts claims pursuant to
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended,
and common law principles of negligent misrepresentation and names as
defendants Transitional as well as certain senior executives and directors of
Transitional.
On June 6, 1997, Transitional announced that it had been advised that it was
the target of a grand jury investigation arising from the activities of
Transitional's formerly owned dialysis business. The investigation involves
purported Medicare fraud involving certain laboratory tests performed by a
partnership which existed from June 1987 to June 1992 between Damon
Corporation and Transitional. Transitional spun off its dialysis business, now
called Vivra Incorporated, on September 1, 1989. The Company is cooperating
fully in the investigation.
NOTE 10--SUBSEQUENT EVENTS
Private Placement of Debt
On July 21, 1997, Vencor completed the private placement of $750 million
aggregate principal amount of 8 5/8% Senior Subordinated Notes Due 2007 (the
"Notes"). The Notes were issued at 99.575% of face value and are not callable
by the Company until 2002. The net proceeds of the offering were used to
reduce outstanding borrowings under the Vencor Credit Facility.
Atria Secondary Equity Offering
In July 1997, Atria issued 6.9 million shares of its common stock in a
public offering (the "Atria Offering"), the net proceeds from which aggregated
approximately $91 million. The net proceeds will be used primarily to finance
Atria's expansion and development activities. As a result of the Atria
Offering, Vencor now owns 42.8% of the outstanding common stock of Atria.
Accordingly, beginning in July 1997, Atria's financial statements will no
longer be consolidated with those of the Company; however, the Company's
investment in Atria will be accounted for under the equity method.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND INFORMATION
Vencor is one of the nation's largest providers of healthcare services
focused primarily on the needs of the elderly. At June 30, 1997, Vencor
operated 58 hospitals (5,107 licensed beds), 311 nursing centers (40,869
licensed beds) and Vencare contract services which provided respiratory and
rehabilitation therapies, medical services and pharmacy management services
under approximately 4,500 contracts to nursing centers and other healthcare
providers. The Company also operated 40 assisted and independent living
communities with 3,977 units through its Atria affiliate.
On March 21, 1997, the TheraTx Merger was completed. TheraTx primarily
provided rehabilitation and respiratory therapy management services and
operated 26 nursing centers with annualized revenues approximating $425
million. See Note 5 of the Notes to Condensed Consolidated Financial
Statements.
On June 24, 1997, Vencor completed the Transitional Acquisition. Transitional
primarily operated 19 long-term acute care hospitals with annualized revenues
approximating $350 million. See Note 6 of the Notes to Condensed Consolidated
Financial Statements.
In July 1997, the Atria Offering was completed and aggregated approximately
$91 million of net proceeds. The net proceeds will be used primarily to finance
Atria's expansion and development activities. As a result of the Atria
Offering, Vencor now owns 42.8% of the outstanding common stock of Atria.
Accordingly, beginning in July 1997, Atria's financial statements will no
longer be consolidated with those of the Company; however, the Company's
investment in Atria will be accounted for under the equity method.
RESULTS OF OPERATIONS
A summary of revenues follows (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
------------------ % ---------------------- %
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Hospitals............... $165,794 $138,612 19.6 $ 320,694 $ 268,659 19.4
Nursing centers......... 432,325 393,642 9.8 836,578 786,625 6.4
Vencare................. 182,016 100,625 80.9 301,062 199,562 50.9
Atria................... 16,982 12,837 32.3 31,199 25,448 22.6
-------- -------- ---------- ----------
797,117 645,716 23.4 1,489,533 1,280,294 16.3
Elimination............. (18,822) (11,162) (30,542) (19,403)
-------- -------- ---------- ----------
$778,295 $634,554 22.7 $1,458,991 $1,260,891 15.7
======== ======== ========== ==========
</TABLE>
Hospital revenue increases in both the second quarter and six months ended
June 30, 1997 resulted primarily from an increase in patient days and improved
patient mix. Hospital patient days rose 10% in both periods to 163,327 and
323,180 for the second quarter and first six months of 1997, respectively,
compared to 148,313 and 294,328 for the respective periods last year. Non-
Medicaid patient days (for which payment rates are generally higher than
Medicaid) increased 13% in the second quarter to 140,157 from 124,415 last year
and 13% for the six month period to 278,305 from 246,278. Medicaid patient days
declined 3% in the second quarter to 23,170 from 23,898 last year and 7% in the
six month period to 44,875 from 48,050. Hospital revenues for the second
quarter of 1997 include $5.2 million related to the 19 facilities purchased in
the Transitional Acquisition.
During the fourth quarter of 1996, the Company entered into an agreement to
sell 34 underperforming or non-strategic nursing centers. At June 30, 1997, 27
of these centers had been sold; the remainder are expected to be sold pending
certain regulatory approvals. In connection with the TheraTx Merger, Vencor
acquired 26
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
nursing centers on March 21, 1997. Excluding the effect of sales and
acquisitions, nursing center revenues increased 4% in both the second quarter
and six months, while patient days declined 1% in the second quarter and 2% in
the six month period compared to last year. The increase in same-store nursing
center revenues resulted primarily from price increases.
Excluding the effect of sales and acquisitions, nursing center revenue growth
was adversely impacted by a 5% and 6% decline in private patient days in the
second quarter and first six months of 1997, respectively. In an effort to
attract increased volumes of Medicare and private pay patients, the Company is
implementing a plan to expend approximately $200 million over the next two
years to improve existing facilities and expand the range of services provided
to accommodate higher acuity patients.
Vencare revenues for the second quarter and six months ended June 30, 1997
include approximately $67.8 million and $75.5 million, respectively, related to
contract rehabilitation therapy and certain other ancillary service businesses
acquired as part of the TheraTx Merger. Excluding the TheraTx Merger, Vencare
revenues grew 17% in the second quarter and 16% for the six months primarily as
a result of growth in volumes. Vencare ancillary service contracts in effect at
June 30, 1997 totaled 4,524 compared to 4,295 at June 30, 1996. During the
second quarter of 1997, Vencor terminated approximately 700 contracts which did
not meet certain growth criteria. These terminations did not materially impact
Vencare operating results.
Pharmacy revenues (included in Vencare operations) declined 2% to $43.3
million in the second quarter of 1997 from $44.0 million in the same period
last year and 3% in the six month period to $84.7 million from $87.4 million.
The decline was primarily attributable to the effects of the restructuring of
the institutional pharmacy business initiated in the fourth quarter of 1996 and
the sale of the retail pharmacy outlets in January 1997.
During the second quarter of 1997, the number of Atria communities in
operation expanded from 25 to 40, primarily as a result of a $30.7 million
acquisition of 12 communities. Same store revenues rose 7% in both the second
quarter and six month period primarily due to price increases and growth in
ancillary services.
Second quarter 1997 income from operations totaled $37.0 million ($0.52 per
fully diluted share), up 20% from $30.9 million ($0.43 per fully diluted share)
for the same period in 1996. For the six month period, income from operations
rose 21% to $71.0 million from $58.5 million in 1996. The increase in both
periods was primarily attributable to growth in hospital and Vencare operations
and the continuing effect of merger synergies achieved in 1996 in connection
with the acquisition of The Hillhaven Corporation. The operating results of
Transitional since the date of acquisition had no material effect on second
quarter 1997 net income.
During the second quarter of 1997, Vencor repurchased substantially all of
the outstanding TheraTx $100 million 8% Convertible Subordinated Notes Due 2002
assumed in connection with the TheraTx Merger. The after-tax loss associated
with this transaction approximated $1.6 million ($0.02 per share). During the
first quarter of 1997, the Company recorded an after-tax charge of $2.3 million
($0.03 per share) in connection with the refinancing of the bank credit
agreements of both Vencor and TheraTx.
LIQUIDITY
Cash provided by operations totaled $123.7 million for the first six months
of 1997 compared to $117.0 million for the same period of 1996. The increase
was primarily attributable to growth in income from operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY (CONTINUED)
Days of revenues in accounts receivable increased to 65 at June 30, 1997
compared to 54 at December 31, 1996. Growth in accounts receivable was
primarily related to the restructuring of Vencor's pharmacy operations (which
began in the fourth quarter of 1996) and growth in rehabilitation contracts
acquired in the TheraTx Merger. The collection cycle for rehabilitation therapy
contracts typically requires in excess of three months.
In connection with the TheraTx Merger, Vencor entered into the $1.75 billion
Vencor Credit Facility, replacing a $1.0 billion bank credit facility. On June
24, 1997, the Vencor Credit Facility was amended to increase the amount of the
credit to $2.0 billion. At June 30, 1997, available borrowings under the Vencor
Credit Facility approximated $170 million. As discussed in Note 10 of the Notes
to Condensed Consolidated Financial Statements, Vencor completed a $750 million
private placement of long-term debt on July 21, 1997. The net proceeds of the
offering were used to reduce outstanding borrowings under the Vencor Credit
Facility. At July 21, 1997, available borrowings under the Vencor Credit
Facility approximated $950 million.
Since the completion of the initial public offering of Atria in August 1996
(the "IPO"), Atria has maintained a $200 million bank credit facility (the
"Atria Credit Facility") to finance its expansion and development program. At
June 30, 1997, amounts available under the Atria Credit Facility aggregated
$110 million.
Working capital totaled $481.5 million at June 30, 1997 compared to $320.1
million at December 31, 1996. Management believes that cash flows from
operations and amounts available under the Vencor Credit Facility are
sufficient to meet the Company's future expected liquidity needs.
At June 30, 1997, the Company's ratio of debt to debt and equity totaled
69.1%. Management intends to reduce the Company's future leverage through,
among other things, the use of anticipated excess cash flows from operations
and the sale of certain non-strategic assets acquired from TheraTx and
Transitional.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $132.9 million for the
first six months of 1997 compared to $61.5 million for the same period of 1996.
Expenditures in the first six months of 1997 related to Atria approximated $23
million. Planned capital expenditures in 1997 (excluding amounts for
acquisitions and Atria) related to hospitals, nursing centers and Vencare are
expected to approximate $200 million and include significant expenditures
related to nursing center improvements. Management believes that its capital
expenditure program is adequate to expand, improve and equip existing
facilities. At June 30, 1997, the estimated cost to complete and equip
construction in progress approximated $70 million.
During 1997, Vencor expended approximately $355 million and $575 million in
connection with the TheraTx Merger and the Transitional Acquisition,
respectively. These purchases were financed primarily through borrowings under
the Vencor Credit Facility. See Notes 5 and 6 of the Notes to Condensed
Consolidated Financial Statements for a discussion of these transactions.
Vencor also expended $25.0 million for the acquisition of new and previously
leased facilities in the first six months of 1997 compared to $5.2 million for
the same period in 1996. Subject to certain limitations related to management's
plans to reduce long-term debt discussed above, the Company intends to acquire
additional hospitals, nursing centers and ancillary service businesses in the
future.
Capital expenditures were financed primarily through internally generated
funds and, in 1997, from borrowings under the Vencor Credit Facility and
proceeds from the IPO. Vencor intends to finance a substantial portion of its
capital expenditures with internally generated funds and long-term debt.
Sources of capital include available borrowings under the Vencor Credit
Facility, public or private debt and equity.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
HEALTH CARE LEGISLATION
Congress is currently considering various proposals which could reduce
expenditures under certain government health and welfare programs, including
Medicare and Medicaid. Management cannot predict whether such proposals will be
adopted or if adopted, what effect, if any, such proposals would have on its
business.
Medicare revenues as a percentage of total revenues were 32% and 31% for the
six months ended June 30, 1997 and 1996, respectively, while Medicaid
percentages of revenues approximated 27% and 31% for the respective periods.
On March 28, 1997, the Health Care Financing Administration ("HCFA") issued a
proposed rule to change Medicare reimbursement guidelines for therapy services
provided by Vencare (including the rehabilitation contract therapy business
acquired as part of the TheraTx Merger). Under the proposed rule, HCFA would
revise the current salary equivalency guidelines for physical therapy and
respiratory therapy services and establish new salary equivalency guidelines
for speech and occupational therapy services. The proposed guidelines are based
on a blend of data from wage rates for hospitals and skilled nursing
facilities, and include salary, fringe benefits and expense factors. Rates are
defined by specific geographic market areas, based upon a modified version of
the hospital wage index. Following a 60-day comment period, HCFA is considering
comments and is expected to issue a final rule. The new guidelines will not
become effective until 60 days after publication of the final rule in the
Federal Register. While the Company cannot predict when the final regulation
will be issued, or if changes will be made to the proposed guidelines,
management believes that the imposition of salary equivalency guidelines on
speech and occupational therapy services, as proposed, would not significantly
decrease Vencare operating margins or have a material adverse effect on the
Company's contract services business.
OTHER INFORMATION
On June 11, 1997, the Company announced that it had entered into a strategic
alliance with CNA Financial Corporation ("CNA") to develop and market a long-
term care insurance product. Under this arrangement, CNA will offer a long-term
care insurance product which features as a benefit certain discounts for
services provided by members of the Company's network of long-term care
providers. Members of this network will act as preferred providers of care to
covered insureds. CNA will be responsible for underwriting, marketing and
distributing the product through its national distribution network and will
provide administrative insurance product support. The Company will reinsure 50%
of the risk through a newly formed wholly-owned insurance company and will
provide utilization review services. Management believes that the alliance with
CNA will not have a material impact on the Company's liquidity, financial
position or results of operations in 1997.
Various lawsuits and claims arising in the ordinary course of business are
pending against Vencor. Resolution of litigation and other loss contingencies
is not expected to have a material adverse effect on Vencor's liquidity,
financial position or results of operations.
The Vencor Credit Facility and the Atria Credit Facility contain customary
covenants which require, among other things, maintenance of certain financial
ratios and limit amounts of additional debt and repurchases of common stock.
Vencor and Atria were in compliance with all such covenants at June 30, 1997.
As discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, on December 31, 1997, Vencor will be required to change the method
of computing earnings per common share on a retroactive basis. The change in
calculation method is not expected to have a material impact on previously
reported earnings per common share.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 QUARTERS 1997 QUARTERS
--------------------------------------- ------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $626,337 $634,554 $650,551 $ 666,341 $680,696 $778,295
-------- -------- -------- --------- -------- --------
Salaries, wages and
benefits..................... 372,318 366,705 372,524 379,391 396,573 449,806
Supplies (a).................. 62,108 64,075 64,967 70,471 66,033 77,328
Rent.......................... 19,167 19,102 19,681 19,845 18,948 21,783
Other operating expenses (a).. 94,155 100,797 105,275 105,570 109,786 118,935
Depreciation and
amortization................. 24,793 24,846 24,787 25,107 24,372 29,479
Interest expense.............. 12,480 12,141 11,884 9,417 10,660 20,674
Investment income............. (3,578) (3,300) (3,132) (2,193) (1,567) (1,746)
Non-recurring
transactions................. - - - 125,200 - -
-------- -------- -------- --------- -------- --------
581,443 584,366 595,986 732,808 624,805 716,259
-------- -------- -------- --------- -------- --------
Income (loss) from
operations before
income taxes................. 44,894 50,188 54,565 (66,467) 55,891 62,036
Provision for income
taxes........................ 17,284 19,323 21,007 (22,439) 21,909 25,026
-------- -------- -------- --------- -------- --------
Income (loss) from
operations................... 27,610 30,865 33,558 (44,028) 33,982 37,010
Extraordinary loss on
extinguishment of debt,
net of income tax
benefit...................... - - - - (2,259) (1,590)
-------- -------- -------- --------- -------- --------
Net income (loss)......... $ 27,610 $ 30,865 $ 33,558 $ (44,028) $ 31,723 $ 35,420
======== ======== ======== ========= ======== ========
Earnings (loss) per
common and common
equivalent share:
Primary:
Income (loss) from
operations................. $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.48 $ 0.52
Extraordinary loss on
extinguishment of
debt....................... - - - - (0.03) (0.02)
-------- -------- -------- --------- -------- --------
Net income (loss)......... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.45 $ 0.50
======== ======== ======== ========= ======== ========
Fully diluted:
Income (loss) from
operations................. $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.48 $ 0.52
Extraordinary loss on
extinguishment of
debt....................... - - - - (0.03) (0.02)
-------- -------- -------- --------- -------- --------
Net income (loss)......... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.45 $ 0.50
======== ======== ======== ========= ======== ========
Shares used in computing
earnings
(loss) per common and
common
equivalent share:
Primary..................... 71,455 71,373 70,028 68,874 (b) 70,207 71,016
Fully diluted............... 71,455 71,373 70,028 68,874 (b) 70,621 71,144
</TABLE>
- --------
(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) Excludes the dilutive effect of common stock equivalents.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING DATA
(UNAUDITED)
<TABLE>
<CAPTION>
1996 QUARTERS 1997 QUARTERS
---------------------------------------------- ----------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES (IN THOUSANDS):
Hospitals............... $ 130,047 $ 138,612 $ 144,228 $ 138,381 $ 154,900 $ 165,794
Nursing centers (a)..... 392,983 393,642 409,258 419,258 404,253 432,325
Vencare (a)............. 98,937 100,625 95,804 103,702 119,046 182,016
Atria................... 12,611 12,837 13,038 13,360 14,217 16,982
---------- ---------- ---------- ---------- ---------- ----------
634,578 645,716 662,328 674,701 692,416 797,117
Elimination............. (8,241) (11,162) (11,777) (8,360) (11,720) (18,822)
---------- ---------- ---------- ---------- ---------- ----------
$ 626,337 $ 634,554 $ 650,551 $ 666,341 $ 680,696 $ 778,295
========== ========== ========== ========== ========== ==========
HOSPITAL DATA:
End of period data:
Number of hospitals.... 36 37 37 38 38 58
Number of licensed
beds.................. 3,225 3,265 3,265 3,325 3,325 5,107
Revenue mix %:
Medicare............... 57 60 58 62 64 61
Medicaid............... 13 12 14 10 10 9
Private and other...... 30 28 28 28 26 30
Patient days:
Medicare............... 94,087 95,680 90,224 95,137 106,646 107,799
Medicaid............... 24,152 23,898 26,280 23,191 21,705 23,170
Private and other...... 27,776 28,735 27,716 29,268 31,502 32,358
---------- ---------- ---------- ---------- ---------- ----------
146,015 148,313 144,220 147,596 159,853 163,327
========== ========== ========== ========== ========== ==========
NURSING CENTER DATA:
End of period data:
Number of nursing
centers............... 311 310 313 313 314 311
Number of licensed
beds.................. 39,510 39,378 39,640 39,619 40,942 40,869
Revenue mix %:
Medicare............... 30 30 29 30 32 32
Medicaid............... 44 44 45 45 43 42
Private and other...... 26 26 26 25 25 26
Patient days:
Medicare............... 405,049 396,568 383,458 377,570 406,642 417,336
Medicaid............... 2,011,158 2,012,524 2,082,664 2,085,104 1,962,287 2,039,999
Private and other...... 711,313 698,389 705,783 697,183 663,575 734,593
---------- ---------- ---------- ---------- ---------- ----------
3,127,520 3,107,481 3,171,905 3,159,857 3,032,504 3,191,928
========== ========== ========== ========== ========== ==========
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare
contracts (b)......... 4,244 4,295 4,150 4,346 4,946 4,524
Number of Atria
communities........... 22 22 22 21 25 40
Number of Atria units.. 3,022 3,022 3,022 2,942 3,226 3,977
</TABLE>
- --------
(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) Restated to reflect the integration of the institutional pharmacy business
into Vencare in the fourth quarter of 1996.
15
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in
a qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice intervened in the suit which was brought
under the Federal Civil False Claims Act. AXR provides portable X-ray services
to nursing facilities (including those operated by the Company) and other
healthcare providers. The Company acquired an interest in AXR when The
Hillhaven Corporation was merged into the Company in September 1995 and
purchased the remaining interest in AXR in February 1996. The suit alleges
that AXR submitted false claims to the Medicare and Medicaid programs. In
conjunction with the qui tam action, the United States Attorney's office for
the Eastern District of Arkansas also is conducting a criminal investigation
into the allegations contained in the qui tam complaint. The Company is
cooperating fully in the investigation.
On June 19, 1997, a class action lawsuit was filed in the United States
District Court for the District of Nevada on behalf of a class consisting of
all persons who sold shares of Transitional during the period from February
26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional was purchasing shares of its common stock from members of the
investing public after it had received a written offer to acquire all of
Transitional's common stock and without making the required disclosure that
such an offer had been made. The complaint further alleges that defendants
disclosed that there were "expressions of interest" in acquiring Transitional
when, in fact, at that time, the negotiations had reached an advanced stage
with actual firm offers at substantial premiums to the trading price of
Transitional's stock having been made which were actively being considered by
Transitional's Board of Directors. The complaint asserts claims pursuant to
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended,
and common law principles of negligent misrepresentation and names as
defendants Transitional as well as certain senior executives and directors of
Transitional.
On June 6, 1997, Transitional announced that it had been advised that it was
the target of a grand jury investigation arising from the activities of
Transitional's formerly owned dialysis business. The investigation involves
purported Medicare fraud involving certain laboratory tests performed by a
partnership which existed from June 1987 to June 1992 between Damon
Corporation and Transitional. Transitional spun off its dialysis business, now
called Vivra Incorporated, on September 1, 1989. The Company is cooperating
fully in the investigation.
