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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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<CAPTION>
(Mark One)
<S> <C>
[X]Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1997
OR
[ ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
</TABLE>
COMMISSION FILE NUMBER: 1-10989
VENCOR, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
DELAWARE 61-1055020
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
<TABLE>
<S> <C>
3300 AEGON CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
</TABLE>
(502) 596-7300
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
Common Stock, par value $.25 per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment of this Form 10-K. [X]
As of February 27, 1998, there were 67,468,848 shares of the Registrant's
Common Stock, $.25 par value, outstanding. The aggregate market value of the
shares of the Registrant held by non-affiliates of the Registrant, based on
the closing price of such stock on the New York Stock Exchange on February 27,
1998, was approximately $1,820,047,000. For purposes of the foregoing
calculation only, all directors and executive officers of the Registrant have
been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 23, 1998 are incorporated by reference into
Part III of this Form 10-K.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.............................................................................. 3
Item 2. Properties............................................................................ 27
Item 3. Legal Proceedings..................................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders................................... 28
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 31
Item 6. Selected Financial Data............................................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 41
Item 8. Financial Statements and Supplementary Data........................................... 41
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.. 41
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 41
Item 11. Executive Compensation................................................................ 41
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 41
Item 13. Certain Relationships and Related Transactions........................................ 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 41
</TABLE>
2
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PART I
ITEM 1. BUSINESS
GENERAL
Vencor, Inc. ("Vencor" or the "Company") is one of the largest providers of
long-term healthcare services in the United States. At December 31, 1997, the
Company's operations included 60 long-term acute care hospitals containing
5,273 licensed beds, 309 nursing centers containing 40,383 licensed beds, and
the Vencare contract services business which provides respiratory and
rehabilitation therapies and medical and pharmacy management services to
approximately 2,900 healthcare facilities. The Company currently operates in
46 states. Healthcare services provided through this network include long-term
hospital care, nursing care, contract respiratory therapy services, subacute
and post-operative care, in-patient and out-patient rehabilitation therapy,
specialized care for Alzheimer's disease, hospice care, home healthcare and
pharmacy services. The Company also continues to develop VenTouch(TM), a
comprehensive paperless clinical information system designed to increase the
operating efficiencies of the Company's facilities.
The Company was incorporated in Kentucky in 1983 as Vencare, Inc. and
commenced operations in 1985. It was reorganized as a Delaware corporation in
1987 and changed its name to Vencor, Incorporated in 1989 and to Vencor, Inc.
in 1993. On September 28, 1995, The Hillhaven Corporation ("Hillhaven") merged
with and into the Company (the "Hillhaven Merger"). On March 21, 1997, the
Company acquired TheraTx, Incorporated ("TheraTx"), a provider of subacute
rehabilitation and respiratory therapy program management services to nursing
centers and an operator of 26 nursing centers. On June 24, 1997, the Company
acquired Transitional Hospitals Corporation ("Transitional"), an operator of
16 long-term acute care hospitals and three satellite facilities located in 13
states.
In January 1998, the Board of Directors authorized management to proceed
with a plan to separate the Company into two publicly held corporations, one
to operate the hospital, nursing center and Vencare businesses ("Operating
Company") and the other to own substantially all of the real property of the
Company ("Realty Company") and to lease such real property to Operating
Company (the "Reorganization Transactions"). Realty Company intends to become
a real estate investment trust for Federal income tax purposes beginning
January 1, 1999. The Reorganization Transactions will be effected through the
issuance to the Company's common stockholders of all of the outstanding shares
of Operating Company (the "Distribution"). Following the Distribution, Realty
Company will be named VenTrust, Inc. and Operating Company will assume the
name of Vencor, Inc. The Reorganization Transactions and the Distribution are
contingent upon, among other things, stockholder approval, regulatory and
other approvals, tax considerations and the consummation of a capitalization
plan for each entity. The Company filed a preliminary proxy statement
concerning the Reorganization Transactions and the Distribution with the
Securities and Exchange Commission on January 30, 1998. Management anticipates
that the Reorganization Transactions and Distribution will be completed in the
second quarter of 1998.
BUSINESS STRATEGY
The Company believes that the demand for long-term care is increasing.
Improved medical care and advances in medical technology continue to increase
the survival rates for victims of disease and trauma. Many of these patients
never fully recover and require long-term care. The incidence of chronic
medical complications increases with age, particularly in connection with
certain degenerative conditions. As the average age of the United States
population increases, the Company believes that there will be an increase in
the demand for long-term care at all levels of the continuum of care.
At the same time, the healthcare system of the United States is experiencing
a period of significant change. Factors affecting the healthcare system
include cost containment, the expansion of managed care, improved medical
technology, an increased focus on measurable clinical outcomes and a growing
public awareness of healthcare spending by governmental agencies at Federal
and state levels. Payors are increasingly requiring providers to move patients
from high-acuity care environments to lower-acuity care settings as quickly as
is medically appropriate.
3
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The Company's strategy is to continue to develop its full-service integrated
network to meet the range of needs of patients requiring long-term care. The
Company is continuing to integrate and expand the operations of its long-term
acute care hospitals and nursing centers and to develop related healthcare
services. The Company provides a full range of clinical expertise, as well as
advanced technologies for cost-efficiencies, to accommodate patients at all
levels of long-term care. Key elements of the Company's strategy for providing
full-service integrated networks for long-term care are set forth below:
Focus on Long-Term Care Continuum. The factors which affect the selection of
long-term care vary by community and include the Company's local competitive
position as well as its relationships with local referral sources.
Accordingly, the Company focuses its resources on developing integrated
networks within each of the local markets it serves. The Company's history of
strategic acquisitions and complementary business development initiatives has
served to enhance the Company's position as a leader in local and regional
markets. In addition, the Company benefits from economies of scale through its
strategic focus on the long-term care continuum.
The Company intends to continue expanding its long-term care network and
evaluates each acquisition or new market opportunity based on (i) the need for
placement of long-term patients or residents, (ii) existing provider referral
patterns, (iii) the presence of competitors, (iv) payor mix and (v) the
political and regulatory climate. From time to time, the Company may also sell
all or a portion of its interest in a business or the operations of a facility
where such disposition would be in the best interest of the Company.
Increase Penetration of Specialty Care and Ancillary Services. The Company
intends to continue to expand the specialty care programs and ancillary
services provided in its nursing centers through its Vencare operations. These
services generally produce higher revenues than do routine nursing care
services and serve to differentiate the Company's nursing centers from others
in a given market. The Company is focusing on the expansion of its subacute,
medical and rehabilitation services, including physical, occupational and
speech therapies, wound care, oncology treatment, brain injury care, stroke
therapy and orthopedic therapy at these facilities.
Vencare provides respiratory therapy and subacute care services pursuant to
contracts with nursing centers and other healthcare facilities owned by third
parties. The Vencare program also includes rehabilitation therapy services,
pharmacy management services, mobile radiology services and hospice care.
Vencare enables the Company to provide its services to lower acuity patients
in cost-efficient settings.
During 1997, the Company initiated the sale of its Vencare full service
ancillary services contracts to provide a full range of services to nursing
centers not operated by the Company. Management believes that by bundling
services through one provider, nursing centers can provide quality patient
care more efficiently with the added benefit of centralizing their medical
records. Under the new prospective payment system imposed by the Balanced
Budget Act of 1997 (the "Budget Act"), ancillary services provided by nursing
centers will be subject to fixed payments. In this new environment, management
believes that its full service ancillary services contracts will enhance the
ability of nursing center operators to manage effectively the cost of
providing quality patient care.
Further Implement Patient Information System. VenTouch(TM) is a software
application which allows nurses, physicians and other clinicians to access and
manage clinical information utilized in the healthcare delivery process. Among
the features of VenTouch(TM) are on-line access and update of an electronic
patient chart, on-line trend analysis using electronic flowsheets and graphs,
and remote access for authorized users. The system is designed to decrease
administrative time, reduce paper and support the delivery of quality patient
care. Prior to the acquisition of Transitional, the Company had installed
VenTouch(TM) in all of its hospitals. The Company
4
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expects to install VenTouch(TM) in the 19 former Transitional hospitals during
1998. At December 31, 1997, 51 of the Company's nursing centers were utilizing
the VenTouch(TM) information system. The Company expects to install
VenTouch(TM) in 40 to 50 of its nursing centers during 1998. In addition, the
Company intends to offer VenTouch(TM) in connection with the services offered
by Vencare to nursing centers not operated by the Company.
HOSPITAL OPERATIONS
The Company's hospitals primarily provide long-term acute care to medically
complex, chronically ill patients. The Company's hospitals have the capability
to treat patients who suffer from multiple systemic failures or conditions
such as neurological disorders, head injuries, brain stem and spinal cord
trauma, cerebral vascular accidents, chemical brain injuries, central nervous
system disorders, developmental anomalies and cardiopulmonary disorders.
Chronic patients are often dependent on technology for continued life support,
such as mechanical ventilators, total parenteral nutrition, respiration or
cardiac monitors and dialysis machines. Generally, approximately 60% of the
Company's chronic patients are ventilator-dependent for some period of time
during their hospitalization. The Company's patients suffer from conditions
which require a high level of monitoring and specialized care, yet may not
necessitate the continued services of an intensive care unit. Due to their
severe medical conditions, the Company's hospital patients generally are not
clinically appropriate for admission to a nursing center or rehabilitation
hospital. The medical condition of most of the Company's hospital patients is
periodically or chronically unstable. By combining general acute care services
with the ability to care for chronic patients, the Company believes that its
long-term care hospitals provide its patients with high quality, cost-
effective care. During 1997, the average length of stay for chronic patients
in the long-term care hospitals operated by the Company was approximately 43
days. Although the Company's patients range in age from pediatric to
geriatric, typically more than 70% of the Company's chronic patients are over
65 years of age. The Company's hospital operations are subject to regulation
by a number of government and private agencies. See "--Governmental
Regulation--Hospitals."
5
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HOSPITAL FACILITIES
The following table lists by state the number of hospitals and related
licensed beds owned or leased from third parties by the Company as of December
31, 1997:
<TABLE>
<CAPTION>
NUMBER OF FACILITIES
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LICENSED
STATE BEDS OWNED LEASED TOTAL
----- -------- ------ ------- ------
<S> <C> <C> <C> <C>
Arizona.............................. 109 2 - 2
California........................... 635 9 - 9
Colorado............................. 68 1 - 1
Florida(1)........................... 564 6 1 7
Georgia(1)........................... 72 - 1 1
Illinois(1).......................... 613 3 2 5
Indiana.............................. 159 2 1 3
Kentucky(1).......................... 374 1 - 1
Louisiana............................ 168 1 - 1
Massachusetts(1)..................... 86 2 - 2
Michigan(1).......................... 400 2 - 2
Minnesota............................ 111 1 - 1
Missouri(1).......................... 227 2 - 2
Nevada............................... 52 1 - 1
New Mexico........................... 61 1 - 1
North Carolina(1).................... 124 1 - 1
Ohio................................. 94 1 - 1
Oklahoma............................. 59 1 - 1
Pennsylvania......................... 115 2 - 2
Tennessee(1)......................... 49 1 - 1
Texas................................ 663 8 2 10
Virginia(1).......................... 206 1 - 1
Washington(1)........................ 80 1 - 1
Wisconsin............................ 184 2 1 3
1
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Totals............................. 5,273 52 8 60
===== ====== ====== ======
</TABLE>
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(1) These states have Certificate of Need ("CON") regulations. See "--
Governmental Regulation--Hospitals."
SERVICES PROVIDED BY HOSPITALS
Chronic. The Company has devised a comprehensive program of care for its
chronic patients that draws upon the talents of interdisciplinary teams,
including licensed pulmonary specialists. The teams evaluate chronic patients
upon admission to determine treatment programs. Where appropriate, the
treatment programs may involve the services of several disciplines, such as
pulmonary and physical therapy. Individual attention to patients who have the
cognitive and physical abilities to respond to therapy is emphasized. Patients
who successfully complete treatment programs are discharged to nursing
centers, rehabilitation hospitals or home care settings.
General Acute Care. The Company operates two general acute care hospitals.
Certain of the Company's long-term care hospitals also provide general acute
care and outpatient services in support of their long-term care services.
Certain of the Company's hospitals maintain subacute units. General acute care
and outpatient services may include inpatient services, diagnostic services,
emergency services, CT scanning, one-day surgery, hospice services,
laboratory, X-ray, respiratory therapy, cardiology and physical therapy. The
Company may expand its general acute care and outpatient services.
Major factors contributing to the growth in demand for the Company's
intensive care hospital services include the following:
6
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Increased Patient Population. Improved medical care and advancements in
medical technology have increased the survival rates for infants born with
severe medical problems, as well as victims of disease and trauma of all ages.
Many of these patients never fully recover and require long-term hospital
care. The incidence of chronic respiratory problems increases with age,
particularly in connection with certain degenerative conditions. As the
average age of the United States population increases, the Company believes
there will be an increase in the need for long-term hospital care.
Medically Displaced Patients. The Company's hospital patients require a high
level of monitoring and specialized care, yet may not require the continued
services of an intensive care unit. Due to their extended recovery period, the
Company's hospital patients generally would not receive specialized multi-
disciplinary treatment focused on the unique aspects of a long-term recovery
program in a general acute care hospital, and yet are not appropriate for
admission to a nursing center or rehabilitation hospital.
Economically Displaced Patients. Historically, reimbursement policies and
practices designed to control healthcare costs have made it difficult to place
medically complex, chronically ill patients in an appropriate healthcare
setting. Under the Medicare program, general acute care hospitals are
reimbursed under the prospective payment system ("PPS"), a fixed payment
system which provides an economic incentive to general acute care hospitals to
minimize the length of patient stay. As a result, these hospitals generally
receive less than full cost for providing care to patients with extended
lengths of stay. Furthermore, PPS does not provide for reimbursement more
frequently than once every 60 days, placing an additional economic burden on a
general acute care hospital providing long-term care. The Company's long-term
care hospitals, however, are excluded from PPS and generally receive
reimbursement on a more favorable basis for providing long-term hospital care
to Medicare patients. Commercial reimbursement sources, such as insurance
companies and health maintenance organizations ("HMOs"), some of which pay
based on established hospital charges, typically seek the most economical
source of care available. The Company believes that its emphasis on long-term
hospital care allows it to provide high quality care to chronic patients on a
cost-effective basis.
HOSPITAL PATIENT ADMISSION
Substantially all of the acute and medically complex patients admitted to
the Company's hospitals are transfers from other healthcare providers.
Patients are referred from general acute care hospitals, rehabilitation
hospitals, nursing centers and home care settings. Referral sources include
discharge planners, case managers of managed care plans, social workers,
physicians, third party administrators, HMOs and insurance companies.
The Company employs case managers who educate healthcare professionals from
other hospitals as to the unique nature of the services provided by the
Company's long-term care hospitals. The case managers develop an annual
admission plan for each hospital with assistance from the hospital's
administrator. To identify specific service opportunities, the admission plan
for each hospital is based on a variety of factors, including population
characteristics, physician characteristics and incidence of disability
statistics. The admission plans involve ongoing education of local physicians,
utilization review and case management personnel, acute care hospitals, HMOs
and preferred provider organizations ("PPOs"). The Company maintains a pre-
admission assessment system at its regional referral centers to evaluate
certain clinical and other information in determining the appropriateness of
each patient referred to its hospitals.
PROFESSIONAL STAFF
Each of the Company's hospitals is staffed with a multi-disciplinary team of
healthcare professionals. A professional nursing staff trained to care for the
long-term acute patient is on duty 24 hours each day in the Company's
hospitals. Other professional staff includes respiratory therapists, physical
therapists, occupational therapists, speech therapists, pharmacists,
registered dietitians and social workers.
The physicians at the Company's hospitals generally are not employees of the
Company and may be members of the medical staff of other hospitals. Each of
the Company's hospitals has a fully credentialed, multi-
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specialty medical staff to meet the needs of the clinically complex, long-term
acute patient. Typically, each patient is visited at least once a day by a
physician. A broad range of physician services is available including, but not
limited to, pulmonology, internal medicine, infectious diseases, neurology,
nephrology, cardiology, radiology and pathology. Generally, the Company does
not enter into exclusive contracts with physicians to provide services to its
hospital patients.
The Company believes that its future success will depend in large part upon
its continued ability to hire and retain qualified personnel. The Company
seeks the highest quality of professional staff within each market.
CENTRALIZED MANAGEMENT AND OPERATIONS
A hospital administrator supervises and is responsible for the day-to-day
operations at each of the Company's hospitals. Each hospital also employs a
controller who monitors the financial matters of each hospital, including the
measurement of actual operating results compared to goals established by the
Company. In addition, each hospital employs an assistant administrator to
oversee the clinical operations of the hospital and a quality assurance
manager to direct an integrated quality assurance program. The Company's
corporate headquarters provides services in the areas of system design and
development, training, human resource management, reimbursement expertise,
legal advice, technical accounting support, purchasing and facilities
management. Financial control is maintained through fiscal and accounting
policies that are established at the corporate level for use at each hospital.
The Company has standardized operating procedures and monitors its hospitals
to assure consistency of operations.
HOSPITAL MANAGEMENT INFORMATION SYSTEM
The financial information for each hospital is centralized at the corporate
headquarters through its management information system. Prior to the
acquisition of Transitional, the Company had installed its VenTouch(TM)
information system, an electronic patient medical record system, in all of its
hospitals. The Company expects to install VenTouch(TM) in the 19 former
Transitional hospitals during 1998. See "--Management Information System."
QUALITY ASSESSMENT AND IMPROVEMENT
The Company maintains a strategic outcomes program which includes a
centralized pre-admission evaluation program and concurrent review of all of
its patient population against utilization and quality screenings, as well as
quality of life outcomes data collection and patient and family satisfaction
surveys. In addition, each hospital has an integrated quality assessment and
improvement program administered by a quality review manager which encompasses
utilization review, quality improvement, infection control and risk
management. The objective of these programs is to ensure that patients are
appropriately admitted to the Company's hospitals and that quality healthcare
is rendered to them in a cost-effective manner.
The Company has implemented a program whereby its hospitals will be reviewed
annually by internal quality auditors for compliance with standards of the
Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). The
purposes of this internal review process are to (i) ensure ongoing compliance
with industry recognized standards for hospitals, (ii) assist management in
analyzing each hospital's operations and (iii) provide consulting and
educational programs for each hospital to identify opportunities to improve
patient care.
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SELECTED HOSPITAL OPERATING DATA
The following table sets forth certain operating data for the Company's
hospitals:
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<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
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<S> <C> <C> <C>
Hospitals in operation at end of period........... 60 38 36
Number of licensed beds at end of period.......... 5,273 3,325 3,263
Patient days...................................... 767,810 586,144 489,612
Average daily census.............................. 2,104 1,601 1,341
Occupancy percentage.............................. 52.9% 53.7% 47.6%
</TABLE>
As used in the above table, the term "licensed beds" refers to the maximum
number of beds permitted in the hospital under its license regardless of
whether the beds are actually available for patient care. "Patient days"
refers to the total number of days of patient care provided by the Company's
hospitals for the periods indicated. "Average daily census" is computed by
dividing each hospital's patient days by the number of calendar days the
respective hospital is in operation. "Occupancy percentage" is computed by
dividing average daily census by the number of licensed beds, adjusted for the
length of time each facility was in operation during each respective period.
SOURCES OF HOSPITAL REVENUES
The Company receives payment for hospital services from third-party payors,
including government reimbursement programs such as Medicare and Medicaid and
nongovernment sources such as commercial insurance companies, HMOs, PPOs and
contracted providers. Patients covered by nongovernment payors will generally
be more profitable to the Company than those covered by Medicare and Medicaid
programs. The following table sets forth the approximate percentages of the
Company's hospital patient days and revenues derived from the payor sources
indicated:
<TABLE>
<CAPTION>
MEDICARE MEDICAID PRIVATE AND OTHER
---------------- ---------------- ---------------------
PATIENT PATIENT PATIENT
YEAR DAYS REVENUES DAYS REVENUES DAYS REVENUES
---- ------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997............. 68% 63% 12% 8% 20% 29%
1996............. 64 59 17 12 19 29
1995............. 64 57 16 12 20 31
</TABLE>
For the year ended December 31, 1997, hospital revenues totaled
approximately $785.8 million, or 24.7% of the Company's total revenues.
Changes caused by the Budget Act will reduce the level of Medicare payments
made to the Company's hospitals by reducing incentive payments under the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA") and allowable costs of
capital expenditures and bad debts, and payments for services to patients
transferred from a PPS hospital. See "--Governmental Regulation--Healthcare
Reform Legislation."
HOSPITAL COMPETITION
As of December 31, 1997, the hospitals operated by the Company were located
in 38 geographic markets in 24 states. In each geographic market, there are
general acute care hospitals which provide services comparable to those
offered by the Company's hospitals. In addition, the Company believes that as
of December 31, 1997 there were approximately 180 hospitals in the United
States certified by Medicare as general long-term hospitals, some of which
provide similar cardiopulmonary services to those provided by the Company's
hospitals. Many of these general acute care hospitals and long-term hospitals
are larger and more established than the Company's hospitals. Certain
hospitals that compete with the Company's hospitals are operated by not-for-
profit, nontaxpaying or governmental agencies, which can finance capital
expenditures on a tax-exempt basis, and which receive funds and charitable
contributions unavailable to the Company's hospitals. Cost containment efforts
by Federal and state governments and other third-party payors designed to
encourage more efficient utilization of
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hospital services have generally resulted in lower hospital industry occupancy
rates in recent years. As a result of these efforts, a number of acute care
hospitals have converted to specialized care facilities. Some hospitals are
developing step-down units which attempt to serve the needs of patients who
require care at a level between that provided by an intensive care unit and a
general medical/surgical floor. This trend is expected to continue due to the
current oversupply of acute care hospital beds and the increasing
consolidation and affiliation of free-standing hospitals into larger systems.
As a result, the Company may experience increased competition from existing
hospitals and converted facilities.
Competition for patients covered by non-government reimbursement sources is
intense. The primary competitive factors in the long-term intensive care
business include quality of services, charges for services and responsiveness
to the needs of patients, families, payors and physicians. Other companies
have entered the long-term intensive care market with licensed hospitals that
compete with the Company's hospitals.
Some nursing centers, while not licensed as hospitals, have developed units
which provide a greater intensity of care than typically provided by a nursing
center. The condition of patients in these nursing centers is less acute than
the condition of patients in the Company's hospitals.
The competitive position of any hospital, including the Company's hospitals,
is also affected by the ability of its management to negotiate contracts with
purchasers of group healthcare services, including private employers, PPOs and
HMOs. Such organizations attempt to obtain discounts from established hospital
charges. The importance of obtaining contracts with PPOs, HMOs and other
organizations which finance healthcare, and its effect on a hospital's
competitive position, vary from market to market, depending on the number and
market strength of such organizations.
The Company also competes with other healthcare companies for hospital and
other healthcare acquisitions.
NURSING CENTER OPERATIONS
At December 31, 1997, the Company provided long-term care and subacute
medical and rehabilitation services in 309 nursing centers containing 40,383
licensed beds located in 32 states. At December 31, 1997, the Company owned
218 nursing centers and leased 78 nursing centers from third parties. The
Company also managed 13 nursing centers, including seven centers owned by
Tenet Healthcare Corporation ("Tenet"), which holds a greater than 10%
interest in the Company. During 1997, the Company completed the sale of 28 of
its underperforming or non-strategic nursing centers. One additional nursing
center was sold and one nursing center was closed in January 1998, and two
additional nursing centers are expected to be sold upon receipt of certain
regulatory approvals.
The Company's nursing centers provide rehabilitation services, including
physical, occupational and speech therapies. The majority of patients in
rehabilitation programs stay for eight weeks or less. Patients in
rehabilitation programs generally provide higher revenues than other nursing
center patients because they require a higher level of ancillary services. In
addition, management believes that the Company is one of the leading providers
of care for patients with Alzheimer's disease. At December 31, 1997, the
Company offered specialized programs covering approximately 3,100 beds in 88
nursing centers for patients suffering from Alzheimer's disease. Most of these
patients reside in separate units within the nursing centers and are cared for
by teams of professionals specializing in the unique problems experienced by
Alzheimer's patients.
NURSING CENTER MARKETING
The factors which affect consumers' selection of a nursing center vary by
community and include a nursing center's competitive position and its
relationships with local referral sources. Competition creates the standards
against which nursing centers in a given market are judged by various referral
sources, which include physicians, hospital discharge planners, community
organizations and families. Therefore, the Company's nursing center marketing
efforts are conducted at the local market level by the nursing center
administrators, admissions coordinators and others. Nursing center personnel
are assisted in carrying out their marketing strategies by regional marketing
staffs. The Company's marketing efforts are directed toward improving the
payor mix at the nursing centers by maximizing the census of private payment
patients and Medicare patients.
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NURSING CENTER OPERATIONS
Each nursing center is managed by a state-licensed administrator who is
supported by other professional personnel, including a director of nursing,
staff development professional (responsible for employee training), activities
director, social services director, licensed dietitian, business office
manager and, in general, physical, occupational and speech therapists. The
directors of nursing are state-licensed nurses who supervise nursing staff
which include registered nurses, licensed practical nurses and nursing
assistants. Staff size and composition vary depending on the size and
occupancy of each nursing center and on the level of care provided by the
nursing center. The nursing centers contract with physicians who serve as
medical directors and serve on quality assurance committees.
The nursing centers are supported by district and/or regional staff in the
areas of nursing, dietary and rehabilitation services, maintenance, sales and
financial services. In addition, corporate staff provide other services in the
areas of sales assistance, human resource management, state and federal
reimbursement, state licensing and certification, legal, finance and
accounting support. Financial control is maintained principally through fiscal
and accounting policies established at the corporate level for use at the
nursing centers.
Quality of care is monitored and enhanced by quality assurance committees
and family satisfaction surveys. The quality assurance committees oversee
patient healthcare needs and patient and staff safety. Additionally,
physicians serve on the quality assurance committees as medical directors and
advise on healthcare policies and practices. Regional nursing professionals
visit each nursing center periodically to review practices and recommend
improvements where necessary in the level of care provided and to assure
compliance with requirements under applicable Medicare and Medicaid
regulations. Surveys of patients' families are conducted from time to time in
which the families are asked to rate various aspects of service and the
physical condition of the nursing centers. These surveys are reviewed by
nursing center administrators to help ensure quality patient care.
The Company provides training programs for nursing center administrators,
managers, nurses and nursing assistants. These programs are designed to
maintain high levels of quality patient care.
Substantially all of the nursing centers are currently certified to provide
services under Medicare and Medicaid programs. A nursing center's
qualification to participate in such programs depends upon many factors, such
as accommodations, equipment, services, safety, personnel, physical
environment and adequate policies and procedures.
SELECTED NURSING CENTER OPERATING DATA
The following table sets forth certain operating data for the Company's
nursing centers:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Number of nursing centers in operation
at end of period...................... 309 313 311
Number of licensed beds at end of
period................................ 40,383 39,619 39,480
Patient days........................... 12,622,238 12,566,763 12,569,600
Average daily census................... 34,581 34,335 34,437
Occupancy percentage................... 90.5% 91.9% 92.2%
</TABLE>
SOURCES OF NURSING CENTER REVENUES
Nursing center revenues are derived principally from Medicare and Medicaid
programs and from private payment patients. Consistent with the nursing center
industry, changes in the mix of the Company's patient population among these
three categories significantly affect the profitability of the Company's
operations. Although Medicare and other high acuity patients generally produce
the most revenue per patient day, profitability is reduced by the costs
associated with the higher level of nursing care and other services required
11
<PAGE>
by such patients. The Company believes that private payment patients generally
constitute the most profitable category and Medicaid patients generally
constitute the least profitable category.
The following table sets forth the approximate percentages of the Company's
nursing center patient days and revenues derived from the payor sources
indicated:
<TABLE>
<CAPTION>
PRIVATE AND
MEDICARE MEDICAID OTHER
---------------- ---------------- ----------------
PATIENT PATIENT PATIENT
YEAR DAYS REVENUES DAYS REVENUES DAYS REVENUES
---- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1997...................... 13% 32% 65% 43% 22% 25%
1996...................... 12 30 65 44 23 26
1995...................... 12 29 65 44 23 27
</TABLE>
For the year ended December 31, 1997, nursing center revenues totaled
approximately $1.72 billion, or 54.1% of the Company's total revenues.
Both governmental and private third-party payors employ cost containment
measures designed to limit payments made to healthcare providers. Those
measures include the adoption of initial and continuing recipient eligibility
criteria which may limit payment for services, the adoption of coverage
criteria which limit the services that will be reimbursed and the
establishment of payment ceilings which set the maximum reimbursement that a
provider may receive for services. Furthermore, government reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all
of which may materially increase or decrease the rate of program payments to
the Company for its services. The Budget Act requires the establishment of a
prospective payment system for nursing centers for cost reporting periods
beginning on or after July 1, 1998. During the first three years, the per diem
rates for nursing centers will be based on a blend of facility-specific costs
and Federal costs. Thereafter, the per diem rates will be based solely on
Federal costs. The rates for such services have not been established or
published. The new prospective payment system also will cover ancillary
services provided to nursing center patients under the Vencare contract
services business. There can be no assurance that payments under governmental
and private third-party payor programs will remain at levels comparable to
present levels or will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. In addition, there can
be no assurance that facilities operated by the Company, or the provision of
services and supplies by the Company, will meet the requirements for
participation in such programs. The Company could be adversely affected by the
continuing efforts of governmental and private third-party payors to contain
the amount of reimbursement for healthcare services. See "--Governmental
Regulation--Nursing Centers" and "--Governmental Regulation--Healthcare Reform
Legislation."
Medicare. The Medicare Part A program provides reimbursement for extended
care services furnished to Medicare beneficiaries who are admitted to nursing
centers after at least a three-day stay in an acute care hospital. Covered
services include supervised nursing care, room and board, social services,
physical and occupational therapies, pharmaceuticals, supplies and other
necessary services provided by nursing centers.
Until the implementation of the new prospective payment system, nursing
center reimbursement will continue to be based upon reasonable direct and
indirect costs of services provided to beneficiaries. Under the Medicare
program, routine costs are subject to a routine cost limit ("RCL"). The RCL is
a national average cost per patient day which is adjusted for variations in
local wages. Revenues under this program are subject to audit and retroactive
adjustment. Settlements of Medicare audits have not had a material adverse
effect on the Company's nursing center operating results.
Medicaid. Medicaid is a state-administered program financed by state funds
and matching Federal funds. The program provides for medical assistance to the
indigent and certain other eligible persons. Although
12
<PAGE>
administered under broad Federal regulations, states are given flexibility to
construct programs and payment methods consistent with their individual goals.
Accordingly, these programs differ from state to state in many respects.
Prior to the Budget Act, Federal law, generally referred to as the Boren
Amendment, required Medicaid programs to pay rates that are reasonable and
adequate to meet the costs incurred by an efficiently and economically
operated nursing center providing quality care and services in conformity with
all applicable laws and regulations. Despite the Federal requirements,
disagreements frequently arose between nursing centers and states regarding
the adequacy of Medicaid payments. By repealing the Boren Amendment, the
Budget Act eases the impediments on the states' ability to reduce their
Medicaid reimbursement levels for such services. In addition, Medicaid
programs are subject to statutory and regulatory changes, administrative
rulings, interpretations of policy by the state agencies and certain
government funding limitations, all of which may materially increase or
decrease the level of program payments to nursing centers operated by the
Company. Management believes that the payments under many of these programs
may not be sufficient on an overall basis to cover the costs of serving
certain residents participating in these programs. Furthermore, the Omnibus
Budget Reconciliation Act of 1987, as amended ("OBRA"), mandates an increased
emphasis on ensuring quality patient care, which has resulted in additional
expenditures by nursing centers.
There can be no assurance that the payments under Medicaid programs will
remain at levels comparable to current levels or, in the future, will be
sufficient to cover the costs incurred in serving patients participating in
such programs. The Company provides to eligible individuals Medicaid-covered
services consisting of nursing care, room and board and social services. In
addition, states may at their option cover other services such as physical,
occupational and speech therapies and pharmaceuticals.
Private Payment. The Company's nursing centers seek to maximize the number
of private payment patients, including those covered under private insurance
and managed care health plans. Private payment patients typically have
financial resources (including insurance coverage) to pay for their monthly
services and do not rely on government programs for support.
NURSING CENTER COMPETITION
The Company's nursing centers compete on a local and regional basis with
other nursing centers. The Company's competitive position varies within each
community served. The Company believes that the quality of care provided,
reputation, location and physical appearance of its nursing centers and, in
the case of private patients, the charges for services, are significant
competitive factors. Although there is limited, if any, price competition with
respect to Medicare and Medicaid patients (since revenues received for
services provided to such patients are based on fixed rates or cost
reimbursement principles), there is significant competition for private
payment patients.
The long-term care industry is divided into a variety of competitive areas
which market similar services. These competitors include nursing centers,
hospitals, extended care centers, assisted living facilities and communities,
home health agencies and similar institutions. The industry includes
government-owned, church-owned, secular not-for-profit and for-profit
institutions.
13
<PAGE>
NURSING CENTER FACILITIES
The following table lists by state the number of nursing centers and related
licensed beds operated by the Company as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF FACILITIES
--------------------------
LICENSED
STATE BEDS OWNED LEASED MANAGED TOTAL
- ----- -------- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Alabama(1).................................. 592 3 1 - 4
Arizona..................................... 827 5 1 - 6
California.................................. 2,516 13 6 2 21
Colorado.................................... 935 4 3 - 7
Connecticut(1).............................. 983 8 - - 8
Florida(1).................................. 2,828 16 3 2 21
Georgia(1).................................. 1,336 4 6 - 10
Idaho....................................... 903 8 1 - 9
Indiana(1).................................. 4,152 14 12 - 26
Kentucky(1)................................. 2,089 13 4 - 17
Louisiana(1)................................ 485 - 1 2 3
Maine(1).................................... 882 11 - - 11
Massachusetts(1)............................ 4,232 33 3 2 38
Minnesota................................... 159 1 - - 1
Mississippi(1).............................. 125 - 1 - 1
Montana(1).................................. 456 2 1 - 3
Nebraska(1)................................. 167 - 1 - 1
Nevada(1)................................... 288 3 - - 3
New Hampshire(1)............................ 622 3 - 1 4
North Carolina(1)........................... 3,212 20 8 - 28
Ohio(1)..................................... 2,161 11 4 1 16
Oregon(1)................................... 358 2 1 - 3
Pennsylvania................................ 200 1 1 - 2
Rhode Island(1)............................. 201 2 - - 2
Tennessee(1)................................ 2,541 4 11 - 15
Texas....................................... 623 1 1 1 3
Utah........................................ 848 5 1 1 7
Vermont(1).................................. 310 1 - 1 2
Virginia(1)................................. 764 4 1 - 5
Washington(1)............................... 1,504 10 3 - 13
Wisconsin(1)................................ 2,633 12 3 - 15
Wyoming..................................... 451 4 - - 4
------ --- --- --- ---
Totals................................... 40,383 218 78 13 309
====== === === === ===
</TABLE>
- --------
(1) These states have CON regulations. See "--Governmental Regulation--Nursing
Centers."
14
<PAGE>
VENCARE HEALTH SERVICES OPERATIONS
Through its Vencare health services operations, the Company has expanded the
scope of its cardiopulmonary care by providing subacute care, rehabilitation
therapy and respiratory care services and supplies to nursing and subacute
care centers. The Company provides hospice services to nursing center
patients, hospital patients and persons in private residences. In November
1996, the Company consolidated its pharmacy operations under its Vencare
health services. In addition, the rehabilitation, respiratory and other
healthcare services previously provided by TheraTx have been integrated into
the Vencare operations. For the year ended December 31, 1997, revenues from
the Vencare operations totaled approximately $642.5 million which represented
20.2% of the Company's total revenues.
During 1997, the Company initiated the sale of its Vencare full-service
ancillary services contracts to provide a full range of ancillary services to
nursing centers not operated by the Company. Management believes that by
bundling services through one provider, nursing centers can provide quality
patient care more efficiently with the added benefit of centralizing their
medical records. Under the new prospective payment system imposed by the
Budget Act, ancillary services provided by nursing centers will be subject to
fixed payments. In this new environment, the Company believes that its full-
service ancillary services contract will enhance the ability of nursing center
operators to manage effectively the cost of providing quality patient care.
RESPIRATORY CARE SERVICES
The Company provides respiratory care services and supplies to nursing and
subacute care center patients pursuant to contracts between the Company and
the nursing center or subacute center. The services are provided by
respiratory therapists based at the Company's hospitals. These respiratory
therapists perform a wide variety of procedures, including oxygen therapy,
bronchial hygiene, nebulizer and aerosol treatments, tracheostomy care,
ventilator management and patient respiratory education. Pulse oximeters and
arterial blood gas machines are used to evaluate the patient's condition, as
well as the effectiveness of the treatment. The Company also provides
respiratory equipment and supplies to nursing and subacute centers.
The Company receives payments from the nursing centers and subacute care
centers for services rendered and these facilities, in turn, receive payments
from the appropriate third-party payor. Respiratory therapy and supplies are
generally covered under the Medicare program. Many commercial insurers and
managed care providers are seeking hospital discharge options for lower acuity
respiratory patients. Management believes that the Company's pricing and
successful clinical outcomes make its respiratory care program attractive to
commercial insurers and managed care providers.
At December 31, 1997, the Company had entered into contracts to provide
respiratory therapy services and supplies to approximately 1,600 nursing and
subacute care centers, which includes approximately 300 nursing centers
operated by the Company.
SUBACUTE SERVICES
At December 31, 1997, the Company had entered into contracts to provide
subacute care services to 11 nursing and subacute care centers. These
services, which are also an extension of the cardiopulmonary services provided
by the Company's hospitals, may include ventilator management, tracheostomy
care, continuation of airway restoration programs, enteral and parenteral
nutritional support, IV therapy for hydration and medication administration,
progressive wound care, chronic chest tube management, laboratory, radiology,
pharmacy and dialysis services, customized rehabilitation services and program
marketing. Subacute patients generally require assisted ventilation through
mechanical ventilation devices.
REHABILITATION THERAPY SERVICES
The Company provides physical, occupational and speech therapies to nursing
and subacute care center patients, as well as home health patients and public
school systems. At December 31, 1997, the Company had entered into contracts
to provide rehabilitation services to patients at 400 facilities.
15
<PAGE>
HOSPICE SERVICES
The Company provides hospice services to nursing center patients, hospital
patients and persons in private residences. At December 31, 1997, the Company
had entered into approximately 275 contracts to provide hospice services to
patients in nursing and subacute care centers, hospitals and residences.
MOBILE DIAGNOSTIC SERVICES
The Company is a hospital based provider of on-call mobile X-ray services.
These services are primarily provided to nursing facilities, but the Company
also provides services to correctional facilities, rehabilitation hospitals
and dialysis centers. These services are provided 24 hours a day, 365 days a
year to over 130 facilities.
HOME CARE SERVICES
During 1996, the Company consolidated its home care services business to
establish Vencor Home Care Services. These services include home health
nursing products and services and home infusion therapy. These services are
generally provided to patients on an individual basis. At December 31, 1997,
the Company provided services from 28 locations in 13 states. For the year
ended December 31, 1997, home care services generated approximately $19.3
million in revenues, representing less than 1% of the Company's total
revenues.
COMPETITION IN THE CONTRACT SERVICES MARKET
Although the respiratory therapy services, rehabilitation services, subacute
services and hospice care markets are fragmented, significant competition
exists for the Company's contract services. The primary competitive factors
for the contract services business are quality of services, charges for
services and responsiveness to the needs of patients, families and the
facilities in which the services are provided. Certain hospitals are
establishing and managing their own step-down and subacute facilities. Other
hospital companies have entered the contract services market through
affiliation agreements and management contracts. In addition, many nursing
centers are developing internal staff to provide those services, particularly
in response to the planned implementation of the new prospective payment
system for nursing centers.
PHARMACIES
The Company provides institutional and other pharmacy services. In November
1996, the Company consolidated its Medisave Pharmacies into its Vencare health
services operations and now provides its hospital-based clinical pharmacy
services as part of its Vencare services.
The institutional pharmacy business focuses on providing a full array of
pharmacy services to over 600 nursing centers and specialized care centers.
Institutional pharmacy sales encompass a wide variety of products including
prescription medication, prosthetics, respiratory services, infusion services
and enteral therapies. In addition, the Company provides a variety of
pharmaceutical consulting services designed to assist hospitals, nursing
centers and home health agencies in program administration. During 1997, the
Company sold or closed all of its retail pharmacies except one which is in the
process of being sold. The discontinuance of the retail pharmacy operations in
1997 did not have a material adverse effect on Vencare's operations.
16
<PAGE>
MANAGEMENT INFORMATION SYSTEM
The financial information for each of the Company's facilities is
centralized at the corporate headquarters through its management information
system. The Company uses a comprehensive financial reporting system which
enables it to monitor certain key financial data at each facility such as
payor mix, admissions and discharges, cash collections, net revenues and
staffing. In addition, the financial reporting system provides monthly budget
analysis, financial comparisons to prior periods and comparisons among the
Company's facilities.
The Company has developed the VenTouch(TM) electronic patient medical record
system. VenTouch(TM) is a software application which allows nurses, physicians
and other clinicians to manage clinical information utilized in the patient
care delivery process.
Among the features of VenTouch(TM) are on-line access and update of an
electronic patient chart, an on-line trend analysis using electronic
flowsheets and graphs, and remote access for authorized users. Features
specific to the nursing centers include a complete on-line Resident Assessment
Instrument Process that incorporates state specific guidelines, computer
generated Resident Assessment Protocols, on-line HCFA Resident Assessment
Instrument manual and electronic data transfer capabilities. The system is
designed to decrease administrative time, reduce paper and support the
delivery of quality patient care.
Prior to the acquisition of Transitional, the Company had completed the
installation of VenTouch(TM) information system in its hospitals. The Company
expects to install VenTouch(TM) in the 19 former Transitional hospitals during
1998. At December 31, 1997, 51 of the Company's nursing centers were utilizing
the VenTouch(TM) information system. The Company expects to install
VenTouch(TM) in 40 to 50 of its nursing centers during 1998. In addition, the
Company intends to offer VenTouch(TM) in connection with the services offered
by Vencare to nursing centers not operated by the Company.
GOVERNMENTAL REGULATION
HOSPITALS
Certificates of Need and State Licensing. CON regulations control the
development and expansion of healthcare services and facilities in certain
states. CON laws generally provide that approval must be obtained from the
designated state health planning agency prior to the expansion of existing
facilities, construction of new facilities, addition of beds, acquisition of
major items of equipment or introduction of new services. The stated objective
of the CON process is to promote quality healthcare at the lowest possible
cost and avoid unnecessary duplication of services, equipment and facilities.
Recently, some states (including Florida, Massachusetts and Tennessee) have
amended their CON regulations to require CON approval prior to the conversion
of a hospital from a general short-term facility to a general long-term
facility. Of the 24 states in which the Company's hospitals were located as of
December 31, 1997, Florida, Georgia, Illinois, Kentucky, Massachusetts,
Michigan, Missouri, North Carolina, Tennessee, Virginia and Washington have
CON programs. With one exception, the Company was not required to obtain a CON
in connection with previous acquisitions due to the relatively low renovation
costs and the absence of the need for additional licensed beds or changes in
services. CONs may be required in connection with the Company's future
hospital and contract services expansion. There can be no assurance that the
Company will be able to obtain the CONs necessary for any or all future
projects. If the Company is unable to obtain the requisite CONs, its
respective growth and businesses could be adversely affected.
State licensing of hospitals is a prerequisite to the operation of each
hospital and to participation in government programs. Once a hospital becomes
licensed and operational, it must continue to comply with Federal, state and
local licensing requirements in addition to local building and life-safety
codes. All of the Company's hospitals in operation have obtained the necessary
licenses to conduct business.
17
<PAGE>
Medicare and Medicaid. Medicare is a Federal program that provides certain
hospital and medical insurance benefits to persons age 65 and over and certain
disabled persons. Medicaid is a medical assistance program administered by
each state pursuant to which hospital benefits are available to certain
indigent patients. Within the Medicare and Medicaid statutory framework, there
are substantial areas subject to administrative rulings, interpretations and
discretion which may affect payments made under Medicare and Medicaid. A
substantial portion of the Company's hospital revenues are derived from
patients covered by Medicare and Medicaid. See "--Hospital Operations--Sources
of Hospital Revenues."
In order to receive Medicare reimbursement, each hospital must meet the
applicable conditions of participation set forth by the Department of Health
and Human Services ("HHS") relating to the type of hospital, its equipment,
personnel and standard of medical care, as well as comply with state and local
laws and regulations. The Company has developed a management system to ensure
compliance with the various standards and requirements. Each of the Company's
hospitals employs a person who is responsible for an on-going quality
assessment and improvement program. Hospitals undergo periodic on-site
Medicare certification surveys, which are generally limited if the hospital is
accredited by JCAHO. As of December 31, 1997, all of the Company's hospitals
were certified as Medicare providers and 53 of such hospitals were also
certified by their respective state Medicaid programs. Applications are
pending for certification with respect to the Company's other hospitals. A
loss of certification could adversely affect a hospital's ability to receive
payments from Medicare and Medicaid programs.
Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and
indirect cost of the services provided to beneficiaries. The Social Security
Amendments of 1983 implemented PPS as a means of controlling healthcare costs.
Under PPS, Medicare inpatient costs are reimbursed based upon a fixed payment
amount per discharge using diagnosis related groups ("DRGs"). The DRG payment
under PPS is based upon the national average cost of treating a Medicare
patient's condition. Although the average length of stay varies for each DRG,
the average stay for all Medicare patients subject to PPS is approximately six
days. An additional outlier payment is made for patients with unusually
extended lengths of stay or higher treatment costs. Outlier payments are only
designed to cover marginal costs. Additionally, it takes 60 days or more for
PPS payments to be made. Thus, PPS creates an economic incentive for general
short-term hospitals to discharge chronic Medicare patients as soon as
clinically possible. Hospitals that are certified by Medicare as general long-
term hospitals are excluded from PPS. Management believes that the incentive
for short-term hospitals to discharge chronic medical patients as soon as
clinically possible creates a substantial referral source for the Company's
long-term hospitals.
The Social Security Amendments of 1983 excluded psychiatric, rehabilitation,
cancer, children's and general long-term hospitals from PPS. A general long-
term hospital is defined as a hospital which has an average length of stay
greater than 25 days. Inpatient operating costs for general long-term
hospitals are reimbursed under the cost-based reimbursement system, subject to
a computed target rate (the "Target") per discharge for inpatient operating
costs established by TEFRA. As discussed below, the Budget Act makes
significant changes to the current TEFRA provisions.
Prior to the Budget Act, Medicare operating costs per discharge in excess of
the Target were reimbursed at the rate of 50% of the excess up to 10% of the
Target. Hospitals whose operating costs were lower than the Target were
reimbursed their actual costs plus an incentive. This incentive is currently
equal to 50% of the difference between their actual costs and the Target and
may not exceed 5% of the Target. For cost report periods beginning on or after
October 1, 1997, the Budget Act reduces the incentive payments to an amount
equal to 15% of the difference between the actual costs and the Target, but
not to exceed 2% of the Target. Costs in excess of the Target will still be
reimbursed at the rate of 50% of the excess up to 10% of the Target but the
threshold to qualify for such payments will be raised from 100% to 110% of the
Target. The Budget Act also caps the Targets based on the 75th percentile for
each category of hospitals using 1996 data.
Prior to October 1, 1997, new hospitals could apply for an exemption from
the TEFRA Target provisions. For hospitals certified prior to October 1, 1992,
the exemption was optional and, if granted, lasted for three years.
18
<PAGE>
For certifications since October 1, 1992, the exemption is automatic and is
effective for two years. Under the Budget Act, a new provider will no longer
receive unlimited cost-based reimbursement for its first few years in
operation. Instead, for the first two years, it will be paid the lower of its
costs or 110% of the median TEFRA Target for 1996 adjusted for inflation.
During this two year period, providers remain subject to the TEFRA penalty and
incentive payments discussed in the previous paragraph.
As of December 31, 1997, 50 of the hospitals operated by the Company were
subject to TEFRA Target provisions. The Company's other long-term hospitals
were not subject to TEFRA because they had qualified for the new hospital
exemptions described above. During 1998, five more of the Company's hospitals
will become subject to TEFRA Target provisions. The TEFRA Target limits have
not had a material adverse effect on the Company's results of operations, and
the Company does not expect that the TEFRA limits will have a material adverse
effect on its results of operations in 1998. The reductions in the TEFRA
incentive payments, which are expected to be effective beginning on September
1, 1998 with respect to the Company's hospitals, will have an adverse impact
on hospital revenues in the future.
Medicare and Medicaid reimbursements were generally determined from annual
cost reports filed by the Company which are subject to audit by the respective
agency administering the programs. Management believes that adequate
provisions for loss have been recorded to reflect any adjustments which could
result from audits of these cost reports. Adjustments to the Company's cost
reports have not had an adverse effect on the Company's hospital operating
results.
Federal regulations provide that admission to and utilization of hospitals
by Medicare and Medicaid patients must be reviewed by peer review
organizations ("PROs") in order to ensure efficient utilization of hospitals
and services. A PRO may conduct such review either prospectively or
retroactively and may, as appropriate, recommend denial of payments for
services provided to a patient. Such review is subject to administrative and
judicial appeal. Each of the Company's hospitals employs a clinical
professional to administer the hospital's integrated quality assurance and
improvement program, including its utilization review program. PRO denials
have not had a material adverse effect on the Company's hospital operating
results.
Medicare and Medicaid antikickback, antifraud and abuse amendments codified
under Section 1128(B)(b) of the Social Security Act (the "Antikickback
Amendments") prohibit certain business practices and relationships that might
affect the provision and cost of healthcare services reimbursable under
Medicare and Medicaid. Sanctions for violating the Antikickback Amendments
include criminal and civil penalties and exclusion from the Medicare and
Medicaid programs. Pursuant to the Medicare and Medicaid Patient and Program
Protection Act of 1987, HHS and the Office of the Inspector General ("OIG")
specified certain Safe Harbors (as hereinafter defined) which describe conduct
and business relationships permissible under the Antikickback Amendments.
These Safe Harbor regulations may result in more aggressive enforcement of the
Antikickback Amendments by HHS and the OIG.
Section 1877 of the Social Security Act (commonly known as "Stark I") states
that a physician who has a financial relationship with a clinical laboratory
is generally prohibited from referring patients to that laboratory. The
Omnibus Budget Reconciliation Act of 1993 contains provisions ("Stark II")
amending Section 1877 to greatly expand the scope of Stark I. Effective
January 1995, Stark II broadened the referral limitations of Stark I to
include, among other designated health services, inpatient and outpatient
hospital services. Under Stark I and Stark II (collectively referred to as the
"Stark Provisions"), a "financial relationship" is defined as an ownership
interest or a compensation arrangement. If such a financial relationship
exists, the entity is generally prohibited from claiming payment for such
services under the Medicare or Medicaid programs. Compensation arrangements
are generally exempted from the Stark Provisions if, among other things, the
compensation to be paid is set in advance, does not exceed fair market value
and is not determined in a manner that takes into account the volume or value
of any referrals or other business generated between the parties. These laws
and regulations, however, are extremely complex and the industry has the
benefit of little judicial or regulatory interpretation. The Company expects
that business practices of providers and financial relationships between
providers will be subject to increased scrutiny as healthcare reform efforts
continue on the Federal and state levels.
19
<PAGE>
The Budget Act provides a number of new antifraud and abuse provisions. The
Budget Act contains new civil monetary penalties for violations of the
Antikickback Amendments and imposes an affirmative duty on providers to insure
that they do not employ or contract with persons excluded from the Medicare
program. The Budget Act also provides a minimum ten year period for exclusion
from participation in Federal healthcare programs for persons convicted of a
prior healthcare offense.
JCAHO Accreditation. Hospitals receive accreditation from JCAHO, a
nationwide commission which establishes standards relating to the physical
plant, administration, quality of patient care and operation of medical staffs
of hospitals. Generally, hospitals and certain other healthcare facilities are
required to have been in operation at least six months in order to be eligible
for accreditation by JCAHO. After conducting on-site surveys, JCAHO awards
accreditation for up to three years to hospitals found to be in substantial
compliance with JCAHO standards. Accredited hospitals are periodically
resurveyed, at the option of JCAHO, upon a major change in facilities or
organization and after merger or consolidation. As of December 31, 1997, 58 of
the hospitals operated by the Company were accredited by JCAHO. The Company
intends to apply for JCAHO accreditation for its other hospitals within the
next year. The Company intends to seek and obtain JCAHO accreditation for any
additional facilities it may purchase or lease and convert into long-term
hospitals. The Company does not believe that the failure to obtain JCAHO
accreditation at any hospital would have a material adverse effect on the
Company's results of operations.
State Regulatory Environment. The Company operates seven hospitals and a
chronic unit in Florida, a state which regulates hospital rates. These
operations contribute a significant portion of the Company's revenues and
operating income from its hospitals. Accordingly, the Company's hospital
revenues and operating income could be materially adversely affected by
Florida rate setting laws or other cost containment efforts. The Company also
operates ten hospitals in Texas, nine hospitals in California, and five
hospitals in Illinois which contribute a significant portion of the Company's
revenues and operating income from its hospitals. Although Texas, California
and Illinois do not currently regulate hospital rates, the adoption of such
legislation or other cost containment measures in these or other states could
have a material adverse effect on the Company's hospital revenues and
operating income. Moreover, the repeal of the Boren Amendment by the Budget
Act eases the impediments on the states' ability to reduce their Medicaid
reimbursement levels. The Company is unable to predict whether and in what
form such legislation will be adopted. Certain other states in which the
Company operates hospitals require disclosure of specified financial
information. In evaluating markets for expansion, the Company will consider
the regulatory environment, including but not limited to, any mandated rate
setting.
NURSING CENTERS
The Company's nursing center business is subject to various Federal and
state regulations. In particular, the development and operation of nursing
centers and the provision of healthcare services are subject to Federal, state
and local laws relating to the adequacy of medical care, equipment, personnel,
operating policies, fire prevention, rate-setting and compliance with building
codes and environmental laws. Nursing centers are subject to periodic
inspection by governmental and other authorities to assure continued
compliance with various standards, their continued licensing under state law,
certification under the Medicare and Medicaid programs and continued
participation in the Veterans Administration program. The failure to obtain or
renew any required regulatory approvals or licenses could adversely affect the
Company's operations.
Effective October 1, 1990, OBRA increased the enforcement powers of state
and Federal certification agencies. Additional sanctions were authorized to
correct noncompliance with regulatory requirements, including fines, temporary
suspension of admission of new patients to nursing centers and, in extreme
circumstances, decertification from participation in the Medicare or Medicaid
programs.
The nursing centers managed and operated by the Company are licensed either
on an annual or bi-annual basis and certified annually for participation in
Medicare and Medicaid programs through various regulatory
20
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agencies which determine compliance with Federal, state and local laws. These
legal requirements relate to the quality of the nursing care provided, the
qualifications of the administrative personnel and nursing staff, the adequacy
of the physical plant and equipment and continuing compliance with the laws
and regulations governing the operation of nursing centers. From time to time
the nursing centers receive statements of deficiencies from regulatory
agencies. In response, the Company will implement plans of correction with
respect to these nursing centers to address the alleged deficiencies. The
Company believes that its nursing centers are currently in material compliance
with all applicable regulations or laws.
In certain circumstances, Federal law mandates that conviction for certain
abusive or fraudulent behavior with respect to one nursing center may subject
other facilities under common control or ownership to disqualification for
participation in Medicare and Medicaid programs. In addition, some state
regulations provide that all nursing centers under common control or ownership
within a state are subject to delicensure if any one or more of such
facilities are delicensed.
Revised Federal regulations under OBRA, which became effective in 1995,
affect the survey process for nursing centers and the authority of state
survey agencies and the Health Care Financing Administration ("HCFA") to
impose sanctions on facilities based upon noncompliance with requirements.
Available sanctions include imposition of civil monetary penalties, temporary
suspension of payment for new admissions, appointment of a temporary manager,
suspension of payment for eligible patients and suspension or decertification
from participation in the Medicare and/or Medicaid programs. The Company is
unable to project how these regulatory changes and their implementation will
affect the Company.
In addition to license requirements, many states have statutes that require
a CON to be obtained prior to the construction of a new nursing center, the
addition of new beds or services or the incurrence of certain capital
expenditures. Certain states also require regulatory approval prior to certain
changes in ownership of a nursing center. Certain states have eliminated their
CON programs and other states are considering alternatives to their CON
programs. To the extent that CONs or other similar approvals are required for
expansion of the Company's operations, either through facility acquisitions,
expansion or provision of new services or other changes, such expansion could
be adversely affected by the failure or inability to obtain the necessary
approvals, changes in the standards applicable to such approvals or possible
delays and expenses associated with obtaining such approvals.
The Company's operations are also subject to Federal and state laws which
govern financial and other arrangements between healthcare providers. These
laws often prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. Such laws include the Antikickback
Amendments. These provisions prohibit, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Company's operations also are subject
to additional antifraud and abuse provisions contained in the Budget Act. In
addition, some states restrict certain business relationships between
physicians and pharmacies, and many states prohibit business corporations from
providing, or holding themselves out as a provider of, medical care. Possible
sanctions for violation of any of these restrictions or prohibitions include
loss of licensure or eligibility to participate in reimbursement programs as
well as civil and criminal penalties. These laws vary from state to state.
A substantial portion of the Company's nursing center revenues are derived
from patients covered by Medicare and Medicaid. See "--Nursing Center
Operations--Sources of Nursing Center Revenues." The Budget Act requires the
establishment of a prospective payment system for nursing centers for cost
reporting periods beginning on or after July 1, 1998. During the first three
years, the per diem rates for nursing centers will be based on a blend of
facility-specific costs and Federal costs. Thereafter, the per diem rates will
be based solely on Federal costs. The rates for such services have not been
established or published. The prospective payment system also will cover
ancillary services provided to nursing center patients under the Company's
Vencare contract services business.
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PHARMACIES
The Company's pharmaceutical operations are subject to regulation by the
various states in which the Company conducts its business as well as by the
Federal government. The Company's pharmacies are regulated under the Food,
Drug and Cosmetic Act and the Prescription Drug Marketing Act, which are
administered by the United States Food and Drug Administration. Under the
Comprehensive Drug Abuse Prevention and Control Act of 1970, which is
administered by the United States Drug Enforcement Administration ("DEA"),
dispensers of controlled substances must register with the DEA, file reports
of inventories and transactions and provide adequate security measures.
Failure to comply with such requirements could result in civil or criminal
penalties.
HEALTHCARE REFORM LEGISLATION
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that could
effect major changes in the healthcare system. The Budget Act, enacted in
August 1997, contains extensive changes to the Medicare and Medicaid programs
intended to reduce the projected amount of increase in payments under those
programs by $115 billion and $13 billion, respectively, over the next five
years. Under the Budget Act, annual growth rates for Medicare will be reduced
from over 10% to approximately 7.5% for the next five years based on specific
program baseline projections from the last five years. Virtually all spending
reductions will come from providers and changes in program components. The
Budget Act will affect reimbursement systems for each of the Company's
operating units.
The Budget Act will reduce payments made to the Company's hospitals by
reducing TEFRA incentive payments, allowable costs for capital expenditures
and bad debts, and payments for services to patients transferred from a PPS
hospital. The reductions in allowable costs for capital expenditures became
effective October 1, 1997. The reductions in the TEFRA incentive payments and
allowable costs for bad debts are expected to be effective beginning on
September 1, 1998 with respect to the Company's hospitals. The reductions for
payments for services to patients transferred from a PPS hospital are expected
to be effective October 1, 1998. The Budget Act also requires the
establishment of a prospective payment system for nursing centers for cost
reporting periods beginning on or after July 1, 1998. During the first three
years, the per diem rates for nursing centers will be based on a blend of
facility-specific costs and Federal costs. Thereafter, the per diem rates will
be based solely on Federal costs. The rates for such services have not been
established or published. The payments received under the new prospective
payment system will cover all services for Medicare patients, including all
ancillary services, such as respiratory therapy, physical therapy,
occupational therapy, speech therapy and certain covered drugs. The Budget Act
also requires an adjustment to the payment system for home health services for
cost reporting periods beginning on or after October 1, 1997. The new system
will adjust per visit limits and establish per beneficiary annual spending
limits. A prospective payment system for home health services will be
established by October 1, 1999.
Management believes that the Budget Act will adversely impact its hospital
business by reducing the payments previously described. Based on information
currently available, management believes that the new prospective payment
system will benefit nursing center operations because (i) management believes
that the average acuity levels of its patients will exceed the national
average (which should result in increased payments per patient day) and (ii)
because the Company expects to benefit from its ability to reduce the cost of
providing ancillary services to patients in its facilities. The new Medicare
prospective payment rates and related patient acuity measures will be
established by HCFA, and as of the date hereof the Company does not know what
these amounts will be. Management believes that its anticipated growth in
nursing center profitability would be reduced if Congress acts to delay the
effective date of the prospective payment system. As the nursing center
industry adapts to the cost containment measures inherent in the new
prospective payment system, management believes that the volume of ancillary
services provided per patient day to nursing center patients could decline. In
addition, as a result of these changes, many nursing centers may elect to
provide ancillary services to their patients through internal staff and will
no longer contract with outside parties for ancillary services. For these
reasons and others, since the enactment of the Budget Act, sales of new
contracts have declined and may continue to decline subject to the Company's
success in implementing its Vencare comprehensive, full-service
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contracts sales strategy. The Company is actively implementing strategies and
operational modifications to address changes in the Federal reimbursement
system.
In January 1998, HCFA issued rules changing Medicare reimbursement
guidelines for therapy services provided by the Company (including the
rehabilitation contract therapy business acquired as part of the acquisition
of TheraTx). Under the new rules, HCFA established salary equivalency limits
for speech and occupational therapy services and revised existing limits for
physical and respiratory therapy services. The limits are based on a blend of
data from wage rates for hospitals and nursing facilities, and include salary,
fringe benefit and expense factors. Rates are defined by specific geographic
market areas, based upon a modified version of the hospital wage index. The
new limits are effective for services provided on or after April 1, 1998 and
are expected to impact negatively Vencare operating results in 1998. The
Company will continue to charge client nursing centers in accordance with the
revised guidelines until such nursing centers transition to the new
prospective payment system. Under the new prospective payment system, the
reimbursement for these services provided to nursing center patients will be a
component of the total reimbursement allowed per nursing center patient and
the salary equivalency guidelines will no longer be applicable. Most of the
Company's client nursing centers are expected to transition to the new
prospective payment system on or before January 1, 1999.
There also continues to be state legislative proposals that would impose
more limitations on government and private payments to providers of healthcare
services such as the Company. Many states have enacted or are considering
enacting measures that are designed to reduce their Medicaid expenditures and
to make certain changes to private healthcare insurance. Some states also are
considering regulatory changes that include a moratorium on the designation of
additional long-term care hospitals and changes in the Medicaid reimbursement
system applicable to the Company's hospitals. There are also a number of
legislative proposals including cost caps and the establishment of Medicaid
prospective payment systems for nursing centers. Moreover, by repealing the
Boren Amendment, the Budget Act eases existing impediments on the states'
ability to reduce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the Company's financial condition, results of operations and
liquidity.
ADDITIONAL COMPANY INFORMATION
EMPLOYEES
As of December 31, 1997, the Company had approximately 52,800 full-time and
24,000 part-time and per diem employees. The Company was a party to 27
collective bargaining agreements covering approximately 2,550 employees as of
December 31, 1997.
LIABILITY INSURANCE
The Company's hospitals, contract services, nursing centers and
pharmaceutical operations are insured by the Company's wholly owned captive
insurance company, Cornerstone Insurance Company. Cornerstone Insurance
Company is reinsured for losses in excess of $500,000 per claim and $8.5
million in annual aggregation. Coverages for losses in excess of various
limits are maintained through unrelated commercial insurance carriers to
provide $130.0 million limits per claim and in the aggregate.
The Company believes that its insurance is adequate in amount and coverage.
There can be no assurance that in the future such insurance will be available
at a reasonable price or that the Company will be able to maintain adequate
levels of malpractice insurance coverage.
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CAUTIONARY STATEMENTS
This Report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements regarding the Company's expected future financial position, results
of operations, cash flows, dividends, financing plans, business strategy,
budgets, projected costs and capital expenditures, competitive positions,
growth opportunities, plans and objectives of management for future operations
and words such as "anticipate," "believe," "plan," "estimate," "expect,"
"intend," and other similar expressions are forward-looking statements. Such
forward-looking statements are inherently uncertain, and stockholders must
recognize that actual results may differ from the Company's expectations as a
result of a variety of factors, including, without limitation, the following:
LIMITS ON REIMBURSEMENT
The Company derives a substantial portion of its net operating revenues from
third-party payors, including the Medicare and Medicaid programs. In 1997 and
1996, the Company derived approximately 60% and 62% of its total revenues from
the Medicare and Medicaid programs, respectively. Such programs are highly
regulated and subject to frequent and substantial changes. The Budget Act is
intended to reduce the increase in Medicare payments by $115 billion over the
next five years and makes extensive changes in the Medicare and Medicaid
programs. In addition, private payors, including managed care payors,
increasingly are demanding discounted fee structures and the assumption by
healthcare providers of all or a portion of the financial risk. Efforts to
impose greater discounts and more stringent cost controls by private payors
are expected to continue. There can be no assurances that adequate
reimbursement levels will continue to be available for services to be provided
by the Company which are currently being reimbursed by Medicare, Medicaid or
private payors. Significant limits on the scope of services reimbursed and on
reimbursement rates and fees could have a material adverse effect on the
Company's liquidity, financial condition and results of operations.
EXTENSIVE REGULATION
The healthcare industry is subject to extensive Federal, state and local
regulation including, but not limited to, regulations relating to licensure,
conduct of operations, ownership of facilities, addition of facilities,
services and prices for services. In particular, Medicare and Medicaid
Antikickback Amendments prohibit certain business practices and relationships
that might affect the provisions and cost of healthcare services reimbursable
under Medicare and Medicaid, including the payment or receipt of remuneration
for the referral of patients whose care will be paid by Medicare or other
governmental programs. Sanctions for violating the Antikickback Amendments
include criminal penalties and civil sanctions, including fines and possible
exclusion from government programs such as the Medicare and Medicaid programs.