The Company intends to vigorously defend these proceedings. While such
proceedings are in the preliminary stages, based on the information currently
available to the Company, the Company believes that a resolution of these
matters will not have, individually or in the aggregate, a material adverse
effect on the Company's liquidity, financial position or results of
operations.
16
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Vencor's Annual Meeting of Stockholders was held on May 15, 1997 in
Louisville, Kentucky. At the meeting, stockholders elected a Board of ten
directors pursuant to the following votes:
<TABLE>
<CAPTION>
DIRECTOR VOTES IN FAVOR VOTES WITHHELD
-------- -------------- --------------
<S> <C> <C>
Michael R. Barr.............................. 52,920,549 248,794
Walter F. Beran.............................. 52,909,872 259,471
Ulysses L. Bridgeman, Jr..................... 52,876,894 292,449
Elaine L. Chao............................... 52,865,191 304,152
Donna R. Ecton............................... 52,913,297 256,046
Greg D. Hudson............................... 52,907,927 261,416
William H. Lomicka........................... 52,912,606 256,737
W. Bruce Lunsford............................ 52,913,700 255,643
W. Earl Reed, III............................ 52,910,945 258,398
R. Gene Smith................................ 52,903,757 265,586
</TABLE>
In addition, the stockholders approved the Vencor, Inc. 1997 Stock Option
Plan for Non-Employee Directors by the vote of 42,932,535 in favor, 2,600,511
against and 277,979 abstentions. The stockholders also approved the Vencor,
Inc. 1997 Incentive Compensation Plan by the vote of 34,475,741 in favor,
11,080,920 against and 254,364 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated June 18, 1997 by and among the
Company, LV Acquisition Corp. and Transitional Hospitals Corporation.
Exhibit 2.1 to the Current Report on Form 8-K of the Company dated
July 3, 1997 (Comm. File No. 1-10989) is hereby incorporated by
reference.
4.1 Amendment No. 1, dated as of April 22, 1997, to the $1.75 billion
Credit Agreement dated as of March 17, 1997, as amended as of March
31, 1997, among the Company, the various banks party thereto, the
Swingline Bank party, the LC Issuing Banks party thereto, the Managing
Agents and Co-Agents party thereto, Morgan Guaranty Trust Company of
New York, as Documentation Agent and Collateral Agent, and
Nationsbank, N.A., as Administrative Agent. Exhibit (b)(2) to
Amendment No. 8 to the Statement on Schedule 14D-1 of the Company and
LV Acquisition Corp., dated May 7, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
4.2 $2.0 billion Amended and Restated Credit Agreement dated as of May 30,
1997, amending and restating the Credit Agreement dated as of March
17, 1997, as amended as of March 31, 1997 and April 22, 1997, among
the Company, the various banks party thereto, the Swingline Bank
party, the LC Issuing Banks party thereto, the Managing Agents and Co-
Agents party thereto, Morgan Guaranty Trust Company of New York, as
Documentation Agent and Collateral Agent, and Nationsbank, N.A., as
Administrative Agent. Exhibit (b)(3) to Amendment No. 8 to the
Statement on Schedule 14D-1 of the Company and LV Acquisition Corp.,
dated May 7, 1997 (Comm. File No. 1-10989) is hereby incorporated by
reference.
4.3 Amendment No. 1, dated as of June 24, 1997, to the $2.0 billion
Amended and Restated Credit Agreement dated as of May 30, 1997,
amending and restating the Credit Agreement dated as of March 17,
1997, as amended as of March 31, 1997 and April 22, 1997, among the
Company, the various banks party thereto, the Swingline Bank party,
the LC Issuing Banks party thereto, the Managing Agents and Co-Agents
party thereto, Morgan Guaranty Trust Company of New York, as
Documentation Agent and Collateral Agent, and Nationsbank, N.A., as
Administrative Agent.
</TABLE>
17
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(A) EXHIBITS (CONTINUED):
<TABLE>
<C> <S>
4.4 Amendment No. 3 to Credit Agreement dated as of May 27, 1997 among
Atria Communities, Inc., as borrower, the lending institutions named
therein, PNC Bank, National Association, as Administrative Agent, PNC
Bank Kentucky, Inc., as Managing Agent, and National City Bank of
Kentucky, as Documentation Agent. Exhibit 4.6 to the Registration
Statement on Form S-1 of Atria Communities, Inc. (Comm. File No. 333-
28577) is hereby incorporated by reference.
10.1 Strategic Alliance Agreement dated as of June 10, 1997 by and between
the Company, Continental Casualty Company and Valley Forge Life
Insurance Company.
10.2 Amendment No. 2 to Parent Guaranty dated as of May 27, 1997 by Atria
Communities, Inc., as Borrower, Vencor, Inc., as Parent Guarantor,
First Healthcare Corporation, Northwest Health Care, Inc., Medisave
Pharmacies, Inc., Nationwide Care, Inc., TheraTx, Incorporated,
Vencor Hospitals Illinois, Inc., Vencor Hospitals South, Inc., Vencor
Hospitals East, Inc., Vencor Hospitals California, Inc., Vencor
Hospitals Texas, Ltd., Ventech Systems, Inc., Pasatiempo Development
Corp., VCI Specialty Services, Inc., and Vencor Properties, Inc., as
Supporting Guarantors, and PNC Bank, National Association, as
Administrative Agent.
10.3 Amendment No. 1 dated May 8, 1997 to the Vencor, Inc. 1997 Incentive
Compensation Plan.
10.4 Form of Indemnification Agreement between Transitional Hospitals
Corporation and its Directors and Executive Officers. Exhibit C to
the Proxy Statement of Transitional Hospitals Corporation, dated
April 24, 1987 relating to its annual meeting of its stockholders on
June 1, 1987 (Comm. File No. 1-7008) is hereby incorporated by
reference.
10.5 Agreement and Plan of Merger, dated May 2, 1997, among Select Medical
Corporation, SM Acquisition Co. and Transitional Hospitals
Corporation. Exhibit 99.1 to the Current Report on Form 8-K of
Transitional Hospitals Corporation dated May 2, 1997 (Comm. File No.
1-7008) is hereby incorporated by reference.
10.6 Agreement between Community Psychiatric Centers and Foray 911
Limited, dated as of June 21, 1996, related to the sale of the entire
issued share capital of CPC (Londinium) Limited. Exhibit 1 to the
Current Report on Form 8-K of Transitional Hospitals Corporation
dated July 5, 1996 (Comm. File No. 1-7008) is herein incorporated by
reference.
10.7 Asset Purchase Agreement between Transitional Hospitals Corporation
and Behavioral Healthcare Corporation, dated October 22, 1996.
Exhibit 99.1 to the Current Report on Form 8-K of Transitional
Hospitals Corporation dated October 22, 1996 (Comm. File No. 1-7008)
is hereby incorporated by reference.
10.8 Agreement and Plan of Merger between Transitional Hospitals
Corporation and Behavioral Healthcare Corporation, dated October 22,
1996. Exhibit 99.2 to the Current Report on Form 8-K of Transitional
Hospitals Corporation dated October 22, 1996 (Comm. File No. 1-7008)
is hereby incorporated by reference.
10.9 First Amendment to Asset Purchase Agreement between Transitional
Hospitals Corporation and Behavioral Healthcare Corporation, dated
November 30, 1996. Exhibit 99.1 to the Current Report on Form 8-K of
Transitional Hospitals Corporation dated December 16, 1996 (Comm.
File No. 1-7008) is hereby incorporated by reference.
10.10 Amendment to Agreement and Plan of Merger between Transitional
Hospitals Corporation and Behavioral Healthcare Corporation, dated
November 30, 1996. Exhibit 99.2 to the Current Report on Form 8-K of
Transitional Hospitals Corporation dated December 16, 1996 (Comm.
File No. 1-7008) is hereby incorporated by reference.
</TABLE>
18
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(A) EXHIBITS (CONTINUED):
<TABLE>
<C> <S>
11 Statement Re: Computation of earnings per common and common equivalent
share for the six months ended June 30, 1997 and 1996.
27 Financial Data Schedule (included only in filings submitted under the
Electronic Data Gathering Analysis Retrieval system).
</TABLE>
(B) REPORTS ON FORM 8-K:
Vencor filed a Current Report on Form 8-K on April 1, 1997 reporting the
TheraTx Merger. Vencor also filed a Current Report on Form 8-K/A on May 23,
1997 which included historical and pro forma financial statements relating to
the TheraTx Merger.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENCOR, INC.
Date: July 25, 1997 /s/ W. EARL REED, III
___________________ _____________________________________
W. Earl Reed, III
Executive Vice President and Chief
Financial Officer (Duly Authorized
Officer of the Registrant and
Principal Financial Officer)
20
<PAGE>
EXHIBIT 4.3
AMENDMENT NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of June 24, 1997 to the Amended and Restated Credit
Agreement dated as of May 30, 1997 (the "Credit Agreement") among VENCOR, INC.
("Vencor"), the BANKS, SWINGLINE BANK, LC ISSUING BANKS, MANAGING AGENTS and CO-
AGENTS party thereto, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Documentation Agent (the "Documentation Agent") and Collateral Agent, and
NATIONSBANK, N.A., as Administrative Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement (i) to
permit Vencor to issue certain high yield debt and (ii) to give the Banks the
benefit of the financial covenants and other restrictive agreements set forth in
the indenture pursuant to which such high yield debt is issued;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
Section 2. Definitions. Section 1.01 of the Credit Agreement is amended
by adding the following new definitions in the appropriate alphabetical order:
"High Yield Debt Indenture" means the Indenture pursuant to which
the Permitted High Yield Debt is issued, as such Indenture may be
amended from time to time in accordance with the terms thereof and
Section 5.29(c) hereof.
"Permitted High Yield Debt" means subordinated notes issued by
Vencor before December 31, 1997; provided that such subordinated notes
comply with the provisions of Section 5.07(e) except for requirements to
offer to purchase such subordinated notes in certain events (including,
without limitation, a "Change of Control" as defined in the High Yield
Debt Indenture), which requirements are subject to the provisions of
Section 5.29(b).
<PAGE>
Section 3. Permission to Incur Permitted High Yield Debt. The last
proviso to Section 5.07(e) of the Credit Agreement is amended to read as
follows:
provided, further, that (A) if Vencor has an Investment Grade Rating when
such Debt is incurred or such Guarantee is entered into, the date
specified in subclauses (i) and (ii) above shall be changed from March
31, 2003 to June 30, 2002 and (B) subclause (ii) above shall not apply
to Permitted High Yield Debt.
Section 4. Amendment of Article 5. The following new Section is added
at the end of Article 5 of the Credit Agreement:
Section 5.29. Permitted High Yield Debt. (a) So long as any
Permitted High Yield Debt is outstanding, Vencor agrees to comply with
all of the financial covenants and other restrictive agreements set
forth in the High Yield Debt Indenture as if such covenants and other
restrictive agreements (and the definitions of the terms used therein)
were set forth in full herein.
(b) Vencor will not purchase or offer to purchase any Permitted
High Yield Debt pursuant to any provision of the High Yield Debt
Indenture requiring it to do so unless it shall have first (i) repaid
all the outstanding Loans, Swingline Loans and LC Reimbursement
Obligations, (ii) terminated the Commitments and (iii) cash
collateralized each outstanding Letter of Credit in a manner
satisfactory to the relevant LC Issuing Bank.
(c) Without the prior written consent of the Required Banks,
Vencor shall not modify or amend, or waive or solicit any waiver of, any
provision of the High Yield Debt Indenture in any manner that could
reasonably be expected to be adverse to the interest of the Banks under
the Financing Documents.
Section 5. Events of Default. Section 6.01(b) of the Credit Agreement
is amended to read as follows:
(b) Vencor shall (i) fail to observe or perform any of its
financial covenants and other restrictive agreements contained in the
High Yield Debt Indenture within the applicable grace period (if any)
specified therein or (ii) fail to observe or perform any covenant
contained in Section 5.01(e), Section 5.01(f), Section 5.07 through 5.28,
inclusive, Section 5.29(b) or Section 5.29(c); or
Section 6. Additional Letters of Credit. As of the Amendment Effective
Date, (i) the letters of credit listed on Schedule I hereto shall be deemed to
be issued pursuant to Section 2.08(b) of the Credit Agreement and shall be
Additional Letters of Credit thereunder and (ii) the definition of "LC Issuing
Bank" in Section 1.01 of the Credit Agreement is amended by
2
<PAGE>
replacing the reference to "Seattle First National Bank" with "Bank of America
NT & SA dba Seafirst Bank".
Section 7. Representations of Vencor. Vencor represents and warrants
that (i) the representations and warranties of Vencor set forth in Article 4
of the Credit Agreement will be true on and as of the Amendment Effective Date
and (ii) no Default will have occurred and be continuing on such date.
Section 8. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
Section 9. Counterparts. This Amendment 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.
Section 10. Effectiveness. This Amendment shall become effective on the
date (the "Amendment Effective Date") when the Documentation Agent shall have
received from each of Vencor, the Required Banks and Bank of America NT & SA,
as LC Issuing Bank, a counterpart hereof signed by such party or facsimile or
other written confirmation (in form satisfactory to the Documentation Agent)
that such party has signed a counterpart hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
VENCOR, INC.
By: /s/ Richard A. Lechleiter
-------------------------------------------
Title: Vice President of Finance
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Diana H. Imhof
-------------------------------------------
Title: Vice President
3
<PAGE>
NATIONSBANK, N.A.,
as a Bank and an LC Issuing Bank
By: /s/ Ashley M. Crabtree
-------------------------------------------
Title: Senior Vice President
BANK OF AMERICA NT & SA,
as a Bank and an LC Issuing Bank
By: /s/ Edward S. Han
-------------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Edward J. Dougherty
-------------------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Dawn Lee Lum
-------------------------------------------
Title: Vice President
PNC BANK, KENTUCKY, INC,
as a Bank and an LC Issuing Bank
By: /s/ Benjamin A. Willingham
-------------------------------------------
Title: Vice President
4
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By: /s/ Neva Nesbitt
-------------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ M.D.Smith
-------------------------------------------
Title: Agent
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Farboud Tavangar
-------------------------------------------
Title: First Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert B. Potter
-------------------------------------------
Title: Vice President
By: /s/ Steven E. Janauschek
-------------------------------------------
Title: Associate
5
<PAGE>
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLAND BRANCHES
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By: /s/ Ginger Stolzenthaler
-------------------------------------------
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By: /s/ Takuya Honjo
-------------------------------------------
Title: Senior Vice President
WACHOVIA BANK, N.A.,
By: /s/ John Tibe
-------------------------------------------
Title: AVP
6
<PAGE>
ABN AMRO BANK N.V.
By: /s/ Kathryn C. Toth
-------------------------------------------
Title: Group Vice President
By: /s/ J.Seibly
-------------------------------------------
Title: VP
BANK OF MONTREAL
By: /s/ Peter Steelman
-------------------------------------------
Title: Director
BANK ONE, KENTUCKY, NA
By: /s/ Dennis P. Heishman
-------------------------------------------
Title: Senior Vice President
COMERICA BANK
By:
-------------------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By: /s/ Elizabeth D. Morris
-------------------------------------------
Title: Vice President
7
<PAGE>
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
-------------------------------------------
Title: Joint General Manager
LTCB TRUST COMPANY
By: /s/ Noborli Kubota
-------------------------------------------
Title: SVP
NATIONAL CITY BANK OF KENTUCKY,
as a Bank and an LC Issuing Bank
By: /s/ Deroy Scott
-------------------------------------------
Title: Vice President
NBD BANK, N.A.
By: /s/ Cindy A. Herzog
-------------------------------------------
Title: Authorized Agent
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Cary Moore
-------------------------------------------
Title: Vice President
AMSOUTH BANK OF ALABAMA
By: /s/ J. Ken DiFatta
-------------------------------------------
Title: Commercial Banking Officer
8
<PAGE>
BANQUE PARIBAS
By: /s/ Russell A. Pomerantz
-------------------------------------------
Title: Vice President
By: /s/ David R. Laffey
-------------------------------------------
Title: Group Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Ann M. Dodd
-------------------------------------------
Title: Senior Vice President
U.S. BANK OF WASHINGTON, N.A.
By: /s/ Arnold J. Conrad
-------------------------------------------
Title: Vice President
CIBC, INC.
By: /s/ Timothy E. Doyle
-------------------------------------------
Title: Authorized Signatory
KREDIETBANK N.V.
By: /s/ Robert Snauffer
-------------------------------------------
Title: Vice President
By: /s/ Tod R. Angus
-------------------------------------------
Title: Vice President
9
<PAGE>
THE MITSUBISHI TRUST AND BANKING CORPORATION
By: /s/ Masaaki Yamorishi
-------------------------------------------
Title: Chief Manager
THE SAKURA BANK LIMITED
NEW YORK BRANCH
By: /s/ Yoshikazu Nagura
-------------------------------------------
Title: Vice President
SOCIETE GENERALE, CHICAGO BRANCH
By: /s/ C. Steve Coffman
-------------------------------------------
Title: Assistant Treasurer
FIRST AMERICAN NATIONAL BANK
By: /s/ Kent D. Wood
-------------------------------------------
Title: AVP
BANK OF LOUISVILLE,
as a Bank and an LC Issuing Bank
By: /s/ Roy L. Johnson, Jr.
-------------------------------------------
Title: Senior Vice President
10
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.
CHICAGO BRANCH
By: /s/ Takao Teramura
-------------------------------------------
Title: Vice President
FIFTH THIRD BANK
By: /s/ Robert M. Eversole
-------------------------------------------
Title: Senior Vice President
11
<PAGE>
SCHEDULE I
Transitional Hospitals Corporation Letters of Credit
<TABLE>
<CAPTION>
Expiry Estimated
LC # Date Beneficiary Account Party Relevant Facility Amount
---- ------ ----------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
208848 12/31/97 Liberty Mutual Ins. Co. Transitional Hospitals N/A $292,724.00
Corporation
213228 08/10/97 Arkansas Power & Light Co. Transitional Hospitals N/A $ 20,000.00
Corporation
213453 10/17/97 So. Western Electric Power Co. Transitional Hospitals N/A $ 25,000.00
Corporation
214487 12/31/97 Liberty Mutual Ins. Co. Transitional Hospitals N/A $105,017.00
Corporation
218924 12/31/97 Liberty Mutual Ins. Co. Transitional Hospitals N/A $176,000.00
Corporation
221019 07/28/97 Tampa Electric Co. Transitional Hospitals N/A $ 40,000.00
Corporation
3001940 10/15/98 Houston Lighting & Power THC Bay Area Inc. N/A $ 67,400.00
3001941 10/15/98 Houston Lighting & Power THC Houston Inc. N/A $ 27,000.00
</TABLE>
<PAGE>
EXHIBIT 10.1
STRATEGIC ALLIANCE AGREEMENT
----------------------------
This Agreement is made and entered into as of the 10th day of June, 1997,
by and between Continental Casualty Company, an Illinois insurance company, and
Valley Forge Life Insurance Company, a Pennsylvania life insurance company
(individually and collectively "CNA") and Vencor Inc., a Delaware Corporation
("Vencor").
RECITALS
--------
WHEREAS, CNA issues long-term care insurance policies which, subject to the
terms and conditions of the policies, provide reimbursement for eligible
expenses incurred by the policyholders for specified long-term care services;
and
WHEREAS, Vencor owns and operates health care facilities and, through a
subsidiary, manages a network of providers of long-term care; and
WHEREAS, Vencor is or will be the sole owner of a domestic insurance
company known as Vencor Insurance Company; and
WHEREAS, Vencor and CNA desire to enter into a strategic alliance whereby
they will jointly develop and share the risk on a long-term care insurance
product to be offered to individuals throughout the United States, and will make
long-term care services available to policyholders at favorable rates; and
WHEREAS, subject to a compensation agreement between Old Colony Insurance
Services and CNA which is separate and apart from this Agreement, Old Colony
Insurance Services is the agency responsible for various services in support of
the strategic alliance contemplated by this Agreement;
NOW, THEREFORE, in consideration of the above premises and the covenants
hereinafter set forth, the parties, CNA and Vencor, hereby agree as follows:
1. DEFINITIONS
1.1. In this Agreement, the Coinsurance Agreement, and the Preferred Access
Agreement, the following terms shall have the meanings ascribed by
this Section 1 unless the term is explicitly redefined or the context
clearly requires another definition.
1.2. "Agreement" means this Strategic Alliance Agreement, including all
Exhibits which are hereby incorporated into and made a part of this
Agreement, as originally executed and as may be amended from time to
time.
<PAGE>
1.3. "Agreement Year" means the 12-month period commencing on the effective
date of this Agreement, and each subsequent anniversary of the
effective date of this Agreement, and ending on the following
anniversary of the effective date of this Agreement.
1.4. "Coinsurance Agreement" means the agreement entered into by a wholly
owned Vencor subsidiary, Vencor Insurance Company ("VIC"), and CNA for
VIC to reinsure a fifty percent (50%) quota share of the liability of
CNA with respect to the Policies.