In the ordinary course of its business, the Company is subject regularly to
inquiries, investigations and audits by the Federal and state agencies that
oversee these laws and regulations.
Pursuant to the Medicare and Medicaid Patient and Program Protection Act of
1987, HHS has issued regulations that describe some of the conduct and
business relationships permissible under the Antikickback Amendments ("Safe
Harbors"). The fact that a given business arrangement does not fall within a
Safe Harbor does not render the arrangement per se illegal. Business
arrangements of healthcare service providers that fail to satisfy the
applicable Safe Harbors criteria, however, risk increased scrutiny and
possible sanctions by enforcement authorities.
The Health Insurance Portability and Accountability Act of 1997, which
became effective January 1, 1997, amends, among other things, Title XI (42
U.S.C. 1301 et seq.) to broaden the scope of current fraud and abuse laws to
include all health plans, whether or not they are reimbursed under Federal
programs.
In addition, Section 1877 of the Social Security Act, which restricts
referrals by physicians of Medicare and other government-program patients to
providers of a broad range of designated health services with which they
24
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have ownership or certain other financial arrangements, was amended effective
January 1, 1995, to significantly broaden the scope of prohibited physician
referrals under the Medicare and Medicaid programs to providers with which
they have ownership or certain other financial arrangements (the "Self-
Referral Prohibitions"). Many states have adopted or are considering similar
legislative proposals, some of which extend beyond the Medicaid program to
prohibit the payment or receipt of remuneration for the referral of patients
and physician self-referrals regardless of the source of the payment for the
care. These laws and regulations are extremely complex and little judicial or
regulatory interpretation exists. The Company does not believe its
arrangements are in violation of the Self-Referral Prohibitions. There can be
no assurance, however, that governmental officials charged with responsibility
for enforcing the provisions of the Self-Referral Prohibitions will not assert
that one or more of the Company's arrangements is in violation of such
provisions.
The Budget Act also provides a number of new antifraud and abuse provisions.
The Budget Act contains new civil monetary penalties for violations of the
Antikickback Amendments and imposes an affirmative duty on providers to insure
that they do not employ or contract with persons excluded from the Medicare
program. The Budget Act also provides a minimum ten year period for exclusion
from participation in Federal healthcare programs for persons convicted of a
prior healthcare offense.
Some states require state approval for development and expansion of
healthcare facilities and services, including findings of need for additional
or expanded healthcare facilities or services. CONs, which are issued by
governmental agencies with jurisdiction over healthcare facilities, are at
times required for expansion of existing facilities, construction of new
facilities, addition of beds, acquisition of major items of equipment or
introduction of new services. The Company operates hospitals in 11 states that
require state approval for the expansion of its facilities and services under
CON programs. There can be no assurance that the Company will be able to
obtain a CON for any or all future projects. If the Company is unable to
obtain the requisite CON, its growth and business could be adversely affected.
The Company is unable to predict the future course of Federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Changes in the regulatory framework could have a material adverse
effect on the Company's financial condition and results of operations.
HEALTHCARE REFORM LEGISLATION
Healthcare is one of the largest industries in the United States and
continues to attract much legislative interest and public attention. The
Budget Act, enacted in August 1997, contains extensive changes to the Medicare
and Medicaid programs intended to reduce the projected amount of increase in
payments under those programs by $115 billion and $13 billion, respectively,
over the next five years. Under the Budget Act, annual growth rates for
Medicare will be reduced from over 10% to approximately 7.5% for the next five
years based on specific program baseline projections from the last five years.
Virtually all spending reductions will come from providers and changes in
program components. The Budget Act will affect reimbursement systems for each
of the Company's operating units.
The Budget Act will reduce payments made to the Company's hospitals by
reducing TEFRA incentive payments, allowable costs for capital expenditures
and bad debts, and payments for services to patients transferred from a PPS
hospital. The reductions in allowable costs for capital expenditures became
effective October 1, 1997. The reductions in the TEFRA incentive payments and
allowable costs for bad debts are expected to be effective beginning on
September 1, 1998 with respect to the Company's hospitals. The reductions for
payments for services to patients transferred from a PPS hospital are expected
to be effective October 1, 1998. The Budget Act also requires the
establishment of a prospective payment system for nursing centers for cost
reporting periods beginning on or after July 1, 1998. During the first three
years, the per diem rates for nursing centers will be based on a blend of
facility-specific costs and Federal costs. Thereafter, the per diem rates will
be based solely on Federal costs. The rates for such services have not been
established or published. The payments received under the new prospective
payment system will cover all services for Medicare patients including all
25
<PAGE>
ancillary services, such as respiratory therapy, physical therapy,
occupational therapy, speech therapy and certain covered drugs. The Budget Act
also requires an adjustment to the payment system for home health services for
cost reporting periods beginning on or after October 1, 1997. The new system
will adjust per visit limits and establish per beneficiary annual spending
limits. A prospective payment system for home health services will be
established by October 1, 1999.
Management believes that the Budget Act will adversely impact its hospital
business by reducing the payments previously described. Based on information
currently available, management believes that the new prospective payment
system will benefit nursing center operations because (i) management believes
that the average acuity levels of its patients will exceed the national
average (which should result in increased payments per patient day) and (ii)
because the Company expects to benefit from its ability to reduce the cost of
providing ancillary services to patients in its facilities. The new Medicare
prospective payment rates and related patient acuity measures will be
established by HCFA, and as of the date hereof the Company does not know what
these amounts will be. Management believes that its anticipated growth in
nursing center profitability would be reduced if Congress acts to delay the
effective date of the prospective payment system. As the nursing center
industry adapts to the cost containment measures inherent in the new
prospective payment system, management believes that the volume of ancillary
services provided per patient day to nursing center patients could decline. In
addition, as a result of these changes, many nursing centers may elect to
provide ancillary services to their patients through internal staff and will
no longer contract with outside parties for ancillary services. For these
reasons and others, since the enactment of the Budget Act, sales of new
contracts have declined and may continue to decline subject to the Company's
success in implementing its Vencare comprehensive, full-service contracts
sales strategy. The Company is actively implementing strategies and
operational modifications to address changes in the Federal reimbursement
system.
In January 1998, HCFA issued rules changing Medicare reimbursement
guidelines for therapy services provided by the Company (including the
rehabilitation contract therapy business acquired as part of the acquisition
of TheraTx). Under the new rules, HCFA established salary equivalency limits
for speech and occupational therapy services and revised existing limits for
physical and respiratory therapy services. The limits are based on a blend of
data from wage rates for hospitals and nursing centers, and include salary,
fringe benefit and expense factors. Rates are defined by specific geographic
market areas, based upon a modified version of the hospital wage index. The
new limits are effective for services provided on or after April 1, 1998 and
are expected to impact negatively Vencare operating results in 1998. The
Company will continue to charge client nursing centers in accordance with the
revised guidelines until such nursing centers transition to the new
prospective payment system. Under the new prospective payment system, the
reimbursement for these services provided to nursing center patients will be a
component of the total reimbursement allowed per nursing center patient and
the salary equivalency guidelines will no longer be applicable. Most of the
Company's client nursing centers are expected to transition to the new
prospective payment system on or before January 1, 1999.
There also continues to be state legislative proposals that would impose
more limitations on government and private payments to providers of healthcare
services such as the Company. Many states have enacted or are considering
enacting measures that are designed to reduce their Medicaid expenditures and
to make certain changes to private healthcare insurance. Some states also are
considering regulatory changes that include a moratorium on the designation of
additional long-term care hospitals and changes in the Medicaid reimbursement
system applicable to the Company's hospitals. There are also a number of
legislative proposals including cost caps and the establishment of Medicaid
prospective payment systems for nursing centers. Moreover, by repealing the
Boren Amendment, the Budget Act eases existing impediments on the states'
ability to reduce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the Company's financial condition, results of operations and
liquidity.
26
<PAGE>
HIGHLY COMPETITIVE INDUSTRY
The healthcare services industry is highly competitive. The Company faces
competition from general acute care hospitals and long-term care hospitals
which provide services comparable to those offered by the Company's hospitals.
Many general acute care hospitals are larger and more established than the
Company's hospitals. Certain hospitals that compete with the Company's
hospitals are operated by not-for-profit, nontaxpaying or governmental
agencies, which can finance capital expenditures on a tax-exempt basis, and
which receive funds and charitable contributions unavailable to the Company's
hospitals. The Company may experience increased competition from existing
hospitals as well as hospitals converted, in whole or in part, to specialized
care facilities. The Company's nursing centers compete on a local and regional
basis with other nursing centers, and competition also exists for the Vencare
health services operations. It is also expected that the Company will continue
to compete with other healthcare companies for the acquisition and development
of additional hospitals, nursing facilities and other healthcare assets and
businesses.
ABILITY TO IMPLEMENT GROWTH STRATEGY
There can be no assurance that the Company will be able to continue its
growth or be able to successfully implement its strategy to develop long-term
healthcare networks. There can be no assurance that suitable acquisitions, for
which other healthcare companies (including those with greater financial
resources than the Company) may be competing, can be accomplished on terms
favorable to the Company or that financing, if necessary, can be obtained for
such acquisitions. The Company may not be able to effectively and profitably
integrate the operations of acquired entities or otherwise achieve the
intended benefits of such acquisitions. In addition, unforeseen expenses,
difficulties, complications or delays may be encountered in connection with
the expansion of operations, which could inhibit the Company's growth.
ITEM 2. PROPERTIES
For information concerning the hospitals and nursing centers operated by the
Company, see "Business--Hospital Operations--Hospital Facilities," and
"Business--Nursing Center Operations--Nursing Center Facilities." The Company
believes that its facilities are adequate for the Company's future needs in
such locations.
ITEM 3. LEGAL PROCEEDINGS
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al. was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Company against the Company and
certain executive officers and directors of the Company, namely W. Bruce
Lunsford, W. Earl Reed, III, Michael R. Barr, Thomas T. Ladt, Jill L. Force
and James H. Gillenwater, Jr. The complaint alleges that the Company and
certain executive officers of the Company during a specified time frame
violated Sections 10(b) and 20(a) of the Exchange Act, by, among other things,
issuing to the investing public a series of false and misleading statements
concerning the Company's current operations and the inherent value of the
Company's Common Stock. The complaint further alleges that as a result of
these purported false and misleading statements concerning the Company's
revenues and successful acquisitions, the price of the Company's Common Stock
was artificially inflated. In particular, the complaint alleges that the
Company issued false and misleading financial statements during the first,
second and third calendar quarters of 1997 which misrepresented and
understated the impact that changes in Medicare reimbursement policies would
have on the Company's core services and profitability. The complaint further
alleges that the Company issued a series of materially false statements
concerning the purportedly successful integration of its recent acquisitions
and prospective earnings per share for 1997 and 1998 which the Company knew
lacked any reasonable basis and were not being achieved. The suit seeks
damages in an amount to be proven at trial, pre-judgment and post-judgment
interest, reasonable attorneys' fees, expert witness fees and other costs, and
any extraordinary equitable and/or injunctive relief permitted by law or
equity to assure that the plaintiff has an effective remedy. The Company
believes that the allegations in the complaint are without merit and intends
to defend vigorously this action.
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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 common stock during the period from
February 26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional purchased shares of its common stock from members of the investing
public after it had received a written offer to acquire all of Transitional's
common stock and without disclosing 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
Exchange Act and common law principles of negligent misrepresentation and names
as defendants Transitional as well as certain senior executives and directors
of Transitional. The plaintiff seeks class certification, unspecified damages,
attorneys' fees and costs. The Company has filed a motion to dismiss and is
awaiting the court's decision. The Company is vigorously defending this action.
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 provided 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 Hillhaven
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 suit seeks damages in an amount of not
less than $1,000,000, treble damages and civil penalties. The Company is
cooperating fully in the investigation.
On June 6, 1997, Transitional announced that it had been advised that it is a
target of a Federal grand jury investigation being conducted by the United
States Attorney's Office for the District of Massachusetts (the "USAO") arising
from activities of Transitional's formerly owned dialysis business. The
investigation involves an alleged illegal arrangement in the form of 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. In January 1998, the Company was informed
that no criminal charges would be filed against the Company. The Company has
been informed that the USAO intends to file a civil action against Transitional
relating to the partnership's former business. If such a suit is filed, the
Company will vigorously defend the action.
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients and others in the ordinary course of business.
The Company believes that all such claims and actions currently pending against
it either are adequately covered by insurance or would not have a material
adverse effect on the Company if decided in a manner unfavorable to the
Company. In addition, the Company is subject regularly to inquiries,
investigations and audits by Federal and state agencies that oversee various
healthcare regulations and laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages (as of January 1, 1998) and present and
past positions of the persons who are the current executive officers of the
Company.
NAME AND AGE
PRESENT AND PAST POSITIONS
W. Bruce Lunsford, 50........ A founder of the Company, certified public
accountant and attorney, Mr. Lunsford has
served as Chairman of the Board, President and
Chief Executive Officer of the Company since
the Company commenced operations in 1985. Mr.
Lunsford is the Chairman of the Board of Atria
Communities, Inc. and a director of National
City Corporation, a bank holding company,
Churchill Downs Incorporated, and Res-Care,
Inc., a provider of residential training and
support services for persons with developmental
disabilities and certain vocational training
services.
Michael R. Barr, 48.......... A founder of the Company, physical therapist
and certified respiratory therapist, Mr. Barr
has served as Chief Operating Officer and
Executive Vice President of the Company since
February 1996. From November 1995 to February
1996, he was Executive Vice President of the
Company and Chief Executive Officer of the
Company's Hospital Division. Mr. Barr served as
Vice President, Operations from 1985 to
November 1995. He has been a director of the
Company since 1985. Mr. Barr is a director of
Colorado MEDtech, Inc., a medical products and
equipment company. Mr. Barr has been an
executive officer of the Company since 1985.
W. Earl Reed, III, 46........ A certified public accountant, Mr. Reed has
served as a director of the Company since 1987.
He has been Chief Financial Officer and
Executive Vice President of the Company since
November 1995. From 1987 to November 1995, Mr.
Reed served as Vice President, Finance and
Development of the Company. Mr. Reed has been
an executive officer of the Company since 1987.
Thomas T. Ladt, 47........... Mr. Ladt has served as Executive Vice
President, Operations of the Company since
February 1996. From November 1995 to February
1996, he served as President of the Company's
Hospital Division. From 1993 to November 1995,
Mr. Ladt was Vice President of the Company's
Hospital Division. From 1989 to December 1993,
Mr. Ladt was a Regional Director of Operations
for the Company. Mr. Ladt is a director of
Atria Communities, Inc. Mr. Ladt has been an
executive officer of the Company since 1993.
29
<PAGE>
NAME AND AGE
PRESENT AND PAST POSITIONS
Jill L. Force, 45............ Ms. Force, a certified public accountant and
attorney, has served as Senior Vice President,
General Counsel and Assistant Secretary of the
Company since January 1, 1998. From December
1996 to January 1998, she served as Senior Vice
President, General Counsel and Secretary of the
Company. From November 1995 through December
1996, she served as Vice President, General
Counsel and Secretary of the Company. From 1989
to 1995, she was General Counsel and Secretary
of the Company. Ms. Force is a director of
Healthcare Recoveries, Inc., a provider of
health insurance subrogation and related
recovery services. Ms. Force has been an
executive officer of the Company since 1995.
Richard E. Chapman, 48....... Mr. Chapman has served as Senior Vice President
and Chief Information Officer of the Company
since October 1997. From March 1993 to October
1997, Mr. Chapman was Senior Vice President of
Information Systems of Columbia/HCA Healthcare
Corp., Vice President of Galen Health Care,
Inc. from March 1993 to August 1993, and of
Humana Inc. from 1974 to March 1993.
Mr. Chapman has been an executive officer of
the Company since 1997.
James H. Gillenwater, Jr., Mr. Gillenwater has served as Senior Vice
40........................... President, Planning and Development of the
Company since December 1996. From November 1995
through December 1996, he served as Vice
President, Planning and Development of the
Company. From 1989 to November 1995, he was
Director of Planning and Development of the
Company. Mr. Gillenwater has been an executive
officer of the Company since 1995.
Richard A. Lechleiter, 39.... Mr. Lechleiter, a certified public accountant,
has served as Vice President, Finance and
Corporate Controller of the Company since
November 1995. From June 1995 to November 1995,
he was Director of Finance of the Company. Mr.
Lechleiter was Vice President and Controller of
Columbia/HCA Healthcare Corp. from September
1993 to May 1995, of Galen Health Care, Inc.
from March 1993 to August 1993, and of Humana
Inc. from September 1990 to February 1993.
Mr. Lechleiter has been an executive officer of
the Company since 1995.
30
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE FOR COMMON STOCKAND DIVIDEND HISTORY
The Company's Common Stock is traded on the New York Stock Exchange (NYSE)
under the ticker symbol of VC. The Company has approximately 40,000
stockholders based on the number of record holders of Common Stock and an
estimate of the number of individual participants represented by security
position listings. The prices in the table below, for the calendar quarters
indicated, represent the high and low sales prices for the Common Stock as
reported by the NYSE Composite Tape. No cash dividends have been paid on the
Common Stock during such period.
The Company does not intend to pay cash dividends on its Common Stock for
the foreseeable future so that it may reinvest its earnings in the development
of its business and reduce indebtedness. The payment of dividends in the
future will be at the discretion of the Board of Directors. Restrictions
imposed by the Company's existing debt obligations also may limit the payment
of dividends by the Company.
<TABLE>
<CAPTION>
SALES PRICE
OF
CALENDAR YEAR COMMON STOCK
------------- -----------------
HIGH LOW
------ ------
<S> <C> <C>
1996:
First Quarter....................... $39 7/8 $31 1/2
Second Quarter...................... 35 28 1/8
Third Quarter....................... 34 1/2 25 1/2
Fourth Quarter...................... 33 1/4 27 1/2
1997:
First Quarter....................... 40 3/8 29
Second Quarter...................... 45 1/8 36 5/8
Third Quarter....................... 44 3/8 37 3/8
Fourth Quarter...................... 43 5/16 23
</TABLE>
31
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
VENCOR, INC.
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $3,116,004 $2,577,783 $2,323,956 $2,032,827 $1,727,436
---------- ---------- ---------- ---------- ----------
Salaries, wages and
benefits............... 1,788,053 1,490,938 1,360,018 1,167,181 985,163
Supplies................ 303,140 261,621 233,066 216,587 186,473
Rent.................... 89,474 77,795 79,476 79,371 74,323
Other operating
expenses............... 490,327 405,797 372,657 312,087 270,014
Depreciation and
amortization........... 123,865 99,533 89,478 79,519 69,126
Interest expense........ 102,736 45,922 60,918 62,828 73,559
Investment income....... (6,057) (12,203) (13,444) (13,126) (16,056)
Non-recurring
transactions........... - 125,200 109,423 (4,540) 5,769
---------- ---------- ---------- ---------- ----------
2,891,538 2,494,603 2,291,592 1,899,907 1,648,371
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 224,466 83,180 32,364 132,920 79,065
Provision for income
taxes.................. 89,338 35,175 24,001 46,781 10,089
---------- ---------- ---------- ---------- ----------
Income from operations.. 135,128 48,005 8,363 86,139 68,976
Extraordinary loss on
extinguishment of debt,
net of income taxes.... (4,195) - (23,252) (241) (2,217)
Cumulative effect on
prior years of a change
in accounting for
income taxes........... - - - - (1,103)
---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 130,933 $ 48,005 $ (14,889) $ 85,898 $ 65,656
========== ========== ========== ========== ==========
Earnings (loss) per
common share:
Basic:
Income from operations. $ 1.96 $ 0.69 $ 0.22 $ 1.41 $ 1.28
Extraordinary loss on
extinguishment of
debt.................. (0.06) - (0.38) - (0.04)
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - - - (0.02)
---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 1.90 $ 0.69 $ (0.16) $ 1.41 $ 1.22
========== ========== ========== ========== ==========
Diluted:
Income from operations. $ 1.92 $ 0.68 $ 0.29 $ 1.28 $ 1.22
Extraordinary loss on
extinguishment of
debt.................. (0.06) - (0.32) - (0.04)
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - - - (0.02)
---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 1.86 $ 0.68 $ (0.03) $ 1.28 $ 1.16
========== ========== ========== ========== ==========
Shares used in comput-
ing earnings (loss)
per common share:
Basic.................. 68,938 69,704 61,196 55,522 51,985
Diluted................ 70,359 70,702 71,967 69,014 60,640
FINANCIAL POSITION:
Working capital......... $ 445,086 $ 320,123 $ 239,666 $ 129,079 $ 114,339
Assets.................. 3,334,739 1,968,856 1,912,454 1,656,205 1,563,350
Long-term debt.......... 1,919,624 710,507 778,100 746,212 784,801
Stockholders' equity.... 905,350 797,091 772,064 596,454 485,550
OPERATING DATA:
Number of hospitals..... 60 38 36 33 26
Number of hospital
licensed beds.......... 5,273 3,325 3,263 2,511 2,198
Number of hospital
patient days........... 767,810 586,144 489,612 403,623 293,367
Number of nursing
centers................ 309 313 311 310 325
Number of nursing center
licensed beds.......... 40,383 39,619 39,480 39,423 40,759
Number of nursing center
patient days........... 12,622,238 12,566,763 12,569,600 12,654,016 12,770,435
Number of Vencare
contracts.............. 3,877 4,346 4,072 2,648 1,628
</TABLE>
32
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Selected Financial Data in Item 6 and the consolidated financial
statements included in this Report set forth certain data with respect to the
financial position, results of operations and cash flows of the Company which
should be read in conjunction with the following discussion and analysis.
GENERAL
The Company is one of the largest providers of long-term healthcare services
in the United States. At December 31, 1997, the Company operated 60 long-term
acute care hospitals (5,273 licensed beds), 309 nursing centers (40,383
licensed beds) and the Vencare contract services business which primarily
provides respiratory and rehabilitation therapies, medical services and
pharmacy management services to approximately 2,900 healthcare facilities.
HILLHAVEN MERGER. The Hillhaven Merger was consummated on September 28,
1995. At the time of the Hillhaven Merger, Hillhaven operated 311 nursing
centers, 56 retail and institutional pharmacies and 23 independent and
assisted living communities with 3,122 units. Annualized revenues approximated
$1.7 billion. See Note 2 of the Notes to Consolidated Financial Statements for
a description of the Hillhaven Merger.
Prior to its merger with the Company, Hillhaven completed a merger with
Nationwide Care, Inc. ("Nationwide") (the "Nationwide Merger") on June 30,
1995. At the time of the Nationwide Merger, Nationwide operated 23 nursing
centers containing 3,257 licensed beds and four independent and assisted
living communities with 442 units. Annualized revenues approximated $125
million. See Note 3 of the Notes to Consolidated Financial Statements for a
description of the Nationwide Merger.
As discussed in the Notes to Consolidated Financial Statements, the
Hillhaven Merger and the Nationwide Merger have been accounted for by the
pooling-of-interests method. Accordingly, the accompanying consolidated
financial statements and financial and operating data included herein give
retroactive effect to these transactions and include the combined operations
of the Company, Hillhaven and Nationwide for all periods presented.
STOCK OFFERINGS OF ATRIA. In August 1996, the Company completed the initial
public offering of Atria Communities, Inc. ("Atria"), its independent and
assisted living business, through the issuance of 5,750,000 shares of Atria
common stock (the "Atria IPO"). For accounting purposes, the accounts of Atria
continued to be consolidated with those of the Company and minority interests
in the earnings and equity of Atria were recorded from the consummation date
of the Atria IPO through June 30, 1997. In July 1997, Atria completed a
secondary equity offering which reduced the Company's ownership percentage to
less than 50%. Accordingly, the Company's investment in Atria beginning July
1, 1997 has been accounted for under the equity method. At December 31, 1997,
the Company owned 10,000,000 shares, or approximately 43%, of Atria's
outstanding common stock. See Note 4 of the Notes to Consolidated Financial
Statements for a description of the Atria stock offerings.
THERATX MERGER. On March 21, 1997, the merger with TheraTx was completed
following a cash tender offer (the "TheraTx Merger"). At the time of the
TheraTx Merger, TheraTx primarily provided rehabilitation and respiratory
therapy management services and operated 26 nursing centers. Annualized
revenues approximated $425 million.
The TheraTx Merger has been accounted for by the purchase method, which
requires that the accounts of acquired entities be included with those of the
Company since the acquisition of a controlling interest. Accordingly, the
accompanying consolidated financial statements include the operations of
TheraTx since March 21, 1997. See Note 5 of the Notes to Consolidated
Financial Statements for a description of the
TheraTx Merger.
TRANSITIONAL MERGER. On June 24, 1997, the Company acquired approximately
95% of the outstanding common stock of Transitional through a cash tender
offer, after which time the operations of Transitional were consolidated with
those of the Company in accordance with the purchase method of accounting. On
August 26,
33
<PAGE>
1997, the merger with Transitional was completed (the "Transitional Merger").
At the time of the Transitional Merger, Transitional operated 19 long-term
acute care hospitals and provided respiratory therapy management services.
Annualized revenues approximated $350 million. In addition, Transitional owns
a 44% voting equity interest (61% ownership interest) in Behavorial Healthcare
Corporation, an operator of psychiatric and behavioral clinics. See Note 6 of
the Notes to Consolidated Financial Statements for a description of the
Transitional Merger.
RESULTS OF OPERATIONS
A summary of key operating data follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES (IN THOUSANDS):
Hospitals............................... $ 785,829 $ 551,268 $ 456,486
Nursing centers......................... 1,722,416 1,615,141 1,512,679 (a)
Vencare................................. 642,471 399,068 316,254
Atria................................... 31,199 51,846 47,976
---------- ---------- ----------
3,181,915 2,617,323 2,333,395
Elimination............................. (65,911) (39,540) (9,439)
---------- ---------- ----------
$3,116,004 $2,577,783 $2,323,956
========== ========== ==========
HOSPITAL DATA:
Revenue mix %:
Medicare............................... 63.0 59.4 57.5
Medicaid............................... 8.1 12.3 11.7
Private and other...................... 28.9 28.3 30.8
Patient days:
Medicare............................... 520,144 375,128 314,009
Medicaid............................... 96,490 97,521 76,781
Private and other...................... 151,176 113,495 98,822
---------- ---------- ----------
767,810 586,144 489,612
========== ========== ==========
Average daily census.................... 2,104 1,601 1,341
Occupancy %............................. 52.9 53.7 47.6
NURSING CENTER DATA:
Revenue mix %:
Medicare............................... 32.1 29.7 28.6
Medicaid............................... 42.9 44.3 44.5
Private and other...................... 25.0 26.0 26.9
Patient days:
Medicare............................... 1,610,470 1,562,645 1,511,259
Medicaid............................... 8,152,503 8,191,450 8,146,881
Private and other...................... 2,859,265 2,812,668 2,911,460
---------- ---------- ----------
12,622,238 12,566,763 12,569,600
========== ========== ==========
Average daily census.................... 34,581 34,335 34,437
Occupancy %............................. 90.5 91.9 92.2
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare single service con-
tracts................................ 3,846 4,346 4,072
Number of Vencare full service con-
tracts................................ 31 - -
---------- ---------- ----------
3,877 4,346 4,072
========== ========== ==========
</TABLE>
- --------
(a) Includes a charge of $24.5 million recorded in connection with the
Hillhaven Merger.
Hospital revenues increased in both 1997 and 1996 from the acquisition of
facilities and growth in same-store patient days. Hospital patient days rose
31% to 767,810 in 1997 and 20% to 586,144 in 1996. Same-store patient days
grew 6% in 1997. Revenues attributable to the Transitional Merger were $138.9
million. Hospital revenues in 1997 were also favorably impacted by increases
in both Medicare and private patient days (for which payment rates are
generally higher than Medicaid) and a decline in Medicaid patient days. Price
increases in both 1997 and 1996 were not significant.
34
<PAGE>
During 1997, the Company sold 28 under-performing or non-strategic nursing
centers and acquired 26 nursing centers in connection with the TheraTx Merger.
Excluding the effect of these sales and acquisitions, nursing center revenues
increased 3%, while patient days declined 2%. The increase in same-store
nursing center revenues resulted primarily from price increases and a 3%
increase in Medicare patient days.
Excluding the effect of sales and acquisitions, nursing center revenue
growth was adversely impacted by a 5% decline in private patient days in 1997.
In an effort to attract increased volumes of Medicare and private payment
patients, the Company implemented a plan to expend approximately $200 million
during 1997 and 1998 to improve existing facilities and expand the range of
services provided to accommodate higher acuity patients.
Vencare revenues for 1997 include $199.4 million related to contract
rehabilitation therapy and certain other ancillary service businesses acquired
as part of the TheraTx Merger. Excluding the TheraTx Merger and other sales
and acquisitions, Vencare revenues grew 12% in 1997 and 26% in 1996 primarily
as a result of growth in volume of ancillary services provided per contract
and, in 1996, growth in the number of contracts. Vencare ancillary service
contracts in effect at December 31, 1997 totaled 3,877 compared to 4,346 at
December 31, 1996 and 4,072 at December 31, 1995. During 1997, the Company
terminated approximately 700 contracts which did not meet certain growth
criteria and eliminated approximately 670 contracts by combining previously
separate pharmacy, enteral and infusion therapy contracts.
Pharmacy revenues (included in Vencare operations) declined 4% to $167.1
million in 1997 from $174.1 million in the same period last year. 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. Pharmacy revenues
rose 3% in 1996 from $168.8 million in 1995.
As discussed in Note 4 of the Notes to Consolidated Financial Statements,
the decline in Atria revenues in 1997 resulted from a change to the equity
method of accounting for the Company's investment in Atria beginning July 1,
1997. The increase in 1996 revenues resulted primarily from price increases,
growth in occupancy and expansion of ancillary services.
In the fourth quarter of 1996, the Company recorded pretax charges
aggregating $125.2 million ($79.9 million net of tax) primarily to complete
the integration of Hillhaven. In November 1996, the Company executed a
definitive agreement to sell certain under-performing or non-strategic nursing
centers. A charge of $65.3 million was recorded in connection with the planned
disposition of these nursing centers. In addition, the Company's previously
independent institutional pharmacy business, acquired as part of the Hillhaven
Merger, was integrated into Vencare, resulting in a charge of $39.6 million
related primarily to costs associated with employee severance and benefit
costs (approximately 500 employees), facility close down expenses and the
write-off of certain deferred costs for services to be discontinued. A
provision for loss totaling $20.3 million related to the planned replacement
of one hospital and three nursing centers was also recorded in the fourth
quarter. See Note 9 of the Notes to Consolidated Financial Statements.
During 1997, the Company sold 28 of the 34 non-strategic nursing centers
planned for disposition. Proceeds from the transaction aggregated $11.2
million. In addition, one facility was sold and one was closed in January
1998, and two nursing centers are expected to be sold pending regulatory
approvals. In February 1998, the Company was unable to receive the necessary
licensure approvals to sell two non-strategic nursing centers for which
provisions for loss had been recorded in 1996. The Company intends to continue
to operate these facilities. Accrued provisions for loss at December 31, 1997
were not significant. The reorganization of the institutional pharmacy
business was substantially completed in 1997, which included the elimination
of duplicative administrative functions and establishment of the pharmacy
operations as an integrated part of the Company's hospital operations. The
Company expects that construction activities related to the replacement of one
hospital and three nursing centers will be completed in 1998 and 1999. Accrued
provision for loss related to the facilities to be sold or replaced aggregated
$22.2 million at December 31, 1997.
In the third quarter of 1995, the Company recorded pretax charges
aggregating $128.4 million ($89.9 million net of tax) primarily in connection
with the consummation of the Hillhaven Merger. The charges included
35
<PAGE>
(i) $23.2 million of investment advisory and professional fees, (ii) $53.8
million of employee benefit plan and severance costs (approximately 500
employees), (iii) $26.9 million of losses associated with the planned
disposition of certain nursing center properties and (iv) $24.5 million of
charges to reflect the Company's change in estimates of accrued revenues
recorded in connection with certain prior-year nursing center third-party
reimbursement issues. Operating results for 1995 also include pretax charges
of $5.5 million ($3.7 million net of tax) recorded in the second quarter
related primarily to the Nationwide Merger. See Note 9 of the Notes to
Consolidated Financial Statements.
Income from operations for 1997 totaled $135.1 million, compared to $48.0
million and $8.3 million for 1996 and 1995, respectively. Excluding the effect
of non-recurring transactions, income from operations increased 6% in 1997
from $127.9 million ($1.81 per share-diluted) in 1996 and 25% in 1996 from
$101.9 million ($1.45 per share-diluted) in 1995.
Operating results in 1997 were adversely impacted by a decline in fourth
quarter income from operations to $27.2 million ($0.40 per share-diluted) from
$35.9 million ($0.51 per share-diluted) in the fourth quarter of 1996
(excluding non-recurring charges). The reduction in earnings resulted
primarily from (i) a loss of certain large Vencare contracts and growth in
costs associated with the shift in Vencare product mix from fee-for-service to
fixed fee arrangements in anticipation of the new prospective payment system
affecting Medicare reimbursement for nursing centers expected to take effect
on July 1, 1998 and (ii) operating losses associated with the Transitional
Merger. Vencare revenues were $158.2 million in the fourth quarter of 1997
compared to the previous quarter total of $183.2 million. In the fourth
quarter of 1997, the sale of certain non-strategic assets acquired in
connection with the TheraTx Merger resulted in a $13.5 million decline in
Vencare revenues from the third quarter. See "--Healthcare Reform
Legislation."