1.5. "Covered Services" means health care services with respect to which
benefits are payable to or on behalf of Members under the Policies.
1.6. "Member" means an individual who is insured under a Vencor Gold policy
at the time he or she receives Covered Services.
1.7. "Policies" means the individual long-term care insurance policies that
conform to the design of Vencor Gold policies, are issued by CNA, and
are in force. A Vencor Gold policy issued to and in force on an
individual is a Policy and the insured individual is a Member.
1.8. "Preferred Access Agreement" means the agreement entered into by a
wholly owned Vencor subsidiary, Vencor Provider Network, Inc. ("VPN"),
and CNA for VPN to arrange for the provision of Covered Services by
Preferred Advantage Selected Providers to Members.
1.9. "Preferred Advantage Selected Providers" means providers of long-term
care services that have entered into agreements with VPN to provide
Covered Services to Members at favorable rates pursuant to the
Preferred Access Agreement.
1.10. "Vencor Gold policy" means the long-term care insurance policy or
policies contemplated by this Agreement. In order for a policy to be a
Vencor Gold policy, it must be developed by CNA, be marketed by an
agent of CNA, be coinsured pursuant to the Coinsurance Agreement, and
provide incentives pursuant to the Preferred Access Agreement. A
sample Vencor Gold policy is attached to this Agreement as Exhibit A.
2. BUSINESS PURPOSE
2.1. The primary business purpose of this Agreement is to establish a
strategic alliance pursuant to which
2.1.1. CNA and its agents will market and issue Vencor Gold policies
to individuals and will administer the Policies;
<PAGE>
2.1.2. Vencor Provider Network, Inc., a subsidiary of Vencor ("VPN"),
will arrange for the provision of Covered Services to Members
through a health care provider network organized and managed
by VPN; and
2.1.3. Vencor Insurance Company, a subsidiary of Vencor ("VIC"), will
coinsure the liabilities under the Policies.
2.2. In establishing the strategic alliance, Vencor and CNA in general
desire to rely upon
2.2.1. the special expertise of CNA and its agents in the offering of
long-term care insurance products, including expertise in
product design, underwriting, policy administration, loss
control and claims administration; and
2.2.2. the special expertise of Vencor and its agents in the
organization, administration and delivery of long-term care
services, including organizational skills, credentialling, and
utilization management.
2.3. The rights and obligations of the parties with respect to the
strategic alliance are evidenced and governed by this Agreement, the
Preferred Access Agreement, and the Coinsurance Agreement.
2.4. The parties will use their best efforts to establish a new
underwriting company formed, by CNA and its affiliates by themselves
or together with Vencor and its affiliates, to underwrite Vencor Gold
policies.
3. MARKETING
3.1. It is the intent of the parties to commence marketing of Vencor Gold
policies as soon as is reasonably possible following the execution of
this Agreement. Marketing will initially comprise introduction in two
states, and the parties will agree on a timetable for further
introductions.
3.2. CNA shall assure that every Policy is filed with and approved by
applicable insurance regulatory authorities. Any material
modifications to the Vencor Gold policies or premium rating structure
applicable thereto, other than as may be required by applicable law,
shall be approved by VIC prior to implementation of such
modifications; provided, however, that approval by VIC shall not be
unreasonably withheld, and shall be deemed given with respect to a
proposed modification if no written objection is made within thirty
(30) days following written notice of such modification.
3.3. CNA shall submit the Vencor Gold policies, including where required
the terms and conditions of the Preferred Access Agreement, for review
by
<PAGE>
appropriate regulatory authorities, if and when required, before
marketing commences
3.4. Vencor Gold policies shall meet the requirements of each state in
which they are marketed and sold.
3.5. CNA shall be responsible for implementing a marketing and sales plan
for Vencor Gold policies, including the appointment of qualified and
appropriately licensed agents and brokers and the establishment of
appropriate promotional policies, procedures, and sales training.
3.6. The premium for Vencor Gold policies shall be competitive with that of
other long-term care insurance policies offered in the same market and
shall comply with applicable regulatory requirements.
3.7. Vencor and CNA shall cooperate with and assist each other in the
performance of their respective obligations under this Agreement,
including, but not limited to, requiring Members to comply in all
respects with the terms and conditions of the Policies and encouraging
Members to obtain Covered Services from Preferred Advantage Selected
Providers.
4. COINSURANCE
4.1. Vencor shall use its best efforts to cause VIC to enter into, with
CNA, within 90 days of the execution of this Agreement, an agreement
which is substantively identical to the Coinsurance Agreement which is
attached to this Agreement as Exhibit B.
4.2. Notwithstanding any provision of this Agreement or the Coinsurance
Agreement to the contrary, and subject to the following proviso,
Vencor is and shall remain liable to CNA for the performance of all
obligations of VIC to CNA thereunder.
4.2.1. Provided, however, that the immediately preceding subsection
shall apply only to obligations of VIC that are related to
Policies that became effective on or before the earlier of
4.2.1.1. the third anniversary of the effective date of this
Agreement; or
4.2.1.2. the date on which a viable marketing presence is
established by a new underwriting company formed, by
CNA and its affiliates by themselves or together
with Vencor and its affiliates, to underwrite Vencor
Gold policies.
<PAGE>
5. PREFERRED ACCESS
5.1. Vencor shall use its best efforts to cause VPN to enter into, with
CNA, within 60 days of the execution of this Agreement, an agreement
which is substantively identical to the Preferred Access Agreement
which is attached to this Agreement as Exhibit C.
5.2. Notwithstanding any provision of this Agreement or the Preferred
Access Agreement to the contrary, Vencor is and shall remain liable to
CNA for the performance of all obligations of VPN to CNA thereunder.
6. EXCLUSIVITY
6.1. For purposes of this Section 6, "Vencor" shall mean Vencor Inc. or
any entity controlled by or under common control with Vencor Inc.; and
"CNAF" shall mean CNA Financial Corporation or any entity controlled
by or under common control with CNAF.
6.2. Until the expiration of ten years from the date of this Agreement,
Vencor shall not enter into any contract or other transaction or
relationship pursuant to which Vencor
6.2.1. prominently uses the name "Vencor" in the marketing materials
for an individual long-term care insurance product; or
6.2.2. by law is only allowed to participate in the risk of an
individual long-term care insurance product through a licensed
insurance company; or
6.2.3. guarantees, for the life of an individual insured covered
under an individual long-term care insurance product, a
discount or network access.
6.3. Until the expiration of ten years from the date of this Agreement,
CNAF shall not enter into any contract or other transaction or
relationship pursuant to which CNAF, with regard to an individual,
domestic, long-term care insurance product underwritten by a
subsidiary of CNAF
6.3.1. prominently uses the name of a health care provider in the
marketing materials; or
6.3.2. shares any long-term care insurance risk with an entity,
affiliated with a contracted provider of long-term care
services to CNAF on those same long-term care risks, where
such sharing by law is allowed only with a licensed insurance
company; or
<PAGE>
6.3.3. receives guarantees, for the life of an individual insured, a
discount or network access.
6.4. Notwithstanding any other provision of this Agreement to the contrary,
either party may waive the provisions of this Section 6 only by
delivery to the other party of an unambiguous written waiver executed
by a duly authorized officer, vice-president or above, of the party
giving the waiver.
7. REPRESENTATIONS AND WARRANTIES OF VENCOR
7.1. To induce CNA to enter into this Agreement and consummate the
transactions contemplated hereby, Vencor hereby represents and
warrants as follows:
7.1.1. Vencor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and
has all requisite corporate power and authority to conduct its
business and own, operate and lease its properties as and in
the places where such business is now conducted and such
properties are now owned, leased, or operated.
7.1.2. VPN is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to conduct its
business and own, operate and lease its properties as and in
the places where such business is now conducted and such
properties are now owned, leased, or operated.
7.1.3. VIC is or will be an insurance company duly organized, validly
existing and in good standing under the laws of the state of
Indiana, has all requisite corporate power and authority to
conduct its business and own, operate and lease its properties
as and in the places where such business is now conducted and
such properties are now owned, leased, or operated, and is
authorized to transact accident and health insurance business
in the states of ____________.
7.1.4. This Agreement, the Coinsurance Agreement, and the Preferred
Access Agreement have been or will be duly executed by Vencor,
VIC, and VPN, as applicable, as provided herein, and each
constitutes the valid and binding obligation of Vencor, VIC,
and VPN, as applicable, enforceable in accordance with its
terms.
7.1.5. Neither Vencor, VIC, nor VPN is: (a) subject to any contract
or other commitment that would impair its or their ability to
perform the obligations of this Agreement, the Coinsurance
Agreement, or the
<PAGE>
Preferred Access Agreement; (b) subject to any laws,
regulations, or orders of any court, administrative agency, or
governmental body that would impair its or their ability to
perform the obligations of this Agreement, the Coinsurance
Agreement, or the Preferred Access Agreement; or (c) subject
to any pending or threatened judicial or administrative
action, suit, investigation, or other proceeding that would
adversely affect its or their ability to perform the
obligations of this Agreement, the Coinsurance Agreement, or
the Preferred Access Agreement.
7.1.6. Vencor, VIC, and VPN each has all licenses, franchises,
permits and government authorizations necessary for the
conduct of its business, none of which will be terminated or
otherwise adversely affected as a result of the execution of
this Agreement, the Coinsurance Agreement, or the Preferred
Access Agreement or the performance of its obligations
thereunder.
7.1.7. VIC will not assign any of the Policies to another insurance
company unless the other insurance company
7.1.7.1. Is owned by Vencor; and
7.1.7.2. Has at least 200% of the company action level risk
based capital required by then current statutes or
regulations.
8. REPRESENTATIONS AND WARRANTIES OF CNA
8.1. To induce Vencor to enter into this Agreement and consummate the
transactions contemplated hereby, CNA hereby represents and warrants
as follows:
8.1.1. Continental Casualty Company is wholly owned by CNA Financial
Corporation, a publicly traded company. Valley Forge Life
Insurance Company is wholly owned by Continental Assurance
Company which in turn is wholly owned by Continental Casualty
Company.
8.1.2. Continental Casualty Company and Valley Forge Life Insurance
Company possess and shall maintain in good standing during the
term of this Agreement any and all valid certificates of
authority and licenses under any applicable laws. Continental
Casualty Company and Valley Forge Life Insurance Company are
and shall remain at all times during this Agreement authorized
to do all acts necessary or convenient to carry out the terms
and purposes of this Agreement. The parties agree that failure
of CNA to maintain active, necessary licenses constitutes a
breach of this Agreement
<PAGE>
that cannot be remedied at law and that actions in equity,
including injunctions, are appropriate.
8.1.3. Continental Casualty Company is an insurance company duly
organized, validly existing, and in good standing under the
laws of the State of Illinois, and has all requisite corporate
power and authority to conduct its business and own, operate,
and lease its properties as and in the places where such
business is now conducted and such properties are now owned,
leased, or operated.
8.1.4. Valley Forge Life Insurance Company is a life insurance
company duly organized, validly existing, and in good standing
under the laws of the State of Pennsylvania, and has all
requisite corporate power and authority to conduct its
business and own, operate, and lease its properties as and in
the places where such business is now conducted and such
properties are now owned, leased, or operated.
8.1.5. This Agreement, the Coinsurance Agreement, and the Preferred
Access Agreement have been or will be duly executed by CNA, as
provided herein, and each constitutes the valid and binding
obligation of CNA, enforceable in accordance with its terms.
8.1.6. CNA is not: (a) subject to any contract or other commitment
that would impair its ability to perform the obligations of
this Agreement, the Coinsurance Agreement, or the Preferred
Access Agreement; (b) subject to any laws, regulations, or
orders of any court, administrative agency, or governmental
body that would impair its ability to perform the obligations
of this Agreement, the Coinsurance Agreement, or the Preferred
Access Agreement; or (c) subject to any pending or threatened
judicial or administrative action, suit, investigation, or
other proceeding that would adversely affect its ability to
perform the obligations of this Agreement, the Coinsurance
Agreement, or the Preferred Access Agreement.
8.1.7. CNA has all licenses, franchises, permits and government
authorizations necessary for the conduct of its business, none
of which will be terminated or otherwise adversely affected as
a result of the execution of this Agreement, the Coinsurance
Agreement, or the Preferred Access Agreement or the
performance of its obligations thereunder.
8.1.8. Neither Continental Casualty Company nor Valley Forge Life
Insurance Company will assign any of the Policies to another
insurance company unless the other insurance company
<PAGE>
8.1.8.1. Is owned by a parent of either Continental Casualty
Company or Valley Forge Life Insurance Company; and
8.1.8.2. Has at least 200% of the company action level risk
based capital required by then current statutes or
regulations.
9. INDEMNIFICATION
9.1. Indemnification of CNA. Vencor hereby agrees to indemnify and hold
harmless CNA, its affiliates and subsidiaries and its and their
directors, officers, employees, agents, and any successors in interest
or at law (collectively "CNA" for purposes of this Section), from any
and all costs, claims, expenses, demands, actions, suits, or
proceedings, liabilities and damages (including, but not limited to,
awards, statutory or regulatory penalties, and attorneys fees)
directly or indirectly arising out of or resulting from any acts or
omissions of Vencor, its subsidiaries or affiliates or its or their
directors, officers, employees, agents, contractors or authorized
representatives (collectively "Vencor" for the purposes of this
Section) in the performance of their duties under this Agreement or
the breach of any covenant, condition, warranty, or representation
contained in this Agreement, the Coinsurance Agreement or the
Preferred Access Agreement excluding, however, any acts or omissions
of Vencor to the extent they are caused or contributed to by CNA.
9.2. Indemnification of Vencor. CNA hereby agrees to indemnify and hold
harmless Vencor, as defined in subsection 9.1, from any and all
costs, claims, expenses, demands, actions, suits, or proceedings,
liabilities and damages (including but not limited to, awards,
statutory or regulatory penalties, and attorneys fees) directly or
indirectly arising out of or resulting from any acts or omissions of
CNA, as defined in subsection 9.1, in the performance of their duties
under this Agreement or the breach of any covenant, condition,
warranty or representation contained in this Agreement, the
Coinsurance Agreement, or the Preferred Access Agreement, excluding,
however, any acts or omissions of CNA to the extent they are caused or
contributed to by Vencor, as defined in subsection 9.1.
9.3. Notice. Neither party shall be entitled to be indemnified if it fails
to notify the party bearing liability to indemnify ("indemnifying
party") of the proceedings and does not furnish the indemnifying party
a copy of the legal documents (e.g., complaint, notice of hearing,
etc.), if available, within a reasonable time after the non-
indemnifying party or its designated service of process agent is
served with the summons or other legal process which initially
notifies the non-indemnifying party of the nature of the proceeding.
<PAGE>
9.4. Defense. With respect to any claim by a third party for which
indemnification is due hereunder ("third party indemnification
claim"), the indemnifying party shall defend, in good faith and its
own expense, any such indemnification claim and the indemnitee, at its
expense, shall have the right to participate in the defense of any
such third party indemnification claim. In connection with its defense
of a third party indemnification claim, the indemnifying party shall
have the absolute right to choose or approve counsel for the defense
or prosecution of such action. So long as the indemnifying party is
defending in good faith any such third party indemnification claim,
the indemnitee shall not settle or compromise such third party
indemnification claim. The indemnitee shall make available to the
indemnifying party or its representatives all records and other
materials reasonably required by them for its use in contesting any
third party indemnification claim and shall cooperate fully with the
indemnifying party in the defense of all such indemnification claims.
10. AUDIT
10.1. CNA shall have the authority to inspect and audit the books and
records of Vencor and its assignees which directly pertain to this
Agreement provided that all of the following terms and conditions are
met:
10.1.1. The party being audited agrees on the place and time of the
audit; and
10.1.2. At least 24 months has elapsed since the last audit of Vencor
by CNA.
10.2. Vencor shall have the authority to inspect and audit the books and
records of CNA and its assignees which directly pertain to this
Agreement provided that all of the following terms and conditions are
met:
10.2.1. The party being audited agrees on the place and time of the
audit; and
10.2.2. At least 24 months has elapsed since the last audit of CNA by
Vencor.
11. CONFIDENTIALITY
11.1. Member Information. Neither CNA nor Vencor shall disclose or use or
permit the disclosure or use of individually identifiable medical or
other personal information about any Member except as reasonably
necessary for the administration of this Agreement, the Coinsurance
Agreement, the Preferred Access Agreement or the Policies or as
otherwise required by applicable law.
<PAGE>
11.2. Terms of Agreements. CNA and Vencor shall keep the terms of this
Agreement, the Coinsurance Agreement and the Preferred Access
Agreement and any related negotiations confidential and shall not
disclose them to any other person except as required by said
Agreements or applicable law (e.g., either party may file agreements,
when necessary for licensing or product approval, without separate
notice to the other party). If either party becomes subject to
compulsory process to disclose the terms of the Agreements or related
negotiations, it shall give the other party immediate oral and written
notice of such process.
11.3. Injunction. The parties agree that the failure by either to comply
with the obligations of this Section 11 constitutes a breach of this
Agreement that cannot be remedied at law and for which actions in
equity, including actions for preliminary and permanent injunctions,
are appropriate.
12. TERM AND TERMINATION
12.1. Automatic Termination
---------------------
12.1.1. This Agreement shall terminate automatically if either party
becomes insolvent or otherwise unable to perform its
obligations hereunder.
12.1.2. This Agreement shall terminate automatically if either the
Preferred Access Agreement or the Coinsurance Agreement
terminates for any reason.
12.2. Termination by Notice - Either party may terminate this Agreement
---------------------
without cause by either party giving to the other written notice to
that effect no less than one hundred eighty (180) days prior to the
termination date; provided, however, that no such termination shall be
effective until this Agreement shall have been in effect for ten
years.
12.3. Termination for Cause
---------------------
12.3.1. This Agreement may be terminated by thirty (30) days' written
notice to the breaching party of breach of any of the terms
or conditions of this Agreement, provided such breach has not
been cured within such thirty (30) day notice period.
12.3.1.1. Provided, however, that if a breach cannot
reasonably be cured within such thirty (30) days,
the party giving notice may terminate this
Agreement if the breaching party does not proceed
to cure the breach as soon as reasonable
practicable and in any event does not cure the
breach within sixty (60) days of the written
notice.
<PAGE>
12.3.2. Any egregious or willful violation of any of the terms of
this Agreement by either party shall be grounds for
termination of this Agreement upon thirty (30) days' written
notice to the breaching party.
12.3.3. Any of any of the following events shall be grounds for
termination of this Agreement upon thirty (30) days' written
notice to the other party.
12.3.3.1. The other party enters into or becomes subject to
an agreement with respect to the change of
ownership, control, merger, consolidation, or
reorganization of any of the parties to the
Coinsurance Agreement; or
12.3.3.2. The other party suffers a material adverse change
in its financial condition sufficient to threaten
its ability to perform hereunder; or
12.3.3.3. On the third anniversary date of this Agreement,
this strategic alliance has produced less than $40
million in new written premium and in the third
Agreement Year, this strategic alliance has
produced less than $20 million in new written
premium; or
12.3.3.4. On any third anniversary date of this Agreement
between the third anniversary date and the tenth
anniversary date, it is determined that the rate
of growth of new written premium under this
strategic alliance is not at least equal to the
rate of growth of the individual long term care
business of CNA.
12.4. Obligations Survive Termination
-------------------------------
12.4.1. The provisions of subsections 3.7 through 12.3,
inclusive, excluding Section 6, shall survive the
termination of this Agreement and shall continue in
full force and effect thereafter with respect to all
Policies issued prior to such termination and the
Members insured thereunder until all such Policies are
canceled, surrendered, or otherwise terminated.
12.4.2. The termination of this Agreement shall not terminate
or otherwise affect the Coinsurance Agreement or the
Preferred Access Agreement which shall continue in
full force and effect thereafter with respect to all
Policies issued prior to such termination and the
Members insured thereunder until all such Policies are
canceled, surrendered, or otherwise terminated.
<PAGE>
12.4.3. The parties agree that any deviation from the terms of
this subsection 12.4, no matter when the deviation
occurs, constitutes a breach of this Agreement that
cannot be remedied at law and that actions in equity,
including injunctions, are appropriate.
13. ARBITRATION
13.1. Resolution of Disputes by Arbitration. The parties agree that all
-------------------------------------
controversies or disputes arising out of, in connection with, or
which relate to this Agreement or performance under this Agreement,
which cannot be resolved by mutual agreement, shall be submitted to
arbitration for resolution, as herein provided.
13.2. Selection of Arbitrators.
------------------------
13.2.1. Arbitration shall be by a panel of three neutral
arbitrators, each of which shall be an active or former
officer of an insurance company which, at the time of the
demand for arbitration, issues or has recently issued
policies of insurance of the type covered by this
Agreement. In addition, each arbitrator shall meet the
requirements of, and shall agree to act in accordance with,
the Code of Ethics for Arbitrators in Commercial Disputes
sponsored by the American Bar Association and the American
Arbitration Association, except to the extent that conduct
prohibited by such Code is specifically permitted by the
terms of this Agreement.
13.2.2. Within thirty (30) days after receipt of a demand for
arbitration, each party shall designate its arbitrator. The
designation shall contain information sufficient to allow
the other party to judge the qualifications of the person
designated as arbitrator. Thereafter, each party shall have
fifteen (15) days within which to accept the arbitrator
designated by the other party or to challenge the
qualifications of the arbitrator so designated.
13.2.3. The arbitrators so designated and accepted shall, within
thirty (30) days after acceptance, select the third
arbitrator. Arbitrators may consult with the party
nominating them as to acceptability of persons under
consideration for appointment by them as third arbitrator.
If the third arbitrator has not been selected within that
time, each arbitrator shall, within fifteen (15) days,
nominate three qualified individuals to serve as the third
arbitrator. The American Arbitration Association shall
appoint a third arbitrator from the persons nominated who
meet the qualifications described in this Agreement.
<PAGE>
13.3. Arbitration Procedure.
---------------------
13.3.1. Arbitration shall begin upon the filing by one of the
parties of a written demand for arbitration. Such demand
shall contain a statement setting forth the nature of the
dispute, the amount involved, if any, and the remedy
sought. Such demand shall be served upon the other party by
certified mail, return receipt requested.
13.3.2. Within sixty (60) days after the arbitration panel has been
finalized, the parties shall submit their dispute or
controversy to the panel of arbitrators for decision. The
site for the arbitration hearing shall be Chicago,
Illinois, or as mutually agreed by the parties. The rules
for the gathering of evidence, taking of discovery or
depositions, if any, and the conduct of the hearing shall
be such rules as are included in the Commercial Arbitration
Rules of the American Arbitration Association as of the
date the arbitration panel was finalized, to the extent not
inconsistent with the terms of this Agreement. The parties
may agree to use modified rules to expedite the arbitration
process. The formal rules of evidence need not apply, in
the arbitrators' discretion, to the hearing.
13.3.3. All arbitrators shall participate in the deliberations and
a decision on any matter shall be by a majority of the
arbitrators.
13.3.4. The final decision of the arbitration panel shall be
submitted in writing, in such form as the arbitrators
determine, within thirty (30) days after the conclusion of
the arbitration hearing. The decision of the arbitrators
shall be final, except that an appeal may be taken only for
one or more of the reasons assigned for vacating an award
by the Uniform Arbitration Act as enacted by the State of
Illinois, which law shall apply and govern the arbitration
process contemplated hereunder, to the extent not
inconsistent with this Agreement.
13.4. Costs of Arbitration Proceeding. Each party shall bear the cost of
-------------------------------
its own arbitrator. The costs of the arbitration proceeding,
including the fees of the third arbitrator, shall be borne equally
by the parties, unless the arbitration panel orders otherwise. The
panel, in its discretion, may also allocate and award other
reasonable out-of-pocket costs of the parties, including reasonable
attorney's fees, as it deems fair and equitable under the
circumstances.
13.5. Confidentiality. The parties agree, and the appointed arbitrators
---------------
shall agree as part of their acceptance of nomination, to keep
confidential and not disclose to persons not connected with the
arbitration the details of
<PAGE>
the arbitration proceeding and all information received by them in
connection therewith, except as may be required by process of law.
14. MISCELLANEOUS PROVISIONS
14.1. Regulatory Compliance. Vencor and CNA agree, for themselves and
---------------------
their agents and subagents, that each shall comply with all
applicable requirements of municipal, county, state, and federal
authorities, including requirements applicable to federal government
subcontractors, now or hereafter in force and effect, governing
Vencor, CNA, and Preferred Advantage Selected Providers. Provided,
however, that if Vencor or its agent requires providers to agree to
standards applicable to federal government subcontractors, then
failure of a provider to meet those standards shall not constitute a
breach of this Agreement by Vencor.
14.2. Notices. Any optional or required notice pursuant to the terms and
-------
provisions of this Agreement shall be in writing and shall be
transmitted by fax and shall be sent by either (1) overnight mail;
or (2) certified or registered mail, return receipt requested,
postage prepaid; or (3) by personal hand delivery, to the other
party at the following addresses:
if to CNA: Mr. Carl A. Friedrich
Executive Vice President
Long Term Care - 34S
Continental Casualty Company
333 S Wabash Ave
Chicago IL 60604
TEL 312-822-6349
FAX 312-822-4671
cc: General Counsel
FAX 312-817-3302
if to Vencor: Mr. W. Earl Reed, III
Chief Financial Officer
Vencor, Inc.
3300 Providian Center
400 W Market St
Louisville KY 40202
TEL 502-596-7300
FAX 502-596-4080
cc: General Counsel
FAX 502-596-4075
<PAGE>
14.3. Independent Contractors. None of the provisions of this Agreement is
-----------------------
intended to create any relationship between the parties other than
that of independent entities contracting with each other. Neither of
the parties nor any of their respective officers, directors or
employees, shall be construed to be the agent, the employee, the
representative or the partner of, or a joint venturer with, the
other.
14.4. Noninterference with Health Care. Nothing in this Agreement is
--------------------------------
intended to create any right of CNA to intervene in any manner in
the methods or means by which Vencor, VPN, or a Preferred Advantage
Selected Provider renders health care services, accommodations or
supplies to Members. Nothing herein shall be construed to require
Vencor, VPN, or a Preferred Advantage Selected Provider to take any
action inconsistent with its professional judgment concerning the
care and treatment to be rendered to Members. Notwithstanding any
provision in this Agreement to the contrary, CNA shall have the
right to perform the statutory functions of a long-term care
insurance carrier.
14.5. Assignment. Neither Vencor nor CNA shall assign, subcontract,
----------
sublet, or transfer, by operation of law, agreement or otherwise,
this Agreement or any of the obligations or rights under this
Agreement without the prior written consent of the other party.
14.5.1. Provided, however, that assignment of this Agreement from
one entity to another entity which is under common
ownership and control with the assignor does not require
consent of the non-assigning party if, prior to the
assignment, the assigning party provides to the non-
assigning party a document, signed by the chief executive
officer of the assignee, stating that the assignee assumes
each and every duty and obligation of the assignor.
14.6. Proprietary Rights
------------------
14.6.1. Vencor retains the exclusive right to the names and symbols
of Vencor together with any distinctive trademarks or
service marks (collectively referred to herein as the
"marks") that may currently exist or hereafter be adopted.
CNA agrees not to use the marks of Vencor in any manner
without the prior written consent of Vencor. Upon the
termination of its obligations under this Agreement, CNA
will immediately discontinue the use of the marks and
forthwith destroy or return to Vencor any tangible material
bearing the marks.
14.6.2. CNA retains the exclusive right to the names and symbols of
CNA together with any distinctive trademarks or service
marks (collectively referred to herein as the "marks") that
may currently
<PAGE>
exist or hereafter be adopted. Vencor agrees not to use the
marks of CNA in any manner without the prior written
consent of CNA. Upon the termination of its obligations
under this Agreement, Vencor will immediately discontinue
the use of the marks and forthwith destroy or return to CNA
any tangible material bearing the marks.
14.7. Advertising. All advertising, circulars, or other matter intended
-----------
for publication or statements to press or media of any kind, by
Vencor, concerning CNA or CNA products, must be submitted to and
approved by CNA prior to publication. All advertising, circulars, or
other matter intended for publication or statements to press or
media of any kind, by CNA, concerning Vencor or Vencor products,
must be submitted to and approved by Vencor prior to publication.
14.8. Modifications. This Agreement may be amended or modified only by a
-------------
writing executed by the parties. The parties agree that this
Agreement shall be subject to (i) amendments in any applicable
federal, state or local laws and regulations and (ii) new
legislation and/or regulations. Any provision of law or regulation
that invalidates or otherwise is inconsistent with the terms of this
Agreement or that would cause one or both of the parties to be in
violation of the law, shall be deemed to have superseded the terms
of this Agreement, provided that the parties shall exercise their
reasonable best efforts to accommodate the terms and intent of this
Agreement to the greatest extent possible consistent with the
requirements of such law or regulation.
14.9. Invalidity or Unenforceability. The invalidity or unenforceability
------------------------------
of any terms or provisions of this Agreement shall in no way affect
the validity or enforceability of any other term or provision.
14.10. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the law of the state of Illinois (without reference
to choice of law rules) except to the extent superseded or preempted
by federal law.
14.11. Entire Agreement. This Agreement and all attachments, schedules and
----------------
exhibits hereto shall constitute the entire agreement between the
parties regarding the subject matter hereof. Each party acknowledges
that no representation, inducement, promise, or agreement has been
made, orally or otherwise, by the other party or by anyone acting on
behalf of the other party, unless such representation, inducement,
promise, or agreement is embodied in this Agreement.
<PAGE>
14.12. Captions. The captions and headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized representative as of the date first written
above.
CONTINENTAL CASUALTY COMPANY
VALLEY FORGE LIFE
ASSURANCE COMPANY VENCOR, INC.
By: /s/ Richard Holton By: /s/ W. Earl Reed, III
-------------------------- -----------------------------------
(signature) (signature)
Name: Richard Holton Name: W. Earl Reed, III
------------------------ ---------------------------------
(please print) (please print)
Title: President, CAN LTC Title: CFO and Executive Vice President
----------------------- --------------------------------
(please print) (please print)
Date: 6/10/97 Date: 6/10/97
------------------------ ---------------------------------
(please print) (please print)
<PAGE>
EXHIBIT "A"
-----------
<PAGE>
[LETTERHEAD OF CONTINENTAL CASUALTY COMPANY APPEARS HERE]
THIS POLICY IS INTENDED TO BE A QUALIFIED LONG-TERM CARE INSURANCE CONTRACT
UNDER THE FEDERAL TAX CODE.
We are pleased to issue this Long-Term Care Insurance Policy to You. It was
issued in consideration of Your application and payment of the required premium.
We suggest You carefully read it.
GUARANTEED RENEWABLE FOR LIFE
PREMIUMS SUBJECT TO CHANGE
Your policy will remain in effect during Your lifetime as long as each premium
is paid on time. We cannot cancel or refuse to renew Your policy. We cannot
change Your policy without Your consent. However, We may change the premium
rates. Any change will apply to all policies in the same class as Yours in the
state where the policy was issued. We will notify You in writing 31 days before
Your premium changes. Coverage begins and ends at 12:01 a.m. Standard Time at
Your residence.
Your policy provides a refund of unearned premium when We are notified of Your
death. A refund of unearned premium will not be made for any other reason.
30-DAY REVIEW PERIOD
If You feel this policy does not meet Your insurance needs, return it to Us or
Your agent within 30 days after You have received it. We will return Your
premium and consider the policy never to have been issued.
CHECK YOUR APPLICATION
Caution: The issuance of this long-term care insurance policy is based upon Your
responses to the questions on Your application. A copy of Your application is
attached. If Your answers are incorrect or untrue, We have the right to deny
benefits or rescind Your policy. The best time to clear up any questions is now,
before a claim arises! If, for any reason, any of Your answers are incorrect,
contact Us at CNA Plaza, Chicago, Illinois, 60685.
NOTICE TO BUYER
This policy may not cover all of the costs associated with long-term care
incurred by You during the period of coverage. You are advised to review
carefully all policy limitations.
SIGNED FOR THE CONTINENTAL CASUALTY COMPANY
/s/ BETH M. LUDDEN
-----------------------------------
Senior Operations Officer
COUNTERSIGNED BY
----------------------------------------------------------------
LICENSED RESIDENT AGENT (WHERE REQUIRED BY LAW)
P1-N0066-A LONG-TERM CARE INSURANCE POLICY
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
P1-N0066-A -2-
<PAGE>
POLICY SCHEDULE
---------------
This policy schedule provides You with specific information about the product
You selected. It tells You which benefits You chose and how much they will
cost. General policy information is also provided.
<TABLE>
<CAPTION>
BENEFITS
- --------
<S> <C>
Elimination Period per Lifetime............................ 75 Days
---------
Maximum Daily Home and Adult Day Care Benefit.............. $ 50
---------
Maximum Daily Facility Benefit............................. $ 100
---------
Maximum Lifetime Benefit................................... $ 146,000
---------
Preferred Select Network................................... VENCOR
---------
Preferred Select Provider Discount......................... 15%
---------
This Policy [Includes/Does Not Include] a Nonforfeiture Benefit
OPTIONAL BENEFITS
- -----------------
Compound Automatic Increase Benefit Rider........................ Included
PREMIUM SUMMARY
- ---------------
Total Annual Premium Before Discounts............................ $1,346.80
-----------
Total Annual Premium Less Spouse and/or Group Discounts.......... $1,212.12
-----------
Mode of Payment.................................................. Annual
-----------
Renewal Premium Based on Mode of Payment......................... $1,212.12
-----------
GENERAL POLICY INFORMATION
- --------------------------
Policy Number.................................................... 1234567
------------
Effective Date of Coverage....................................... July 1, 1997
------------
First Renewal Date............................................... July 1, 1998
------------
Name of Insured.................................................. John A. Doe
-----------
</TABLE>
P1-N0066-A -3-
<PAGE>
GUIDE TO YOUR LONG-TERM CARE POLICY
The following is a Guide to Your Long-Term Care Policy. It tells You what is
included in Your policy and on what page(s) You can find it.
Page(s)
-------
Guaranteed Renewable; Premiums Subject to Change........................ 1
30-Day Review Period.................................................... 1
Check Your Application.................................................. 1
Policy Schedule......................................................... 3
SECTION 1: DEFINITIONS OF IMPORTANT TERMS............................... 7-12
. Activities of Daily Living............................................ 10
. Adult Day Care........................................................ 9
. Alternate Care Facility............................................... 8-9
. Caregiver Training.................................................... 11
. Chronically Ill....................................................... 9
. Cognitive Impairment.................................................. 10
. Effective Date of Coverage............................................ 12
. Elimination Period.................................................... 12
. Home and Community Based Care......................................... 7
. Home Convalescent Unit................................................ 7
. Home Health Care Agency............................................... 8
. Informal Caregiver.................................................... 11
. Licensed Health Care Practitioner..................................... 10
. Long-Term Care Facility............................................... 11
. Maintenance or Personal Services...................................... 9
. Maximum Lifetime Benefit.............................................. 12
. Medical Help System................................................... 10
. Medicare.............................................................. 12
. Plan of Care.......................................................... 10
. Pre-existing Condition................................................ 11
. Preferred Advantage Selected Provider................................. 12
. Qualified Long-Term Care.............................................. 7
. Respite Care.......................................................... 11
. We, Our, Us........................................................... 7
. You, Your, Yourself................................................... 7
SECTION 2: BENEFITS..................................................... 13-16
General Benefit Information............................................. 13
. What is in the Policy Schedule........................................ 13
. Limitations or Conditions on Eligibility for Benefits................. 13
. What Happens If You Terminate Your Policy............................. 13
. Coverage for Alzheimer's Disease...................................... 13
. No Need for Hospitalization........................................... 13
Home and Community-Based Care Benefits.................................. 14-15
. What Is The Home and Community-Based Care Benefit and
How Does It Work...................................................... 14
P1-N0066-A -5-
<PAGE>
. Respite Care Benefit................................................... 14
. Medical Help Benefit................................................... 15
. Caregiver Training Benefit............................................. 15
Long-Term Care Facility Benefit.......................................... 15
. What is the Long-Term Care Facility Benefit and How Does it Work....... 15
. Bed Reservation Benefit................................................ 15
Preferred Select Provider Advantage...................................... 16-17
Waiver of Premium Benefit................................................ 18
Alternate Plan of Care Benefit........................................... 18
SECTION 3: EXCLUSIONS AND LIMITATIONS.................................... 19
. When this Policy Will Not Provide Benefits............................. 19
. Pre-existing Condition Limitation...................................... 19
SECTION 4: CLAIMS........................................................ 20-21
. Notifying Us of a Claim................................................ 20
. How to File a Claim.................................................... 20
. When to File a Claim................................................... 20
. Care Management Services............................................... 20
. When Your Claim is Paid................................................ 20
. How Claims are Paid.................................................... 21
. Our Rights to Obtain Information....................................... 21
. Misstatement of Your Age............................................... 21
. Limitations on Legal Actions........................................... 21
SECTION 5: PREMIUM PAYMENT AND REINSTATEMENT OF YOUR POLICY.............. 22-24
. Paying Premiums........................................................ 22
. What Happens When Premiums Are Not Paid................................ 22
. Unintentional Lapse Protection......................................... 22
. What Happens To Your Premiums if You Die............................... 22
. Putting the Policy Back in Force....................................... 22-23
. Putting the Policy Back in Force After Nonpayment of Premium
Due to Cognitive Impairment or Functional Incapacity................. 23-24
SECTION 6: THE CONTRACT.................................................. 24-25
. What Makes Up the Contract............................................. 24
. Importance of Information on the Application/Time Limit on
Certain Defenses..................................................... 24-25
P1-N0066-A -6-
<PAGE>
================================================================================
SECTION 1: DEFINITIONS OF IMPORTANT TERMS
This section provides the meaning of special terms used throughout this policy.
The first letter of each word or words in a phrase is capitalized to help You
easily recognize them wherever they appear in the policy.
================================================================================
THE FOLLOWING DEFINITIONS REFER TO THOSE INVOLVED IN THE CONTRACT
================================================================================
WE, OUR, US The Continental Casualty Company, CNA
Plaza, Chicago, Illinois 60685.
================================================================================
YOU, YOUR, YOURSELF The insured named in the Policy Schedule.
================================================================================
THE FOLLOWING DEFINITIONS RELATE TO THE ELIGIBILITY FOR BENEFITS
================================================================================
HOME AND COMMUNITY-BASED CARE Qualified Long-Term Care which is provided:
1. in a Home Convalescent Unit by a Home
Health Care Agency; or
2. in an Alternate Care Facility; or
3. in an Adult Day Care facility.
================================================================================
QUALIFIED LONG-TERM CARE Necessary diagnostic, preventive, therapeu-
tic, curing, treating, mitigating, and
rehabilitative services, and Maintenance or
Personal Care Services, which:
1. are required by a Chronically ill individu-
al, and
2. are provided pursuant to a Plan of Care
prescribed by a Licensed Health Care
Practitioner.
================================================================================
HOME CONVALESCENT UNIT 1. Your home;
2. a private home;
3. a home for the retired or aged;
4. a place which provides residential care;
or
5. a section of a nursing facility providing
only residential care.
It does not mean a hospital.
P1-N0066-A -7-
<PAGE>
================================================================================
HOME HEALTH CARE AGENCY An entity which provides home health care or
hospice services and:
1. has an agreement as a provider of home
health care services or hospice care
under the Medicare program; or
2. is licensed or accredited by state law as
a Home Health Care Agency or hospice, if
such licensing or accreditation is
required by the state in which the care is
received.
For purposes of this policy, a licensed
therapist, a registered nurse, a licensed
practical nurse, or a licensed vocational
nurse operating within the scope of his or her
license will be considered a Home Health Care
Agency.
================================================================================
ALTERNATE CARE FACILITY A facility that is engaged primarily in
providing ongoing care and related services to
inpatients in one location and meets all of
the following criteria:
1. provides 24 hour a day care and services
sufficient to support needs resulting from
inability to perform Activities of Daily
Living or Cognitive Impairment; and
2. has a trained and ready to respond
employee on duty at all times to provide
that care; and
3. provides 3 meals a day and accommo-
dates special dietary needs; and
4. is licensed or accredited by the
appropriate agency to provide such care,
if such licensing or accreditation is
required by the state in which the care is
received; and
5. has formal arrangements for the services
of a physician or nurse to furnish medical
care in case of emergency; and
6. has appropriate methods and procedures
for handling and administering drugs and
biologicals.
P1-N0066-A -8-
<PAGE>
These requirements are typically met by
hospice care facilities or assisted living
facilities that are either free standing facilities
P1-N0066-A -9-
<PAGE>
or part of a life-care community. They may
also be met by some personal care and adult
congregate care facilities. They are generally
NOT met by individual residences or
independent living units.
An Alternate Care Facility does not mean a
Long-Term Care Facility, hospital or
clinic, boarding home, or a place which
operates primarily for the treatment of
alcoholics or drug addicts. However, care or
services provided in these facilities may be
covered subject to the conditions of the
Alternate Plan of Care Benefit provision.
================================================================================
ADULT DAY CARE A community-based group program that
provides health, social, and related support
services in a facility which is licensed or
certified by the state as an Adult Day Care
Center to impaired adults. It does not mean
24-hour care.
================================================================================
MAINTENANCE OR PERSONAL CARE Any care the primary purpose of which is the
SERVICES provision of needed assistance with any of the
disabilities as a result of which You are
Chronically Ill (including the protection from
threats to health and safety due to severe
Cognitive Impairment).
================================================================================
CHRONICALLY ILL Certified by a Licensed Health Care
Practitioner as:
1. being unable to perform (without
substantial assistance from another
individual) at least 2 Activities of Daily
Living for a period of at least 90 days
due to a loss of functional capacity, or
2. requiring substantial supervision to
protect Yourself from threats to health
and safety due to severe Cognitive
Impairment.
You will not be considered Chronically Ill for
any period unless within the 12 months prior
to such period a Licensed Health Care
Practitioner has certified that You meet the
above requirements.