In 1997, the Company initiated the marketing of its Vencare full-service
ancillary services contracts to provide a full range of services to nursing
centers not operated by the Company. The change in the Company's marketing
strategy for selling ancillary services was developed in response to the
anticipated prospective payment system established under the Budget Act.
Management believes that by bundling services through one provider, nursing
centers can provide quality patient care more efficiently with the added
benefit of centralized patient medical records. Under the new prospective
payment system, ancillary services provided by nursing centers will be subject
to fixed payments. In this new environment, management believes that its full-
service ancillary services contracts will enhance the ability of nursing
center operators to manage effectively the costs of providing quality patient
care.
As the nursing center industry adapts to the cost containment measures
inherent in the new prospective payment system, management believes that the
volume of ancillary services provided per patient day to nursing center
patients could decline. In addition, as a result of these changes, many
nursing centers may elect to provide ancillary services to patients through
internal staff and will no longer contract with outside parties for ancillary
services. For these reasons and others, since the enactment of the Budget Act,
sales of new contracts have declined and may continue to decline subject to
the Company's success in implementing its Vencare comprehensive, full-service
contract sales strategy.
Operating results (including interest costs) associated with the hospitals
acquired in the Transitional Merger reduced income from operations in the
fourth quarter by $3.7 million or $0.05 per share and $9.2 million or $0.13
per share for the second half of 1997.
Excluding the effect of non-recurring transactions, growth in operating
income in 1996 resulted primarily from increased hospital volume, growth in
higher margin ancillary services in both Vencare and the nursing center
business and realization of substantial synergies resulting from the Hillhaven
Merger. Management believes that additional revenues resulting from patient
cross-referrals within the healthcare network created by the Hillhaven Merger
aggregated approximately $80 million in 1996. In addition, cost reductions
from elimination of duplicative functions, increased cost efficiencies and
refinancing of long-term debt increased 1996 pretax income by approximately
$20 million.
36
<PAGE>
For more information concerning the provision for income taxes as well as
information regarding differences between effective income tax rates and
statutory rates, see Note 11 of the Notes to Consolidated Financial
Statements.
LIQUIDITY
Cash provided by operations totaled $270.9 million for 1997 compared to
$183.5 million for 1996 and $113.6 million for 1995. Despite growth in
operating cash flows during each of the past three years, cash flows from
operations have been adversely impacted by growth in the outstanding days of
revenues in accounts receivable. Days of revenues in accounts receivable
increased to 67 at December 31, 1997 compared to 54 at December 31, 1996.
Growth in accounts receivable was primarily attributable to growth in
rehabilitation contracts resulting from the TheraTx Merger (collection periods
for which typically require in excess of three months), delays associated with
the conversion of Transitional hospital financial systems and, in 1997 and
1996, the restructuring of the Company's pharmacy operations. Management
believes that certain of these factors may have an adverse effect on cash
flows from operations in 1998.
In connection with the TheraTx Merger and the Transitional Merger, the
Company increased the amount of its bank credit facility from $1.0 billion to
$2.0 billion in 1997 (the "Bank Facility"). At December 31, 1997, available
borrowings under the Bank Facility approximated $822 million.
As discussed in Note 13 of the Notes to Consolidated Financial Statements,
the Company completed the $750 million private placement of its 8 5/8% Senior
Subordinated Notes due 2007 (the "Notes") in July 1997. The net proceeds of
the offering were used to reduce outstanding borrowings under the Bank
Facility.
The Company has agreed to guarantee up to $75 million of Atria's $200
million bank credit facility (the "Atria Bank Facility") at December 31, 1997
and lesser amounts each year thereafter through 2000. At December 31, 1997,
there were no outstanding guaranteed borrowings under the Atria Bank Facility.
Working capital totaled $445.1 million at December 31, 1997 compared to
$320.1 million at December 31, 1996. Management believes that current levels
of working capital are sufficient to meet expected liquidity needs.
At December 31, 1997, the Company's ratio of debt to debt and equity
approximated 68% compared to 49% at December 31, 1996. Management intends to
reduce the Company's leverage ratio from current levels. The primary sources
of funds expected to reduce long-term debt in 1998 include proceeds from the
sale of certain non-strategic assets, including the Company's investment in
Atria.
In connection with the Reorganization Transactions, the Company will be
required to refinance, repurchase or assign substantially all of its long-term
debt, including the Bank Facility and the Notes. In lieu of repurchasing the
Notes, the Company may assign to Operating Company, and Operating Company
would assume, the Notes. Management is considering a capitalization plan for
both Operating Company and Realty Company to be effected on or before the date
of the Distribution in which the Company's long-term debt is expected to be
refinanced, repurchased or assumed by either Operating Company or Realty
Company at interest rates and terms which may be less favorable than those of
the Company's current debt arrangements. There can be no assurance that
sufficient financing will be available on terms that are acceptable to either
Operating Company or Realty Company, or that either entity will have the
financial resources necessary to implement its respective acquisition and
development plans following the Distribution.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $281.7 million for 1997
compared to $135.0 million for 1996 and $136.9 million for 1995 which include
$22.6 million, $7.4 million and $4.0 million related to Atria, respectively.
Planned capital expenditures in 1998 (excluding acquisitions) are expected to
approximate $250 million to $300 million and include significant expenditures
related to nursing center improvements, construction of additional nursing
centers, information systems and administrative facilities. If the
Reorganization Transactions are consummated, proceeds from the sale of certain
newly constructed facilities to Realty Company in 1998 could approximate $125
million to $150 million. Management believes that its capital expenditure
program is adequate to expand, improve and equip existing facilities.
37
<PAGE>
During 1997, the Company expended approximately $359.4 million and $615.6
million in connection with the TheraTx Merger and the Transitional Merger,
respectively. These acquisitions were financed primarily through the issuance
of long-term debt. See Notes 5 and 6 of the Notes to Consolidated Financial
Statements for a discussion of these acquisitions. The Company also expended
$36.6 million, $26.2 million and $59.3 million for acquisitions of new
facilities (and related healthcare businesses) and previously leased nursing
centers during 1997, 1996, and 1995, respectively, of which $14.6 million,
$5.2 million and $44.2 million related to additional hospital facilities.
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 during the last three years were financed primarily
through additional borrowings, internally generated funds and, in 1996, from
the collection of notes receivable aggregating $78.2 million. In addition,
capital expenditures in 1995 were financed through the public offering of 2.2
million shares of the Company's Common Stock, the proceeds from which totaled
$66.5 million. The Company intends to finance a substantial portion of its
capital expenditures with internally generated funds and additional long-term
debt. Sources of capital include available borrowings under the Bank Facility,
public or private debt and equity. At December 31, 1997, the estimated cost to
complete and equip construction in progress approximated $119 million.
In the fourth quarter of 1997, the Company repurchased 2,925,000 shares of
the Company's Common Stock at an aggregate cost of $81.7 million. Repurchases
of 1,950,000 shares of the Company's Common Stock in 1996 totaled $55.3
million. These transactions were financed primarily through borrowings under
the Bank Facility.
At December 31, 1997, the Company was a party to certain interest rate swap
agreements that eliminate the impact of changes in interest rates on $400
million of outstanding floating rate debt. One agreement for $100 million
expires in April 1998 and provides for fixed rates at 5.7% plus 3/8% to 1
1/8%. A second agreement on $300 million of floating rate debt provides for
fixed rates at 6.4% plus 3/8% to 1 1/8% and expires in $100 million increments
in May 1999, November 1999 and May 2000. The fair values of the swap
agreements are not recognized in the consolidated financial statements. See
Notes 1 and 13 of the Notes to Consolidated Financial Statements.
As discussed in Note 13 of the Notes to Consolidated Financial Statements,
the Company called for redemption all of its outstanding convertible debt
securities in the fourth quarter of 1995, resulting in the issuance of
approximately 7,259,000 shares of the Company's Common Stock. Approximately
$34.4 million of the convertible securities were redeemed in exchange for cash
equal to 104.2% of face value plus accrued interest. These transactions had no
material effect on earnings per common share.
HEALTHCARE REFORM LEGISLATION
The Budget Act, enacted in August 1997, contains extensive changes to the
Medicare and Medicaid programs intended to reduce the projected amount of
increase in payments under those programs by $115 billion and $13 billion,
respectively, over the next five years. Under the Budget Act, annual growth
rates for Medicare will be reduced from over 10% to approximately 7.5% for the
next five years based on specific program baseline projections from the last
five years. Virtually all spending reductions will come from providers and
changes in program components. The Budget Act affects reimbursement systems
for each of the Company's operating units.
The Budget Act will reduce payments made to the Company's hospitals by
reducing TEFRA incentive payments, allowable costs for capital expenditures
and bad debts, and payments for services to patients transferred from a PPS
hospital. The reductions in allowable costs for capital expenditures became
effective October 1, 1997. The reductions in the TEFRA incentive payments and
allowable costs for bad debts are expected to be effective beginning on
September 1, 1998 with respect to the Company's hospitals. The reductions for
payments for services to patients transferred from a PPS hospital are expected
to be effective October 1, 1998.
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The Budget Act also requires the establishment of a prospective payment system
for nursing centers for cost reporting periods beginning on or after July 1,
1998. During the first three years, the per diem rates for nursing centers
will be based on a blend of facility-specific costs and Federal costs.
Thereafter, the per diem rates will be based solely on Federal costs. The
rates for such services have not been established or published. The payments
received under the new prospective payment system will cover all services for
Medicare patients, including all ancillary services, such as respiratory
therapy, physical therapy, occupational therapy, speech therapy and certain
covered drugs. The Budget Act also requires an adjustment to the payment
system for home health services for cost reporting periods beginning on or
after October 1, 1997. The new system will adjust per visit limits and
establish per beneficiary annual spending limits. A prospective payment system
for home health services will be established by October 1, 1999.
Management believes that the Budget Act will adversely impact its hospital
business by reducing the payments previously described. The TEFRA limits have
not had a material adverse effect on the Company's results of operations, and
the Company does not expect that the TEFRA limits will have a material adverse
effect on its results of operations in 1998. The reductions in the TEFRA
incentive payments which are expected to be effective beginning on September
1, 1998 with respect to the Company's hospitals, will have an adverse impact
on hospital revenues in the future.
Based on information currently available, management believes that the new
prospective payment system will benefit nursing center operations because (i)
management believes that the average acuity levels of its patients will exceed
the national average (which should result in increased payments per patient
day) and (ii) because the Company expects to benefit from its ability to
reduce the cost of providing ancillary services to patients in its facilities.
The new Medicare prospective payment rates and related patient acuity measures
will be established by HCFA, and as of the date hereof the Company does not
know what these amounts will be. Management believes that its anticipated
growth in nursing center profitability would be reduced if Congress acts to
delay the effective date of the prospective payment system. As the nursing
center industry adapts to the cost containment measures inherent in the new
prospective payment system, management believes that the volume of ancillary
services provided per patient day to nursing center patients could decline. In
addition, as a result of these changes, many nursing centers may elect to
provide ancillary services to their patients through internal staff and will
no longer contract with outside parties for ancillary services. For these
reasons and others, since the enactment of the Budget Act, sales of new
contracts have declined and may continue to decline subject to the Company's
success in implementing its Vencare comprehensive, full-service contracts
sales strategy. The Company is actively implementing strategies and
operational modifications to address changes in the Federal reimbursement
system.
In January 1998, HCFA issued rules changing Medicare reimbursement
guidelines for therapy services provided by the Company (including the
rehabilitation contract therapy business acquired as part of the TheraTx
Merger). Under the new rules, HCFA established salary equivalency limits for
speech and occupational therapy services and revised existing limits for
physical and respiratory therapy services. The limits are based on a blend of
data from wage rates for hospitals and nursing centers and include salary,
fringe benefit and expense factors. Rates are defined by specific geographic
market areas, based upon a modified version of the hospital wage index. The
new limits are effective for services provided on or after April 1, 1998 and
are expected to impact negatively Vencare operating results in 1998. The
Company will continue to charge client nursing centers in accordance with the
revised guidelines until such nursing centers transition to the new
prospective payment system. Under the new prospective payment system, the
reimbursement for these services provided to nursing center patients will be a
component of the total reimbursement allowed per nursing center patient and
the salary equivalency guidelines will no longer be applicable. Most of the
Company's client nursing centers are expected to transition to the new
prospective payment system on or before January 1, 1999.
There also continues to be state legislative proposals that would impose
more limitations on government and private payments to providers of healthcare
services such as the Company. Many states have enacted or are considering
enacting measures that are designed to reduce their Medicaid expenditures and
to make certain changes to private healthcare insurance. Some states also are
considering regulatory changes that include a
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moratorium on the designation of additional long-term care hospitals and
changes in Medicaid reimbursement system applicable to the Company's
hospitals. There are also a number of legislative proposals including cost
caps and the establishment of Medicaid prospective payment systems for nursing
centers. Moreover, by repealing the Boren Amendment, the Budget Act eases
existing impediments on the states' ability to reduce their Medicaid
reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
Medicare revenues as a percentage of total revenues were 34%, 31% and 30%
for 1997, 1996 and 1995, respectively, while Medicaid percentages of revenues
approximated 26%, 31% and 33% for the respective periods.
OTHER INFORMATION
In June 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 1998.
The Company has initiated a program to prepare its information systems,
clinical equipment and facilities for the year 2000. An external professional
organization has been engaged to assist in the management and implementation
of this program. Management is currently implementing a plan to replace
substantially all of the Company's financial information systems before the
year 2000, the costs of which have not been determined. Most of these costs
will be capitalized and amortized over a three to five year period. Required
modifications to the Company's proprietary VenTouch(TM) and Therasys(TM)
clinical information systems are minimal and will generally be accomplished
through the use of existing internal resources. Clinical equipment in the
Company's facilities will generally be replaced or modified as needed through
the use of external professional resources. Incremental costs to complete the
necessary changes to clinical equipment could approximate $10 million to $20
million over the next two years.
Various lawsuits and claims arising in the ordinary course of business are
pending against the Company. Resolution of litigation and other loss
contingencies is not expected to have a material adverse effect on the
Company's liquidity, financial position or results of operations. See Notes 15
and 23 of the Notes to Consolidated Financial Statements.
Both the Bank Facility and the Notes contain customary covenants which
require, among other things, maintenance of certain financial ratios and limit
amounts of additional debt and repurchases of Common Stock. The Company was in
compliance with all such covenants at December 31, 1997. If the Bank Facility
is not refinanced in connection with the Reorganization Transactions, the
Distribution will violate certain covenants contained therein. Management
expects that Operating Company will be in compliance with all covenants
related to the Notes which may be assumed by Operating Company in connection
with the Reorganization Transactions. Management is considering a
capitalization plan for Operating Company and Realty Company to be effected on
or before the Distribution date in which substantially all of the Company's
long-term debt is expected to be refinanced or assumed by either Operating
Company or Realty Company. See "-- Liquidity."
As discussed in Note 1 of the Notes to Consolidated Financial Statements, on
December 31, 1997, Statement of Financial Accounting Standards No. 128
required the Company to change the method of computing earnings per common
share on a retroactive basis. The change in calculation method did not have a
material impact on previously reported earnings per common share.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is included in appendix pages F-2
through F-25 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these Items other than the information set forth
above under Part I, "Executive Officers of the Registrant," is omitted because
the Company is filing a definitive proxy statement pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this
Report which includes the required information. The required information
contained in the Company's proxy statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Index to Consolidated Financial Statements and Financial Statement
Schedules:
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Report of Independent Auditors......................................... F-2
Consolidated Financial Statements:
Consolidated Statement of Operations for the years ended December 31,
1997, 1996, and 1995.............................................. F-3
Consolidated Balance Sheet, December 31, 1997 and 1996............... F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.................................. F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995............................................... F-6
Notes to Consolidated Financial Statements........................... F-7
Quarterly Consolidated Financial Information (Unaudited)............. F-25
Financial Statement Schedules (a):
Schedule II--Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995.................................. F-26
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(a) All other schedules have been omitted because the required information is
not present or not present in material amounts.
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(a)(2) Index to Exhibits:
EXHIBIT INDEX
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3.1 Certificate of Incorporation of the Company, as amended. Exhibit
3 to the Company's Form 10-Q for the quarterly period ended
September 30, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
3.2 Third Amended and Restated Bylaws of the Company.
4.1 Specimen Common Stock Certificate. Exhibit 4.1 to the Company's
Form 10-K for the year ended December 31, 1995 (Comm. File No.
1-10989) is hereby incorporated by reference.
4.2 Article IV of the Certificate of Incorporation of the Company is
included in Exhibit 3.1.
4.3 $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 Acquistion Corp., dated May 7, 1997 (Comm.
File No. 1-10989) is hereby incorporated by reference.
4.4 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 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 4.3 to the
Company's Form 10-Q for the quarterly period ended June 30, 1997
(Comm. File No. 1-10989) is hereby incorporated by reference.
4.5 Amendment No. 2, dated as of October 24, 1997, to the $2.0
billion Amended and Restated Credit Agreement dated as of May
30, 1997, as amended as of June 24, 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.
4.6 Form of 8 5/8% Senior Subordinated Notes due 2007. Exhibit 4.1
to the Company's Current Report on Form 8-K dated July 21, 1997
(Comm. File No. 1-10989) is hereby incorporated by reference.
4.7 Indenture dated as of July 21, 1997, between the Company and The
Bank of New York, as Trustee. Exhibit 4.2 to the Company's
Current Report on Form 8-K dated July 21, 1997 (Comm. File No.
1-10989) is hereby incorporated by reference.
4.8 Rights Agreement dated as of July 20, 1993 between the Company
and National City Bank, as Rights Agent. Exhibit 1 to the
Company's Registration Statement on Form 8-A (Comm. File No. 1-
10989) is hereby incorporated by reference.
4.9 First Amendment to Rights Agreement dated as of August 11, 1995
between the Company and National City Bank, as Rights Agent.
Exhibit 2 to the Company's Registration Statement on Form 8-A/A
(Comm. File No. 1-10989) is hereby incorporated by reference.
4.10 Second Amendment to Rights Agreement dated February 1, 1998
between the Company and National City Bank, as Rights Agent.
Exhibit 1 to the Company's Registration Statement on Form 8-A/A
(Reg. No. 33-30212) is hereby incorporated by reference.
10.1* Directors and Officers Insurance and Company Reimbursement
Policies. Exhibit 10.1 to the Company's Form 10-K for the year
ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
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10.2* Vencor Retirement Savings Plan Amended and Restated as of January 1,
1997.
10.3* Amendment No. 1 to the Vencor Retirement Savings Plan Amended and
Restated dated July 1, 1997.
10.4* Amendment No. 2 to the Vencor Retirement Savings Plan Amended and
Restated dated December 31, 1997.
10.5* Amendment No. 3 to the Vencor Retirement Savings Plan Amended and
Restated dated December 31, 1997.
10.6* Vencor, Inc. 401(k) Master Trust Agreement dated January 1, 1997 by
and between the Company and Wachovia Bank of North Carolina, N.A.
10.7* Amendment No. 1 to Vencor, Inc. 401(k) Master Trust Agreement by and
between the Company and Wachovia Bank of North Carolina, N.A.
10.8* Retirement Savings Plan for Certain Employees of Vencor and its
Affiliates Amended and Restated as of January 1, 1997.
10.9* 1987 Non-Employee Directors Stock Option Plan. Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-30212) is
hereby incorporated by reference.
10.10* 1987 Incentive Compensation Program. Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-30212) is hereby
incorporated by reference.
10.11* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program
dated May 15, 1991. Exhibit 4.4 to the Company's Registration
Statement on Form S-8 (Reg. No. 33-40949) is hereby incorporated by
reference.
10.12* Amendments to the Vencor, Inc. 1987 Incentive Compensation Program
dated May 18, 1994. Exhibit 10.13 to the Company's Form 10-K for the
year ended December 31, 1994 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.13* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program
dated February 15, 1995. Exhibit 10.14 to the Company's Form 10-K for
the year ended December 31, 1994 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.14* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program
dated September 27, 1995. Exhibit 10.17 to the Company's Form 10-K for
the year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.15* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program
dated May 15, 1996. Exhibit 10.19 to the Company's Form 10-K for the
year ended December 31, 1996 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.16* Form of Vencor, Inc. Incentive Compensation Program Performance Share
Award, as amended. Exhibit 10.18 to the Company's Form 10-K for the
year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.17* Vencor, Incorporated Non-Employee Directors Deferred Compensation
Plan. Exhibit 10.19 to the Company's Form 10-K for the year ended
December 31, 1995 (Comm. File No. 1-10989) is hereby incorporated by
reference.
10.18* Amendment to Vencor, Incorporated Non-Employee Directors Deferred
Compensation Plan dated September 26, 1995. Exhibit 10.20 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.19* Vencor, Inc. 1997 Incentive Compensation Plan dated December 31, 1996.
Exhibit 10.23 to the Company's Form 10-K for the year ended December
31, 1996 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.20* Amendment No. 1 dated May 8, 1997 to the Vencor, Inc. 1997 Incentive
Compensation Plan. Exhibit 10.3 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
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10.21* Vencor, Inc. Deferred Compensation Plan dated January 1, 1996. Exhibit
10.24 to the Company's Form 10-K for the year ended December 31, 1996
(Comm. File No. 1-10989) is hereby incorporated by reference.
10.22* Vencor, Inc. 1997 Stock Option Plan for Non-Employee Directors dated
December 31, 1996. Exhibit 10.25 to the Company's Form 10-K for the
year ended December 31, 1996 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.23* TheraTx, Incorporated Amended and Restated 1994 Stock Option/Stock
Issuance Plan, as amended. Exhibit 10.7 to the Registration Statement
on Form S-1 of TheraTx (Reg. No. 33-92402) is hereby incorporated by
reference.
10.24* Amendment to the TheraTx, Incorporated Amended and Restated 1994 Stock
Option/Stock Issuance Plan. Exhibit 4.7 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-25519) is hereby incorporated by
reference.
10.25* TheraTx, Incorporated 1996 Stock Option/Stock Issuance Plan. Exhibit
99.1 to the Registration Statement on Form S-8 of TheraTx (Reg. No.
333-15171) is hereby incorporated by reference.
10.26* 1989 Amended and Restated Stock Option Plan of Helian Health Group,
Inc. ("Helian"). Exhibit 10.47 to the Registration Statement on Form
S-8 of Helian (Reg. No. 33-31520), Amendment No. 2 thereto filed
November 21, 1989 and Post-Effective Amendment No. 1 and No. 2 thereto
filed November 22, 1990 and January 16, 1991, is hereby incorporated
by reference.
10.27* Vencor, Inc. Employee Benefit Trust Agreement dated December 27, 1990
by and between the Company and First Kentucky Trust Company. Exhibit
10.20 to the Company's Registration Statement on Form S-1 (Reg. No.
33-39017) is hereby incorporated by reference.
10.28* The Amended Hillhaven Corporation Board of Directors Retirement Plan.
Exhibit 10.25 to the Company's Form 10-K for the year ended December
31, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.29* The Hillhaven Corporation Annual Incentive Plan, amended as of
December 6, 1994. Exhibit 10.27 to the Company's Form 10-K for the
year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.30* The Hillhaven Corporation Supplemental Executive Retirement Plan.
Exhibit 10.29 to the Company's Form 10-K for the year ended December
31, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.31* Form of Indemnification Agreement between Vencor, Inc. and certain of
its officers and employees. Exhibit 10.31 to the Company's Form 10-K
for the year ended December 31, 1995 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.32* Form of Vencor, Inc. Change-in-Control Severance Agreement.
10.33 Form of Indemnification Agreement for directors of TheraTx. Exhibit
10.13 to the Registration Statement on Form S-1 of TheraTx (Reg. No.
33-78786) is hereby incorporated by reference.
10.34 Form of Indemnification Agreement between Transitional Hospitals
Corporation and its Directors and Executive Officers. Exhibit C to the
Proxy Statement of Transitional, 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.
10.35 Services Agreement between Hillhaven and Tenet, dated as of January
31, 1990. Exhibit 10.33 to the Company's Form 10-K for the year ended
December 31, 1995 (Comm. File No. 1-10989) is hereby incorporated by
reference.
10.36 Government Programs Agreement between Hillhaven and Tenet, dated
January 31, 1990. Exhibit 10.34 to the Company's Form 10-K for the
year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
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10.37 Insurance Agreement between Hillhaven and Tenet, dated as of January
31, 1990. Exhibit 10.35 to the Company's Form 10-K for the year ended
December 31, 1995 (Comm. File No. 1-10989) is hereby incorporated by
reference.
10.38* Employee and Employee Benefits Agreement between Hillhaven and Tenet,
dated as of January 31, 1990. Exhibit 10.36 to the Company's Form 10-K
for the year ended December 31, 1995 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.39 Form of Assignment and Assumption of Lease Agreement between Hillhaven
and certain subsidiaries, on the one hand, and Tenet and certain
subsidiaries on the other hand, together with the related Guaranty by
Hillhaven, dated on or prior to January 31, 1990. Exhibit 10.37 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.40 Form of Management Agreement between First Healthcare Corporation and
certain Tenet subsidiaries, dated on or prior to January 31, 1990.
Exhibit 10.38 to the Company's Form 10-K for the year ended December
31, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.41 Reorganization and Distribution Agreement between Hillhaven and Tenet,
dated as of January 8, 1990, as amended on January 30, 1990. Exhibit
10.39 to the Company's Form 10-K for the year ended December 31, 1995
(Comm. File No. 1-10989) is hereby incorporated by reference.
10.42 Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated
as of January 31, 1990. Exhibit 10.40 to the Company's Form 10-K for
the year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.43 First Amendment to Guarantee Reimbursement Agreement between Hillhaven
and Tenet, dated as of October 30, 1990. Exhibit 10.41 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.44 First Amendment to Guarantee Reimbursement Agreement between Hillhaven
and Tenet, dated as of May 30, 1991. Exhibit 10.42 to the Company's
Form 10-K for the year ended December 31, 1995 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.45 Second Amendment to Guarantee Reimbursement Agreement between
Hillhaven and Tenet, dated as of October 2, 1991. Exhibit 10.43 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.46 Third Amendment to Guarantee Reimbursement Agreement between Hillhaven
and Tenet, dated as of April 1, 1992. Exhibit 10.44 to the Company's
Form 10-K for the year ended December 31, 1995 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.47 Fourth Amendment to Guarantee Reimbursement Agreement between
Hillhaven and Tenet, dated as of November 12, 1992. Exhibit 10.45 to
the Company's Form 10-K for the year ended December 31, 1995 (Comm.
File No. 1-10989) is hereby incorporated by reference.
10.48 Fifth Amendment to Guarantee Reimbursement Agreement between Hillhaven
and Tenet, dated as of February 19, 1993. Exhibit 10.46 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.49 Sixth Amendment to Guarantee Reimbursement Agreement between Hillhaven
and Tenet, dated as of May 28, 1993. Exhibit 10.47 to the Company's
Form 10-K for the year ended December 31, 1995 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.50 Seventh Amendment to Guarantee Reimbursement Agreement between
Hillhaven and Tenet, dated as of May 28, 1993. Exhibit 10.48 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.51 Eighth Amendment to Guarantee Reimbursement Agreement between
Hillhaven and Tenet, dated as of September 2, 1993. Exhibit 10.49 to
the Company's Form 10-K for the year ended December 31, 1995 (Comm.
File No. 1-10989) is hereby incorporated by reference.
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------- -----------------------
<C> <S>
10.52 Facility Agreement among First Healthcare Corporation and Certain
Limited Partnerships, dated as of April 23, 1992 relating to the sale
of 32 nursing centers. Exhibit 10.50 to the Company's Form 10-K for
the year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.53 First Amendment to Facility Agreement among First Healthcare
Corporation and Certain Limited Partnerships, dated as of July 31,
1992 relating to the sale of 32 nursing centers. Exhibit 10.51 to the
Company's Form 10-K for the year ended December 31, 1995 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.54 Forbearance Agreement among First Healthcare Corporation, Medisave
Pharmacies, Inc. and Certain Limited Partnerships, dated as of August
25, 1995. Exhibit 10.52 to the Company's Form 10-K for the year ended
December 31, 1995 (Comm. File No. 1-10989) is hereby incorporated by
reference.
10.55 Letter of Intent dated June 22, 1993 between Hillhaven and Tenet.
Exhibit 10.53 to the Company's Form 10-K for the year ended December
31, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.56 Trust Agreement between The Hillhaven Corporation and Wachovia Bank of
North Carolina, N.A., as Trustee, dated as of January 16, 1995.
Exhibit 10.55 to the Company's Form 10-K for the year ended December
31, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.57 Strategic Alliance Agreement dated as of June 10, 1997 by and between
the Company, Continental Casualty Company and Valley Forge Life
Insurance Company. Exhibit 10.1 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.58 Amended and Restated Agreement and Plan of Share Exchange and
Agreements to Assign Partnership Interests dated as of February 27,
1995 by and among The Hillhaven Corporation, Nationwide Care, Inc.,
Phillippe Enterprises, Inc., Meadowvale Skilled Care Center, Inc. and
Specified Partners of Camelot Care Centers, Evergreen Woods, Ltd. and
Shangri-La Partnership. Exhibit 10.56 to the Company's Form 10-K for
the year ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.59 Amended and Restated Agreement and Plan of Merger. Appendix A to
Amendment No. 2 to the Company's Registration Statement on Form S-4
(Reg. No. 33-59345) is hereby incorporated by reference.
10.60 Agreement and Plan of Merger dated as of February 9, 1997 among
TheraTx, the Company and Peach Aquisition Corp. ("Peach"). Exhibit
(c)(1) to the Statement on Schedule 14D-1 of the Company and Peach,
dated February 14, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.61 Amendment No. 1 to Agreement and Plan of Merger dated as of February
28, 1997 among TheraTx, the Company and Peach. Exhibit (c)(3) of
Amendment No. 2 to the Statement on Schedule 14D-1 of the Company and
Peach, dated March 3, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.62 Agreement and Plan of Merger dated June 18, 1997 by and among the
Company, LV Acqusition Corp. and Transitional Hospitals Corporation.
Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 3,
1997 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.63 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 dated May 2, 1997 (Comm. File No. 1-7008) is hereby
incorporated by reference.
10.64 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 dated October
22, 1996 (Comm. File No. 1-7008) is hereby incorporated by reference.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.65 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
dated October 22, 1996 (Comm. File No. 1-7008) is hereby incorporated
by reference.
10.66 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 dated December 16, 1996 (Comm. File No. 1-7008) is hereby
incorporated by reference.
10.67 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 dated December 16, 1996 (Comm. File No. 1-7008) is hereby
incorporated by reference.
10.68 Other Debt Instruments--Copies of debt instruments for which the
related debt is less than 10% of total assets will be furnished to the
Commission upon request.
10.69 Parent Guaranty dated as of August 15, 1996 among Atria Communities,
Inc., as Borrower, Vencor, Inc., as Parent Guarantor, First Healthcare
Corporation, Northwest Health Care, Inc., Medisave Pharmacies, Inc.,
Hillhaven of Central Florida, Inc., and Nationwide Care, Inc., as
Supporting Guarantors, and PNC Bank, National Association, as
Administrative Agent. Exhibit 10.59 to the Company's Form 10-K for the
year ended December 31, 1996 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.70 Amendment No. 1 to Parent Guaranty dated as of March 27, 1997 among
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. Exhibit 10.6 to the Company's
Form 10-Q for the quarterly period ended March 31, 1997 (Comm. File
No. 1-10989) is hereby incorporated by reference.
10.71 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
Administration Agent. Exhibit 10.2 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (included only in filings under the Electronic
Data Gathering, Analysis, and Retrieval System).
</TABLE>
- --------
* Compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
(b)Reports on Form 8-K.
On October 21, 1997, the Company filed a Current Report on Form 8-K to set
forth certain cautionary statements for purposes of obtaining the safe harbors
under the 1995 Private Securities Litigation Reform Act. On October 22, 1997,
the Company filed a Current Report on Form 8-K to disclose third quarter
earnings and to
47
<PAGE>
disclose a projected downward revision to its earnings estimates. On October
23, 1997, the Company filed a Current Report on Form 8-K to announce that its
Board of Directors had approved the repurchase of up to 3,000,000 shares of
the Company's Common Stock.
(c)Exhibits.
The response to this portion of Item 14 is submitted as a separate section
of this Report.
(d)Financial Statement Schedules.
The response to this portion of Item 14 is included in appendix page F-25 of
this Report.
48
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Date: March 11, 1998 VENCOR, INC.
/s/ W. Bruce Lunsford
By___________________________________
W. BRUCE LUNSFORD CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Michael R. Barr Executive Vice March 11, 1998
- ------------------------------------- President, Chief
MICHAEL R. BARR Operating Officer
and Director
/s/ Walter F. Beran Director March 11, 1998
- -------------------------------------
WALTER F. BERAN
/s/ Ulysses L. Bridgeman, Jr. Director March 11, 1998
- -------------------------------------
ULYSSES L. BRIDGEMAN, JR.