================================================================================
P1-N0066-A -10-
<PAGE>
================================================================================
PLAN OF CARE A program of care and treatment:
1. initiated by and approved in writing by
a Licensed Health Care Practitioner
before the start of such care and
treatment; and
2. confirmed in writing at least once every
60 days.
================================================================================
LICENSED HEALTH CARE PRACTITIONER Any physician, registered professional
nurse, or licensed social worker.
================================================================================
ACTIVITIES OF DAILY LIVING - (ADLS) The Activities of Daily Living are:
1. Eating. Feeding Yourself by getting food
into Your body from a receptacle (such
as a plate, cup or table) or by a
feeding tube or intravenously.
2. Dressing. Putting on and taking off all
items of clothing and any necessary
braces, fasteners, or artificial limbs.
3. Bathing. Washing Yourself by sponge
bath; or in either a tub or shower,
including the task of getting in or out
of the tub or shower.
4. Toileting. Getting to and from the
toilet, getting on and off the toilet,
and performing associated personal
hygiene.
5. Transferring. Moving into or out of a
bed, chair, or wheelchair.
6. Continence. The ability to maintain
control of bowel and bladder function;
or, when unable to maintain control of
bowel or bladder function, the ability
to perform associated personal hygiene,
including caring for a catheter or
colostomy bag.
================================================================================
COGNITIVE IMPAIRMENT A deficiency in Your short- or long-term
memory, orientation as to person, place and
time, deductive or abstract reasoning, or
judgment as it relates to safety
awareness.
================================================================================
MEDICAL HELP SYSTEM A communication system, located in your
home, used to summon medical attention in
case of a medical emergency.
P1-N0066-A -11-
<PAGE>
================================================================================
INFORMAL CAREGIVER The person who has the primary
responsibility of caring for You in Your
Home Convalescent Unit. A person who is
paid for caring for You cannot be an
Informal Caregiver.
================================================================================
CAREGIVER TRAINING Training provided by a Home Health Care
Agency, Long-Term Care Facility, or
hospital and received by the Informal
Caregiver to care for You in Your
residence.
================================================================================
RESPITE CARE Qualified Long-Term Care, provided in the
Home Convalescent Unit by a Home Health
Care Agency, to temporarily relieve the
Informal Caregiver.
================================================================================
LONG-TERM CARE FACILITY A place which:
1. is licensed by the state where it is
located; and
2. provides nursing care on an inpatient
basis under the supervision of a
physician; and
3. has 24-hour-a-day nursing services
provided by or under the supervision of
a registered nurse (R.N.), licensed
vocational nurse (L.V.N.), or licensed
practical nurse (L.P.N.), and
4. keeps a daily medical record of each
patient; and
5. may be either a freestanding facility
or a distinct part of a facility such
as a ward, wing, unit, or swing-bed of
a hospital or other institution.
A Long-Term Care Facility does not mean a
hospital or clinic, boarding home, a place
which operates primarily for the treatment
of alcoholics or drug addicts, or a
hospice. However, care or services provided
in these facilities may be covered subject
to the conditions of the Alternate Plan of
Care Benefit provision.
================================================================================
PRE-EXISTING CONDITION A health condition for which You received
medical advice or treatment within the 6
P1-N0066-A -12-
<PAGE>
months before Your Effective Date of
Coverage.
P1-N0066-A -13-
<PAGE>
================================================================================
EFFECTIVE DATE OF COVERAGE The date when coverage starts under Your
policy. It is shown on the Policy Schedule.
================================================================================
ELIMINATION PERIOD The number of days in which covered
Qualified Long-Term Care services are
provided to You before this policy begins
to pay benefits. It is shown on the Policy
Schedule and can be satisfied by any
combination of days of a Long-Term Care
Facility stay or days of Home and
Community-Based Care. These days of care
or services need not be continuous but must
be accumulated within a continuous period
of 730 days. This Elimination Period has to
be satisfied only once while Your policy is
in effect.
================================================================================
MAXIMUM LIFETIME BENEFIT The total amount We will pay in Your
lifetime for all benefits provided by Your
policy. Your Maximum Lifetime Benefit is
shown on the Policy Schedule.
================================================================================
PREFERRED SELECT PROVIDER A Long-Term Care Facility, Alternate Care
Facility, Home Health Care Agency, or Adult
Day Care center contracting with the
Preferred Select Network. The list of such
providers available on Your Effective Date
of Coverage is included with Your policy.
We will provide You with the most current
list of such providers at Your request. You
are not required to use a Preferred Select
Provider for benefits to be payable under
this policy.
================================================================================
PREFERRED SELECT NETWORK An organization with which We have an
agreement to provide the Preferred Select
Provider Advantage as described in
Section 2.
================================================================================
MEDICARE The Health Insurance for the Aged Act,
Title XVIII of the Social Security
Amendments of 1965 as then constituted or
later amended.
P1-N0066-A -14-
<PAGE>
================================================================================
SECTION 2: BENEFITS
This section provides the following information about Your policy:
1. Your Benefits under this policy;
2. The conditions under which You will receive benefits;
3. How long You will receive benefits.
You can refer back to Section 1 for definitions of terms found below:
================================================================================
GENERAL BENEFIT INFORMATION
================================================================================
WHAT IS IN THE POLICY SCHEDULE The Policy Schedule shows You the Maximum
Daily Home and Adult Day Care Benefit, the
Maximum Daily Facility Benefit, and the
Maximum Lifetime Benefit. It also includes
optional benefit information, if
applicable, and premium and general policy
information.
LIMITATIONS OR CONDITIONS ON Except where otherwise stated, no benefits
ELIGIBILITY FOR BENEFITS under Your policy will be paid:
(1) for any services You receive or
expenses You incur unless:
(a) such services are required because
You are Chronically Ill; and
(b) You satisfy the Elimination Period;
and
(2) in excess of the Maximum Lifetime
Benefit
WHAT HAPPENS IF YOU TERMINATE If you terminate Your policy, it will not
YOUR POLICY affect any claim beginning before such
termination. We will continue to provide
benefits, subject to all of the provisions
of Your policy, until You have not received
Qualified Long-Term Care for at least 180
consecutive days.
COVERAGE FOR ALZHEIMER'S DISEASE Your policy provides benefits, subject to
all of its provisions, for nervous or
mental disorders of organic origin,
including Alzheimer's Disease or senile
dementia, which are determined by clinical
diagnosis or tests.
NO NEED FOR HOSPITALIZATION You are not required to be hospitalized
before receiving benefits under Your
policy.
P1-N0066-A -15-
<PAGE>
================================================================================
HOME AND COMMUNITY-BASED CARE BENEFITS
================================================================================
WHAT IS THE HOME AND COMMUNITY- Each day You require Home and
BASED CARE BENEFIT AND HOW DOES Community-Based Care, We will pay benefits
IT WORK as follows:
A. For Qualified Long-Term Care received in
a Home Convalescent Unit or Adult Day
Care center, the lesser of:
1. The Maximum Daily Home and Adult
Day Care Benefit; or
2. The total of:
a. 100% of the expenses incurred for
occupational, physical, respiratory,
or speech therapy; or nursing care
services provided by a registered
nurse (R.N.) or a licensed practical
or vocational nurse (L.P.N. or
L.V.N.), and
b. 80% of the expenses incurred for
services provided by a medical social
worker, home health aide, homemaker
and similar services; and
c. 80% of the expenses incurred for
hospice care and Adult Day Care.
B. For Qualified Long-Term Care received in
an Alternate Care Facility, including
room and board, the lesser of:
1. The Maximum Daily Facility Benefit
shown in the Schedule, or
2. 80% of the expenses incurred for
such care.
RESPITE CARE BENEFIT In addition to any benefits payable above,
We will pay for up to 21 days of Respite
Care per calendar year. For each day of
Respite care, We will pay the lesser of:
1. The Maximum Daily Home and Adult Day
Care Benefit, or
2. 80% of the expenses incurred for such
care.
No benefits will be paid before the
Elimination Period is satisfied. Unused
days cannot be carried over into the next
calendar year.
P1-N0066-A -16-
<PAGE>
MEDICAL HELP BENEFIT We will pay the actual expense You incur
each month, up to 25% of the Maximum Daily
Home and Adult Day Care Benefit, for up to
12 months in Your lifetime, for the rental
or lease of a Medical Help System for Your
home during a Plan of Care. We will only
pay the Medical Help Benefit for a system
installed in Your home while Your policy is
in effect.
We will not pay for any charges for normal
telephone service while the system is
installed or for a home security system.
CAREGIVER TRAINING BENEFIT If You require Qualified Long-Term Care, We
will pay the expenses incurred for
Caregiver Training, not to exceed 5 times
the Maximum Daily Home and Adult Day Care
Benefit during any one Plan of Care. The
Elimination Period does not apply to this
benefit.
If You require a stay in a Long-Term Care
Facility or are hospitalized, the Caregiver
Training Benefit will only be payable if
the training will make it possible for You
to return to or remain in a Home
Convalescent Unit where You can be cared
for by the Informal Caregiver.
================================================================================
LONG-TERM CARE FACILITY BENEFIT
================================================================================
WHAT IS THE LONG-TERM CARE If You require Qualified Long-Term Care
FACILITY BENEFIT AND HOW DOES IT in a Long-Term Care Facility, for each
WORK day of Your stay We will pay the lesser of:
1. The Maximum Daily Facility Benefit, or
2. The charges made by the Long-Term Care
Facility for Your Qualified Long-Term
Care, including room and board.
BED RESERVATION BENEFIT We will continue to pay the Long-Term Care
Facility Benefit when You are charged for
Your room in a Long-Term Care Facility
while You are temporarily absent during the
course of Your Long-Term Care Facility
stay. This Bed Reservation Benefit will be
limited to 21 days per calendar year.
Unused days cannot be carried over into the
next calendar year. Such days may be used
to satisfy the Elimination Period.
P1-N0066-A -17-
<PAGE>
================================================================================
PREFERRED SELECT PROVIDER ADVANTAGE
================================================================================
WHAT IS THE PREFERRED SELECT We have entered into an agreement with a
PROVIDER ADVANTAGE AND HOW DOES Preferred Select Network to help ensure
IT WORK Your access to quality care at a
reasonable cost. It is solely at Your
option to elect to receive care
from a Preferred Select Provider.
PREFERRED SELECT PROVIDER If You receive covered Qualified Long-Term
DISCOUNT Care from a Preferred Select Provider, the
charges for such care will be reduced by
the Preferred Select Provider Discount
shown on the Policy Schedule.
PREFERRED ACCESS TO CARE If You require covered Qualified Long Term
Care, the Preferred Select Network shall
guarantee that You will receive priority
for access to such care from a Preferred
Select Provider.
1. You will receive access to such care
from Your Location of Choice, as
defined below, on a timely and priority
basis as soon as a facility bed or a
service is available.
2. Because availability of care may vary
by location, in the event such care is
not available within 60 days of Your
request at Your Location of Choice, the
Preferred Select Network will identify
and provide access to:
a. A Preferred Select Provider within
50 miles of Your Location of Choice;
or
b. if no such care is available from a
Preferred Select Provider within 50
miles of Your Location of Choice, a
Preferred Select Provider as close
to your Location of Choice as
possible.
3. In addition, in states designated as
"Special Access States" in the then
current list of Preferred Select
Providers, if access to a Preferred
Select Provider Long-Term Care Facility
within 50 miles of Your Location of
Choice is not possible within 60 days:
P1-N0066-A -18-
<PAGE>
a. The Preferred Select Network will
identify a Long-Term Care Facility,
located within 50 miles of Your
Location of Choice or as close as
possible, that is qualified to
provide covered care and is not a
member of the Preferred Select
Network; and
b. If You receive care from such Long-
Term Care Facility, the Preferred
Select Network will provide
reimbursement such that Your out-of-
pocket cost for such care will be
the same as if the provider had been
a Preferred Select Provider. Any
additional payments will not count
against Your Maximum Lifetime
Benefit.
YOUR LOCATION OF CHOICE The site of a Preferred Select Provider
selected by You from the current list of
those contracted with the Preferred Select
Network.
P1-N0066-A -19-
<PAGE>
================================================================================
WAIVER OF PREMIUM BENEFIT
================================================================================
WHAT IS THE WAIVER OF PREMIUM After a Long-Term Care Facility or
BENEFIT AND HOW DOES IT WORK Alternate Care Facility stay of 90
consecutive days (including the days used
to satisfy the Elimination Period), You do
not have to pay any future premiums that
become due during any further stay under a
Plan of Care. Premiums that become due will
be waived until you leave the Long-Term
Care Facility or Alternate Care Facility or
until benefits are no longer payable for
such stay, whichever occurs first. After
that, if the Maximum Lifetime Benefit has
not been paid, You must pay the premiums
when due.
================================================================================
ALTERNATE PLAN OF CARE BENEFIT
===============================================================================
WHAT IS THE ALTERNATE PLAN OF If You would otherwise require a Long-Term
CARE BENEFIT AND HOW DOES IT WORK Care Facility stay, We may' pay for
alternate services, devices or types of
care under a written Alternate Plan of
Care, if such plan is medically acceptable.
This Alternate Plan of Care:
1. must be mutually agreed to by You,
Your physician, and Us; and
2. will be developed by or with Licensed
Health Care Professionals.
This plan may specify special treatments or
different sites or levels of care. Some of
the services You may receive may differ
from those otherwise covered by Your
policy. In this case, benefits will be paid
at the levels specified and agreed to in
the Alternate Plan of Care. We are not
obligated to provide benefits for services
received prior to such agreement.
Agreement to participate in an Alternate
Plan of Care will not waive any of Your or
Our rights under the policy. Any benefits
payable under this provision will count
against the Maximum Lifetime Benefit.
P1-N0066-A -20-
<PAGE>
================================================================================
SECTION 3: EXCLUSIONS AND LIMITATIONS
This section tells You under what circumstances benefits are not payable even if
You would otherwise qualify for benefits under another section of this policy.
================================================================================
WHEN THIS POLICY WILL NOT PROVIDE This policy will not pay benefits for any
BENEFITS care or services which are:
1. provided without charge in the absence
of insurance; or
2. due to a condition for which You can
receive benefits under Workers'
Compensation or the Occupational
Disease Act or Law; or
3. due to mental, psychoneurotic, or
personality disorders without evidence
of organic disease (Alzheimer's Disease
and senile dementia are not excluded
from coverage); or
4. the result of war or any act of war; or
5. a. reimbursable under title XVIII of the
Social Security Act (Medicare) or
would be so reimbursable but for the
application of a deductible or
coinsurance amount; or
b. reimbursable under any other federal,
or state health care plan or law,
except Medicaid.
We will reduce Our benefits payable by the
dollar amount paid from the government
health care plan or law to the extent that
the combination of Our coverage and
governmental coverage exceeds 100% of the
actual charge for the covered services.
PRE-EXISTING CONDITION LIMITATION We will not pay for a loss due to a
Pre-existing Condition which You did not
disclose in the application unless the loss
begins more than 6 months after the
Effective Date of Coverage. However,
providing incorrect information may cause
Your policy to be voided.
If this policy replaces another long-term
care insurance policy, the 6-month time
period above is waived to the extent it was
satisfied under the replaced policy.
P1-N0066-A -21-
<PAGE>
Losses due to Pre-existing Conditions shown on the application are covered
immediately.
================================================================================
SECTION 4: CLAIMS
This section tells You:
1. How to notify Us of a claim;
2. How to file a claim;
3. When to file a claim;
4. When and how claims are paid;
5. Our rights in investigating a claim;
6. What happens to a claim if Your age is stated incorrectly on the
application; and
7. Your legal rights regarding claims.
================================================================================
NOTIFYING US OF A CLAIM You must notify Us in writing of a claim
within 60 days after a covered loss begins,
or as soon as reasonably possible.
The notice must identify You and be sent to
Us at Our Home Office, CNA Plaza, Chicago,
Illinois 60685 or Your agent.
HOW TO FILE A CLAIM We will send You a claim form within 15
days after We receive notice of Your claim.
If We do not, You can meet the
requirements of providing Us with a written
proof of loss by sending Us a written
statement describing the type and nature of
Your loss.
WHEN TO FILE A CLAIM You must send Us written proof of loss
within 90 days after the end of the period
for which You are claiming benefits.
If this is not possible, Your claim will
not be affected. However, unless You are
legally incapable, You must notify Us
within one year from the time proof is
otherwise required.
CARE MANAGEMENT SERVICES During Your claim, We can, with Your
agreement, provide You with access to care
management professionals who can work with
You, Your family, and Your doctor to
determine and monitor the appropriate plan
of care, including assessments of Your
situations and investigation of available
care resources. This service will be
provided with no cost to You and will not
count against your benefit limits.
WHEN YOUR CLAIM IS PAID We will pay Your claim immediately after We
receive due written proof of loss.
P1-N0066-A -22-
<PAGE>
HOW CLAIMS ARE PAID If You receive covered care that qualifies
for the Preferred Select Provider Discount,
We will pay the amounts payable under this
policy for such care directly to the
provider.
For all other covered care, We will pay
benefits to You, or Your estate, unless You
have requested in writing that payment be
made otherwise.
If benefits are payable to Your estate, We
may pay up to $1,000 to any relative of
Yours We feel is entitled to the benefits.
Any payments made in good faith will
discharge Us to the extent of the payment.
OUR RIGHTS TO OBTAIN INFORMATION At Our expense, We have the right to have a
physician or, other qualified medical
personnel examine You or obtain an
assessment of Your impairment as often as
reasonably necessary while You are
receiving benefits.
MISSTATEMENT OF YOUR AGE If Your age has been misstated on the
application, Your policy benefits will be
based on the amount Your premium would
have purchased at Your correct age. if We
would not have issued a policy, We will
refund the premium You paid.
CLAIMS APPEAL If Your claim is denied, You may request
reconsideration in writing. We will respond
to the request within 30 days.
LIMITATIONS ON LEGAL ACTIONS You cannot sue or bring legal action
against Us:
1. before 60 days after We receive
written proof of loss; or
2. more than three years after written
proof of loss is required.
P1-N0066-A -23-
<PAGE>
================================================================================
SECTION 5: PREMIUM PAYMENT AND REINSTATEMENT OF YOUR POLICY
This section tells you:
1. When Your premium should be PAID;
2. What happens if Your premium is not paid within a certain time period;
3. What happens to Your premium at Your death; and
4. How to reinstate Your policy if it is terminated.
================================================================================
PAYING PREMIUMS Premiums are to be paid with United States
currency. They are due at the beginning of
each policy term. Payment may be made to Us
at Our Home Office at CNA Plaza, Chicago,
Illinois 60685, or to Your agent. You can
change the policy term if You notify Us in
writing.
WHAT HAPPENS WHEN PREMIUMS ARE Except as provided under the Unintentional
NOT PAID Lapse Protection below, You are allowed a
31-day grace period for late payment of
each premium due after the first premium.
Your policy will remain in force during
this period.
If You do not pay Your premium by the end
of the grace period, the policy will
terminate.
UNINTENTIONAL LAPSE PROTECTION You have the right to designate an
individual in addition to Yourself to
receive notification when Your policy will
terminate because of non-payment of
premium.
We will give the person You designate
notification of the impending termination
at least 30 days before the date such
termination will occur The notice will be
given to the designated person no earlier
than 30 days after the premium due date.
On every renewal of Your policy, You will
be given the right to change the designated
person.
WHAT HAPPENS TO YOUR PREMIUMS IF When We are notified of Your death, We will
YOU DIE make a refund of any unearned premium paid
for the period beyond Your death.
PUTTING THE POLICY BACK IN FORCE If Your policy is terminated, a subsequent
acceptance of premium by Us or by Our agent
without requiring an application for
reinstatement will reinstate Your policy
P1-N0066-A -24-
<PAGE>
If We do require an application for
reinstatement and accept Your premium, We
may issue a conditional premium receipt. If
We approve Your application, Your policy
will be reinstated as of the date of Our
approval. If We do not approve Your
application, We will notify You in writing
within 45 days after the date of Your
application.
If We do not notify You within 45 days, the
policy will be reinstated on the 45th day
after the date of the conditional premium
receipt.
The reinstated policy will cover only
losses due to conditions that begin after
the date of reinstatement. In all other
aspects, Your rights and Ours will be the
same as before the policy terminated,
unless there are new provisions added due
to the reinstatement. The premium We accept
for reinstatement may be used for the
period for which premiums had not been
paid. We can apply the premium back for as
many as 60 days before the date of
reinstatement.
PUTTING THE POLICY BACK IN FORCE Also, within 6 months following
AFTER NONPAYMENT OF PREMIUM DUE termination of Your policy for non-payment
TO COGNITIVE IMPAIRMENT OR of premiums, You, or any person authorized
FUNCTIONAL INCAPACITY to act on Your behalf, may request
reinstatement of Your policy on the basis
that You suffered from Cognitive Impairment
or functional incapacity, or if You would
otherwise qualify for benefits under the
policy, at the time of policy termination.
We will require evidence of clinical
diagnosis or tests demonstrating that You
suffered from Cognitive Impairment or
functional incapacity at the time of policy
termination. If such demonstration
substantiates, to our satisfaction, the
existence of Cognitive Impairment or
functional incapacity at the time of policy
termination, We will reinstate Your policy.