/s/ Elaine L. Chao Director March 11, 1998
- -------------------------------------
ELAINE L. CHAO
/s/ Donna R. Ecton Director March 11, 1998
- -------------------------------------
DONNA R. ECTON
/s/ Greg D. Hudson Director March 11, 1998
- -------------------------------------
GREG D. HUDSON
/s/ Richard A. Lechleiter Vice President, March 11, 1998
- ------------------------------------- Finance and
RICHARD A. LECHLEITER Corporate
Controller
(Principal
Accounting Officer)
/s/ William H. Lomicka Director March 11, 1998
- -------------------------------------
WILLIAM H. LOMICKA
/s/ W. Bruce Lunsford Chairman of the March 11, 1998
- ------------------------------------- Board, President,
W. BRUCE LUNSFORD Chief Executive
Officer (Principal
Executive Officer)
and Director
/s/ W. Earl Reed, III Executive Vice March 11, 1998
- ------------------------------------- President, Chief
W. EARL REED, III Financial Officer
and Director
/s/ R. Gene Smith Vice Chairman of the March 11, 1998
- ------------------------------------- Board and Director
R. GENE SMITH
49
<PAGE>
VENCOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements:
Consolidated Statement of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-3
Consolidated Balance Sheet, December 31, 1997 and 1996.................. F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995....................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Quarterly Consolidated Financial Information (Unaudited)................ F-25
Financial Statement Schedules (a):
Schedule II--Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995....................................... F-26
</TABLE>
- --------
(a) All other schedules have been omitted because the required information is
not present or not present in material amounts.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Vencor, Inc.
We have audited the accompanying consolidated balance sheet of Vencor, Inc.
as of December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed on page F-1. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Vencor, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
LOGO
Louisville, Kentucky
January 26, 1998
F-2
<PAGE>
VENCOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $3,116,004 $2,577,783 $2,323,956
---------- ---------- ----------
Salaries, wages and benefits............... 1,788,053 1,490,938 1,360,018
Supplies................................... 303,140 261,621 233,066
Rent....................................... 89,474 77,795 79,476
Other operating expenses................... 490,327 405,797 372,657
Depreciation and amortization.............. 123,865 99,533 89,478
Interest expense........................... 102,736 45,922 60,918
Investment income.......................... (6,057) (12,203) (13,444)
Non-recurring transactions................. - 125,200 109,423
---------- ---------- ----------
2,891,538 2,494,603 2,291,592
---------- ---------- ----------
Income before income taxes................. 224,466 83,180 32,364
Provision for income taxes................. 89,338 35,175 24,001
---------- ---------- ----------
Income from operations..................... 135,128 48,005 8,363
Extraordinary loss on extinguishment of
debt, net of income
tax benefit of $2,634 in 1997 and $14,839
in 1995................................... (4,195) - (23,252)
---------- ---------- ----------
Net income (loss)....................... 130,933 48,005 (14,889)
Preferred stock dividend requirements and
other items............................... - - (5,280)
Gain on redemption of preferred stock...... - - 10,176
---------- ---------- ----------
Income (loss) available to common stock-
holders................................ $ 130,933 $ 48,005 $ (9,993)
========== ========== ==========
Earnings (loss) per common share:
Basic:
Income from operations................... $ 1.96 $ 0.69 $ 0.22
Extraordinary loss on extinguishment of
debt.................................... (0.06) - (0.38)
---------- ---------- ----------
Net income (loss)....................... $ 1.90 $ 0.69 $ (0.16)
========== ========== ==========
Diluted:
Income from operations................... $ 1.92 $ 0.68 $ 0.29
Extraordinary loss on extinguishment of
debt.................................... (0.06) - (0.32)
---------- ---------- ----------
Net income (loss)....................... $ 1.86 $ 0.68 $ (0.03)
========== ========== ==========
Shares used in computing earnings (loss)
per common share:
Basic.................................... 68,938 69,704 61,196
Diluted.................................. 70,359 70,702 71,967
</TABLE>
See accompanying notes.
F-3
<PAGE>
VENCOR, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 82,473 $ 112,466
Accounts and notes receivable less allowance for loss
of $63,551--1997
and $23,915--1996.................................... 619,068 420,758
Inventories........................................... 27,605 24,939
Income taxes.......................................... 73,413 67,808
Other................................................. 55,589 35,162
---------- ----------
858,148 661,133
Property and equipment, at cost:
Land.................................................. 144,074 113,749
Buildings............................................. 1,084,770 975,399
Equipment............................................. 592,335 435,787
Construction in progress (estimated cost to complete
and equip after December 31, 1997--$119,000)......... 174,851 84,835
---------- ----------
1,996,030 1,609,770
Accumulated depreciation.............................. (488,212) (416,608)
---------- ----------
1,507,818 1,193,162
Goodwill less accumulated amortization of $18,886--1997
and $7,228--1996...................................... 659,311 14,644
Investments in affiliates.............................. 178,301 14,837
Other.................................................. 131,161 85,080
---------- ----------
$3,334,739 $1,968,856
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 106,019 $ 103,518
Salaries, wages and other compensation................ 163,642 111,366
Other accrued liabilities............................. 115,933 71,434
Long-term debt due within one year.................... 27,468 54,692
---------- ----------
413,062 341,010
Long-term debt......................................... 1,919,624 710,507
Deferred credits and other liabilities................. 94,653 84,053
Minority interests in equity of consolidated entities.. 2,050 36,195
Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 1,000
shares; none issued and outstanding.................. - -
Common stock, $0.25 par value; authorized 180,000
shares;
issued 73,470 shares--1997 and 72,615 shares--1996... 18,368 18,154
Capital in excess of par value........................ 766,078 713,527
Retained earnings..................................... 281,803 150,870
---------- ----------
1,066,249 882,551
Common treasury stock; 6,159 shares--1997 and 3,730
shares--1996......................................... (160,899) (85,460)
---------- ----------
905,350 797,091
---------- ----------
$3,334,739 $1,968,856
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
VENCOR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHARES PAR VALUE
-------------------------------- ----------------- CAPITAL IN COMMON
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS OF RETAINED TREASURY
STOCK STOCK TREASURY STOCK STOCK STOCK PAR VALUE EARNINGS STOCK TOTAL
--------- ------ -------------- --------- ------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1994................... 98 59,178 (2,174) $15 $14,794 $472,661 $136,614 $ (27,630) $596,454
Net loss............... (14,889) (14,889)
Cash dividends on
preferred stock
($67.98 per share) and
provision for
redemption value...... (2,380) (2,380)
In-kind dividend on
preferred stock....... 3 2,900 (2,900) -
Issuance of common
stock in connection
with employee benefit
plans................. 664 (150) 166 24,111 (11,098) 13,179
Issuance of common
stock in connection
with acquisitions..... 439 (3,227) 5,498 2,271
Increase in value of
common stock purchase
warrants of acquired
entities.............. 9,810 (9,810) -
Public offering of
common stock.......... 2,200 550 65,944 66,494
Conversion of long-term
debt.................. 7,260 1,815 149,645 151,460
Issuance of common
stock to grantor
trust................. 3,927 (3,927) 982 87,297 (88,279) -
Hillhaven Merger:
Issuance of common
stock and
related income tax
benefits.............. 2,732 683 51,561 52,244
Termination of grantor
trust................. (3,786) 3,786 (946) (87,146) 88,279 187
Redemption of preferred
stock................. (101) (15) (91,253) (91,268)
Other.................. (17) 1 (4) 2,074 (3,770) 12 (1,688)
---- ------ ------ --- ------- -------- -------- --------- --------
Balances, December 31,
1995................... - 72,158 (2,025) - 18,040 684,377 102,865 (33,218) 772,064
Net income............. 48,005 48,005
Increase in equity
resulting from initial
public offering of
Atria Communities,
Inc. common stock..... 19,828 19,828
Issuance of common
stock in connection
with employee benefit
plans................. 457 246 114 9,223 3,083 12,420
Repurchase of common
stock................. (1,950) (55,305) (55,305)
Other.................. (1) 99 (20) 79
---- ------ ------ --- ------- -------- -------- --------- --------
Balances, December 31,
1996................... - 72,615 (3,730) - 18,154 713,527 150,870 (85,460) 797,091
Net income............. 130,933 130,933
Increase in equity
resulting from
secondary public
offering of Atria
Communities, Inc.
common stock.......... 22,553 22,553
Issuance of common
stock in connection
with employee benefit
plans................. 855 496 214 29,336 6,212 35,762
Repurchase of common
stock................. (2,925) (81,651) (81,651)
Other.................. 662 662
---- ------ ------ --- ------- -------- -------- --------- --------
Balances, December 31,
1997................... - 73,470 (6,159) $ - $18,368 $766,078 $281,803 $(160,899) $905,350
==== ====== ====== === ======= ======== ======== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
VENCOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 130,933 $ 48,005 $ (14,889)
Adjustments to reconcile net income (loss)
to net cash
provided by operating activities:
Depreciation and amortization.............. 123,865 99,533 89,478
Provision for doubtful accounts............ 31,176 15,001 7,851
Deferred income taxes...................... 53,164 (34,814) (23,570)
Extraordinary loss on extinguishment of
debt...................................... 6,829 - 38,091
Non-recurring transactions................. - 121,789 102,166
Other...................................... (9,737) (9,316) 6,958
Change in operating assets and liabilities:
Accounts and notes receivable............. (87,914) (64,304) (107,761)
Inventories and other assets.............. (2,309) 1,284 (3,478)
Accounts payable.......................... (14,177) 2,165 22,157
Income taxes payable...................... 22,850 (23,892) 5,356
Other accrued liabilities................. 16,251 28,088 (8,722)
----------- -------- ---------
Net cash provided by operating
activities............................. 270,931 183,539 113,637
----------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment.......... (281,672) (135,027) (136,893)
Acquisition of TheraTx, Incorporated........ (359,439) - -
Acquisition of Transitional Hospitals
Corporation................................ (615,620) - -
Other acquisitions.......................... (36,630) (26,236) (59,343)
Sale of assets.............................. 75,988 9,147 899
Collection of notes receivable.............. 8,687 78,151 4,715
Net change in investments................... (4,513) (445) (12,779)
Other....................................... (20,461) (6,576) (8,241)
----------- -------- ---------
Net cash used in investing activities... (1,233,660) (80,986) (211,642)
----------- -------- ---------
Cash flows from financing activities:
Net change in borrowings under revolving
lines of credit............................ 418,700 (1,500) 161,600
Issuance of long-term debt.................. 734,630 10,495 438,052
Repayment of long-term debt................. (130,516) (31,586) (474,896)
Payment of deferred financing costs......... (22,052) (1,816) (3,863)
Public offering of common stock............. - 52,247 66,494
Other issuances of common stock............. 13,832 2,242 6,520
Repurchase of common stock.................. (81,651) (55,305) -
Redemption of preferred stock............... - - (91,268)
Payment of dividends........................ - - (2,779)
Other....................................... (207) (46) (5,691)
----------- -------- ---------
Net cash provided by (used in) financing
activities............................. 932,736 (25,269) 94,169
----------- -------- ---------
Change in cash and cash equivalents.......... (29,993) 77,284 (3,836)
Cash and cash equivalents at beginning of
period...................................... 112,466 35,182 39,018
----------- -------- ---------
Cash and cash equivalents at end of period... $ 82,473 $112,466 $ 35,182
=========== ======== =========
Supplemental information:
Interest payments........................... $ 76,864 $ 46,527 $ 69,916
Income tax payments......................... 16,042 55,303 42,218
</TABLE>
See accompanying notes.
F-6
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
REPORTING ENTITY
Vencor, Inc. (the "Company") operates an integrated network of healthcare
services in 46 states primarily focused on the needs of the elderly. At
December 31, 1997, the Company operated 60 long-term acute care hospitals
(5,273 licensed beds), 309 nursing centers (40,383 licensed beds) and the
Vencare contract services business ("Vencare") which primarily provides
respiratory and rehabilitation therapies, medical services and pharmacy
management services to approximately 2,900 healthcare facilities.
On September 28, 1995, the Company consummated a merger with The Hillhaven
Corporation ("Hillhaven") in a tax-free, stock-for-stock transaction (the
"Hillhaven Merger"). See Note 2.
Prior to its merger with the Company, Hillhaven consummated a merger with
Nationwide Care, Inc. ("Nationwide") on June 30, 1995 in a tax-free, stock-
for-stock transaction (the "Nationwide Merger"). See Note 3.
In the third quarter of 1996, the Company completed an initial public
offering related to its independent and assisted living business through the
issuance of 5,750,000 common shares of Atria Communities, Inc. ("Atria") (the
"Atria IPO"). See Note 4.
On March 21, 1997, the Company completed the acquisition of TheraTx,
Incorporated ("TheraTx"), a provider of rehabilitation and respiratory therapy
management services and operator of nursing centers (the "TheraTx Merger"),
pursuant to a cash tender offer. See Note 5.
On June 24, 1997, the Company acquired substantially all of the outstanding
common stock of Transitional Hospitals Corporation ("Transitional"), an
operator of 19 long-term acute care hospitals, pursuant to a cash tender
offer. The Company completed the merger of its wholly owned subsidiary with
and into Transitional on August 26, 1997 (the "Transitional Merger"). See Note
6.
BASIS OF PRESENTATION
The consolidated financial statements include all subsidiaries. Significant
intercompany transactions have been eliminated. Investments in affiliates in
which the Company has a 50% or less interest are accounted for by the equity
method.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based upon the estimates and judgments of management. Actual amounts may
differ from these estimates.
The Hillhaven Merger and the Nationwide Merger have been accounted for by
the pooling-of-interests method. Accordingly, the consolidated financial
statements included herein give retroactive effect to these transactions and
include the combined operations of the Company, Hillhaven and Nationwide for
all periods presented.
The TheraTx Merger and Transitional Merger have been accounted for by the
purchase method, which requires that the accounts and operations of acquired
entities be included with those of the Company since the acquisition of a
controlling interest. Accordingly, the accompanying consolidated financial
statements include the operations of TheraTx and Transitional since March 21,
1997 and June 24, 1997, respectively. The Company expects to finalize the
purchase price allocations related to these transactions in 1998.
For accounting purposes, the accounts of Atria continued to be consolidated
with those of the Company and minority interests in the earnings and equity of
Atria were recorded from the consummation date of the Atria IPO through June
30, 1997. In July 1997, Atria completed a secondary equity offering which
reduced the Company's ownership percentage to less than 50%. Accordingly, the
Company's investment in Atria beginning July 1, 1997 has been accounted for
under the equity method.
F-7
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Medicare.................................... $1,068,624 $ 822,589 $ 691,297
Medicaid.................................... 841,598 821,828 776,278
Private and other........................... 1,271,693 972,906 865,820
---------- ---------- ----------
3,181,915 2,617,323 2,333,395
Elimination................................. (65,911) (39,540) (9,439)
---------- ---------- ----------
$3,116,004 $2,577,783 $2,323,956
========== ========== ==========
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these instruments.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients. Amounts recorded
include estimated provisions for loss related to uncollectible accounts and
disputed items that have continuing significance, such as third-party
reimbursements that continue to be claimed in current cost reports.
INVENTORIES
Inventories consist primarily of medical supplies and are stated at the lower
of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Depreciation expense, computed by the straight-line method, was $105.3
million in 1997, $91.6 million in 1996 and $79.7 million in 1995. Depreciation
rates for buildings range generally from 20 to 45 years. Estimated useful lives
of equipment vary from 5 to 15 years.
GOODWILL
Costs in excess of the fair value of identifiable net assets of acquired
entities are amortized using the straight-line method principally over 40
years. Amortization expense for 1997, 1996 and 1995 totaled $11.4 million, $2.7
million and $2.0 million, respectively.
The Company regularly reviews the carrying value of certain long-lived assets
and the related identifiable intangible assets with respect to any events or
circumstances that indicate impairment or that the amortization period may
require adjustment. If such circumstances suggest the recorded amounts cannot
be recovered, calculated based on estimated cash flows (undiscounted) over the
remaining amortization period, the carrying value of such assets are reduced
accordingly. At December 31, 1997, the Company does not believe that the
carrying value or the amortization period of its long-lived assets and related
identifiable intangibles requires such adjustments.
F-8
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
PREOPENING COSTS
Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a three year period. At December 31,
1997 and 1996, the Company's unamortized preopening costs (included in other
assets) were $15.0 million and $1.5 million, respectively.
PROFESSIONAL LIABILITY RISKS
Provisions for loss for professional liability risks are based upon
actuarially determined estimates. To the extent that subsequent claims
information varies from management's estimates, earnings are charged or
credited.
DERIVATIVE INSTRUMENTS
The Company is a party to interest rate swap agreements that eliminate the
impact of changes in interest rates on certain outstanding floating rate debt.
Each interest rate swap agreement is associated with all or a portion of the
principal balance of a specific debt obligation. These agreements involve the
exchange of amounts based on variable rates for amounts based on fixed
interest rates over the life of the agreement, without an exchange of the
notational amount upon which the payments are based. The differential to be
paid or received as interest rates change is accrued and recognized as an
adjustment of interest expense related to the debt, and the related amount
payable to or receivable from counterparties is included in accrued interest.
The fair values of the swap agreements are not recognized in the financial
statements. Gains and losses on terminations of interest rate swap agreements
are deferred (included in other assets) and amortized as an adjustment to
interest expense over the remaining term of the original contract life of the
terminated swap agreement.
EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"), replacing the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. Earnings per share for all periods presented
have been restated to conform to the requirements of SFAS 128. The impact of
the restatement was not significant.
The computation of diluted earnings per common share give retroactive effect
to the Hillhaven Merger and the Nationwide Merger and is based upon the
weighted average number of common shares outstanding and the dilutive effect
of common stock equivalents consisting primarily of stock options. In
addition, the 1995 computation also includes the dilutive effect of
convertible debt securities.
During 1995, all convertible debt securities were redeemed in exchange for
cash or converted into the Company's common stock. Accordingly, the
computation of diluted earnings per common share assumes that the equivalent
number of common shares underlying such debt securities were outstanding
during the entire year even though the result thereof is antidilutive.
In connection with the Hillhaven Merger, the Company realized a gain in 1995
of approximately $10.2 million upon the cash redemption of Hillhaven preferred
stock. Although the gain had no effect on net income, diluted earnings per
common and common equivalent share were increased by $0.14.
F-9
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which will become
effective on December 31, 1998 and requires interim disclosures beginning in
1999. SFAS 131 requires public companies to report certain information about
operating segments, products and services, the geographic areas in which they
operate, and major customers. The operating segments are to be based on the
structure of the enterprise's internal organization whose operating results
are regularly reviewed by senior management. Management has not yet determined
the effect, if any, of SFAS 131 on the consolidated financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
NOTE 2--HILLHAVEN MERGER
On September 27, 1995, the stockholders of both the Company and Hillhaven
approved the Hillhaven Merger, effective September 28, 1995. In connection
with the Hillhaven Merger, the Company issued approximately 31,651,000 shares
of common stock in exchange for all of the outstanding common stock of
Hillhaven (an exchange ratio of 0.935 of a share of Company common stock for
each share of Hillhaven common stock).
The Hillhaven Merger has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements give retroactive effect to
the Hillhaven Merger and include the combined operations of the Company and
Hillhaven for all periods presented. The following is a summary of the 1995
results of operations of the separate entities prior to the Hillhaven Merger
(dollars in thousands):
<TABLE>
<CAPTION>
NON-
RECURRING
VENCOR HILLHAVEN TRANSACTIONS ELIMINATION CONSOLIDATED
-------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Nine months ended
September 30, 1995
(unaudited):
Revenues.............. $411,233 $1,322,873 $(24,500) $(3,775) $1,705,831
Income (loss) from
operations........... 31,566 41,367 (93,561) - (20,628)
Net income (loss)..... 30,711 20,235 (93,561) - (42,615)
</TABLE>
NOTE 3--NATIONWIDE MERGER
Prior to its merger with the Company, Hillhaven completed the Nationwide
Merger on June 30, 1995. In connection therewith, 4,675,000 shares of common
stock (effected for the Hillhaven Merger exchange ratio) were issued in
exchange for all of the outstanding shares of Nationwide.
The Nationwide Merger has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements give retroactive effect to
the Nationwide Merger and include the combined operations of Hillhaven and
Nationwide for all periods presented. The following is a summary of the 1995
results of operations of the separate entities prior to the Nationwide Merger
(dollars in thousands):
<TABLE>
<CAPTION>
NON-
RECURRING
HILLHAVEN NATIONWIDE TRANSACTIONS CONSOLIDATED
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Six months ended June 30, 1995
(unaudited):
Revenues...................... $803,793 $66,800 $ - $870,593
Income from operations........ 23,837 2,147 (3,686) 22,298
Net income (loss)............. 23,459 (266) (3,686) 19,507
</TABLE>
F-10
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCK OFFERINGS OF ATRIA
In the third quarter of 1996, the Company completed the Atria IPO, the
proceeds from which aggregated approximately $52.2 million. In connection with
the Atria IPO, the Company entered into various agreements with Atria relating
to risk-sharing for prior year income tax issues, registration rights,
administrative services and liabilities and indemnifications. In addition, the
Company guaranteed up to $75 million of Atria's $200 million bank credit
facility (the "Atria Bank Facility") at December 31, 1997 and lesser amounts
each year thereafter through 2000. At December 31, 1997, there were no
outstanding guaranteed borrowings under the Atria Bank Facility.
In July 1997, Atria completed a secondary equity offering which reduced the
Company's ownership percentage to less than 50%. Accordingly, the Company's
investment in Atria beginning July 1, 1997 has been accounted for under the
equity method. At December 31, 1997, the Company owned 10,000,000 shares, or
approximately 43%, of Atria common stock.
Gains on issuances of Atria common stock have been recorded as adjustments
to common stockholders' equity and have not been credited to earnings.
NOTE 5--THERATX MERGER
On March 21, 1997, the TheraTx Merger was consummated following a cash
tender offer in which the Company 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........................................ $ 633,793
Fair value of liabilities assumed.................................... (259,439)
---------
Net assets acquired................................................. 374,354
Cash received from acquired entity................................... (14,915)
---------
Net cash paid....................................................... $ 359,439
=========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets acquired aggregated $307.6 million. In September and October 1997, the
Company completed the sales of certain non-strategic assets acquired in
connection with the TheraTx Merger. Proceeds from the transactions aggregated
$54.6 million.
NOTE 6--TRANSITIONAL MERGER
On June 24, 1997, the Company acquired approximately 95% of the outstanding
shares of common stock of Transitional through a cash tender offer in which
the Company paid $16.00 per common share. The Company completed the merger of
its wholly owned subsidiary with and into Transitional on August 26, 1997. A
summary of the Transitional Merger follows (dollars in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired......................................... $713,336
Fair value of liabilities assumed..................................... (44,842)
--------
Net assets acquired.................................................. 668,494
Cash received from acquired entity.................................... (52,874)
--------
Net cash paid........................................................ $615,620
========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets acquired aggregated $349.1 million.
F-11
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--BUSINESS COMBINATIONS OTHER THAN HILLHAVEN, NATIONWIDE, THERATX AND
TRANSITIONAL
The Company has acquired a number of healthcare facilities (including
certain previously leased facilities) and other related businesses,
substantially all of which have been accounted for by the purchase method.
Accordingly, the aggregate purchase price of these transactions has been
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based upon their respective fair values. The consolidated
financial statements include the operations of acquired entities since the
respective acquisition dates. The pro forma effect of these acquisitions on
the Company's results of operations prior to consummation was not significant.
The following is a summary of acquisitions consummated during the last three
years under the purchase method of accounting (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Fair value of assets acquired...................... $ 71,601 $26,621 $ 78,893
Fair value of liabilities assumed.................. (34,971) (385) (16,475)
-------- ------- --------
Net assets acquired............................... 36,630 26,236 62,418
Cash received from acquired entities............... - - (804)
Issuance of common stock........................... - - (2,271)
-------- ------- --------
Net cash paid for acquisitions.................... $ 36,630 $26,236 $ 59,343
======== ======= ========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets of acquired entities aggregated $5.7 million in 1997, $4.8 million in
1996 and $9.7 million in 1995.
NOTE 8--PRO FORMA INFORMATION (UNAUDITED)
The pro forma effect of the TheraTx Merger and Transitional Merger assuming
that the transactions occurred on January 1, 1996 follows (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues................................................. $3,364,274 $3,475,217
Income from operations................................... 98,446 14,001
Net income............................................... 94,251 12,867
Earnings per common share:
Basic:
Income from operations.................................. $ 1.43 $ 0.20
Net income.............................................. 1.37 0.18
Diluted:
Income from operations.................................. $ 1.40 $ 0.20
Net income.............................................. 1.34 0.18
</TABLE>
For both periods presented, pro forma financial data have been derived by
combining the financial results of the Company and TheraTx (based upon year
end reporting periods ending on December 31) and Transitional (based upon year
end reporting periods ending on November 30).
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 $29.7 million. Pro forma income from operations for 1996 includes a
gain on the sale of Transitional's United Kingdom psychiatric hospitals
aggregating $33 million and losses of $53 million related primarily to the
sale of Transitional's United States psychiatric hospitals.
F-12
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--NON-RECURRING TRANSACTIONS
1996
In the fourth quarter of 1996, the Company recorded pretax charges
aggregating $125.2 million primarily to complete the integration of Hillhaven.
In November 1996, the Company executed a definitive agreement to sell 34
underperforming or non-strategic nursing centers in early 1997. A charge of
$65.3 million was recorded in connection with the disposition. In addition,
the Company's previously independent institutional pharmacy business, acquired
as part of the Hillhaven Merger, was integrated into Vencare, resulting in a
charge of $39.6 million related primarily to costs associated with employee
severance and benefit costs (approximately 500 employees), facility close-down
expenses and the writeoff of certain deferred costs for services to be
discontinued. A provision for loss totaling $20.3 million related to the
planned replacement of one hospital and three nursing centers was also
recorded in the fourth quarter.
During 1997, the Company sold 28 of the 34 non-strategic nursing centers
planned for disposition. Proceeds from the transaction aggregated $11.2
million. In addition, one facility was sold and one was closed in January
1998, and two nursing centers are expected to be sold pending regulatory
approvals. In February 1998, the Company was unable to receive the necessary
licensure approvals to sell two non-strategic nursing centers for which
provisions for loss had been recorded in 1996. The Company intends to continue
to operate these facilities. Accrued provisions for loss at December 31, 1997
were not significant. The reorganization of the institutional pharmacy
business was substantially completed in 1997, which included the elimination
of duplicative administrative functions and establishment of the pharmacy
operations as an integrated part of the Company's hospital operations. The
Company expects that construction activities related to the replacement of one
hospital and three nursing centers will be completed in 1998 and 1999. Accrued
provision for loss related to the facilities to be sold or replaced aggregated
$22.2 million at December 31, 1997.
1995
In the third quarter of 1995, the Company recorded pretax charges
aggregating $128.4 million primarily in connection with the consummation of
the Hillhaven Merger. The charges included (i) $23.2 million of investment
advisory and professional fees, (ii) $53.8 million of employee benefit plan
and severance costs (approximately 500 employees), (iii) $26.9 million of
losses associated with the planned disposition of certain nursing center
properties and (iv) $24.5 million of charges to reflect the Company's change
in estimates of accrued revenues recorded in connection with certain prior-
year nursing center third-party reimbursement issues (recorded as a reduction
of revenues). During 1996 and 1997, these activities were substantially
completed.
Pretax charges aggregating $5.5 million were recorded in the second quarter
primarily in connection with the Nationwide Merger.
F-13
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INVESTMENTS IN AFFILIATES
Affiliated companies accounted for on the equity method include Atria (since
July 1, 1997), Behavioral Healthcare Corporation ("BHC"), a non-public
operator of psychiatric and behavioral centers, and various other healthcare
related companies. The Company obtained a 44% voting equity interest in BHC
(61% ownership interest) as part of the Transitional Merger. Summarized
financial data reported by these affiliates and a summary of the amounts
recorded in the Company's consolidated financial statements as of and for the
year ended December 31, 1997 follow (for the six month period ended December
31, 1997 for Atria and BHC) (dollars in thousands):
<TABLE>
<CAPTION>
ATRIA BHC OTHER TOTAL
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Financial position:
Current assets.............................. $194,761 $74,526 $44,107 $313,394
Current liabilities......................... 14,100 32,876 18,359 65,335
Working capital............................. 180,661 41,650 25,748 248,059
Noncurrent assets........................... 280,702 196,394 22,916 500,012
Noncurrent liabilities...................... 268,524 112,190 16,908 397,622
Stockholders' equity........................ 192,839 125,854 31,756 350,449
Results of operations:
Revenues.................................... 37,679 158,597 97,604 293,880
Net income.................................. 4,328 788 9,913 15,029
Amounts recorded by the Company:
Investments in affiliates................... 85,886 73,046 19,369 178,301
Equity in earnings.......................... 1,870 407 5,904 8,181
</TABLE>
The fair value of the Company's investment in Atria approximated $171.3
million at December 31, 1997.
NOTE 11--INCOME TAXES
Provision for income taxes consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.............................................. $31,006 $59,470 $40,008
State................................................ 5,168 10,519 7,563
------- ------- -------
36,174 69,989 47,571
Deferred.............................................. 53,164 (34,814) (23,570)
------- ------- -------
$89,338 $35,175 $24,001
======= ======= =======
</TABLE>
Reconciliation of federal statutory rate to effective income tax rate
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate........................................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit......... 3.6 3.6 4.3
Merger and restructuring costs................................ - 3.5 34.6
Goodwill amortization......................................... 1.6 - -
Other items, net.............................................. (0.4) 0.2 0.3
---- ---- ----
Effective income tax rate..................................... 39.8% 42.3% 74.2%
==== ==== ====
</TABLE>
F-14
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INCOME TAXES (CONTINUED)
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Depreciation......................... $ - $65,018 $ - $47,256
Insurance............................ 17,948 - 12,058 -
Doubtful accounts.................... 37,689 - 37,989 -
Property............................. 23,428 - 34,767 -
Compensation......................... 16,154 - 17,030 -
Subsidiary net operating losses
(expiring in 2017).................. 15,864 - - -
Other................................ 26,236 27,170 33,120 19,990
-------- ------- -------- -------
$137,319 $92,188 $134,964 $67,246
======== ======= ======== =======
</TABLE>
Management believes that the deferred tax assets in the table above will
ultimately be realized. Management's conclusion is based primarily on the
existence of sufficient taxable income within the allowable carryback periods
to realize the tax benefits of deductible temporary differences recorded at
December 31, 1997.
Deferred income taxes totaling $73.4 million and $62.4 million at December
31, 1997 and 1996, respectively, are included in other current assets.
Noncurrent deferred income taxes, included in other long-term liabilities,
totaled $28.3 million at December 31, 1997. Noncurrent deferred income taxes
at December 31, 1996 totaling $5.3 million are included in other long-term
assets.
NOTE 12--PROFESSIONAL LIABILITY RISKS
The Company insures a substantial portion of its professional liability
risks through a wholly owned insurance subsidiary. Provisions for such risks
underwritten by the subsidiary were $10.7 million for 1997, and $10.4 million
for 1996, and $11.1 million for 1995.
Amounts funded for the payment of claims and expenses incident thereto,
included principally in cash and cash equivalents and other assets, aggregated
$26.4 million and $20.7 million at December 31, 1997 and 1996, respectively.
Allowances for professional liability risks, included principally in deferred
credits and other liabilities, were $26.3 million and $21.6 million at
December 31, 1997 and 1996, respectively.
NOTE 13--LONG-TERM DEBT
Capitalization
A summary of long-term debt at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Senior collateralized debt, 5% to 10% (rates generally
floating) payable in periodic
installments through 2019............................... $ 55,651 $119,634
Non-interest bearing residential mortgage bonds.......... - 33,917
Bank revolving credit agreement due 2002 (floating rates
averaging 6.6%)......................................... 1,129,300 333,100
Bank term loan (floating rates averaging 6.3%)........... - 271,000
8 5/8% Senior Subordinated Notes due 2007................ 750,000 -
Other.................................................... 12,141 7,548
---------- --------
Total debt, average life of six years (rates averaging
7.3%)................................................. 1,947,092 765,199
Amounts due within one year.............................. (27,468) (54,692)
---------- --------
Long-term debt......................................... $1,919,624 $710,507
========== ========
</TABLE>
F-15
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--LONG-TERM DEBT (CONTINUED)
In connection with the TheraTx Merger, the Company entered into a new five-
year bank credit facility (the "Bank Facility") aggregating $1.75 billion on
March 31, 1997, replacing the Company's $1.0 billion bank credit facility. On
June 24, 1997, the Bank 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 Bank 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 the amount of additional
debt and repurchases of common stock.
In July 1997, the Company 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 Bank Facility. The Company exchanged
the Notes for publicly registered Notes having identical terms and conditions
in November 1997.
REFINANCING ACTIVITIES
In connection with the TheraTx Merger and the Transitional Merger, the
Company refinanced a substantial portion of its long-term debt. These
transactions resulted in after-tax losses of $4.2 million in 1997. During
1995, the Company recorded $23.3 million of after-tax losses from refinancing
of long-term debt, substantially all of which was incurred in connection with
the Hillhaven Merger. Amounts refinanced in 1995 included $171 million of 10
1/8% Senior Subordinated Notes due 2001, $112 million of outstanding
borrowings under prior revolving credit agreements, and $173 million of other
senior debt.
In the fourth quarter of 1995, the Company called for the redemption of its
6% Convertible Subordinated Notes due 2002 aggregating $115 million (the "6%
Notes") and its 7 3/4% Convertible Subordinated Debentures due 2002
aggregating $75 million (the "7 3/4% Debentures") which were convertible into
the Company's common stock at the rate of $26.00 and $17.96 per share,
respectively. Approximately $80.6 million principal amount of the 6% Notes
were converted into approximately 3,098,000 shares of common stock and the
remainder were redeemed in exchange for cash equal to 104.2% of face value
plus accrued interest. All outstanding 7 3/4% Debentures were converted into
approximately 4,161,000 shares of common stock. These transactions had no
material effect on earnings per common share.
OTHER INFORMATION
At December 31, 1997, the Company was a party to certain interest rate swap
agreements that eliminate the impact of changes in interest rates on $400
million of floating rate debt outstanding. One agreement for $100 million
expires in April 1998 and provides for fixed rates at 5.7% plus 3/8% to 1
1/8%. A second agreement provides for fixed rates on $300 million of floating
rate debt at 6.4% plus 3/8% to 1 1/8% and expires in $100 million increments
in May 1999, November 1999 and May 2000. The fair value of the swap agreements
(a payable position of $2.9 million and $139,000 at December 31, 1997 and
1996, respectively) has not been recognized in the consolidated financial
statements. The fair value of the swap agreements represents the estimated
amount the Company would pay to terminate the agreements based on current
interest rates.
Maturities of long-term debt in years 1999 through 2002 are $25.8 million,
$25.4 million, $27.6 million and $1.0 billion, respectively.
F-16
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--LONG-TERM DEBT (CONTINUED)
The estimated fair value of the Company's long-term debt was $1.96 billion
and $752 million at December 31, 1997 and 1996, respectively, compared to
carrying amounts aggregating $1.95 billion and $765 million. The estimate of
fair value includes the effect of the interest rate swap agreements and is
based upon the quoted market prices for the same or similar issues of long-
term debt, or on rates available to the Company for debt of the same remaining
maturities.
NOTE 14--LEASES
The Company leases real estate and equipment under cancelable and non-
cancelable arrangements. Future minimum payments and related sublease income
under non-cancelable operating leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
MINIMUM SUBLEASE
PAYMENTS INCOME
-------- --------
<S> <C> <C>
1998.......................................................... $57,728 $7,119
1999.......................................................... 56,879 6,101
2000.......................................................... 46,376 5,886
2001.......................................................... 34,924 4,513
2002.......................................................... 24,020 2,221
Thereafter.................................................... 86,048 13,425
</TABLE>
Sublease income aggregated $8.0 million, $8.8 million and $13.7 million for
1997, 1996 and 1995, respectively.
NOTE 15--CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
Management believes that allowances for losses have been provided to the
extent necessary and that its assessment of contingencies is reasonable.
Management believes that resolution of contingencies will not materially
affect the Company's liquidity, financial position or results of operations.
Principal contingencies are described below:
Revenues--Certain third-party payments are subject to examination by
agencies administering the programs. The Company is contesting certain
issues raised in audits of prior year cost reports.
Professional liability risks--The Company has provided for loss for
professional liability risks based upon actuarially determined estimates.
Actual settlements may differ from the provisions for loss.
Interest rate swap agreements--The Company is a party to certain
agreements which reduce the impact of changes in interest rates on $400
million of its floating rate long-term debt. In the event of nonperformance
by other parties to these agreements, the Company may incur a loss to the
extent that market rates exceed contract rates.
Guarantees of indebtedness--Letters of credit and guarantees of
indebtedness aggregated $140 million at December 31, 1997, of which $75
million relates to the Atria Bank Facility.
F-17
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--CONTINGENCIES (CONTINUED)
Income taxes--The Company is contesting adjustments proposed by the
Internal Revenue Service for years 1990, 1991 and 1992.
Litigation--Various suits and claims arising in the ordinary course of
business are pending against the Company. See Note 23.
NOTE 16--EARNINGS PER COMMON SHARE
A computation of the earnings per common share follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Earnings (loss):
Income (loss) available to common stockholders--ba-
sic computation .................................. $130,933 $48,005 $(9,993)
Interest addback on convertible securities, net of
income tax benefit................................ - - 7,380
-------- ------- -------
Income (loss) available to common stockholders--
diluted
computation...................................... $130,933 $48,005 $(2,613)
======== ======= =======
Shares used in the computation:
Weighted average shares outstanding--basic
computation....................................... 68,938 69,704 61,196
Dilutive effect of employee stock options and other
dilutive securities............................... 1,421 998 10,771
-------- ------- -------
Adjusted weighted average shares outstanding--
diluted computation............................... 70,359 70,702 71,967
======== ======= =======
Earnings (loss) per common share:
Basic:
Income from operations............................ $ 1.96 $ 0.69 $ 0.22
Extraordinary loss on extinguishment of debt...... (0.06) - (0.38)
-------- ------- -------
Net income (loss)................................ $ 1.90 $ 0.69 $ (0.16)
======== ======= =======
Diluted:
Income from operations............................ $ 1.92 $ 0.68 $ 0.29
Extraordinary loss on extinguishment of debt...... (0.06) - (0.32)
-------- ------- -------
Net income (loss)................................ $ 1.86 $ 0.68 $ (0.03)
======== ======= =======
</TABLE>
F-18
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--CAPITAL STOCK
PLAN DESCRIPTIONS
The Company has plans under which options to purchase common stock may be
granted to officers, employees and certain non-employee directors. Options
have been granted at not less than market price on the date of grant. Exercise
provisions vary, but most options are exercisable in whole or in part
beginning one to four years after grant and ending ten years after grant.
Activity in the plans is summarized below:
<TABLE>
<CAPTION>
SHARES WEIGHTED
UNDER OPTION PRICE AVERAGE
OPTION PER SHARE EXERCISE PRICE
--------- ---------------- --------------
<S> <C> <C> <C>
Balances, December 31, 1994......... 2,046,650 $ 0.53 to $24.25 $12.77
Granted............................ 1,537,820 11.50 to 32.50 27.32
Exercised.......................... (593,918) 0.53 to 29.14 11.57
Canceled or expired................ (51,151) 5.35 to 28.50 21.02
---------
Balances, December 31, 1995......... 2,939,401 0.53 to 32.50 20.48
Granted............................ 1,467,451 25.50 to 38.38 26.02
Exercised.......................... (368,758) 0.53 to 28.50 6.10
Canceled or expired................ (351,271) 14.17 to 32.63 26.65
---------
Balances, December 31, 1996......... 3,686,823 0.53 to 38.38 23.54
Granted............................ 1,309,900 25.50 to 43.88 30.47
Assumed in connection with TheraTx
Merger............................ 475,643 0.20 to 38.83 27.05
Exercised.......................... (775,431) 0.53 to 35.46 17.90
Canceled or expired................ (301,765) 19.92 to 34.25 26.78
---------
Balances, December 31, 1997......... 4,395,170 $ 0.20 to $43.88 $26.77
=========
</TABLE>
A summary of stock options outstanding at December 31, 1997 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
NUMBER WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AT DECEMBER 31, CONTRACTUAL EXERCISE AT DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
--------------- --------------- ------------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
$0.20 to $24.86......... 120,692 1 to 4 years $ 8.30 120,692 $ 8.30
$1.02 to $38.83......... 482,941 5 to 7 years 21.72 419,578 21.40
$23.37 to $43.88........ 3,791,537 8 to 10 years 28.00 991,485 27.00
--------- ---------
4,395,170 $26.77 1,531,755 $23.99
========= =========
</TABLE>
The weighted average remaining contractual life of options outstanding at
December 31, 1997 approximated eight years. Shares of common stock available
for future grants were 3,980,678, 1,387,396 and 2,740,066 at December 31,
1997, 1996 and 1995, respectively. The number of options exercisable at
December 31, 1996 and 1995 were 1,142,688 and 1,021,168, respectively.
In 1995, the Company issued long-term incentive agreements to certain
officers and key employees whereby the Company may annually issue shares of
common stock to such individuals in satisfaction of predetermined performance
goals. Share awards aggregated 74,330 for 1997, 80,913 for 1996 and 92,500 for
1995.
F-19
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--CAPITAL STOCK (CONTINUED)
PLAN DESCRIPTIONS (CONTINUED)
In May 1997, stockholders voted to approve a stock option plan for non-
employee directors and an employee incentive compensation plan. Shares
issuable under the plans aggregated 200,000 and 3,400,000, respectively.
A Shareholder Rights Plan allows common stockholders the right to purchase
Series A Preferred Stock in the event of accumulation of or tender offer for
15% (reduced to 9.9% in February 1998) or more of the Company's common stock.
The rights will expire in 2003 unless redeemed earlier by the Company.
STATEMENT NO. 123 DATA
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement No.
123"), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options is equal to the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value of such options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 5.50% for 1997, 6.33% for 1996 and
1995; no dividend yield; expected term of seven years and volatility factors
of the expected market price of the Company's common stock of .31 for 1997,
.24 for 1996 and .25 for 1995.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because the changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the respective vesting period. The
weighted average fair values of options granted during 1997, 1996 and 1995
under the Black-Scholes model were $13.75, $10.95 and $11.74, respectively.
Pro forma information follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Pro forma income (loss) available to common
stockholders...................................... $120,941 $42,530 $(10,842)
Pro forma earnings (loss) per common and common
equivalent share:
Basic............................................. $ 1.75 $ 0.61 $ (0.18)
Diluted........................................... 1.71 0.61 (0.05)
</TABLE>
Because Statement No. 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
1999.
F-20
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--EMPLOYEE BENEFIT PLANS
The Company maintains defined contribution retirement plans covering
employees who meet certain minimum eligibility requirements. Benefits are
determined as a percentage of a participant's contributions and are generally
vested based upon length of service. Retirement plan expense was $13.0 million
for 1997, $8.8 million for 1996 and $9.7 million for 1995. Amounts equal to
retirement plan expense are funded annually.
NOTE 19--ACCRUED LIABILITIES
A summary of other accrued liabilities at December 31 follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Interest...................................................... $ 30,662 $ 3,502
Taxes other than income....................................... 15,462 20,238
Income taxes payable.......................................... 7,737 -
Patient accounts.............................................. 21,370 17,919
Merger related costs.......................................... 15,338 16,640
Other......................................................... 25,364 13,135
-------- -------
$115,933 $71,434
======== =======
</TABLE>
NOTE 20--TRANSACTIONS WITH TENET HEALTHCARE CORPORATION
Hillhaven became an independent public company in January 1990 as a result
of a spin-off transaction with Tenet Healthcare Corporation (formerly National
Medical Enterprises, Inc.) ("Tenet"). The following is a summary of
significant transactions with Tenet:
Debt guarantees--Tenet and the Company are parties to a guarantee
agreement under which the Company pays a fee to Tenet in consideration for
Tenet's guarantee of certain obligations of the Company. Such fees totaled
$2.0 million in 1997, $3.0 million in 1996, and $3.8 million in 1995.
Leases--The Company leases certain nursing centers from a joint venture
in which Tenet has a minority interest. Lease payments to the joint venture
aggregated $9.4 million, $10.3 million and $9.9 million for 1997, 1996 and
1995, respectively.
Equity ownership--At December 31, 1997, Tenet owned 8,301,067 shares of
the Company's common stock. Prior to the Hillhaven Merger, Tenet also owned
all of Hillhaven's outstanding Series C and Series D Preferred Stock.
Management agreements--Fees paid by Tenet for management, consulting and
advisory services in connection with the operation of seven nursing centers
owned or leased by Tenet aggregated $2.6 million in 1997 and $2.7 million
in both 1996 and 1995.
NOTE 21--FAIR VALUE DATA
A summary of fair value data at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 82,473 $ 82,473 $112,466 $112,466
Long-term debt, including amounts due
within one year....................... 1,947,092 1,955,097 765,199 751,843
</TABLE>
F-21
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--STOCK REPURCHASES
In the fourth quarter of 1997, the Company repurchased 2,925,000 shares of
common stock at an aggregate cost of $81.7 million. Repurchases of 1,950,000
shares common stock in 1996 totaled $55.3 million. These transactions were
financed primarily through borrowings under the Bank Facility.
NOTE 23--LITIGATION
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al. was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Company against the Company and
certain executive officers and directors of the Company, namely W. Bruce
Lunsford, W. Earl Reed, III, Michael R. Barr, Thomas T. Ladt, Jill L. Force
and James H. Gillenwater, Jr. The complaint alleges that the Company and
certain executive officers of the Company during a specified time frame
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by,
among other things, issuing to the investing public a series of false and
misleading statements concerning the Company's current operations and the
inherent value of the Company's common stock. The complaint further alleges
that as a result of these purported false and misleading statements concerning
the Company's revenues and successful acquisitions, the price of the Company's
common stock was artificially inflated. In particular, the complaint alleges
that the Company issued false and misleading financial statements during the
first, second and third calendar quarters of 1997 which misrepresented and
understated the impact that changes in Medicare reimbursement policies would
have on the Company's core services and profitability. The complaint further
alleges that the Company issued a series of materially false statements
concerning the purportedly successful integration of its recent acquisitions
and prospective earnings per share for 1997 and 1998 which the Company knew
lacked any reasonable basis and were not being achieved. The suit seeks
damages in an amount to be proven at trial, pre-judgment and post-judgment
interest, reasonable attorneys' fees, expert witness fees and other costs, and
any extraordinary equitable and/or injunctive relief permitted by law or
equity to assure that the plaintiff has an effective remedy. The Company
believes that the allegations in the complaint are without merit and intends
to defend vigorously this action.
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 common stock during the period
from February 26, 1997 through May 4, 1997, inclusive. The complaint alleges
that Transitional purchased shares of its common stock from members of the
investing public after it had received a written offer to acquire all of
Transitional's common stock and without disclosing 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 and common law principles of negligent
misrepresentation and names as defendants Transitional as well as certain
senior executives and directors of Transitional. The plaintiff seeks class
certification, unspecified damages, attorneys' fees and costs. The Company has
filed a motion to dismiss and is awaiting the court's decision. The Company is
vigorously defending this action.
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 provided 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 Hillhaven
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
F-22
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--LITIGATION (CONTINUED)
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 suit seeks damages in an
amount of not less than $1,000,000, treble damages and civil penalties. The
Company is cooperating fully in the investigation.
On June 6, 1997, Transitional announced that it had been advised that it is
a target of a Federal grand jury investigation being conducted by the United
States Attorney's Office for the District of Massachusetts (the "USAO")
arising from activities of Transitional's formerly owned dialysis business.
The investigation involves an alleged illegal arrangement in the form of 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. In January 1998, the Company
was informed that no criminal charges would be filed against the Company. The
Company has been informed that the USAO intends to file a civil action against
Transitional relating to the partnership's former business. If such a suit is
filed, the Company will vigorously defend the action.
Management believes that the ultimate resolution of these claims will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, no provisions for loss related to the
previously discussed litigation matters have been recorded in the consolidated
financial statements.
NOTE 24--SUBSEQUENT EVENT
In January 1998, the Board of Directors of the Company authorized management
to proceed with a plan to separate the Company into two publicly held
corporations, one to operate the hospital, nursing center and Vencare
businesses ("Operating Company") and the other to own substantially all of the
real property of the Company ("Realty Company") and to lease such real
property to Operating Company (the "Reorganization Transactions"). Realty
Company intends to become a real estate investment trust for Federal income
tax purposes beginning January 1, 1999. The Board's action is subject to,
among other things, Company stockholder approval, regulatory and other
approvals, tax considerations and the consummation of a capitalization plan
for each entity. The Company filed a preliminary proxy statement concerning
the Reorganization Transactions and the Distribution with the Securities and
Exchange Commission on January 30, 1998. Management anticipates that the
Reorganization Transactions and Distribution will be completed in the second
quarter of 1998.
The Reorganization Transactions will be effected through the issuance to
Company common stockholders of all of the outstanding shares of Operating
Company (the "Distribution"). Subsequent to the Distribution, Vencor, Inc.
will be the name of the legal entity that will comprise Operating Company and
VenTrust, Inc. will be the name of the legal entity comprising Realty Company.
For accounting purposes the historical consolidated financial statements of
the Company will become the historical consolidated financial statements of
Operating Company at the time of the Distribution. Realty Company will not
have been operated as a real estate investment trust prior to the
Distribution. Accordingly, the consolidated financial statements of Realty
Company will consist solely of its operations after the Distribution. The
assets and liabilities of both Operating Company and Realty Company will be
recorded at their respective historical carrying values at the time of the
Distribution.
In connection with the Reorganization Transactions, the Company will be
required to refinance, repurchase or assign substantially all of its long-term
debt, including the Bank Facility and the Notes. In lieu of repurchasing the
Notes, the Company may assign to Operating Company, and Operating Company
would assume, the Notes. Management is considering a capitalization plan for
both Operating Company and Realty Company to be effected on or before the date
of the Distribution in which the Company's long-term debt is expected to be
refinanced,
F-23
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24--SUBSEQUENT EVENT (CONTINUED)
repurchased or assumed by either Operating Company or Realty Company at
interest rates and terms which may be less favorable than those of the
Company's current debt arrangements. There can be no assurance that sufficient
financing will be available on terms that are acceptable to either Operating
Company or Realty Company, or that either entity will have the financial
resources necessary to implement its respective acquisition and development
plans following the Distribution.
F-24
<PAGE>
VENCOR, INC.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................... $680,696 $778,295 $844,740 $812,273
Net income:
Income from operations....... 33,982 37,010 36,902 27,234
Extraordinary loss on extin-
guishment of debt........... (2,259) (1,590) (346) -
Net income................. 31,723 35,420 36,556 27,234
Per common share:
Basic earnings:
Income from operations...... 0.49 0.53 0.53 0.40
Extraordinary loss on extin-
guishment of debt.......... (0.03) (0.02) - -
Net income................. 0.46 0.51 0.53 0.40
Diluted earnings:
Income from operations...... 0.48 0.52 0.52 0.40
Extraordinary loss on extin-
guishment of debt.......... (0.03) (0.02) (0.01) -
Net income................. 0.45 0.50 0.51 0.40
Market prices (a):
High........................ 40 3/8 45 1/8 44 3/8 43 5/16
Low......................... 29 36 5/8 37 3/8 23
<CAPTION>
1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................... $626,337 $634,554 $650,551 $666,341
Net income (loss) (b)......... 27,610 30,865 33,558 (44,028)
Per common share:
Basic earnings (loss)........ 0.39 0.44 0.48 (0.64)
Diluted earnings (loss)...... 0.39 0.43 0.48 (0.64)
Market prices (a):
High........................ 39 7/8 35 34 1/2 33 1/4
Low......................... 31 1/2 28 1/8 25 1/2 27 1/2
</TABLE>
- --------
Earnings per share amounts for all periods presented have been restated to
comply with the provisions of SFAS 128. See Notes 1 and 16 of the Notes to
Consolidated Financial Statements.
(a) The Company's common stock is traded on the New York Stock Exchange
(ticker symbol--VC).
(b) Fourth quarter results include $79.9 million ($1.16 per share) of costs in
connection with the sale of certain nursing centers, the restructuring of
the pharmacy operations and the planned replacement of certain facilities.
See Note 9 of the Notes to Consolidated Financial Statements.
F-25
<PAGE>
VENCOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE
BALANCE AT CHARGED TO AT END
BEGINNING COSTS AND DEDUCTIONS OF
OF PERIOD EXPENSES ACQUISITIONS OR PAYMENTS PERIOD
---------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Allowances for loss on
accounts and
notes receivable:
Year ended December
31, 1995............. $28,265 $ 7,851 $ - $ (4,026) $32,090
Year ended December
31, 1996............. 32,090 15,001 - (23,176) 23,915
Year ended December
31, 1997............. 23,915 31,176 26,144 (17,684) 63,551
Allowances for loss on
assets held
for disposition:
Year ended December
31, 1995............. $ - $26,900(a) $ - $ - $26,900
Year ended December
31, 1996............. 26,900 64,000(b) - (22,812) 68,088
Year ended December
31, 1997............. 68,088 - 7,225 (43,891) 31,422
</TABLE>
- --------
(a) Reflects provision for loss associated with the planned disposition of
certain nursing center properties recorded in connection with the
Hillhaven Merger.
(b) Reflects provision for loss associated with the sale of certain nursing
centers and the planned replacement of one hospital and three nursing
centers.
F-26
<PAGE>
EXHIBIT 3.2
THIRD AMENDED AND RESTATED BY-LAWS
OF
VENCOR, INC.
ARTICLE I
OFFICES
-------
1.1. REGISTERED OFFICE. The registered office of the Corporation shall be
-----------------
in the City of Wilmington, County of New Castle, State of Delaware.
1.2. OTHER OFFICES. The Corporation may also have offices at such other
-------------
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
1.3. FISCAL YEAR. The Board of Directors of the Corporation shall have
-----------
the power to fix, and from time to time change, the fiscal year of the
Corporation.
ARTICLE II
STOCKHOLDERS
------------
2.1. ANNUAL MEETING. The annual meeting of the stockholders of the
--------------
Corporation, for the election of directors, the consideration of financial
statements and other reports, and the transaction of such other business as may
properly be brought before such meeting, shall be held no later than six months
following the end of the Corporation's fiscal year. The meeting shall be held
at such time and on such date as may be designated by the Board of Directors of
the Corporation. In the event the annual meeting is not held or if directors
are not elected at the annual meeting, a special meeting may be called and held
for that purpose.
2.2. BUSINESS TO BE CONDUCTED. At an annual meeting of stockholders, only
------------------------
such business shall be conducted (including but not limited to, election of
directors), and only such proposals shall be acted upon, as shall have been
properly brought before the annual meeting of stockholders (a) by, or at the
direction of, the Board of Directors or (b) by a stockholder of the Corporation
who complies with the procedures set forth in Article II. For business or a
proposal (including but not limited to, the nomination of any person for
election as a director of the Corporation) to be properly brought before an
annual meeting of stockholders by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the scheduled date of the annual meeting, regardless
of any postponement, deferral or adjournment of that meeting to a later date;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the annual meeting is given or made to stockholders, notice by
the stockholder to be timely must be so delivered or received not later than the
close of
<PAGE>
business on the 10th day following the earlier of (i) the day on which
such notice of the date of the meeting was mailed or (ii) the day on which such
public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before an annual meeting of stockholders (i) a
description, in 500 words or less, of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business and any other stockholders known by
such stockholder to be supporting such proposal, (iii) the class and number of
shares of the Corporation which are beneficially owned by such stockholder on
the date of such stockholder's notice and by any other stockholders known by
such stockholder to be supporting such proposal on the date of such
stockholder's notice, (iv) a description, in 500 words or less, of any interest
of the stockholder in such proposal, and (v) a representation that the
stockholder is a holder of record of stock of the Corporation and intends to
appear in person or by proxy at the meeting to present the proposal specified in
the notice. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at a meeting of stockholders except in accordance
with the procedures set forth in this Article II.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that the business was not properly brought before the
meeting in accordance with the procedures prescribed by this Article II, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing, nothing in this Article II shall be interpreted
or construed to require the inclusion of information about any such proposal in
any proxy statement distributed by, at the direction of, or on behalf of, the
Board of Directors.
2.3. SPECIAL MEETINGS. Special meetings of stockholders, unless otherwise
----------------
prescribed by statute, may be called at any time only by the Board of Directors
or the Chairman of the Board of the Corporation.
2.4. PLACE OF MEETING. All meetings of the stockholders for the election
----------------
of directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place either within or without the State of
Delaware as shall be stated in the notice of such meeting.
2.5. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of the
-----------------------------------------
annual meeting or a special meeting stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.6. STOCKHOLDERS LIST. The officer who has charge of the stock ledger of
-----------------
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders,
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a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.7. QUORUM AND ADJOURNMENT. At any meeting of stockholders, the holder
----------------------
of a majority of the issued and outstanding shares of stock entitled to vote
present in person or represented by proxy shall constitute a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the chairman of the meeting or a majority of the stockholders
entitled to vote at the meeting, present in person or represented by proxy,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be presented or
represented.
2.8. VOTING. When a quorum is present or represented at any meeting, the
------
vote of the holders of a majority of the shares of stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the Delaware General Corporation Law or of the Certificate of Incorporation
or of these By-Laws a different vote is required, in which case such express
provision shall govern and control the decision of such question.
2.9. PROXIES. At each meeting of the stockholders, each stockholder
-------
shall, unless otherwise provided by the Certificate of Incorporation, be
entitled to one vote in person or by proxy for each share of stock held by him
which has voting power upon the matter in question, but no proxy shall be voted
after three years from its date, unless the proxy provides for a longer period.
2.10. ACTION OF STOCKHOLDERS WITHOUT A MEETING.
----------------------------------------
A. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, whether by any provision of the Delaware General Corporation Law or of
the Certificate of Incorporation or these By-Laws or otherwise, such corporate
action may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of eighty percent of outstanding stock. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
B. In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no
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record date has been fixed by the Board of Directors within ten (10) days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or any officer or agent of the Corporation having
custody of the book in which proceedings of stockholders meetings are recorded,
to the attention of the Secretary of the Corporation. Delivery shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
ARTICLE III
BOARD OF DIRECTORS
------------------
3.1. MANAGEMENT OF CORPORATION. The business affairs of the Corporation
-------------------------
shall be managed by its Board of Directors.
3.2. NUMBER OF DIRECTORS. The number of directors of the Corporation
-------------------
(exclusive of directors to be elected by the holders of one or more series of
the Preferred Stock of the Corporation which may be outstanding, voting
separately as a series or class) shall be fixed from time to time by action of
not less than a majority of the members of the Board of Directors then in
office, but in no event shall be less than three nor more than eleven.
3.3. ELECTION OF DIRECTORS. The directors shall be elected at the annual
---------------------
meeting of stockholders, or if not so elected, at a special meeting of
stockholders called for that purpose; provided, however, that if the Corporation
shall have no stockholders, directors may be appointed by the incorporators. At
any meeting of stockholders at which directors are to be elected, only persons
nominated as candidates shall be eligible for election, and the candidates
receiving the greatest number of votes shall be elected.
3.4. TERM. Each director shall hold office until the next annual meeting
----
of the stockholders and until his successor has been elected or until his
earlier resignation, removal from office, or death.
3.5. REMOVAL. Any director or the entire Board of Directors may be
-------
removed with or without cause, at any time, by the affirmative vote of the
holders of record of a majority of the outstanding shares of stock entitled to
vote in the election of directors, at a special meeting of the stockholders
called for the purpose.
3.6. VACANCIES. Any vacancy occurring on the Board of Directors for any
---------
reason, including, but not limited to, the resignation, removal, or death of a
director or an increase in the number of authorized directors, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his successor is elected and
qualified.
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3.7. ANNUAL MEETING. After each annual election of directors, on the same
--------------
day, the Board of Directors may meet for the purpose of organization, the
election of officers and the transaction of such other business at the place
where the annual meeting of the stockholders for the election of directors is
held. Notice of such meeting need not be given. Such meeting may be held at
any other time or place which shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors or in a
consent and waiver of notice thereof signed by all the directors.
3.8. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
----------------
held at such places either within or without the State of Delaware and at such
time as the Board shall by resolution determine. If any day fixed for a regular
meeting shall be a legal holiday at the place where the meeting is to be held,
then the meeting which would otherwise be held on that day shall be held at such
place at the same hour and on the next succeeding business day not a legal
holiday. Notice of regular meetings need not be given.
3.9. SPECIAL MEETINGS. Special meetings of the Board of Directors shall
----------------
be held whenever called by the Chairman of the Board, Chief Executive Officer, a
majority of the directors or stockholders owning a majority in amount of the
entire capital stock of the Corporation issued and outstanding and entitled to
vote. Notice of each such meeting shall be given to each director, at least 24
hours before the day on which the meeting is to be held, in accordance with
Article IV of these By-Laws. Each such notice shall state the time and place
either within or without the State of Delaware of the meeting but need not state
the purpose thereof, except as otherwise provided by the Delaware General
Corporation Law or by these By-Laws. Notice of any meeting of the Board need not
be given to any director who is present at such meeting; and any meeting of the
Board shall be a legal meeting without any notice thereof having been given if
all of the directors then in office are present at the meeting unless a director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
3.10. QUORUM. Except as otherwise provided by the Delaware General
------
Corporation Law or by the Certificate of Incorporation, a majority of the total
number of directors shall be required to constitute a quorum for the transaction
of business at any meeting, and the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be necessary
for the adoption of any resolution or the taking of any other action.
3.11. TELEPHONE COMMUNICATIONS. Members of the Board of Directors or any
------------------------
committee thereof may participate in a meeting of such Board or committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this subsection shall constitute presence
in person at such meeting.
3.12. ACTION OF DIRECTORS WITHOUT A MEETING. Any action required or
-------------------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing and such
written consent is filed with the minutes of proceedings of the Board or such
committee.
3.13. COMPENSATION. By resolution of the Board of Directors, each
------------
director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors and may be paid a stated annual stipend as director or a
fixed sum for attendance at each meeting of the
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Board of Directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
3.14. COMMITTEES. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution and not prohibited by
the Delaware General Corporation Law, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it, and shall have the power and authority to declare a
dividend, to authorize the issuance of stock, and to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required.
3.15. GOVERNING BODIES. Each hospital owned or operated by the
----------------
Corporation shall have a governing body consisting of three persons (the
"Governing Board"). Unless the Board of Directors otherwise directs, the
Governing Board for each hospital operated or owned by the Corporation shall be
comprised of the Corporation's Vice President, Finance; Vice President,
Operations; and the local hospital administrator. To the extent not prohibited
by Delaware law or by resolution of the Board of Directors, the Governing Board
of each hospital shall have the authority, and shall be responsible for, the
day-to-day operations and conduct of the hospital as an institution.
Additionally, the Governing Board shall carry out, with respect to the hospital,
the functions specified in 42 C.F.R. Part 482, as may be amended from time to
time or any successor section thereto, as such section may pertain to the
governing bodies of the hospitals.
ARTICLE IV
NOTICES
-------
4.1. NOTICES. Whenever, under the provisions of the Delaware General
-------
Corporation Law or of the Certificate of Incorporation or of these By-Laws,
notice is required to be given to any director or stockholder, such notice shall
be in writing, and shall be hand-delivered or sent by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon pre-paid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States mail
or, in the case of notice mailed from the United States to an overseas address,
ten (10) days after the same is deposited in the United States mail. Notice to
directors may also be given orally, in person or by telephone, or by telegram or
telex, and such notice shall be deemed to be given upon transmission, in the
case of a notice by telegram, or upon receipt of the answer back of the telex
machine of the receiving party, in the case of a notice by telex.
4.2. WAIVER OF NOTICE. Whenever any notice is required to be given under
----------------
the provisions of the Delaware General Corporation Law or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
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ARTICLE V
OFFICERS
--------
5.1. OFFICERS. The officers of the Corporation shall be a Chairman of the
--------
Board, Vice Chairman, Chief Executive Officer, President, one or more Vice
Presidents, a Secretary, a Treasurer, and, if the Board shall so determine, an
Assistant Secretary and an Assistant Treasurer. Any two or more offices may be
held by the same person.
5.2. ELECTION OF OFFICERS. The officers shall be elected by the Board of
--------------------
Directors and each shall hold office at the pleasure of the Board of Directors
until his successor shall have been duly elected and qualified, or until his
death, or until he shall resign or until he shall have been removed in the
manner hereinafter provided.
5.3. OTHER OFFICERS. In addition to the officers named in Article I, the
--------------
Corporation may have such other officers and agents as may be deemed necessary
by the Board of Directors. Such other officers and agents shall be appointed in
such manner, have such duties and hold their offices for such terms, as may be
determined by resolution of the Board of Directors.
5.4. RESIGNATION. Any officer may resign at any time by giving written
-----------
notice of his resignation to the Board of Directors or to the Chairman of the
Board of the Corporation. Any such resignation shall take effect at the time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
5.5. REMOVAL. Any officer may be removed, either with or without cause,
-------
by action of the Board of Directors.
5.6. VACANCY. A vacancy in any office because of death, resignation,
-------
removal or any other cause shall be filled by the Board of Directors.
5.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
---------------------
all meetings of the stockholders and of the Board of Directors. Unless the
Board of Directors designates otherwise, the Chairman shall be the Chief
Executive Officer of the Corporation. He may sign certificates for shares of
stock of the Corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these By-Laws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed.
The Chairman of the Board shall, in general, perform all duties incident to the
office of chairman of the board and such other duties as may be set forth in the
By-Laws or may be prescribed by the Board of Directors from time to time.
5.8. PRESIDENT. In the absence of the Chairman of the Board, the
---------
President shall preside at meetings of the stockholders and of the Board of
Directors. If the Board of Directors does not appoint a Chairman of the Board,
the President shall have the authority given the Chairman of the Board in these
By-Laws and shall be considered the Chief Executive Officer of the Corporation
unless the Board of Directors otherwise designates. The President may sign, with
the Secretary or an Assistant Secretary, certificates for shares of stock of the
Corporation;
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and shall perform such other duties as from time to time may be assigned to him
by the Chairman of the Board or by the Board of Directors.
5.9. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
-----------------------
direct charge of the business of the Corporation, subject to the general control
of the Board of Directors, and shall be the chief executive officer of the
Corporation unless otherwise determined by the Board of Directors. The Chief
Executive Officer shall have direct charge of the daily operational aspects of
the Corporation's business, unless otherwise determined by the Board of
Directors, and shall have such other duties as may be assigned to him from time
to time by the Board of Directors or its Chairman.