The clinical diagnosis and tests will be at
Your expense. Functional incapacity means
the Inability to Perform at least Two
Activities of Daily Living.
If We reinstate Your policy after
nonpayment of premium due to Cognitive
Impairment, or functional incapacity:
P1-N0066-A -25-
<PAGE>
1. This reinstatement shall not require any evidence of insurability.
2. The reinstated policy shall cover loss
occurring from the date of policy
cancellation. There shall be no gaps in
coverage. Coverage will be at the level
provided prior to reinstatement.
3. Premium shall be paid from the date of
the last premium payment at the rate
which would have been in effect had the
policy remained in force. Payment must
be made within 15 days following Our
request.
================================================================================
SECTION 6: THE CONTRACT
This section tells You:
1. What makes up the contract;
2. Situations where time limits apply to claims
================================================================================
WHAT MAKES UP THE CONTRACT This policy is a legal, binding contract
between You and Us. The contract is made
up of:
1. the policy;
2. the application; and
3. any attached papers.
No one can change any part of this policy
or waive any of its provisions unless the
change is approved in writing on the policy
by one of Our officers.
IMPORTANCE OF INFORMATION ON THE We issued this policy based on information
APPLICATION/TIME LIMIT ON CERTAIN You provided. Any incorrect or omitted
DEFENSES information known to You at the time of
application may cause Your policy to be
voided or a claim to be denied.
If Your policy has been in force for less
than six (6) months, We may rescind it or
deny any otherwise valid claim upon a
showing of misrepresentation that is
material to the acceptance of coverage.
If Your policy has been in force for at
least six (6) months but less than two (2)
years, We may rescind it or deny any
otherwise valid claim upon a showing of
misrepresentation that is both material to
the acceptance of
P1-N0066-A -26-
<PAGE>
coverage and which pertains to the
conditions for which benefits are sought.
After Your policy has been in force for 2
years, only fraudulent misstatements in the
application can be used to void the policy
or deny a claim for loss incurred after the
2-year period.
If We have paid benefits under this policy,
such benefit payments may not be recovered
by Us in the event that Your policy is
rescinded.
P1-N0066-A -27-
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 1 OF 17 -- DRAFT
EXHIBIT "B"
-----------
INDIVIDUAL LONG TERM CARE
QUOTA SHARE COINSURANCE AGREEMENT
BETWEEN
CONTINENTAL CASUALTY COMPANY
AN ILLINOIS STOCK INSURANCE COMPANY
WITH ITS HOME OFFICE LOCATED IN CHICAGO, ILLINOIS
AND
VALLEY FORGE LIFE ASSURANCE COMPANY
AN ILLINOIS STOCK LIFE INSURANCE COMPANY
WITH ITS HOME OFFICE LOCATED IN CHICAGO, ILLINOIS
(HEREINAFTER COLLECTIVELY REFERRED TO AS THE CEDING COMPANY)
AND
VENCOR INSURANCE COMPANY
AN INDIANA INSURANCE COMPANY
(HEREINAFTER REFERRED TO AS THE REINSURER)
WITNESSETH:
WHEREAS, Vencor, Inc., a Kentucky corporation ("Vencor") and CNA have
executed, prior to or contemporaneously with the execution of this Agreement, a
Strategic Alliance Agreement which defines the relationship between CNA, Vencor,
and the REINSURER; and
WHEREAS, the CEDING COMPANY shall issue as of the effective date of this
Agreement and in the future certain individual long term care insurance policies
which it wishes to reinsure with the REINSURER; and
WHEREAS, the CEDING COMPANY wishes to obligate itself to cede to the
REINSURER a portion of its liability with respect to the Vencor Gold policies;
and
WHEREAS, the REINSURER wishes to obligate itself to assume such portion of
the CEDING COMPANY's liability with respect to the Vencor Gold policies.
NOW, THEREFORE, in consideration of the above premises and the covenants
hereinafter set forth, the parties, the CEDING COMPANY and the REINSURER, hereby
agree as follows:
DRAFT -- JULY 10, 1997 -- PAGE 1 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 2 OF 17 -- DRAFT
I. PRECEDENCE OF PROVISIONS; DEFINITIONS
A. To the extent that this Agreement contains a provision or provisions
in conflict with the Strategic Alliance Agreement, the provisions of
this Agreement shall govern.
B. Any term defined in the Strategic Alliance Agreement which is not
defined in this Agreement shall have the meaning ascribed by the
Strategic Alliance Agreement unless the term is explicitly redefined
or the context clearly requires another definition.
C. "Affiliate" of any particular person or entity means any other person
or entity controlling, controlled by or under common control with such
particular person or entity.
D. "Agreement" means this Individual Long Term Care Quota Share
Coinsurance Agreement, including all Exhibits which are hereby
incorporated into and made a part of this Agreement, as originally
executed and as may be amended from time to time.
E. "Preferred Access Agreement" means the agreement entered into by a
wholly owned Vencor subsidiary, Vencor Provider Network, Inc. ("VPN"),
and CNA for VPN to arrange for the provision of Covered Services by
Preferred Advantage Selected Providers to Members.
F. "Strategic Alliance Agreement" means the agreement entered into by
Vencor Inc. ("Vencor"), and CNA which describes and defines the
relationship between CNA, Vencor, VIC, and VPN.
G. "Subsidiary" means any corporation of which the securities or the
majority of the ordinary voting power in electing the board of
directors are, at the time as of which any determination is being
made, owned by the CEDING COMPANY or REINSURER either directly or
through one or more subsidiaries.
II. CESSIONS; SAMPLE COPIES.
A. The CEDING COMPANY agrees to cede and REINSURER agrees to assume a
portion of the liability under the Vencor Gold policies.
B. The effective date of this Agreement is 12:01 A.M. Central Standard
Time, _________.
C. This Agreement shall remain continuously in force until terminated in
accordance with the respective provisions of this Agreement.
DRAFT -- JULY 10, 1997 -- PAGE 2 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 3 OF 17 -- DRAFT
D. The CEDING COMPANY hereby represents and warrants that the Vencor Gold
policies issued to Members shall conform with the sample insurance
policies attached to this Agreement as Appendix "A".
III. CEDING COMPANY'S LIABILITY.
A. REINSURANCE PREMIUM. The CEDING COMPANY is liable for payment of the
Reinsurance Premium (defined below) to the REINSURER within thirty
(30) days following the end of each calendar month.
B. RECOVERY. The CEDING COMPANY shall credit the REINSURER with fifty
percent (50%) of any amounts received by the CEDING COMPANY as
recovery. Expenses directly related to recovery may be netted out
before the recovery is distributed or credited; provided, however,
that consent of the REINSURER shall be required prior to expenditure
of recovery expense in excess of fifty percent (50%) of any loss.
C. DEFENSE OF CLAIMS. The CEDING COMPANY is responsible for the defense
of claims and shall have the right to select attorneys of its choosing
in defending claims. The REINSURER may, at its own expense,
participate in an advisory capacity in the defense of any claim.
IV. REINSURER'S LIABILITY.
A. REINSURER'S LIABILITY. The "REINSURER's Liability" shall be to the
CEDING COMPANY for fifty percent (50%) of the sum of:
1. Benefits as that term is defined herein; and
2. the CEDING COMPANY "Expense Allowance" as stated in Appendix "C"
which is attached hereto and made a part hereof; and
3. the CEDING COMPANY "Sales Commission Allowance" as set out in
Appendix "C".
B. CHANGES IN THE LAW. It is the intention of the parties to this
Agreement that any expenses or costs associated with changes in state
law or regulations affecting the Vencor Gold policies, including
premium taxes, which are not specifically enumerated or allocated in
this Agreement shall be shared by the parties as follows: by the
CEDING COMPANY in the amount of fifty percent (50%) and by the
REINSURER in the amount of the fifty percent (50%).
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C. BENEFITS.
1. "Benefits" shall mean amounts attributable to claims incurred on
Policies issued while this Agreement is in force.
2. Benefits shall equal the sum of the following:
a) amounts which the CEDING COMPANY actually pays in accordance
with the terms of a Vencor Gold policy or as a result of
settlement of a claim; and
b) legal fees incurred in establishing liability for any
particular benefit, whether in the claims adjudication
process or because of questions raised or litigation brought
by a party seeking benefits under the Vencor Gold policies;
and
c) interest paid pursuant to law or awarded by a court or paid
as part of a settlement made in connection with a dispute in
a) above; and
d) damages paid in accordance with state law, so long as such
damages are required to be paid only as a result of claims
denial and not for wrongdoing, i.e., if state law requires
the insurer to pay the claim and all attorneys fees upon
adjudication of the good faith denial of a claim; and
e) special investigative fees, whether for fraud or any other
special investigation.
D. EXTRA-CONTRACTUAL DAMAGES. In the event of extra-contractual damages
assessed against the CEDING COMPANY as a result of the contest of any
claim, the REINSURER shall pay fifty percent (50%) of such damages
provided that the REINSURER had or should have had actual knowledge of
the CEDING COMPANY' s denial and concurred in writing with the CEDING
COMPANY's denial.
V. REINSURANCE PREMIUM.
A. The Reinsurance Premium shall be equal to fifty percent (50%) of the
gross paid premium received for the sale of the Vencor Gold policies,
including first year and renewal premiums. For purposes of this
Agreement and any exhibits attached hereto, "gross paid premium" shall
mean the premiums paid on Vencor Gold policies issued by the CEDING
COMPANY. Within 30 days following the end of each calendar month, the
CEDING COMPANY shall pay the
DRAFT -- JULY 10, 1997 -- PAGE 4 OF 17 -- DRAFT
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REINSURER the Reinsurance Premium and the REINSURER shall pay the
CEDING COMPANY the REINSURER's Liability.
B. Except as provided by a final arbitration order, the CEDING COMPANY
shall be liable for the payment of Reinsurance Premium due to the
REINSURER up to and including the effective date of termination. The
REINSURER shall waive its right to terminate for nonpayment of
Reinsurance Premium upon acceptance of the past due Reinsurance
Premium. Failure by the REINSURER to exercise its right under this
subsection will not waive the REINSURER's right to terminate the
Agreement at a later date for a subsequent nonpayment of Reinsurance
Premium.
VI. RESERVES AND PERIODIC REPORTS.
A. The REINSURER will establish reserves on a basis that is acceptable to
the CEDING COMPANY and which complies with every applicable state law
defining circumstances under which a ceding insurer may take credit
for reinsurance.
B. The REINSURER will not be required to sign any statement attesting to
the value of reserves that should be held by the CEDING COMPANY for
either statutory, tax, or GAAP reporting purposes.
C. The CEDING COMPANY will provide the REINSURER with monthly reports of
premiums, medical losses, claims expenses, and significant claims and
reserves therefor, pursuant to Appendix "???", attached hereto and by
this reference made a part hereof.
VII. AUDIT.
A. VIC shall have the authority to inspect and audit the books and
records of CNA and its assignees which pertain to this Agreement, at
any time during reasonable business hours, and they may make copies or
extracts of any records pertaining thereto. CNA shall notify VIC of
any audit or pending audit of CNA by any person or entity other than
either of the parties or any of their agents.
B. CNA shall have the authority to inspect and audit the books and
records of VIC and its assignees which pertain to this Agreement, at
any time during reasonable business hours, and they may make copies or
extracts of any records pertaining thereto. VIC shall notify CNA of
any audit or pending audit of VIC by any person or entity other than
either of the parties or any of their agents.
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VIII. TAXES. The CEDING COMPANY and the REINSURER hereby enter into an election
under Internal Revenue Code Regulations section 1.848-2(g) (8) whereby:
A. For each taxable year under this Agreement, the party with the net
positive consideration, as defined in the regulations promulgated
under Internal Revenue Code Section 848, will capitalize specified
policy acquisition expenses with respect to this Agreement without
regard to general deductions limitation of Section 848 (c) (1);
B. The CEDING COMPANY and the REINSURER agree to exchange information
pertaining to the net consideration under this Agreement each year to
ensure consistency or as otherwise required by the Internal Revenue
Service;
C. The CEDING COMPANY will submit to the REINSURER by May 1 of each year
its calculation of the net consideration for the preceding calendar
year. This schedule of calculations will be accompanied by a
statement signed by an officer of the CEDING COMPANY stating that the
CEDING COMPANY will report such net consideration in its tax return
for the preceding calendar year;
D. The REINSURER may contest such calculation by providing an
alternative calculation to the CEDING COMPANY in writing within
thirty (30) days of the REINSURER's receipt of the CEDING COMPANY's
calculation. If the REINSURER does not so notify the CEDING COMPANY,
the REINSURER will report the net consideration as determined by the
CEDING COMPANY in the REINSURER's tax return for the previous
calendar year;
E. If the REINSURER contests the CEDING COMPANY's calculation of the net
consideration, the parties will act in good faith to reach an
agreement as to the correct amount within thirty (30) days of the
date the REINSURER submits its alternative calculation. If the CEDING
COMPANY and the REINSURER reach agreement on the net amount of
consideration, each party shall report such amount in their
respective tax returns for the previous calendar year;
F. The CEDING COMPANY and the REINSURER each represents and warrants
that it is subject to taxation by the United States under either
Subchapter L of Chapter 1, or Subpart F of Subchapter N of Chapter 1
of the Internal Revenue Code of 1986, as amended.
IX. INSOLVENCY.
A. INSOLVENCY OF THE CEDING COMPANY.
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1. In the event of the insolvency of the CEDING COMPANY, this
Agreement shall be automatically terminated as of the date of
insolvency. In such event, the reinsurance hereunder shall be
payable by the REINSURER, without diminution, because of the
insolvency of the CEDING COMPANY, on the basis of this Agreement
and the CEDING COMPANY's liabilities which were incurred prior to
termination. It is agreed, however, that the liquidator, receiver
or statutory successor of the insolvent CEDING COMPANY shall give
written notice to the REINSURER of the tendency of a claim
against the insolvent CEDING COMPANY on the Vencor Gold policies
reinsured hereunder within a reasonable time after such claim is
filed in the insolvency proceedings and that during the pendency
of such claim the REINSURER may investigate such claim and
interpose, at its own expense, in the proceedings where such
claim is to be adjudicated, any defense or defenses which it may
deem available to the CEDING COMPANY or its liquidator, receiver
or statutory successor. The expense thus incurred by the
REINSURER shall be chargeable, subject to court approval, against
the insolvent CEDING COMPANY as part of the expense of
liquidation to the extent of a proportionate share of the benefit
which may accrue to the CEDING COMPANY solely as a result of the
defense undertaken by the REINSURER.
2. Notwithstanding anything in the provisions of this Section to
the contrary, the liability of the REINSURER shall not increase
because of the insolvency of the CEDING COMPANY.
B. INSOLVENCY OF THE REINSURER. In the event the REINSURER shall become
insolvent, this Agreement shall automatically be terminated, as of the
date of insolvency.
X. ARBITRATION.
A. RESOLUTION OF DISPUTES BY ARBITRATION. The parties agree that all
controversies or disputes arising out of, in connection with, or which
relate to this Agreement or performance under this Agreement, which
cannot be resolved by mutual agreement, shall be submitted to
arbitration for resolution, as herein provided.
B. SELECTION OF ARBITRATORS.
1. Arbitration shall be by a panel of three neutral arbitrators,
each of which shall be an active or former officer of an
insurance company which, at the time of the demand for
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arbitration, issues or has recently issued policies of insurance
of the type covered by this Agreement. In addition, each
arbitrator shall meet the requirements of, and shall agree to act
in accordance with, the Code of Ethics for Arbitrators in
Commercial Disputes sponsored by the American Bar Association and
the American Arbitration Association, except to the extent that
conduct prohibited by such Code is specifically permitted by the
terms of this Agreement.
2. Within thirty (30) days after receipt of a demand for
arbitration, each party shall designate its arbitrator. The
designation shall contain information sufficient to allow the
other party to judge the qualifications of the person designated
as arbitrator. Thereafter, each party shall have fifteen (15)
days within which to accept the arbitrator designated by the
other party or to challenge the qualifications of the arbitrator
so designated.
3. The arbitrators so designated and accepted shall, within thirty
(30) days after acceptance, select the third arbitrator.
Arbitrators may consult with the party nominating them as to
acceptability of persons under consideration for appointment by
them as third arbitrator. If the third arbitrator has not been
selected within that time, each arbitrator shall, within fifteen
(15) days, nominate three qualified individuals to serve as the
third arbitrator. The American Arbitration Association shall
appoint a third arbitrator from the persons nominated who meet
the qualifications described in this Agreement.
C. ARBITRATION PROCEDURE.
1. Arbitration shall begin upon the filing by one of the parties of
a written demand for arbitration. Such demand shall contain a
statement setting forth the nature of the dispute, the amount
involved, if any, and the remedy sought. Such demand shall be
served upon the other party by certified mail, return receipt
requested.
2. Within sixty (60) days after the arbitration panel has been
finalized, the parties shall submit their dispute or controversy
to the panel of arbitrators for decision. The site for the
arbitration hearing shall be Chicago, Illinois, or as mutually
agreed by the parties. The rules for the gathering of evidence,
taking of discovery or depositions, if any, and the conduct of
the hearing shall be such rules as are included in the Commercial
Arbitration Rules of the American Arbitration Association as of
DRAFT -- JULY 10, 1997 -- PAGE 8 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 9 OF 17 -- DRAFT
the date the arbitration panel was finalized, to the extent not
inconsistent with the terms of this Agreement. The parties may
agree to use modified rules to expedite the arbitration process.
The formal rules of evidence need not apply, in the arbitrators'
discretion, to the hearing.
3. All arbitrators shall participate in the deliberations and a
decision on any matter shall be by a majority of the arbitrators.
4. The final decision of the arbitration panel shall be submitted in
writing, in such form as the arbitrators determine, within thirty
(30) days after the conclusion of the arbitration hearing. The
decision of the arbitrators shall be final, except that an appeal
may be taken only for one or more of the reasons assigned for
vacating an award by the Uniform Arbitration Act as enacted by
the State of ______, which law shall apply and govern the
arbitration process contemplated hereunder, to the extent not
inconsistent with this Agreement.
D. COSTS OF ARBITRATION PROCEEDING. Each party shall bear the cost of
its own arbitrator. The costs of the arbitration proceeding,
including the fees of the third arbitrator, shall be borne equally by
the parties, unless the arbitration panel orders otherwise. The panel,
in its discretion, may also allocate and award other reasonable out-
of-pocket costs of the parties, including reasonable attorney's fees,
as it deems fair and equitable under the circumstances.
E. CONFIDENTIALITY. The parties agree, and the appointed arbitrators
shall agree as part of their acceptance of nomination, to keep
confidential and not disclose to persons not connected with the
arbitration the details of the arbitration proceeding and all
information received by them in connection therewith, except as may be
required by process of law.
XI. CONFIDENTIAL INFORMATION.
A. During the course of performance under this Agreement, the REINSURER
will obtain or have access to certain proprietary information of the
CEDING COMPANY or its affiliates or subsidiaries including, without
limitation, names of contract owners, insureds, beneficiaries, the
identity and production of the CEDING COMPANY's producers,
compensation levels, the identity and types of insurance purchased,
the CEDING COMPANY's distribution network (the "CEDING COMPANY
Confidential Information"). The CEDING COMPANY Confidential
Information shall also include rate manuals, experience reports, and
underwriting standards to the extent such
DRAFT -- JULY 10, 1997 -- PAGE 9 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 10 OF 17 -- DRAFT
information applies specifically to the CEDING COMPANY's Policyholders
and Vencor Gold policies. Each party acknowledges that all such
material is offered on a confidential basis, for the sole purpose of
enhancing this Agreement. Further each party agrees that the original
owner of these materials is deemed to be the sole owner of these
materials. The REINSURER will only disclose the CEDING COMPANY
Confidential Information to those persons who require such information
for the purpose of this Agreement and who have been advised and agree
to be bound by the terms of this paragraph.
B. During the course of performance under this Agreement, the CEDING
COMPANY will obtain or have access to certain proprietary information
of the REINSURER or its affiliates or subsidiaries including, without
limitation, rate manuals, experience reports, and underwriting
standards to the extent such information applies specifically to
Vencor Gold policies(the "REINSURER Confidential Information"). Each
party acknowledges that all such material is offered on a confidential
basis, for the sole purpose of enhancing this Agreement. Further each
party agrees that the original owner of these materials is deemed to
be the sole owner of these materials. The CEDING COMPANY will only
disclose the REINSURER Confidential Information to those persons who
require such information for the purpose of this Agreement and who
have been advised and agree to be bound by the terms of this
paragraph.