5.10. VICE PRESIDENT. In the absence of the President, or in the event of
--------------
his inability or refusal to act, the Vice President (or, in the event there be
more than one Vice President, the Vice Presidents in the order designated at the
time of their election, or in the absence of any designation, then in the order
of their election), shall perform all the duties of the President and such other
duties as from time to time may be assigned by the Board of Directors. The Vice
President may sign, with the Secretary or an Assistant Secretary, certificates
for shares of stock of the Corporation.
5.11. TREASURER. The Treasurer shall have charge and custody of and be
---------
responsible for all funds and securities of the Corporation; receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies and other depositories as shall be selected in accordance
with the provisions of Section 6.3; and, in general, perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the Chief Executive Officer
or the Board of Directors. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine.
5.12. SECRETARY. The Secretary shall (a) keep the minutes of the
---------
stockholders' meetings and of the Board of Directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal, if any, of the Corporation;
(d) keep a register of the mailing address of each stockholder; (e) sign with
the Chairman of the Board or Vice-Chairman or President or Vice President
certificates for shares of stock of the Corporation; (f) have general charge of
the stock transfer books of the Corporation; and, in general, perform all duties
as from time to time may be assigned to him by the Chairman of the Board, the
Chief Executive Officer or by the Board of Directors.
5.13. POWERS AND DUTIES. In the absence of any officer of the
-----------------
Corporation, or for any reason the Board of Directors may deem sufficient, the
Board of Directors may delegate for the time being, the powers or duties of such
officer, or any of them, to any other officer or to any director. The Board of
Directors may from time to time delegate to any officer authority to appoint and
remove subordinate officers and to prescribe their authority and duties.
5.14. COMPENSATION. The compensation of the officers shall be fixed from
------------
time to time by the Board of Directors. Nothing contained herein shall preclude
any officer from serving the Corporation in any other capacity, including that
of director, or from serving any of its stockholders, subsidiaries or affiliated
corporations in any capacity, and receiving proper compensation therefor.
8
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ARTICLE VI
LOANS, CHECKS, DEPOSITS, ETC.
-----------------------------
6.1. GENERAL. All checks, drafts, bills of exchange or other orders for
-------
the payment of money, issued in the name of the Corporation, shall be signed by
such person or persons and in such manner as may from time to time be designated
by the Board of Directors, which designation may be general or confined to
specific instances.
6.2. LOANS AND EVIDENCES OF INDEBTEDNESS. No loan shall be contracted on
-----------------------------------
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors. Such authorization may
be general or confined to specific instances. Loans so authorized by the Board
of Directors may be effected at any time for the Corporation from any bank,
trust company or other institution, or from any firm, corporation or individual.
All bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation issued for such loans shall be made, executed and delivered
as the Board of Directors shall authorize. When so authorized by the Board of
Directors, any part of or all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligation or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
6.3. BANKING. All funds of the Corporation not otherwise employed shall
-------
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may authorize.
The Board of Directors may make such special rules and regulations with respect
to such bank accounts, not inconsistent with the provisions of these By-Laws, as
it may deem expedient. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, checks, drafts and other orders
for the payment of money which are payable to the order of the Corporation shall
be endorsed, assigned and delivered by such person or persons and in such manner
as may from time to time be authorized by the Board of Directors.
6.4. SECURITIES HELD BY THE CORPORATION. Unless otherwise provided by
----------------------------------
resolution adopted by the Board of Directors, the Chairman of the Board may from
time to time appoint an attorney or attorneys, or an agent or agents, to
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation to vote or to consent in respect of such stock or other
securities; and the Chairman of the Board may instruct the person or persons so
appointed as to the manner of exercising such powers and rights and the Chairman
of the Board may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal, or otherwise, all such written
proxies, powers of attorney or other written instruments as he may deem
necessary in order that the Corporation may exercise such powers and rights.
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ARTICLE VII
STOCK CERTIFICATES
------------------
7.1. STOCK CERTIFICATES. Every stockholder shall be entitled to have a
------------------
certificate certifying the number of shares of stock of the Corporation owned by
him, signed by, or in the name of the Corporation by the Chairman of the Board,
or Vice-Chairman, President or a Vice President and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation (except that when any such certificate is countersigned by a
transfer agent other than the Corporation or its employee or by a registrar
other than the Corporation or its employee the signature of any such officers
may be facsimiles). If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except in the
case of restrictions on transfer of securities which are required to be noted on
the certificate, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
7.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may
--------------------------------------
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
7.3. RECORD DATES. In order that the Corporation may determine the
------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
7.4. PROTECTION OF CORPORATION. The Corporation shall be entitled to
-------------------------
recognize the exclusive right of a person registered on its books as the owner
of stock to receive dividends and shall not be bound to recognize any equitable
or other claim to or interest in such stock on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
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ARTICLE VIII
CORPORATE SEAL
--------------
The Corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
EMERGENCY REGULATIONS
---------------------
The Board of Directors may adopt, either before or during an emergency, as
that term is defined by the Delaware General Corporation Law, any emergency
regulations permitted by the Delaware General Corporation Law which shall be
operative only during an emergency. In the event the Board of Directors does
not adopt any such emergency regulations, the special rules provided in the
Delaware General Corporation Law shall be applicable during an emergency as
therein defined.
ARTICLE X
AMENDMENTS
----------
These By-Laws may be amended or repealed or new by-laws adopted (a) by the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class or (b) by action of the Board of
Directors at a regular or special meeting thereof. Any by-law made by the Board
of Directors may be amended or repealed by action of the stockholders at any
annual or special meeting of stockholders.
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EXHIBIT 4.5
AMENDMENT NO.2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of October 24, 1997 to the Amended and Restated Credit
Agreement dated as of May 30, 1997, as amended as of June 24, 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 to
increase by $50,000,000 the amount of Restricted Payments that Vencor is
permitted to make;
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. AMENDMENT OF RESTRICTED PAYMENTS COVENANT. Section 5.11 of the
Credit Agreement is amended to read as follows:
Section 5.11. RESTRICTED PAYMENTS. Unless Vencor has an
Investment Grade Rating, Vencor will not, and will not permit any
Subsidiary to, declare or make any Restricted Payment on or after the
Initial Closing Date, except:
(a) any distribution of shares of Ventech Systems, Inc. by
Vencor to its own shareholders;
(b) dividends on Equity Securities of Vencor declared and
paid during the period from January 1, 1997 to March 31, 1998,
inclusive, in an aggregate amount not exceeding $10,000,000;
(c) Restricted Payments (other than dividends on Equity
Securities of Vencor) made during the period from January 1, 1997
to March 31, 1998, inclusive, in an aggregate amount not
exceeding $100,000,000; and
<PAGE>
(d) any other Restricted Payment declared and made after
March 31, 1998 if, immediately after such Restricted Payment is
declared or made, the aggregate amount of all Restricted Payments
declared or made after March 31, 1998 does not exceed the sum of
(i) the amount set forth below opposite the period in which the
date of such declaration or payment occurs plus (ii) the amount
by which $100,000,000 exceeds the aggregate amount of all
Restricted Payments made pursuant to clause (c) above:
PERIOD AMOUNT
April 1, 1998 through March 31, 1999 $10,000,000
April 1, 1999 through March 31, 2000 $20,000,000
April 1, 2000 through March 31, 2001 $30,000,000
April 1, 2001 through March 31, 2002 $40,000,000
provided that in no event shall Vencor or any Subsidiary declare or
make any Restricted Payment pursuant to this Section if, immediately
before or after giving effect thereto, any Default shall have occurred
and be continuing.
SECTION 3. 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 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. 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 6. EFFECTIVENESS. This Amendment shall become effective on the
date (the "AMENDMENT EFFECTIVE DATE") when the Documentation Agent shall have
received from each of Vencor and the Required Banks 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 hereto.
2
<PAGE>
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/ Steven L. Monaghan
------------------------------------
Title: Vice President
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Diana H. Imhof
------------------------------------
Title: Vice President
NATIONSBANK, N.A.,
By: /s/ Ashley M. Crabtree
------------------------------------
Title: Senior Vice President
BANK OF AMERICA NT & SA,
By: /s/ Edward S. Han
------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Edward J. Dougherty, III
------------------------------------
Title: Vice President
3
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ Dawn Lee Lum
-----------------------------
Title: Vice President
PNC BANK, KENTUCKY, INC,
By: /s/ Benjamin A. Willingham
-----------------------------
Title: Vice President
TORONTO DOMINION (TEXAS), INC.
By: /s/ Darlene Riedel
------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ W. J. Brown
-------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Farboud Tavangar
-------------------------------
Title: First Vice President
4
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Christian Bourqui
--------------------------------
Title: Associate
By: /s/ Thomas G. Muoio
--------------------------------
Title: Vice President
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLAND BRANCHES
By: /s/ Iain Stewart
-------------------------------
Title: Vice President
By: /s/ Susan L. Peterson
-------------------------------
Title: Vice President
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 B. Tibe
-------------------------------
Title: Assistant Vice President
5
<PAGE>
ABN AMRO BANK N.V.
By: /s/ Steven L. Hipsman
------------------------------------
Title: Vice President
By: /s/ Linda K. Davis
------------------------------------
Title: Vice President
BANK OF MONTREAL
By: /s/ Peter W. Steelman
------------------------------------
Title: Director
BANK ONE, KENTUCKY, NA
By: /s/ Dennis P. Heishman
------------------------------------
Title: Senior Vice President
COMERICA BANK
By: /s/ Colleen M. Murphy
------------------------------------
Title: Assistant Vice President
6
<PAGE>
CORESTATES BANK, N.A.
By: /s/ Elizabeth D. Morris
-----------------------------------
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Tetsuo Kamatsu
-----------------------------------
Title: Joint General Manager
LTCB TRUST COMPANY
By: /s/ Hiroshi Kitada
-----------------------------------
Title: Senior Vice President
NATIONAL CITY BANK OF KENTUCKY,
By: /s/ Deroy Scott
-----------------------------------
Title: Vice President
NBD BANK, N.A.
By: /s/ Christine M. Morrison
-----------------------------------
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Patricia A. Samson
-----------------------------------
Title: Assistant Vice President
7
<PAGE>
AMSOUTH BANK OF ALABAMA
By: /s/ Keith S. Law
-----------------------------------
Title: Vice President
BANQUE PARIBAS
By:___________________________________
Title:
By:___________________________________
Title:
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/ Judith A. Kirshner
-----------------------------------
Title: Executive Director
8
<PAGE>
KREDIETBANK, N.V.
By: /s/ Robert Snauffer
------------------------------------
Title: Vice President
By: /s/ Tod R. Angus
------------------------------------
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Nobuo Tominaga
------------------------------------
Title: Chief Manager
THE SAKURA BANK LIMITED
NEW YORK BRANCH
By:____________________________________
Title:
SOCIETE GENERALE, CHICAGO
BRANCH
By:____________________________________
Title:
FIRST AMERICAN NATIONAL BANK
By: /s/ Kent D. Wood
------------------------------------
Title: Assistant Vice President
9
<PAGE>
BANK OF LOUISVILLE
BY: /s/ Roy L. Johnson, Jr.
-------------------------------------
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK, LTD.
CHICAGO BRANCH
By: /s/ Takeo Teramura
-------------------------------------
Title: Vice President
FIFTH THIRD BANK
By: /s/ Judy R. Semaria
-------------------------------------
Title: Assistant Vice President
10
<PAGE>
EXHIBIT 10.2
VENCOR RETIREMENT SAVINGS PLAN
Amended and Restated Effective
as of
January 1, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INTRODUCTION 1
DEFINITIONS............................................................. 2
Section 1.1 ADJUSTMENT......................................... 2
Section 1.2 ANNUAL ADDITIONS................................... 2
Section 1.3 BENEFICIARY........................................ 2
Section 1.4 BOARD.............................................. 2
Section 1.5 BREAK(S)........................................... 2
Section 1.6 CODE............................................... 3
Section 1.7 COMMITTEE.......................................... 3
Section 1.8 COMPANY............................................ 3
Section 1.9 COMPANY STOCK FUND................................. 3
Section 1.10 COMPENSATION....................................... 3
Section 1.11 CONSTRUCTION....................................... 3
Section 1.12 DEFINED BENEFIT PLAN............................... 3
Section 1.13 DEFINED CONTRIBUTION PLAN.......................... 4
Section 1.14 EFFECTIVE DATE..................................... 4
Section 1.15 EMPLOYEE........................................... 4
Section 1.16 EMPLOYER........................................... 4
Section 1.17 EMPLOYER CONTRIBUTIONS............................. 5
Section 1.18 ENTRY DATE......................................... 5
Section 1.19 ERISA.............................................. 5
Section 1.20 FIDUCIARY.......................................... 5
Section 1.21 FORMER PARTICIPANT................................. 5
Section 1.22 HIGHLY COMPENSATED EMPLOYEE........................ 5
Section 1.23 HOUR OF SERVICE.................................... 5
Section 1.24 INDIVIDUAL ACCOUNT................................. 8
Section 1.25 INVESTMENT FUND.................................... 8
Section 1.26 KEY EMPLOYEE....................................... 8
Section 1.27 LIMITATION YEAR.................................... 9
Section 1.28 MATCHING CONTRIBUTION ACCOUNT...................... 9
Section 1.29 MATCHING CONTRIBUTIONS............................. 9
Section 1.30 NON-HIGHLY COMPENSATED EMPLOYEE.................... 9
Section 1.31 NORMAL RETIREMENT DATE............................. 9
Section 1.32 PARTICIPANT........................................ 9
Section 1.33 PERMISSIVE AGGREGATION GROUP....................... 9
Section 1.34 PLAN............................................... 9
Section 1.35 PLAN YEAR.......................................... 9
Section 1.36 PRIOR PLAN......................................... 9
Section 1.37 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT........... 9
Section 1.38 PRIOR PLAN SALARY REDIRECTION ACCOUNT.............. 10
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<PAGE>
Section 1.39 PROFIT SHARING CONTRIBUTION ACCOUNT................ 10
Section 1.40 PROFIT SHARING CONTRIBUTIONS....................... 10
Section 1.41 REQUIRED AGGREGATION GROUP......................... 10
Section 1.42 SALARY REDIRECTION................................. 10
Section 1.43 SALARY REDIRECTION ACCOUNT......................... 10
Section 1.44 SERVICE............................................ 10
Section 1.45 TOP HEAVY PLAN..................................... 11
Section 1.46 TOTAL AND PERMANENT DISABILITY OR TOTALLY AND
PERMANENTLY DISABLED............................... 12
Section 1.47 TRUST AGREEMENT.................................... 13
Section 1.48 TRUST FUND......................................... 13
Section 1.49 TRUSTEE............................................ 13
Section 1.50 VALUATION DATE..................................... 13
PARTICIPATION........................................................... 14
Section 2.1 ELIGIBILITY REQUIREMENTS........................... 14
Section 2.2 PLAN BINDING....................................... 15
Section 2.3 REEMPLOYMENT AND TRANSFERS......................... 15
Section 2.4 BENEFICIARY DESIGNATION............................ 16
Section 2.5 NOTIFICATION OF INDIVIDUAL ACCOUNT BALANCE......... 16
CONTRIBUTIONS........................................................... 17
Section 3.1 SALARY REDIRECTION................................. 17
Section 3.2 MATCHING CONTRIBUTIONS............................. 17
Section 3.3 PROFIT SHARING CONTRIBUTIONS....................... 18
Section 3.4 NONDISCRIMINATION TEST FOR SALARY REDIRECTION...... 18
Section 3.5 NONDISCRIMINATION TEST FOR OTHER CONTRIBUTIONS..... 21
Section 3.6 MAXIMUM INDIVIDUAL DEFERRAL........................ 24
Section 3.7 MISTAKE OF FACT.................................... 25
Section 3.8 QUALIFIED NONELECTIVE CONTRIBUTIONS................ 25
Section 3.9 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT
RIGHTS ACT OF 1994 ("USERRA")...................... 25
ALLOCATION TO INDIVIDUAL ACCOUNTS....................................... 27
Section 4.1 INDIVIDUAL ACCOUNTS................................ 27
Section 4.2 INVESTMENT OF ACCOUNTS............................. 27
Section 4.3 VALUATION OF ACCOUNTS.............................. 28
Section 4.4 TRUSTEE AND COMMITTEE JUDGMENT CONTROLS............ 31
Section 4.5 MAXIMUM ADDITIONS.................................. 31
Section 4.6 CORRECTIVE ADJUSTMENTS............................. 31
Section 4.7 DEFINED CONTRIBUTION AND DEFINED BENEFIT PLAN
FRACTION........................................... 32
DISTRIBUTIONS........................................................... 34
Section 5.1 NORMAL RETIREMENT.................................. 34
Section 5.2 LATE RETIREMENT.................................... 34
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Section 5.3 DEATH.............................................. 34
Section 5.4 DISABILITY......................................... 34
Section 5.5 TERMINATION OF EMPLOYMENT.......................... 34
Section 5.6 COMMENCEMENT OF BENEFITS........................... 37
Section 5.7 METHODS OF PAYMENT................................. 38
Section 5.8 BENEFITS TO MINORS AND INCOMPETENTS................ 39
Section 5.9 UNCLAIMED BENEFITS................................. 40
Section 5.10 PARTICIPANT DIRECTED ROLLOVERS..................... 40
Section 5.11 JOINT AND SURVIVOR OPTIONS......................... 41
WITHDRAWALS............................................................. 45
Section 6.1 HARDSHIP WITHDRAWAL................................ 45
Section 6.2 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT
WITHDRAWALS........................................ 46
Section 6.3 PARTICIPANT LOANS.................................. 47
FUNDING................................................................. 48
Section 7.1 CONTRIBUTIONS...................................... 48
Section 7.2 TRUSTEE............................................ 48
FIDUCIARIES............................................................. 49
Section 8.1 GENERAL............................................ 49
Section 8.2 EMPLOYER........................................... 49
Section 8.3 TRUSTEE............................................ 50
Section 8.4 RETIREMENT COMMITTEE............................... 50
Section 8.5 CLAIMS PROCEDURES.................................. 51
Section 8.6 RECORDS............................................ 52
AMENDMENT AND TERMINATION OF THE PLAN................................... 54
Section 9.1 AMENDMENT OF THE PLAN.............................. 54
Section 9.2 TERMINATION OF THE PLAN............................ 54
Section 9.3 RETURN OF CONTRIBUTIONS............................ 54
MISCELLANEOUS........................................................... 55
Section 10.1 GOVERNING LAW...................................... 55
Section 10.2 CONSTRUCTION....................................... 55
Section 10.3 ADMINISTRATION EXPENSES............................ 55
Section 10.4 PARTICIPANT'S RIGHTS............................... 55
Section 10.5 NONASSIGNABILITY................................... 55
Section 10.6 MERGER, CONSOLIDATION OR TRANSFER.................. 56
Section 10.7 COUNTERPARTS....................................... 56
Section 10.8 ADMINISTRATIVE MISTAKE............................. 56
TOP HEAVY PLAN PROVISIONS............................................... 57
Section 11.1 GENERAL............................................ 57
Section 11.2 MINIMUM CONTRIBUTION............................... 57
Section 11.3 SUPER TOP HEAVY PLAN............................... 57
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<PAGE>
Section 11.4 MINIMUM VESTING.................................... 58
Section 11.5 COMPENSATION....................................... 58
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN.................... 59
Section 12.1 GENERAL............................................ 59
Section 12.2 SINGLE PLAN........................................ 59
Section 12.3 SPONSORING EMPLOYER AS AGENT....................... 59
Section 12.4 WITHDRAWAL OF EMPLOYER............................. 60
Section 12.5 TERMINATION OF PARTICIPATION....................... 60
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<PAGE>
INTRODUCTION
Effective January 1, 1986, the Board of Directors of Vencor, Inc. (the
"Sponsoring Employer"), formerly Vencare, Inc., adopted the Vencare, Inc.
Retirement Plan, which was later amended and restated effective January 1, 1989
and further amended various times ("Original Plan").
Effective January 1, 1997, except as otherwise provided, the Employer
desires to amend and restate the Prior Plan in its entirety as the Vencor
Retirement Savings Plan ("Plan"), as hereinafter set forth, in order to provide
benefits for certain of its eligible employees.
Also effective January 1, 1997, or as soon as practicable thereafter, the
Plan and Trust shall accept assets in a spinoff from The Hillhaven Corporation
Deferred Savings and Retirement Savings Plans and Employer desires to make
provision for how to account for assets transferred from those plans.
It is intended that this Plan, together with the Trust Agreement, meet all
the pertinent requirements of the Internal Revenue Code of 1986, as amended
("Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be interpreted, wherever possible, to comply with the terms
of said laws, as amended, and all regulations and rulings issued thereunder. It
is also intended that this Plan shall be a profit sharing plan under Code
Section 401(a).
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<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 ADJUSTMENT means the net increases and decreases in the market
value of the Trust Fund during a Plan Year or other period
exclusive of any contribution or distribution during such year
or other period. Such increases and decreases shall include such
items as realized or unrealized investment gains and losses and
investment income, and may include expenses of administering the
Trust Fund and the Plan.
Section 1.2 ANNUAL ADDITIONS means for any Employee in any Plan Year, the
sum of Employer Contributions, Salary Redirection and
forfeitures allocated to the Employee's Individual Account.
Amounts allocated to an individual medical account, as defined
in Section 415(1) of the Code, which is part of a pension or
annuity plan maintained by the Company are treated as Annual
Additions to a Defined Contribution Plan. Also, amounts derived
from contributions paid or accrued which are attributable to
post-retirement medical benefits allocated to the separate
account of a Key Employee as required by Section 419(d) of the
Code, maintained by the Company, are treated as Annual Additions
to a Defined Contribution Plan.
Section 1.3 BENEFICIARY means any person designated by a Participant to
receive such benefits as may become payable hereunder after the
death of such Participant, provided, however, that a married
Participant may not name as a Beneficiary someone other than the
Participant's spouse unless the spouse consents in writing to
such designation, which consent shall be acknowledged by a Plan
representative or by a notary public.
Section 1.4 BOARD means the Board of Directors of the Sponsoring Employer,
except as otherwise provided.
Section 1.5 BREAK(S) IN SERVICE means a Plan Year during which an Employee
has been credited with fewer than 501 Hours of Service due to
termination of employment. Solely to determine whether a Break
in Service has occurred, an Employee who is absent from work for
maternity or paternity reasons or on a military or Family and
Medical Leave Act leave of absence shall receive credit for the
Hours of Service which would otherwise have been credited to
such Employee but for such absence, or in any case in which
Hours of Service cannot be determined, eight Hours of Service
per day of such absence. In no event will the number of Hours of
Service credited to an Employee pursuant to the immediately
preceding sentence exceed 501. For purposes of this Section, an
absence from work for maternity or paternity reasons means an
absence (1) by reason of the pregnancy of the Employee, (2) by
reason of the birth of a child of the Employee, (3) by reason of
the placement of a child with the Employee in connection with
the adoption of such child by the Employee, or (4) for purposes
of caring for such
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<PAGE>
child for a period beginning immediately following such birth or
placement. The Hours of Service credited under this paragraph
shall be credited (1) in the Plan Year or other applicable
computation period in which the absence begins if the crediting
is necessary to prevent a Break in Service in that period, or
(2) in all other cases, in the next following Plan Year or other
applicable computation period.
Section 1.6 CODE means the Internal Revenue Code of 1986, as amended.
Section 1.7 COMMITTEE means the Retirement Committee provided for in Article
8.
Section 1.8 COMPANY means Vencor, Inc. and all of the legal entities which
are part of the controlled group or affiliated service group
with Vencor, Inc. pursuant to the provisions of Code Sections
414(b), (c), (m) or (o).
Section 1.9 COMPANY STOCK FUND means the Investment Fund defined in Section
4.2(a)(5).
Section 1.10 COMPENSATION means, for any Plan Year or portion thereof during
which an Employee is eligible to participate in this Plan (which
shall not include compensation payable for periods after
employment terminates, such as severance pay, but shall include
vacation time earned but not yet paid as of that last date at
work), total compensation paid to an Employee by the Employer
that is includable in the Participant's gross income, including
bonuses, commissions and overtime, but excluding (i)
reimbursements or other expense allowances, (ii) fringe benefits
(cash and noncash), (iii) moving expenses, (iv) deferred
compensation, (v) welfare benefits, and (vi) amounts realized
from the exercise of a nonqualified stock option (or the lifting
of restrictions on restricted stock) or the sale or exchange of
stock acquired under a qualified stock option. Despite the
exclusions in the preceding sentence, Compensation shall include
any amounts deducted pursuant to Code Sections 125 (flexible
benefit plans), 402(a)(8) (salary redirection), 402(h)(1)(B)
(simplified employee plans) and 403(b). Effective for Plan Years
beginning on or after January 1, 1989, Compensation shall be
limited to such amount as determined pursuant to Code Section
401(a)(17).
Section 1.11 CONSTRUCTION. The words and phrases defined in this Article when
used in this Plan with an initial capital letter shall have the
meanings specified in this Article, unless a different meaning
is clearly required by the context. Any words herein used in the
masculine shall be read and construed in the feminine where they
would so apply. Words in the singular shall be read and
construed as though used in the plural in all cases where they
would so apply.
Section 1.12 DEFINED BENEFIT PLAN means a plan established and qualified
under Section 401 of the Code, except to the extent it is, or is
treated as, a Defined Contribution Plan.
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<PAGE>
Section 1.13 DEFINED CONTRIBUTION PLAN means a plan which is established and
qualified under Section 401 of the Code, which provides for an
individual account for each participant therein and for benefits
based solely on the amount contributed to each participant's
account and any income, expenses, gains or losses (both realized
and unrealized) which may be allocated to such account.
Section 1.14 EFFECTIVE DATE means January 1, 1986, the original effective
date of the Plan. The effective date of this amended and
restated Plan is January 1, 1997, except as otherwise provided.
Section 1.15 EMPLOYEE means any person whom the Employer classifies as a
common law employee of the Employer and who is paid though the
normal payroll system of the Employer, subject to the following:
(a) The term "Employee" shall exclude any person who is a
leased Employee.
(b) The term "Employee" shall exclude any employee who is a
part of a collective bargaining unit for which benefits
have been subject of good faith negotiation unless and
until the Employer and the collective bargaining unit
representative for that unit through the process of good
faith bargaining agree in writing for coverage hereunder.
(c) The term "Employee" shall exclude any employee who is
classified on the payroll records of the Employer as "on
call" or as a per diem employee.
(d) The term "Employee" shall exclude any employee, even if a
common law employee of the Company or an Employer, who
works in a facility which is owned by a partnership, or a
facility that is managed by the Company pursuant to a
management agreement, unless that management agreement
provides that certain employees, such as the facility
administrator and director of nursing, are to be employed
by and report to the Employer, in which case only those
employees shall be eligible Employees hereunder.
For purposes of this Section the term "leased employee" shall
mean any person who is not an employee of the Company and who
provides services to the Employer if (i) such services are
provided pursuant to an agreement between the Employer and any
other person ("leasing organization"); (ii) such person has
performed such services for the Company on a substantially full-
time basis for a period of at least one year; and (iii) such
services are performed under the primary direction and control
of the Company.
Section 1.16 EMPLOYER means Vencor, Inc. and each of the legal entities, or
any successor thereto, which is a part of the Company as of
January 1, 1997, with the exception
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<PAGE>
of the following partnership which was part of the Company on
that date but which is instead a participating employer in the
Retirement Savings Plan for Certain Employees of Vencor and its
Affiliates (RSP), also maintained by the Company: San Marcos
Nursing Home Partnership. Any entity which becomes part of the
Company after January 1, 1997 shall become a participating
employer in accordance with the procedure in Article 12.
Section 1.17 EMPLOYER CONTRIBUTIONS means Matching Contributions and Profit
Sharing Contributions made to the Trust Fund by the Employer.
Salary Redirection shall not be included in the term Employer
Contribution when used in this Plan.
Section 1.18 ENTRY DATE means the first day of each calendar month.
Section 1.19 ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
Section 1.20 FIDUCIARY means the Employer, the Trustee, the Committee and any
individual, corporation, firm or other entity which assumes, in
accordance with Article 8, responsibilities of the Employer, the
Trustee or the Committee respecting management of the Plan or
the disposition of its assets.
Section 1.21 FORMER PARTICIPANT means a Participant whose participation in
the Plan has terminated but who has not received payment in full
of the balance in his Individual Account to which he is
entitled.
Section 1.22 HIGHLY COMPENSATED EMPLOYEE means any Employee of the Employer
who (i) was a five percent owner of the Company during the
current Plan Year or the preceding Plan Year, or (ii) during the
preceding Plan Year, received Compensation from the Company in
excess of $80,000 (as such amount may be adjusted from time to
time by the Secretary of the Treasury) and, if the Sponsoring
Employer elects, was in the top-paid group of employees for such
Plan Year.
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
employees in the top-paid group and the Compensation that is
considered, shall be made in accordance with section 414(q) of
the Code and the regulations thereunder, taking into account,
when appropriate, Code Section 410(b)(6)(C)'s acquisition
transition rule which allows exclusion of certain Employees from
consideration.. The determination of Highly Compensated
Employees shall be determined on a Company-wide basis and shall
not be determined on an Employer by Employer or plan by plan
basis.
Section 1.23 HOUR OF SERVICE means any hour for which an Employee is paid or
entitled to payment by the Company during the Plan Year or other
applicable computation period (1) for the performance of duties
for the Company; (2) on account of a period of time during which
no duties are performed (irrespective of whether the employment
relationship has terminated); and (3) as a result of a back pay
award
-5-
<PAGE>
which has been agreed to or made by the Company, irrespective of
mitigation of damages, to the extent that such hour has not been
previously credited under item (1) or item (2) preceding.
(a) The number of Hours of Service to be credited on account of
a period of time during which no duties are performed
(including hours resulting form a back pay award) shall be
determined as follows. If the payment which is made or due
is calculated on the basis of units of time, the number of
Hours of Service to be credited shall be the number of
regularly scheduled working hours included in the units of
time on the basis of which the payment is calculated; if an
Employee does not have a regular work schedule, the number
of Hours of Service to be credited shall be calculated on
the basis of an eight hour work day. If the payment which
is made or due is not calculated on the basis of units of
time, the number of Hours of Service to be credited shall
be calculated by dividing the amount of the payment by the
Employee's most recent hourly rate of compensation before
the period during which no duties were performed,
determined as follows:
(1) If the Employee's compensation is determined on the
basis of an hourly rate, such hourly rate shall be the
Employee's most recent hourly rate of compensation.
(2) If the Employee's compensation is determined on the
basis of a fixed rate for a specified period of time
other than hours, his hourly rate of compensation
shall be his most recent rate of compensation for the
specified period of time, divided by the number of
hours regularly scheduled for the performance of
duties during such period of time; if an Employee does
not have a regular work schedule, his hourly rate of
compensation shall be calculated on the basis of an
eight hour work day.
(3) If the Employee's compensation is not determined on
the basis of a fixed rate for a specified period of
time, his hourly rate of compensation shall be the
lowest hourly rate of compensation paid to Employees
in his job classification, or, if no Employees in his
job classification have an hourly rate of
compensation, the minimum wage in effect under Section
6(a)(1) of the Fair Labor Standard Act of 1938, as
amended.
(b) In no event shall the application of the terms of Section
1.23(a) result in crediting an Employee with a number of
Hours of Service during the period which is greater than
the number of hours regularly scheduled for the performance
of duties. If an Employee has no regular work schedule, the
number of Hours of Service to be credited to him shall not
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exceed the number which would be credited calculated on the
basis of an eight hour work day.
(c) No Employee shall be credited with more than 501 Hours of
Service as a result of the application of Section 1.23(a)
for any single continuous period during which he performs
no duties, regardless of whether such period extends beyond
one Plan Year or other applicable computation period.
(d) The Plan Year or other applicable computation period to
which Hours of Service shall be credited shall be
determined as follows:
(1) Except as hereinafter provided, Hours of Service
credited in accordance with item (1) of the first
paragraph of this Section shall be credited in the
Plan Year or other applicable computation period in
which the duties were performed.
(2) Except as hereinafter provided, Hours of Service
credited in accordance with item (2) of the first
paragraph of this Section shall be credited: if
calculated on the basis of units of time, to the Plan
Year or Plan Years or other applicable computation
periods in which the period during which no duties are
performed occurs, beginning with the first unit of
time to which the payment relates; otherwise to the
Plan Year or other applicable computation period in
which the period during which no duties are performed
occurs, provided that if the period during which no
duties are performed extends beyond one (1) Plan Year
or other applicable computation period, such Hours of
Service shall be allocated between not more than the
first two (2) Plan Years or other applicable
computation periods on any reasonable basis
consistently applied.
(3) Except as hereinafter provided, Hours of Service
credited in accordance with item (3) of the first
paragraph of this Section shall be credited to the
Plan Year or other applicable computation period to
which the award or agreement for back pay pertains
rather than to the Plan Year or other applicable
computation period in which the award, agreement, or
payment is made.
(4) Hours of Service to be credited to an Employee in
connection with a period of no more than 31 days which
extends beyond one Plan Year or other applicable
computation period may be credited to the first or the
second Plan Year or other applicable computation
period, provided that such crediting is done on a
reasonable and nondiscriminatory basis.
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(e) Nothing in this Section shall be construed to alter, amend,
modify, invalidate, impair or supersede any law of the
United States or any rule or regulation issued under any
such law, including but not limited to laws regarding
eligibility and benefit accrual during and after a military
leave of absence. The nature and extent of any credit for
Hours of Service under this Section shall be determined
under such law including Department of Labor regulation
Section 2530.200b-2.
Section 1.24 INDIVIDUAL ACCOUNT means the detailed record kept of the amounts
credited or charged to each Participant in accordance with the
terms hereof. Such Individual Account is comprised of the
following accounts: a Profit Sharing Contribution Account, a
Salary Redirection Account, a Matching Contribution Account, a
Prior Plan Salary Redirection Account, if applicable, and a
Prior Plan Employer Contribution Account, if applicable.
Section 1.25 INVESTMENT FUND means an investment fund established pursuant to
Section 4.2.
Section 1.26 KEY EMPLOYEE shall mean any Employee, former Employee or
beneficiary thereof in an Internal Revenue Service qualified
plan adopted by the Company who at any time during the Plan Year
or any of the four preceding Plan Years is
(a) an officer of the Company having an annual compensation
from the Company during the Plan Year greater than 50% of
the amount in effect under Code Section 415(b)(1)(A) for
the calendar year in which such Plan Year ends;
(b) one of the 10 Employees having an annual compensation from
the Company for a Plan Year of more than the limitation in
effect under Code Section 415(c)(1)(A) for the calendar
year in which such Plan Year ends and owning (or considered
as owning within the meaning of Code Section 318) both more
than a 1/2% interest, and the largest interest in the
Company;
(c) a five percent owner of the Company; or
(d) a one percent owner of the Company having an annual
compensation from the Company for a Plan Year of more than
$150,000.
(e) For purposes of this Section, compensation mean
compensation as defined in Code Section 415.
(f) This definition shall be interpreted consistent with Code
Section 415 and rules and regulations issued thereunder.
Further, such law and regulations shall be controlling in
all determinations under this definition, inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
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Section 1.27 LIMITATION YEAR means the 12 month period beginning on January 1
and ending on December 31.
Section 1.28 MATCHING CONTRIBUTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) Matching
Contributions allocated to such Participant pursuant to Section
3.2 and (ii) the Participant's proportionate share, attributable
to his Matching Contribution Account, of the Adjustments,
reduced by any distributions from such Account.
Section 1.29 MATCHING CONTRIBUTIONS means contributions made to the Trust
Fund by the Employer pursuant to Section 3.2
Section 1.30 NON-HIGHLY COMPENSATED EMPLOYEE means, for any Plan Year, a
Participant who is not a Highly Compensated Employee.
Section 1.31 NORMAL RETIREMENT DATE means the first day of the month
coincident with or next following the Participant's 65th
birthday. The Normal Retirement Age shall be age 65, except with
respect to any Prior Plan Employer Contribution Account
transferred to this Plan from The Hillhaven Corporation
Retirement or Deferred Savings Plans, for which the Normal
Retirement Age shall be age 60.
Section 1.32 PARTICIPANT means any Employee who becomes a Participant as
provided in Article 2 hereof.
Section 1.33 PERMISSIVE AGGREGATION GROUP means the Required Aggregation
Group and each other plan or plans of the Company that are not
required to be included in the Required Aggregation Group, and
which, if treated as being part of such group, would not cause
such group to fail to meet the requirements of Code Sections
401(a) and 410.
Section 1.34 PLAN means the Vencor Retirement Savings Plan.
Section 1.35 PLAN YEAR means the 12 month period beginning on January 1 and
ending on December 31.
Section 1.36 PRIOR PLAN means the plan of any Employer, the assets of which
are merged, in whole or in part, with the Trust Fund.
Section 1.37 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) any
employer contributions and accumulated earnings allocated to
such Participant under the terms of a plan which has been merged
into this Plan, and (ii) the Participant's proportionate share
attributable to his Prior Plan Employer Contribution Account, of
the Adjustments, reduced by any distributions from such Account.
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Section 1.38 PRIOR PLAN SALARY REDIRECTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) any pretax
deferrals and accumulated earnings allocated to such Participant
under the terms of a plan which has been merged into this Plan
and (ii) the Participant's proportionate share attributable to
his Prior Plan Salary Redirection Account, of the Adjustments,
reduced by any distributions from such Account.
Section 1.39 PROFIT SHARING CONTRIBUTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) Profit
Sharing Contributions allocated to such Participant pursuant to
Section 3.3, and (ii) the Participant's proportionate share
attributable to his Profit Sharing Contribution Account, of the
Adjustments, reduced by any distributions from such account.
Section 1.40 PROFIT SHARING CONTRIBUTIONS mean contributions made to the
Trust Fund by the Employer pursuant to Section 3.3.
Section 1.41 REQUIRED AGGREGATION GROUP means
(1) each plan of the Company in which a Key Employee is a
participant; and
(2) each other plan of the Company which enables any plan in
subsection (1) to meet the requirements of Code Sections
401(a)(4) or 410, and
(3) each terminated plan maintained by the Company within the
last five years ending on the determination date for the
Plan Year in question and which, but for the fact that it
terminated, would be part of a Required Aggregation Group
for such Plan Year.
Section 1.42 SALARY REDIRECTION means contributions made to the Trust Fund by
the Employer pursuant to Section 3.1.
Section 1.43 SALARY REDIRECTION ACCOUNT means that portion of a Participant's
Individual Account attributable to (i) Salary Redirection
amounts made on his behalf pursuant to Section 3.1, and (ii) the
Participant's proportionate share, attributable to his Salary
Redirection Account, of the Adjustments, reduced by any
distributions or withdrawals from such Account.
Section 1.44 SERVICE means each Plan Year during which a Participant has been
credited with 1000 or more Hours of Service for the Company or
for another employer during a period that employer participates
in the Retirement Savings Plan for Certain Employees of Vencor
and Affiliates or its predecessor plans (whether before or after
participation begins) subject to the following:
(a) Years of Service prior to the date an Employee attains age
18 shall not be taken into account in determining that a
Participant's vesting percentage pursuant to Section 5.5.
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(b) Years of Service prior to the January 1, 1986, shall not be
taken into account in determining a Participant's vesting
percentage pursuant to Section 5., except as provided in
Subsections (c) and (g) below.
(c) Service shall include periods of employment with any entity
acquired by the Company or any entity which operates a
facility acquired by the Company, provided that no Employee
shall receive credit for more than seven years of Service
as a result of periods of employment with said entity and
provided that said entity is either listed on Appendix "A"
or maintained a plan that has been merged with this Plan.
If the entity's records are inadequate to determine Hours
of Service for years of employment with the entity, Service
will be credited (subject to the seven year limitation)
from the Employee's most recent date of hire with the
acquired entity, rounded to the nearest whole year.
(d) Years of Service prior to a Break in Service shall not be
taken into account until such time as the Employee has
completed a year of Service after he returns to the employ
of the Company.
(e) If the Employee does not have a nonforfeitable interest in
his Employer-provided benefit, and the Employee incurs
consecutive Breaks in Service, the Employee's Service prior
to the Breaks in Service will be disregarded if the
consecutive Breaks in Service equal or exceed the greater
of (i) five, or (ii) the Employee's Service prior to the
Break in Service.
(f) Years of Service after five or more consecutive Breaks in
Service shall not be taken into account in determining the
vesting percentage of a Participant pursuant to Section 5.5
derived from Employer Contributions subject to said vesting
schedule made before such five consecutive Breaks in
Service.
(g) Service with a predecessor employer will be credited to an
employee as Service for the Employer as required pursuant
to Code Section 414(a). For purposes of this Subsection, a
predecessor employer is an employer who sponsored a plan
qualified under Code Section 401(a) which is maintained by
the Company.
Section 1.45 TOP HEAVY PLAN means any plan under which, as of any
determination date (the last day of the preceding Plan Year),
the present value of the cumulative accrued benefits under the
plan for Key Employees exceeds 60% of the present value of
cumulative accrued benefits under the Plan for all Employees.
For purposes of this definition the following provisions shall
apply:
(a) If such plan is a Defined Contribution Plan, the present
value of cumulative accrued benefits shall be deemed to be
the market value of all Employee accounts under the plan,
other than voluntary deductible
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Employee contributions. If such plan is a Defined Benefit
Plan, the present value of cumulative accrued benefits
shall be the lump sum present value determined pursuant to
the plan. Moreover, the present value of the cumulative
accrued benefits shall be increased by the amount of all
Plan distributions made with respect to a current or former
employee during the five year period ending on the
determination date, including distributions under a
terminated plan which, if it had not been terminated, would
have been required to be included in a Required Aggregation
Group.
(b) A plan shall be considered to be a Top Heavy Plan for any
Plan Year if, on the last day of the preceding Plan Year,
the above rules were met. For the first Plan Year that the
Plan shall be in effect, the determination of whether the
Plan is a Top Heavy Plan shall be made as of the last day
of such Plan Year.
(c) Each plan of the Company required to be included in a
Required Aggregation Group shall be treated as a Top Heavy
Plan if such group is a top heavy group.
(d) With regard to a Participant or former Participant who (i)
has not performed any service for the Company at any time
during the five year period ending on the determination
date, or (ii) was formerly a Key Employee, but who is not a
Key Employee on the determination date, the present value
of the cumulative Accrued Benefit for such Participant or
former Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top Heavy
Plan.
(e) This definition shall be interpreted consistent with Code
Section 416 and rules and regulations issued thereunder.
Further, such law and regulation shall be controlling in
all determinations under this definition inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.46 TOTAL AND PERMANENT DISABILITY OR TOTALLY AND PERMANENTLY
DISABLED means a physical or mental condition arising after the
original date of employment of the Participant which is expected
to totally and permanently prevent him from substantially
performing his usual duties with the Employer or from performing
like duties for which he is reasonably qualified based upon
education, experience and abilities. The determination by the
Committee as to whether a Participant is totally and permanently
disabled shall be made (i) on medical evidence by a licensed
physician designated by the Committee, (ii) on evidence that the
Participant is eligible for disability benefits under any long-
term disability plan sponsored by the Employer, or (iii) on
evidence that the Participant is eligible for disability
benefits under the Social Security Act in effect at the date of
disability.
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Section 1.47 TRUST AGREEMENT means the agreement entered into between the
Sponsoring Employer and the Trustee pursuant to Article 7
hereof.
Section 1.48 TRUST FUND means the trust fund created in accordance with
Article 7 hereof.
Section 1.49 TRUSTEE means such individual or corporation as shall be
designated in the Trust Agreement to hold in trust any assets of
the plan for the purpose of providing benefits under the Plan,
and shall include any successor trustee designated thereunder.
Section 1.50 VALUATION DATE means each date on which the U.S. securities
trading markets are open on or after January 1, 1997. As of each
Valuation Date the Trust Fund shall be valued at fair market
value.
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ARTICLE 2
PARTICIPATION
Section 2.1 ELIGIBILITY REQUIREMENTS
(a) Effective January 1, 1997, any Employee who has attained
the age of 21 and has remained an Employee until 12 months
following the first date on which the Employee logged an
Hour of Service, shall be eligible as of that Entry Date,
provided, however, that an Employee who does not meet these
rules shall nonetheless be eligible no later than the Entry
Date coincident with or next following the [1] completion
of 1000 Hours of Service in a 12 consecutive month period
and [2] attainment the age of 21. Thereafter, the period
shall be the Plan Year in which occurs the anniversary of
the date the Employee completes his first Hour of Service.
(b) Any employee who was in a class of employees eligible to
participate in The Hillhaven Corporation Retirement Saving
Plan or The Hillhaven Corporation Deferred Saving Plan
("Affiliate Plans") prior to January 1, 1997 shall be
eligible to participate in this Plan on January 1, 1997 if,
at that date, that employee is employed in a capacity
defined as an Employee in this Plan. Any other Employee
hired prior to January 1, 1997 shall become eligible for
the Plan at the next Entry Date coincident with or
following the date they meet the eligibility rule
applicable to them at their hire date under the Affiliate
Plan for which they would have become eligible on their
hire date (i.e. immediately for Deferred Savings Plan
participants, and one year for Retirement Saving Plan
participants), except that the 500 Hour of Service
requirement previously applicable under this Plan, for
persons not previously in a class of employment that would
have been eligible to participate in an Affiliate Plan,
shall be waived: those Employees shall be eligible to
participate as of the next Entry Date coincident with or
next following the completion of a six consecutive month
period of employment as an Employee after the attainment of
age 21.
(c) In the case of any person actively employed on January 6,
1990 at Vencor Hospital/Ft. Worth or Mansfield Community
Hospital, said person shall be deemed to have completed his
first Hour of Service on January 1, 1990.
(d) For purposes of this Section, in the event that an employee
of the Company that is not a Participating or Sponsoring
Employer in this Plan, or an employee of any company which
participates in the Retirement Savings Plan for Certain
Vencor Employees and Affiliates ("RSP") also maintained by
the Company, becomes an Employee as defined in Section 1.15
(either because of a change in employment status or
adoption of this
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Plan by the entity by which he is employed), all periods of
service while an employee of the Company or of a company
which participates in the RSP, shall be counted for
purposes of determining eligibility to participate in the
Plan. In all events, this Plan and the RSP shall be
construed so that, at no point in time, does any one
Participant have a right to participate in both this Plan
and the RSP.
Section 2.2 PLAN BINDING
Upon becoming a Participant, a Participant shall be bound then
and thereafter by the terms of this Plan and the Trust
Agreement, including all amendments to the Plan and the Trust
Agreement made in the manner herein authorized.
Section 2.3 REEMPLOYMENT AND TRANSFERS
Solely for purposes of this Section 2.3, the following rules
shall apply:
(a) Termination of employment shall be deemed to occur when an
Employee has an interruption in continuity of his
employment by the Employer. Such termination may have
resulted from retirement, death, voluntary or involuntary
termination of employment, unauthorized absence, or by
failure to return to active employment with the Employer or
to retire by the date on which an authorized leave of
absence expired.
(b) If an Employee who was not eligible to become a Participant
in the Plan during his prior period of employment is
reemployed, he shall be eligible to participate in the Plan
after he has met the requirements of Section 2.1(a),
calculated from his original date of hire, unless he has
had a one-year Break in Service, in which case Service
before such Break in Service shall not be taken into
account for purposes of this Section until the Employee has
met the requirements of Section 2.1(a) calculated from his
date of rehire.
(c) If an Employee who was a Participant in the Plan during his
prior period of employment (or who had met the age and
service requirements of Section 2.1(a) or (b) but did not
remain employed until the applicable Entry Date) is
reemployed, he shall be eligible to again become a
Participant as of the Entry Date first following his date
of rehire.
(d) If an Employee transfers employment from a non-adopting
employer which is a part of the Company or which
participates in the RSP (as defined in Section 2.1(d)) to
the Employer (for purposes of this Section, an
"Affiliate"), the Employee shall become a Participant under
this Plan as of the date of transfer of employment to the
Employer, provided he has been employed by the Affiliate,
as of the date of transfer of employment, for the period
required in Section 2.1(a) or (b), calculated
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from his original date of hire with the Affiliate. If the
Employee who transfers employment from an Affiliate to the
Employer has not been employed, as of the date of transfer
of employment, for the period required in Section 2.1(a) or
(b), he shall become a Participant under this Plan upon
meeting the eligibility requirements of Section 2.1(a) or
(b), counting all past Service with the Affiliate for that
purpose.
(e) The Individual Account in this Plan of an Employee who
transfers to or from an Affiliate shall remain in this Plan
and be eligible for the same Investment Funds as an active
Participant. No distribution shall be made of an Individual
Account (other than on account of hardship or after age 70
1/2) until and unless the former Employee has terminated
service with all Affiliates.
Section 2.4 BENEFICIARY DESIGNATION
Upon commencing participation, each Participant shall designate
a Beneficiary on forms furnished by the Committee. Such
Participant may then from time to time change his Beneficiary
designation by written notice to the Committee and, upon such
change, the rights of all previously designated Beneficiaries to
receive any benefits under this Plan shall cease. A married
Participant may not name as a Beneficiary someone other than the
Participant's spouse unless the spouse consents in writing to
such other designation, which consent shall be acknowledged by a
Plan representative or by a notary public. The consent of the
spouse must be limited to a specific Beneficiary and must be
obtained each time the Beneficiary is changed. If, at the time
of a Participant's death while benefits are still outstanding,
his named Beneficiary does not survive him, the benefits shall
be paid to his named contingent Beneficiary. If a deceased
Participant is not survived by either a named Beneficiary or
contingent Beneficiary (or if no Beneficiary was effectively
named), the benefits shall be paid in a single sum to the person
or in equal parts to the persons in the first of the following
classes of successive preference beneficiaries then surviving:
the Participant's (i) surviving spouse, unless the spouse
disclaims the benefit, (ii) natural and adopted children, (iii)
parents, (iv) brothers and sisters, (v) estate. If the
Beneficiary or contingent Beneficiary is living at the death of
the Participant, but such person dies prior to receiving the
entire death benefit, the remaining portion of such death
benefits shall be paid in a single sum to the estate of such
deceased Beneficiary or contingent Beneficiary.
Section 2.5 NOTIFICATION OF INDIVIDUAL ACCOUNT BALANCE
After the end of each calendar quarter, or more frequently as
determined by the Committee, the Committee shall notify each
Participant of the amount of his share in the Adjustments and
Contributions for the period just completed, and the new balance
of his Individual Account.
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ARTICLE 3
CONTRIBUTIONS
Section 3.1 SALARY REDIRECTION
Each Participant may elect to have Salary Redirection made on
his behalf by agreeing to salary reduction contributions from
cash wages payable via an identity-secure telephonic enrollment
system (or in writing, if the telephonic system is
impracticable) ("IVR"). A new Participant in this Plan who was,
immediately prior to becoming an Employee, a Participant in the
Hillhaven Retirement or Deferred Savings Plans, shall be deemed
to have made a salary reduction agreement for this Plan in the
same amount as was in effect for the that other plan, unless and
until the Participant changes his salary reduction agreement by
the IVR.
(a) Salary Redirection each payroll period must equal an whole
percentage from 1% to 16% of a Participant's Compensation.
Salary Redirection shall begin, be increased or revoked
effective with the first pay date processed in the month
after a Participant has entered into or changed his salary
reduction agreement via IVR, provided that such enrollment
is concluded before 11:59 p.m. Central Standard Time on the
15th day of the month (the "enrollment deadline"). In the
event a Participant does not so elect when initially
eligible, he may subsequently elect to have Salary
Redirection made on his behalf at any time effective for
the first pay date in the month after the Participant has
entered into a salary reduction agreement via IVR, subject
to the enrollment deadline.
(b) The Employer shall pay to the Trustee any Salary
Redirection made on behalf of any Participant as soon as
practicable following the end of each regular pay period.
(c) The Employer may amend, to the extent it deems appropriate,
a Participant's salary reduction Agreement for any Plan
Year or portion thereof if the Employer determines that
such amendment is necessary to ensure that a Participant's
Annual Additions for any Plan Year might exceed the
limitations of Sections 3.4, 3.5, 3.6 or 4.5 the
requirements of Code Sections 401(k) or (m) or such other
requirements prescribed by law.
Section 3.2 MATCHING CONTRIBUTIONS
As of the end of each calendar quarter, the Employer may make a
Matching Contribution to the Trust Fund on behalf of eligible
Participants. If Matching Contributions (in cash or in
sponsoring Employee Stock) are made prior to the end of a
calendar quarter, they shall nonetheless be left unallocated
until the
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quarter ends. The Employer shall determine annually the rate at
which the Employer will match net eligible Salary Redirection of
eligible Participants contributed pursuant to Section 3.1. Net
eligible Salary Redirection means Salary Redirection not to
exceed 3% of Compensation, during the period since the last
preceding calendar-quarter end, which Salary Redirection has not
been withdrawn since the preceding calendar-quarter end. For
purposes of calculating net eligible Salary Redirection,
withdrawals shall be deemed to have been made from the earliest
Salary Redirection not yet withdrawn. Any Matching Contribution
shall be allocated to the Matching Contribution Account of each
eligible Participant. For purposes of this Section, the term
"eligible Participant" shall mean a Participant who is either
(i) actively employed by the Company or an employer which
participates in the Retirement Savings Plan for Certain
Employees of Vencor and Affiliates (even if not still an
"Employee") as of the end of each calendar quarter, or (ii) died
since the end of the preceding calendar quarter, or (iii)
retired or became disabled pursuant to Section 5.1, 5.2, or 5.4
since end of the preceding calendar quarter, or (iv) on a Family
and Medical Leave Act leave of absence at the end of the
calendar quarter.
Section 3.3 PROFIT SHARING CONTRIBUTIONS
As of the last day of each Plan Year, the Employer may make a
Profit Sharing Contribution to the Trust Fund. Any such Profit
Sharing Contribution shall be allocated to the Profit Sharing
Contribution Account of each Participant who (i) has satisfied
the eligibility requirements of Section 2.1 (without regard to
whether the Participant has made an election pursuant to Section
3.1), (ii) is actively employed by the Company on said date and
in a class which is included in the definition of "Employee,"
and (iii) has been credited with at least 1000 Hours of Service
during the Plan Year. Any such Profit Sharing Contribution shall
also be allocated to the Profit Sharing Account of each Former
Participant (i) who died since the end of the preceding Plan
Year, or (ii) who retired or became disabled pursuant to Section
5.1, 5.2, or 5.4 since the end of the preceding Plan Year, (iii)
who is on a Family and Medical Leave Act leave of absence on the
last day of the Plan Year. Any such Profit Sharing Contributions
shall be allocated to the Profit Sharing Contribution Accounts
of the Participants described in the two immediately preceding
sentences in the proportion that each such Participant's
Compensation during the Plan Year bears to the total
Compensation of all such Participants and Former Participants
during such Plan Year.
Section 3.4 NONDISCRIMINATION TEST FOR SALARY REDIRECTION
(a) Periodically as determined by the Committee, the Employer
shall check the actual deferral percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section shall mean all Participants under this Plan who are
eligible to make Salary
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Redirection contributions during the Plan Year for which the
tests are being made.
(c) The term "actual deferral percentage," means the average of
the percentages (calculated separately for each eligible
Participant) of Salary Redirection and Qualified Nonelective
Contributions on behalf of each eligible Participant divided
by the compensation of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include Compensation is defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any Plan Year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two tests need be satisfied not to
have a reduction in Salary Redirection.
Test I - The actual deferral percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual deferral
percentage for the preceding Plan Year of all Non-
Highly Compensated Employees, multiplied by 1.25.
Test II - The excess of the actual deferral percentage for
the current Plan Year of the group of Highly
Compensate Employees over the actual deferral
percentage for the preceding Plan Year of all Non-
Highly Compensated Employees is not more than two
percentage points, and the actual deferral
percentage for the current Plan Year of the group
of Highly Compensated Employees is not more than
the actual deferral percentage for the preceding
Plan Year of all Non-Highly Compensated Employees,
multiplied by two. If Test II in Subsection 3.5(e)
is used in testing other contributions pursuant to
that Section, Test II under this Section shall be
limited as provided for in Code Section 401(m)(9)
and the regulations issued by the Secretary of the
Treasury of notices issued by the Internal Revenue
Service. If a multiple use of Test II occurs, such
multiple use shall be corrected by reducing either
the actual deferral percentage or actual
contribution percentage of the Highly Compensated
Employee in an amount calculated in the manner
provided in Section 3.4(f) or Section 3.5(f).
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Notwithstanding the above, the Sponsoring Employer may elect
to perform the tests using the Average Actual Deferral
Percentage for the current Plan Year for Participants who
are Non-Highly Compensated Employees for the current Plan
Year rather than using prior Plan Year data, provided that
if such election is made for the 1998 or a later Plan Year,
the test must continue to be performed based on current Plan
Year data until the election is changed in a manner
prescribed by the Secretary of the Treasury. Unless the
Sponsoring Employer elects to use current Plan Year data,
the Participants taken into account in determining the prior
Plan Year's Average Actual Deferral Percentage for Non-
Highly Compensated Employees are those individuals who were
Non-Highly Compensated Employees during the preceding Plan
Year, without regard to the Participants' status during the
current Plan Year (i.e., a Participant who was a Non-Highly
Compensated Employee for the preceding Plan Year is included
in the calculation as a Non-Highly Compensated Employee even
if the Participant is no longer employed by the Employer or
has become a Highly Compensated Employee for the current
Plan Year). For the 1997 Plan Year, the determination of who
was a Non-Highly Compensated Employee for the 1996 Plan Year
shall be made using the definition of Non-Highly Compensated
Employee in effect prior to this restatement.
For purposes of these tests, the actual deferral percentage
for any Participant who is a Highly Compensated Employee for
the Plan Year and who is eligible to have Salary Redirection
allocated to his accounts under two or more arrangements
described in Code Section 401(k) that are maintained by the
Company, shall be determined as if such Salary Redirection
were made under a single arrangement.
(f) If neither Test I nor Test II is initially satisfied for any
Plan Year, the Plan shall nevertheless be deemed to comply
with the requirements of Section 401(k)(3)(A)(ii) of the
Code for such Plan Year if, before the last day of the
following Plan Year, the amount of any excess contribution
(and any income thereon) is distributed to Participants who
are Highly Compensated Employees. The amount to be returned
shall be determined as follows:
[i] Calculate the dollar amount that would be returned to
each Highly Compensated Employee if the Average
Deferral Percentage of Highly Compensated Employees
were reduced by returning Salary Redirection
contributions to such Participants, beginning with
those Highly Compensated Employees' with the highest
Actual Deferral Percentage and only to the extent
necessary to meet either test above.
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[ii] Determine the total of the dollar amounts calculated
in Step [i], and return that amount to Highly
Compensated Employees in accordance with Steps [iii]
and [iv] below by distributing Salary Redirection
contributions as Excess Contributions. Excess
Contributions, adjusted for any income or loss
allocable thereto, may be distributed before the end
of the following Plan Year to Participants on whose
behalf such Excess Contributions were made for such
preceding Plan Year. Excess Contributions shall be
adjusted for income or loss, and the income or loss
allocable to Excess Contributions shall be
determined by multiplying the income or loss
allocable to the Participant's Salary Redirection
contributions for the Plan Year by a fraction, the
numerator of which is the Excess Contribution on
behalf of the Participant for the preceding Plan
Year and the denominator of which is the value of
the Participant's Salary Redirection Account on the
last day of the preceding Plan Year.
[iii] Reduce the Salary Redirection contributions of the
Highly Compensated Employee with the highest dollar
amount of Salary Redirection contributions by the
amount required to cause that Highly Compensated
Employee's Salary Redirection contributions to equal
the dollar amount of the Salary Redirection
contributions of the Highly Compensated Employee
with the next highest dollar amount of Salary
Redirection Contributions. However, if a lesser
reduction would equal the total remaining excess
contributions to be distributed, the lesser
reduction amount is distributed.
[iv] If the total amount distributed is less than the
total excess contributions from Step [ii], Step
[iii] is repeated.
If it is necessary to reduce the matched Salary
Redirection, the Participant shall nevertheless receive
from the Plan a distribution equal to the vested portion of
the Employer Matching Contribution plus any income thereon
that would have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
Section 3.5 NONDISCRIMINATION TEST FOR OTHER CONTRIBUTIONS
(a) Periodically as determined by the Committee, the Employer
shall check the actual contribution percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section, shall mean all Participants under this Plan who
are eligible to make Salary
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Redirection contributions, and receive Matching
Contributions during the Plan Year for which the tests are
being made.
(c) The term "actual contribution percentage," means the
average of the following percentages (calculated separately
for each eligible Participant): Matching Contributions (and
Salary Redirection to the extent elected by the Employer
and permitted by Regulations under Code Section 401(m)) on
behalf of each eligible Participant divided by compensation
of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include compensation as defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any plan year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two test need be satisfied not to
have a reduction in contribution tested pursuant to this
Section.
Test I - The actual contribution percentage for the
current Plan Year of the group of Highly
Compensated Employees is not more than the
actual contribution percentage for the preceding
Plan Year of all Non-Highly Compensated
Employees, multiplied by 1.25.
Test II - The excess of the actual contribution percentage
for the current Plan Year of the group of Highly
Compensated Employees over the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees is
not more than two percentage points, and the
actual contribution percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees,
multiplied by two. If Test II in Subsection
3.4(e) is used in testing Salary Redirection
pursuant to that Section, Test II under this
Section shall be limited as provided for in Code
Section 401(m)(9) and the regulations issued by
the Secretary of the Treasury of notices issued
by the Internal Revenue Service. If a multiple
use of Test II occurs, such multiple use shall
be corrected by reducing either the actual
deferral percentage or actual contribution
percentage of the Highly Compensated Employee in
an amount calculated in the manner provided in
Section 3.4(f) or Section 3.5(f).
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Notwithstanding the above, the Sponsoring Employer may
elect to perform the tests using the Average Contribution
Percentage for the current Plan Year for Participants who
are Non-Highly Compensated Employees for the current Plan
Year rather than using prior Plan Year data, provided that
if such election is made for the 1998 or a later Plan Year,
the test must continue to be performed based on current
Plan Year data until the election is changed in a manner
prescribed by the Secretary of the Treasury. Unless the
Sponsoring Employer elects to use current Plan Year data,
the Participants taken into account in determining the
prior Plan Year's Average Contribution Percentage for Non-
Highly Compensated Employees are those individuals who were
Non-Highly Compensated Employees during the preceding Plan
Year, without regard to the Participants' status during the
current Plan Year (i.e., a Participant who was a Non-Highly
Compensated Employee for the preceding Plan Year is
included in the calculation as a Non-Highly Compensated
Employee even if the Participant is no longer employed by
the Employer or has become a Highly Compensated Employee
for the current Plan Year). For the 1997 Plan Year, the
determination of who was a Non-Highly Compensated Employee
for the 1996 Plan Year shall be made using the definition
of Non-Highly Compensated Employee in effect prior to this
restatement.
For purposes of these tests, the actual contribution
percentage for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have
Matching Contributions allocated to his accounts under two
or more arrangements described in Code Section 401(k) that
are maintained by the Company, shall be determined as if
such Matching Contributions were made under a single
arrangement.
(f) If neither Test I nor Test II is initially satisfied for
any Plan Year, the Plan shall nevertheless be deemed to
comply with the requirements of Section 401(m) of the Code
for such Plan Year if, before the last day of the following
Plan Year, the amount of any excess contribution (and any
income thereon) is distributed to Participants who are
Highly Compensated Employees or if forfeitable, is
forfeited. The amount to be reduced shall be determined as
follows:
[i] Calculate the dollar amount by which each Highly
Compensated Employee's Employer Matching contributions
must be reduced to pass wither test, beginning with
those Highly Compensated Employees with the highest
Contribution Percentage and only to the extent
necessary to meet either test above.
[ii] Determine the total of the dollar amounts calculated
in Step [i], and reduce Highly Compensated Employees'
Employer Matching contributions in accordance with
Steps [iii] and [iv] below.
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[iii] Reduce the Employer Matching contributions of the
Highly Compensated Employee with the highest dollar
amount of Employer Matching contributions by the
amount required to cause that Highly Compensated
Employee's Employer Matching contributions to equal
the dollar amount of the Employer Matching
contributions of the Highly Compensated Employee with
the next highest dollar amount of Employer Matching
contributions. However, if a lesser reduction would
equal the total remaining excess contributions to be
distributed, the lesser reduction amount is
distributed.
[iv] If the total amount distributed is less than the
total excess contributions from Step [ii], Step [iii]
is repeated.
If it is necessary to reduce the Employer Matching
Contribution, the Participant shall nevertheless receive
from the Plan a distribution equal to the vested portion of
the Employer Matching Contribution plus any income thereon
that would have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
(g) This Section shall be governed by Code Section 401(m) and
any rules or regulations issued pursuant thereto, which may
include coordination and/or combination with allocations
subject to Section 401(k) in accordance with Treasury
Regulation Section 1.401(m)-2.
Section 3.6 MAXIMUM INDIVIDUAL DEFERRAL
A Participant shall not be permitted to have his Employer
redirect an amount in excess of $9,500 in any calendar year
pursuant to the provisions of Section 3.1, including
contributions to any other plan of the Company which are made
pursuant to Code Section 402(a)(8). The $9,500 limitation shall
be adjusted in accordance with cost-of-living adjustments made
by the Secretary of the Treasury pursuant to Code Section
402(g)(5). If any amount is redirected pursuant to Section 3.1
in excess of this limit (as adjusted), or if a Participant
notifies the Committee, in writing, by March 1 following the
close of the taxable year of the amount contributed in excess of
this limit (as adjusted) to all plans pursuant to Code Section
402(a)(8), such amount shall be deemed an "excess deferral" and
the Committee shall direct the Trustee to distribute to the
Participant (not later than the April 15 following the calendar
year in which the excess deferral was made) the amount of the
excess deferral plus any income allocable to such amount.
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Section 3.7 MISTAKE OF FACT
If due to a mistake of fact, Employer Contributions to the Trust
Fund for any Plan Year exceed the amount intended to be
contributed, notwithstanding any provision to the contrary, the
Employer, as soon as such mistake of fact is discovered, shall
notify the Trustee. The Employer shall direct that the Trustee
return such excess to the Employer, provided such return is made
within one year of the date on which the Employer made the
contribution.
Section 3.8 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may, as of the end of any calendar quarter, make a
Qualified Nonelective Contribution to the Trust Fund on behalf
of any Participant with a Prior Plan Employer Contribution
Account or Prior Plan Salary