C. Each party further warrants, represents, undertakes and agrees, for
itself, its agents, employees and representatives:
1. to keep the other party's Confidential Information confidential
to the extent it is not already available publicly; and
2. to use the other party's Confidential Information only as is
necessary to carry out the terms and conditions of this
Agreement; and
3. not to disclose the other party's Confidential Information to any
third party without the prior written consent of the party who
has claim to the Confidential Information under the terms of this
Agreement. Provided, however, that such disclosure is permitted
if it is made in accordance with every other provision of this
Section and it is made to a direct agent or a direct
retrocessionairre of the party making the disclosure. Provided,
further that such disclosure may be permitted if required by
applicable law or governmental regulations or by
DRAFT -- JULY 10, 1997 -- PAGE 10 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 11 OF 17 -- DRAFT
order of a court of competent jurisdiction, in which case prior
to making such disclosure written notice must be given to the
party with legal right of ownership under this Agreement.
Provided, further that such notice shall describe in reasonable
detail the proposed content of such disclosure and shall permit
the non-disclosing party to review and comment upon the form and
substance of such disclosure.
XII. TERMINATION.
A. AUTOMATIC TERMINATION. This Agreement shall terminate for new
business automatically if the REINSURER becomes insolvent under
Section IX.
B. TERMINATION BY NOTICE. Either party may terminate this Agreement for
new business without cause by either party giving to the other written
notice to that effect no less than one hundred eighty (180) days prior
to the termination date; provided, however, that no such notice shall
be effective until this Agreement shall have been in effect for ten
years.. The parties agree that a reasonable gradual reduction in the
CEDING COMPANY's marketing of new Vencor Gold policies may occur
during the one hundred eighty (180) days immediately preceding the
termination date of this Agreement, and that such a reduction would
not be a violation of this provision.
C. TERMINATION FOR CAUSE.
1. This Agreement may also be terminated for new business by thirty
(30) days' written notice to the other party of breach of any of
the terms and conditions of this Agreement, provided such breach
has not been cured within such thirty (30) day notice period (or
in the case of a breach that cannot be reasonably cured within
such thirty (30) days, the breaching party has not undertaken to
cure such breach as soon as possible).
2. Any egregious or willful violation of any of the terms of this
Agreement by either party shall be grounds for termination of
this Agreement for new business upon thirty (30) days written
notice to the breaching party.
3. If either party terminates this Agreement for new business for
cause under this subsection C, the terminating party may initiate
arbitration as to the date of termination for inforce business.
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<PAGE>
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D. Except as otherwise provided in this Section XII, this Agreement
shall remain in full force and effect on all Vencor Gold policies
issued or renewed by the CEDING COMPANY prior to the effective date
of termination of this Agreement for new business. Accordingly, the
REINSURER shall continue to provide reinsurance for all Vencor Gold
policies issued or renewed by the CEDING COMPANY prior to the
effective date of termination of this Agreement for new business.
E. In no event shall the liability of the REINSURER be extended to any
Vencor Gold policies whose coverage takes effect after the
termination date for the acceptance of new business.
XIII. OTHER PROVISIONS.
A. REINSURER'S RELATIONSHIPS. It is agreed that no rights or legal
relations shall arise between the REINSURER and Members by virtue of
the reinsurance of the Vencor Gold policies under this Agreement. The
REINSURER's sole liability as reinsurer is that provided under the
terms of this Agreement.
B. POLICY CHANGES. The REINSURER agrees that the CEDING COMPANY may
from time to time, make reasonable alterations in the terms and
provisions of the Vencor Gold policies reinsured hereunder. The
CEDING COMPANY agrees to furnish the REINSURER with a copy of all
proposed changes not less than thirty (30) days prior to their
effective date. Upon receipt of a proposed change, the REINSURER
shall promptly advise the CEDING COMPANY in writing, of its approval
or disapproval of the proposed change. All alterations or
modifications made to the Vencor Gold policies shall be endorsed upon
and attached to the copies of such Vencor Gold policies which were
previously made a part of this Agreement. It is understood that any
changes to the Vencor Gold policies which are disapproved by the
REINSURER shall automatically relieve the REINSURER of any liability
that it incurs as a result of such changes with respect to the Vencor
Gold policies as of the effective date of such changes.
C. INFORMATION NEEDED TO COMPLETE STATEMENT. After the end of each
calendar quarter, the CEDING COMPANY hereby agrees to supply the
REINSURER with any information on the Vencor Gold policies that may
reasonably be required by the REINSURER for completion of its
financial statements.
D. OMISSIONS OR ERRORS. It is agreed that any inadvertent delays,
omissions or errors made in connection with this Agreement shall not
be held to relieve either of the Parties hereto from any liability
which would have attached to them hereunder if such delays, omis-
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<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 13 OF 17 -- DRAFT
sions or errors had not been made, such omissions and/or errors to be
made good as soon as reasonably possible after discovery.
E. PUBLICITY RELEASES. Neither party shall disclose the other party's
name or identity or relationship with the other in any press release
or other public announcement or in any document or material filed with
any governmental entity, without the prior written consent of the non-
disclosing party unless such disclosure is required by applicable law
or governmental regulations or by order of a court of competent
jurisdiction, in which case prior to making such disclosure the
disclosing party shall give written notice to the non-disclosing party
describing in reasonable detail the proposed content of such
disclosure and shall permit the non-disclosing party to review and
comment upon the form and substance of such disclosure.
F. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all previous agreements and
understandings, written or oral, between the REINSURER and the CEDING
COMPANY as to the subject matter of this Agreement.
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<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 14 OF 17 -- DRAFT
G. AMENDMENT. This Agreement may, at any time, be altered by mutual
consent of the Parties hereto by an amendment signed by responsible
officials of the Parties and such amendment shall be binding upon both
Parties and be deemed to be an integral part of this Agreement.
IN WITNESS WHEREOF, this Agreement to be executed, in duplicate, by their
respective officers duly authorized to do so.
_______________________________________
______
By
---------------------------------------------
Title
------------------------------------------
Date
-------------------------------------------
Continental Casualty CompanyValley Forge Life
Insurance Company
By
---------------------------------------------
Title
------------------------------------------
Date
-------------------------------------------
DRAFT -- JULY 10, 1997 -- PAGE 14 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 15 OF 17 -- DRAFT
INDIVIDUAL LONG TERM CARE
QUOTA SHARE COINSURANCE AGREEMENT
APPENDIX A: SAMPLE INSURANCE POLICIES
DRAFT -- JULY 10, 1997 -- PAGE 15 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 16 OF 17 -- DRAFT
INDIVIDUAL LONG TERM CARE
QUOTA SHARE COINSURANCE AGREEMENT
APPENDIX C: SCHEDULE OF PAYMENT INSTRUCTIONS
I. CEDING COMPANY Sales Commission
II. CEDING COMPANY Expense Allowance
Expenses will be allocated in a fair and equitable manner. Allocations will be
reviewed and any appropriate revisions will be made at least once each calendar
year but no more frequently than quarterly.
DRAFT -- JULY 10, 1997 -- PAGE 16 OF 17 -- DRAFT
<PAGE>
DRAFT -- JULY 10, 1997 -- PAGE 17 OF 17 -- DRAFT
INDIVIDUAL LONG TERM CARE
QUOTA SHARE COINSURANCE AGREEMENT
APPENDIX D: RATES AND UNDERWRITING GUIDE
DRAFT -- JULY 10, 1997 -- PAGE 17 OF 17 -- DRAFT
<PAGE>
EXHIBIT "C"
----------
<PAGE>
Draft -- June 10, 1997 -- Page 1 of ll -- Draft
PREFERRED ACCESS AGREEMENT
--------------------------
This Agreement is made and entered into as of the _____ day of
____________ 199__, by and between Continental Casualty Company, an Illinois
insurance company, and Valley Forge Life Assurance Company, a Pennsylvania life
insurance company (individually and collectively "CNA") and Vencor Provider
Network, Inc., a Delaware corporation ("VPN").
RECITALS
--------
WHEREAS, Vencor, Inc., a Delaware corporation ("Vencor") and CNA have
executed, prior to or contemporaneously with the execution of this Agreement, a
Strategic Alliance Agreement which defines the relationship between CNA, Vencor,
and VPN; and
WHEREAS, VPN has in place a contracted network of long term care
facilities and long term care service providers that have agreed to provide
healthcare services to Members pursuant to a predetermined schedule of benefits
and discounts; and
WHEREAS, CNA issues long term care insurance policies which, subject
to the terms and conditions of the policies, provide reimbursement for eligible
expenses incurred in long term care facilities and in other settings.
NOW, THEREFORE, in consideration of the above premises and the
covenants hereinafter set forth, the parties, CNA and VPN, hereby agree as
follows:
1. PRECEDENCE OF PROVISIONS; DEFINITIONS
1.1. To the extent that this Agreement contains a provision or provisions
in conflict with the Strategic Alliance Agreement, the provisions of
this Agreement shall govern.
1.2. Any term defined in the Strategic Alliance Agreement which is not
defined in this Agreement shall have the meaning ascribed by the
Strategic Alliance Agreement unless the term is explicitly redefined
or the context clearly requires another definition.
1.3. "Agreement" means this Preferred Access Agreement, including all
Exhibits which are hereby incorporated into and made a part of this
Agreement, as originally executed and as may be amended from time to
time.
1.4. "Coinsurance Agreement" means the agreement entered into by a wholly
owned Vencor subsidiary, Vencor Insurance Company ("VIC"), and CNA
<PAGE>
Draft -- June 10, 1997 -- Page 2 of ll -- Draft
for VIC to reinsure a fifty percent (50%) quota share of the
liability of CNA with respect to the Policies.
1.5 "Strategic Alliance Agreement" means the agreement entered into by
Vencor Inc. ("Vencor"), and CNA which describes and defines the
relationship between CNA, Vencor, VIC, and VPN.
1.6. "Preferred Advantage Selected Provider" means a provider so
designated by VPN which meets all of the criteria set forth in
section 3.1 herein.
2. DUTIES OF CNA
2.1. Make a policy available - CNA shall use its reasonable best
-----------------------
efforts to make a Vencor Gold policy available in every jurisdiction
covered by this Agreement. CNA shall assure that every long term care
insurance policy to which this agreement applies is filed with and
approved by applicable insurance regulatory authorities. Any material
modifications to the Vencor Gold policies or premium rating structure
applicable thereto, other than as may be required by applicable law,
shall be approved by VPN prior to implementation of such
modifications; provided, however, that approval by VPN shall not be
unreasonably withheld, and shall be deemed given with respect to a
proposed modification if no written objection is made within thirty
(30) days following written notice of such modification.
2.2. Verification of, and payment pursuant to a Policy - CNA shall
-------------------------------------------------
provide a process by which a Preferred Advantage Selected Provider
may verify existence of a Policy covering anyone who claims to be a
Member.
2.2.1. CNA shall verify existence of a Policy within 24 hours of
receipt of a request from a Preferred Advantage Selected
Provider.
2.2.2. Within 30 days of receiving due written proof of loss, CNA
shall pay a Preferred Advantage Selected Provider that
provides Covered Services to a Member in accordance with this
Agreement and the Strategic Alliance Agreement.
2.2.3. CNA shall have the sole authority to determine: (i) what is a
Covered Service; and (ii) who is a Member.
2.3. Statistical Reports - CNA shall provide to VPN reports relating
-------------------
to Members who have received services from Preferred Advantage
Selected Providers in a format generally utilized by CNA in its
normal course of business. Such reports shall include the number of
Members, their utilization of Preferred Advantage Selected Provider's
services and the amounts paid by CNA for such services.
<PAGE>
Draft -- June 10, 1997 -- Page 3 of ll -- Draft
3. DUTIES OF VPN
3.1. Maintain a Network of Preferred Advantage Selected Providers - VPN
------------------------------------------------------------
shall, during the term of this Agreement, use its reasonable best
efforts to maintain a network of Preferred Advantage Selected
Providers sufficient to provide Covered Services to Members.
3.1.1. VPN represents and warrants that it has contracts that
conform to the requirements of this Agreement in effect with
providers of long term care services, supplies, equipment, or
accommodations in all of the geographical areas listed in
Exhibit "E" as amended from time to time.
3.1.2. VPN represents and warrants that those providers designated
by VPN (subject to all of the terms and conditions of this
agreement) as "Preferred Advantage Selected Providers" have
agreed to provide Covered Services to Members in accordance
with terms of this Agreement.
3.1.3. VPN shall exercise any and all procedures, care, and other
precautions as shall be necessary or advisable to ensure that
Preferred Advantage Selected Providers are selected and
monitored in a manner consistent with any applicable legal
requirements under federal or state law, and this Agreement.
VPN shall require that all Preferred Advantage Selected
Providers and their personnel shall have and maintain all
necessary credentials in accordance with applicable law and
standards established by VPN.
3.1.4. VPN shall not make additions to its network of Preferred
Advantage Selected Providers without the written approval of
CNA, which approval will not be unreasonably withheld. If CNA
fails to approve an addition to the network of Preferred
Advantage Selected Providers within 15 business days of
receiving written notice of the change, approval of CNA will
be deemed given.
3.2. Maintain a Directory - VPN shall send to CNA at least once each
--------------------
calendar month a current list of Preferred Advantage Selected
Providers. The list shall be sent to LTC Administration, P O Box
305153, Nashville, Tennessee 37230-5153.
3.2.1. Upon execution of this Agreement and at least once each year
thereafter, VPN shall send to CNA a diskette containing a
complete list of Preferred Advantage Selected Providers.
<PAGE>
Draft -- June 10, 1997 -- Page 4 of ll -- Draft
3.2.2. In the intervening months, VPN shall send to CNA a diskette
containing all changes to the list of Preferred Advantage
Selected Providers.
3.2.3. In addition, VPN shall provide a method that enables CNA to
determine, in a commercially reasonable manner, at any time
during normal business hours, whether a healthcare provider
is a Preferred Advantage Selected Provider.
3.3. Provide Services - VPN shall require all Preferred Advantage Selected
----------------
Providers to provide Covered Services to Members in accordance with
and subject to both Exhibit "B" and the following terms and
conditions:
3.3.1. Each of the Preferred Advantage Selected Providers shall
provide to Members any and all Covered Services which the
Preferred Advantage Selected Provider is qualified by law to
provide and provides to non-Members.
3.3.2. Each of the Preferred Advantage Selected Providers shall
admit Members into its facilities in accordance with Exhibit
"B" and on a priority basis such that, subject to applicable
law, Members will be given first access to the next available
bed or service.
3.3.3. Preferred Advantage Selected Providers shall provide any and
all Covered Services to Members in the same (or better)
manner and in accordance with the same (or better) standards
provided to non-Members.
3.3.4. Preferred Advantage Selected Providers shall not discriminate
in the treatment of or the quality of the services delivered
to Members on the basis of race, creed, color, national
origin, sex, age, religion, sexual orientation, veteran
status, disability, place of residence, health status, or
source of payment.
3.4. Maintain Medical Records. Preferred Advantage Selected Providers
------------------------
shall standard medical records relating to Covered Services rendered
to Members in accordance with accepted principles of practice and in
compliance with all applicable state and federal laws and
regulations. Preferred Advantage Selected Providers shall maintain
all information contained in the medical records of Members in
confidence.
3.5. Compensation. Each Preferred Advantage Selected Provider
------------
3.5.1. shall accept the amount specified in Exhibit "B" as full
remuneration for Covered Services provided to a Member; and
<PAGE>
Draft -- June 10, 1997 -- Page 5 of ll -- Draft
3.5.2. shall not bill or attempt to collect any additional amount
for such services from any Member or from any other person or
entity.
3.6. Insurance. Each Preferred Advantage Selected Provider shall obtain
---------
and maintain, at its own expense, policies of general liability and
professional liability insurance, or sound self-insurance programs,
to provide reasonable insurance against claims for damages occasioned
directly or indirectly in connection with the performance of
professional services by Preferred Advantage Selected Providers.
Preferred Advantage Selected Providers shall provide to CNA at least
thirty (30) days notice of termination or substantial reduction of
any insurance coverage. Each Preferred Advantage Selected Provider
shall provide to CNA, upon request, evidence of the insurance
coverages.
3.7. Licensing. VPN hereby represents and warrants that it possesses and
---------
shall maintain in good standing during the term of this Agreement any
and all valid certificates of authority and licenses under any
applicable laws. VPN further represents and warrants that it is and
shall remain at all times during this Agreement authorized to do all
acts necessary or convenient to carry out the terms and purposes of
this Agreement. The parties agree that failure of VPN to maintain
active, necessary licenses constitutes a breach of this Agreement
that cannot be remedied at law and that actions in equity, including
injunctions, are appropriate.
4. INDEMNIFICATION
4.1. Indemnification of CNA. VPN hereby agrees to indemnify and hold
harmless CNA and its affiliates and subsidiaries and CNA's directors,
officers, employees, agents, attorneys and any successors in interest
or at law (collectively "CNA" for purposes of this Section), from any
and all costs, claims, expenses, demands, actions, suits or
proceedings, liabilities and damages (including but not limited to,
awards, statutory or regulatory penalties, and attorneys fees)
directly or indirectly arising out of or resulting from any act of
VPN or its subsidiaries or affiliates or VPN's or affiliates' or
subsidiaries' directors, officers, employees, agents, contractors or
authorized representatives (collectively "VPN" for the purposes of
this Section) in the performance of their duties under this Agreement
excluding, however, any acts of VPN to the extent they are caused or
contributed to by CNA.
4.2. Indemnification of VPN. CNA hereby agrees to indemnify and hold
harmless VPN, as defined in section 4.1, from any and all costs,
claims, expenses, demands, actions, suits or proceedings, liabilities
and damages (including but not limited to, awards, statutory or
regulatory penalties, and attorneys fees) directly or indirectly
arising out of or resulting from any act
<PAGE>
Draft -- June 10, 1997 -- Page 6 of ll -- Draft
of CNA, as defined in section 4.1, in the performance of their duties
under this Agreement, excluding, however, any acts of CNA to the
extent they are caused or contributed to by VPN, as defined in
section 4.1.
4.3. Notice. Neither party shall be entitled to be indemnified if it fails
to notify the party bearing liability to indemnify ("indemnifying
party") of the proceedings and does not furnish the indemnifying
party a copy of the legal documents (e.g., complaint, notice of
hearing, etc.), if available, within a reasonable time after the non-
indemnifying party or its designated service of process agent is
served with the summons or other legal process which initially
notifies the non-indemnifying party of the nature of the proceeding.
4.4. Defense. With respect to any third party indemnification claim, the
indemnifying party shall defend, in good faith and its own expense,
any such indemnification claim and the indemnitee, at its expense,
shall have the right to participate in the defense of any such third
party indemnification claim. In connection with its defense of a
third party indemnification claim, the indemnifying party shall have
the absolute right to choose or approve counsel for the defense or
prosecution of such action. So long as the indemnifying party is
defending in good faith any such third party indemnification claim,
the indemnitee shall not settle or compromise such third party
indemnification claim. The indemnitee shall make available to the
indemnifying party or its representatives all records and other
materials reasonably required by them for its use in contesting any
third party indemnification claim and shall cooperate fully with the
indemnifying party in the defense of all such indemnification claims.
5. AUDIT
5.1. VPN shall have the authority to inspect and audit the books and
records of CNA and its assignees which pertain to this Agreement, at
any time during reasonable business hours, and they may make copies
or extracts of any records pertaining thereto. CNA shall notify VPN
of any audit or pending audit of CNA by any person or entity other
than either of the parties or any of their agents.
5.2. CNA shall have the authority to inspect and audit the books and
records of VPN and its assignees which pertain to this Agreement, at
any time during reasonable business hours, and they may make copies
or extracts of any records pertaining thereto. VPN shall notify CNA
of any audit or pending audit of VPN by any person or entity other
than either of the parties or any of their agents.
<PAGE>
Draft -- June 10, 1997 -- Page 7 of ll -- Draft
6. CONFIDENTIALITY
6.1. Medical Records. Neither CNA nor VPN shall disclose individually
---------------
identifiable medical or other personal information about any Member
to any third party except in compliance with all applicable state and
federal laws and regulations and with the valid written consent of
the Member, pursuant to a valid order of a court of competent
jurisdiction, or as otherwise permitted by law and this Agreement.
CNA and VPN shall follow appropriate procedures to ensure that Member
confidentiality rights are not abridged. The parties' obligations
under this Section 6.1 shall survive the termination of this
Agreement. The parties agree that failure of VPN to maintain
confidentiality of individually identifiable information constitutes
a breach of this agreement that cannot be remedied at law and that
actions in equity, including injunctions, are appropriate.
6.2. Terms of Agreement. CNA and VPN shall keep the terms of this
------------------
Agreement, Reimbursement Rates, Fee Schedules, and/or any related
negotiations confidential and not disclose the same to any person or
organization, except as otherwise required by this Agreement or
applicable law (e.g., either party may file agreements, when
necessary for licensing or product approval, without separate notice
to the other party). If either party becomes subject to compulsory
process to disclose the terms of this Agreement or related
negotiations, such party shall give the other party immediate oral
and written notice of such process. The parties' obligations under
this Section 6.2 shall survive the termination of this Agreement.
7. TERM AND TERMINATION
7.1. Automatic Termination - This Agreement shall terminate in accordance
---------------------
with the terms of the Strategic Alliance Agreement.
7.2. Obligations Survive Termination - Except as otherwise provided in
-------------------------------
this Section, this Agreement shall remain in full force and effect on
all Policies issued by CNA prior to the effective date of termination
of this Agreement for new business.
8. MISCELLANEOUS PROVISIONS
8.1. Noninterference with Medical Care. Nothing in this Agreement is
---------------------------------
intended to create any right of CNA to intervene in any manner in the
methods or means by which a Preferred Advantage Selected Provider
renders health care services, accommodations, or supplies to Members.
Nothing in this Agreement is intended to require a Preferred
Advantage Selected Provider to take any action inconsistent with
professional judgment concerning the care and treatment to be
rendered to Members.
<PAGE>
Draft -- June 10, 1997 -- Page 8 of ll -- Draft
8.2. Invalidity or Unenforceability. The invalidity or unenforceability
------------------------------
of any terms or provisions of this Agreement shall in no way affect
the validity or enforceability of any other term or provision.
8.3. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the law of the state of Illinois
(without reference to choice of law rules) except to the extent
superseded or preempted by federal law.
8.4. Entire Agreement. This Agreement and all attachments, schedules
----------------
and exhibits hereto shall constitute the entire agreement between the
parties regarding the subject matter hereof. Each party acknowledges
that no representation, inducement, promise, or agreement has
been made, orally or otherwise, by the other party or by anyone
acting on behalf of the other party, unless such representation,
inducement, promise, or agreement is embodied in this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized representative as of the date first written
above.
CONTINENTAL CASUALTY COMPANY
VALLEY FORGE LIFE
ASSURANCE COMPANY VENCOR PROVIDER NETWORK, INC
By: By:
------------------------ ------------------------
(signature) (signature)
Name: Name:
---------------------- ----------------------
(please print) (please print)
Title: Title:
--------------------- ---------------------
(please print) (please print)
Date: Date:
---------------------- ----------------------
(please print) (please print)
<PAGE>
EXHIBIT "A"
----------
to be provided
<PAGE>
EXHIBIT "B"
----------
1. Each Preferred Advantage Selected Provider shall accept, as full
remuneration for Covered Services provided to a Member, the lesser of
A. 85% of the Preferred Advantage Selected Provider's usual charge; or
B. 85% of the amount the Preferred Advantage Selected Provider would have
billed had the person not been a Member; or
C. the amount the Preferred Advantage Selected Provider billed any other
individual pursuant to a discount obtained or secured by VPN (or an
affiliate of VPN) across a network of long-term care facilities or
service providers.
2. VPN and Vencor guarantee that
A. If a member seeks admission to a Preferred Advantage Selected Provider
facility ("Location of Choice"). VPN shall guarantee that the Member
will receive priority for access to such care from a Preferred Select
Provider.
1. the Member will receive access to such care from the Member's Location of
Choice, as defined below, on a timely and priority basis as soon as a
facility bed or a service is available.
2. Because availability of care may vary by location, in the event such care is
not available within 60 days of the Member's request at the Member's Location
of Choice, VPN will identify and provide access to:
a. A Preferred Advantage Selected Provider within 50 miles of the Member's
Location of Choice; or
b. if no such care is available from a Preferred Advantage Selected Provider
within 50 miles of the Member's Location of Choice, a Preferred Advantage
Selected Provider as close to your Location of Choice as possible.
3. In addition, in states designated as "Special Access States" in the then
current list of Preferred Select Providers, if access to a Preferred
Advantage Selected Provider Long-Term Care Facility within 50 miles of the
Member's Location of Choice is not possible within 60 days:
a. The Preferred Select Network will identify a Long-Term Care Facility,
located within 50 miles of the Member's Location of Choice or as close as
possible, that
<PAGE>
is qualified to provide covered care and is not a member of the Preferred
Select Network; and
b. If the Member receive care from such Long-Term Care Facility, the
Preferred Select Network will provide reimbursement such that the
Member's out-of-pocket cost for such care will be the same as if the
provider had been a Preferred Select Provider. Any additional payments
will not count against the Member's Maximum Lifetime Benefit.
c. None of the guarantees described in this Section 2 will be offered to
or made to any entity that makes payments to providers of long-term
care services except CNA and Members.
3. VPN and Vencor guarantee that a Member shall be permitted to transfer, at
the Member's expense, to a Preferred Advantage Selected Provider facility
preferred by the Member at any time there is an opening in the preferred
facility and the Member can be transported there with no degradation in
care and without jeopardizing the health and safety of the Member.
4. If a Member is receiving services from a provider which is removed from
the network of Preferred Advantage Selected Providers by VPN for any
reason, VPN shall, at the request of the Member and at VPN's expense,
transfer the Member to a like facility within 25 miles. If the provider to
which the Member is transferred does not agree to the remuneration terms
specified in this Agreement, VPN shall make up the difference in payment
to the provider.
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 2 TO PARENT GUARANTY
THIS AMENDMENT, dated as of May 27, 1997, by (i) ATRIA COMMUNITIES, INC., a
Delaware corporation (herein, together with its successors and assigns, the
"BORROWER"); (ii) VENCOR, INC., a Delaware corporation (herein, together with
its successors and assigns, the "PARENT GUARANTOR"); (iii) each of the entities
whose signature appears at the end hereof as a Supporting Guarantor (each,
together with its successors and assigns, a "SUPPORTING GUARANTOR" and
collectively, the "SUPPORTING GUARANTORS"); and (iv) PNC BANK, NATIONAL
ASSOCIATION, a national banking association, as Administrative Agent (the
"ADMINISTRATIVE AGENT") under the Credit Agreement referred to in the Parent
Guaranty identified below:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Parent Guarantor and the Supporting Guarantors have
heretofore entered into the Parent Guaranty, dated as of August 15, 1996, and
Amendment No. 1 to Parent Guaranty, dated as of March 27, 1997, in favor of the
Administrative Agent (as so amended, the "PARENT GUARANTY"; with the terms
defined therein, or the definitions of which are incorporated therein, being
used herein as so defined).
(2) The parties hereto desire to amend certain of the terms and provisions
of the Parent Guaranty, all as more fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1. ADDITIONAL SUPPORTING GUARANTORS. For the avoidance of doubt:
(a) Each Supporting Guarantor which was not a party to the Parent
Guaranty as originally executed and delivered in August 1996 hereby (i) joins in
and becomes a party to the Parent Guaranty as a Supporting Guarantor thereunder,
and (ii) becomes bound by all of the representations, warranties, covenants and
provisions of the Parent Guaranty applicable to any Supporting Guarantor.
(b) The Parent Guarantor hereby confirms that such joinder has been
made at the request and with the consent of the Parent Guarantor.
(c) Each such Additional Supporting Guarantor represents and warrants
that (i) it is a corporation or partnership duly formed and validly existing
under the laws of the jurisdiction of its formation; (ii) it has the corporate
or partnership power and authority to enter into and perform its obligations
hereunder; (iii) this Amendment has been duly authorized by all requisite
corporate or partnership action on its part, has been duly executed and
delivered by it and constitutes its valid and binding obligation, enforceable
against it in accordance with its terms; (iv) its execution, delivery and
performance of this Amendment will not conflict with or violate any of the terms
or provisions of (A) its corporate charter or partnership agreement, (B) any
law, regulation, rule or order of any governmental authority or court applicable
to it or to any of its property, or (C) any agreement or instrument to which
it is a party or by which any of its property is bound; (v) no consent or
approval of any governmental authority is required to be obtained as a condition
to the valid execution, delivery or performance by it of this Amendment; and
(vi) there is no litigation or other proceeding pending which questions the
valid execution, delivery or performance by it of this Amendment.
2. AMENDMENT RELATIVE TO 1997 CREDIT AGREEMENT OF PARENT GUARANTOR.
Clause (f) of section 7 of the Parent Guaranty is amended to read in its
entirety as follows:
(f) promptly after execution thereof, copies of any amendment to its
existing Credit Agreement, dated as of March 17, 1997, with the banks named
therein and Morgan Guaranty Trust Company of New York, as Documentation Agent
and Collateral Agent, and NationsBank, N.A., as Administrative Agent, as in
effect on March 18, 1997, which is the closing date thereunder (as so in effect
on March 18, 1997, and as the same may be amended (including the proposed
amendment to be entered into on or about May 30, 1997 to inter alia increase the
credit facilities thereunder to $2,000,000,000), supplemented or modified,
amended and restated, or replaced, with an agreement with substantially the same
bank group (i.e., with most of the lenders with the largest commitments
remaining lenders at significant commitment levels), whether in the same or a
larger or smaller aggregate amount of credit facilities), the "1997 CREDIT
AGREEMENT"), and copies of any other credit agreement entered into after the
Closing Date in connection with a replacement or refinancing thereof (and any
amendments thereto); and
<PAGE>
3. AMENDMENT OF INCORPORATED LEVERAGE COVENANT. Section 14(a) of the
Parent Guaranty is amended to read in its entirety as follows:
(a) LEVERAGE COVENANTS IN 1997 CREDIT AGREEMENT. The Parent Guarantor
will comply with the covenants contained in Sections 5.17 and 5.26 of the
1997 Credit Agreement.
4. AMENDMENT OF SEPARATE LEVERAGE COVENANT. Section 14(b) of the Parent
Guaranty is amended to read in its entirety as follows:
(b) SEPARATE LEVERAGE COVENANT. The Parent Guarantor will maintain at
the end of each Fiscal Quarter (a "QUARTERLY MEASUREMENT DATE"), the ratio
of (x) Consolidated Debt for Borrowed Money to (y) Consolidated EBITDA for
the four consecutive Fiscal Quarters then ended not in excess of the ratio
set forth below opposite the period in which such Quarterly Measurement
Date falls:
<TABLE>
<CAPTION>
Period Ratio
-------------------------------------------- ------------
<S> <C>
June 1, 1997 through September 29, 1998 4.75 to 1.00
September 30, 1998 through December 30, 1998 4.60 to 1.00
December 31, 1998 through December 30, 1999 4.50 to 1.00
December 31, 1999 and thereafter 4.00 to 1.00
</TABLE>
For purposes of calculating the foregoing ratio at any Quarterly
Measurement Date, if any corporation or other entity shall have been
acquired by any Vencor Company during the relevant period of four
consecutive Fiscal Quarters, Consolidated EBITDA for such period shall be
calculated as if such corporation or other entity had been acquired at the
beginning of such period, to the extent that the relevant financial
information with respect to it for the portion of such period prior to such
acquisition can be determined with reasonable accuracy. As used in this
Agreement, the terms "FISCAL QUARTERS", "CONSOLIDATED DEBT FOR BORROWED
MONEY", "CONSOLIDATED EBITDA", "VENCOR COMPANY", "CONSOLIDATED NET WORTH"
and "DEBT" shall have the same meanings as are ascribed to such terms in
the 1997 Credit Agreement as in effect on May 30, 1997 (which is the date
Amendment No. 2 to the 1997 Credit Agreement became effective, herein the
"VENCOR CLOSING DATE"), without giving effect to any subsequent
modification or termination thereof, and any other defined terms which are
used in such terms in the 1997 Credit Agreement shall likewise have such
meanings without giving effect to any subsequent modification or
termination thereof.
2
<PAGE>
5. ADDITION OF SENIOR DEBT LEVERAGE RATIO COVENANT. The Parent Guaranty
is amended by adding section 14(c) thereto, reading in its entirety as follows:
(c) SENIOR DEBT LEVERAGE RATIO COVENANT. The Parent Guarantor will
maintain at the end of each Fiscal Quarter (a "QUARTERLY MEASUREMENT
DATE"), the ratio of (x) Consolidated Senior Debt for Borrowed Money to (y)
Consolidated EBITDA for the four consecutive Fiscal Quarters then ended not
in excess of the ratio set forth below opposite the period in which such
Quarterly Measurement Date falls:
<TABLE>
<CAPTION>
Period Ratio
-------------------------------------------- ------------
<S> <C>
June 1, 1997 through December 30, 1997 4.50 to 1.00
December 31, 1997 through March 30, 1998 4.00 to 1.00
March 31, 1998 through June 29, 1998 3.85 to 1.00
June 30, 1998 through September 29, 1998 3.80 to 1.00
September 30, 1998 through December 30, 1998 3.75 to 1.00
December 31, 1998 through December 30, 1999 3.50 to 1.00
December 31, 1999 and thereafter 3.00 to 1.00
</TABLE>
For purposes of calculating the foregoing ratio at any Quarterly
Measurement Date, if any corporation or other entity shall have been
acquired by any Vencor Company during the relevant period of four
consecutive Fiscal Quarters, Consolidated EBITDA for such period shall be
calculated as if such corporation or other entity had been acquired at the
beginning of such period, to the extent that the relevant financial
information with respect to it for the portion of such period prior to such
acquisition can be determined with reasonable accuracy. As used in this
Agreement, the terms "FISCAL QUARTERS", "CONSOLIDATED SENIOR DEBT FOR
BORROWED MONEY", "CONSOLIDATED EBITDA", "VENCOR COMPANY", "CONSOLIDATED NET
WORTH" and "DEBT" shall have the same meanings as are ascribed to such
terms in the 1997 Credit Agreement as in effect on the Vencor Closing Date,
without giving effect to any subsequent modification or termination
thereof, and any other defined terms which are used in such terms in the
1997 Credit Agreement shall likewise have such meanings without giving
effect to any subsequent modification or termination thereof.
6. RATIFICATIONS. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Parent Guaranty, and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Parent Guaranty are ratified and
confirmed and shall continue in full force and effect.
7. MISCELLANEOUS. The terms and provisions of sections 20 [Survival of
Agreements, etc.], 24 [Costs and Expenses of Enforcement, etc.], 28 [Jury Trial
Waiver], 29 [Waiver; Amendment], 30 [Kentucky Notice of Guaranteed Amount and
Termination Date], and 31 [Miscellaneous] of the Parent Guaranty are hereby
incorporated into this Amendment as if set forth in full herein, except that
references in such incorporated terms and provisions to "this Agreement",
"herein", "hereby" and words of similar import shall be deemed to refer to this
Amendment instead of the Parent Guaranty.
[The balance of this page is intentionally blank.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
VENCOR, INC.
FIRST HEALTHCARE CORPORATION
NORTHWEST HEALTH CARE, INC.
MEDISAVE PHARMACIES, INC.
NATIONWIDE CARE, INC.
THERATX, INCORPORATED
VENCOR HOSPITALS ILLINOIS, INC.
VENCOR HOSPITALS SOUTH, INC.
VENCOR HOSPITALS EAST, INC.
VENCOR HOSPITALS CALIFORNIA, INC.
VENCOR HOSPITALS TEXAS, LTD.
BY: VCI SPECIALTY SERVICES, INC.,
ITS GENERAL PARTNER
VENTECH SYSTEMS, INC.
PASATIEMPO DEVELOPMENT CORP.
VCI SPECIALTY SERVICES, INC.
VENCOR PROPERTIES, INC.
BY:
-----------------------------------------
VICE PRESIDENT
[SIGNATURES CONTINUED ON FOLLOWING PAGES]
4
<PAGE>
PERSONACARE, INC.
RESPIRATORY CARE SERVICES, INC.
THERATX MEDICAL SUPPLIES, INC.
THERATX HEALTHCARE MANAGEMENT INC.
THERATX STAFFING, INC.
HORIZON HEALTHCARE SERVICES, INC.
PERSONACARE OF CONNECTICUT, INC.
PERSONACARE OF HUNTSVILLE, INC.
PERSONACARE OF OHIO, INC.
PERSONACARE OF OWENSBORO, INC.
PERSONACARE OF PENNSYLVANIA, INC.
PERSONACARE OF READING, INC.
PERSONACARE OF SAN ANTONIO, INC.
PERSONACARE OF SAN PEDRO, INC.
PERSONACARE OF WISCONSIN, INC.
PERSONACARE OF RHODE ISLAND, INC.
PERSONACARE OF ST. PETERSBURG, INC.
PERSONACARE OF POMPANO WEST, INC.
PERSONACARE OF CLEARWATER, INC.
PERSONACARE OF BRADENTON, INC.
PERSONACARE OF POMPANO EAST, INC.
PERSONACARE OF SHREVEPORT, INC.
TUCKER NURSING CENTER, INC.
LAFAYETTE HEALTH CARE CENTER, INC.
PERSONACARE OF WARNER ROBINS, INC.
NFM, INC.
STAMFORD HEALTH FACILITIES, INC.
COURTLAND GARDENS HEALTH CENTER, INC.
COURTLAND GARDENS RESIDENCE, INC.
HOMESTEAD HEALTH CENTER, INC.
TUNSTALL ENTERPRISES, INC.
STAMFORD HEALTH ASSOCIATES LIMITED
PARTNERSHIP
BY: STAMFORD HEALTH FACILITIES, INC.,
ITS GENERAL PARTNER
CARE VENTURE PARTNERS, L.P.
BY: PERSONACARE OF RHODE ISLAND, INC.
ITS GENERAL PARTNER
OAK HILL NURSING ASSOCIATES LIMITED
PARTNERSHIP
BY: PERSONACARE OF RHODE ISLAND, INC.,
ITS GENERAL PARTNER
HEALTH HAVENS ASSOCIATES LIMITED PARTNERSHIP
BY: PERSONACARE OF RHODE ISLAND, INC.,
ITS GENERAL PARTNER
BY:
----------------------------------------
VICE PRESIDENT
PNC BANK, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
BY:
----------------------------------------
VICE PRESIDENT
5
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1 TO THE VENCOR, INC.
1997 INCENTIVE COMPENSATION PLAN
The undersigned, JOSEPH L. LANDENWICH, the duly elected and acting
Assistant Secretary of VENCOR, INC., a Delaware corporation (the "Company"),
hereby certifies that set forth below is Amendment No. 1 to the Vencor, Inc.
1997 Incentive Compensation Plan, which Amendment No. 1 became effective on May
8, 1997:
Section 3.2 of the Vencor, Inc. 1997 Incentive Compensation Plan is amended
by deleting subsections (d) and (h) in their entirety.
WITNESS the signature of the undersigned Assistant Secretary of the Company
as of July 9, 1997.
/s/ Joseph L. Landenwich
------------------------
Joseph L. Landenwich
Assistant Secretary
<PAGE>
EXHIBIT 11
VENCOR, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings:
Income from operations...................... $37,010 $30,865 $70,992 $58,475
Extraordinary loss on extinguishment of
debt, net of income tax benefit............ (1,590) - (3,849) -
------- ------- ------- -------
Net income................................. $35,420 $30,865 $67,143 $58,475
======= ======= ======= =======
Shares used in the computation:
Weighted average common shares outstanding.. 69,194 70,351 69,062 70,304
Dilutive effect of common stock equivalents. 1,822 1,022 1,616 1,111
------- ------- ------- -------
Shares used in computing earnings per
common and common equivalent share........ 71,016 71,373 70,678 71,415
======= ======= ======= =======
Primary earnings per common and common
equivalent share:
Income from operations...................... $ 0.52 $ 0.43 $ 1.00 $ 0.82
Extraordinary loss on extinguishment of
debt....................................... (0.02) - (0.05) -
------- ------- ------- -------
Net income................................. $ 0.50 $ 0.43 $ 0.95 $ 0.82
======= ======= ======= =======
FULLY DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings:
Income from operations...................... $37,010 $30,865 $70,992 $58,475
Extraordinary loss on extinguishment of
debt, net of income tax benefit............ (1,590) - (3,849) -
------- ------- ------- -------
Net income................................. $35,420 $30,865 $67,143 $58,475
======= ======= ======= =======
Shares used in the computation:
Weighted average common shares outstanding.. 69,194 70,351 69,062 70,304
Dilutive effect of common stock equivalents. 1,950 1,022 1,975 1,111
------- ------- ------- -------
Shares used in computing earnings per
common and common equivalent share........ 71,144 71,373 71,037 71,415
======= ======= ======= =======
Fully diluted earnings per common and common
equivalent share:
Income from operations...................... $ 0.52 $ 0.43 $ 1.00 $ 0.82
Extraordinary loss on extinguishment of
debt....................................... (0.02) - (0.05) -
------- ------- ------- -------
Net income................................. $ 0.50 $ 0.43 $ 0.95 $ 0.82
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Vencor, Inc.'s
condensed consolidated financial statements for the six months ended June 30,
1997 and is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 106,476
<SECURITIES> 0
<RECEIVABLES> 639,889
<ALLOWANCES> (52,687)
<INVENTORY> 36,525
<CURRENT-ASSETS> 938,646
<PP&E> 2,050,914
<DEPRECIATION> (462,968)
<TOTAL-ASSETS> 3,410,057
<CURRENT-LIABILITIES> 457,109
<BONDS> 1,935,019
0
0
<COMMON> 18,215
<OTHER-SE> 859,372
<TOTAL-LIABILITY-AND-EQUITY> 3,410,057
<SALES> 0
<TOTAL-REVENUES> 1,458,991
<CGS> 0
<TOTAL-COSTS> 1,030,471
<OTHER-EXPENSES> 220,354
<LOSS-PROVISION> 8,367
<INTEREST-EXPENSE> 31,334
<INCOME-PRETAX> 117,927
<INCOME-TAX> 46,935
<INCOME-CONTINUING> 70,992
<DISCONTINUED> 0
<EXTRAORDINARY> (3,849)
<CHANGES> 0
<NET-INCOME> 67,143
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
</TABLE>
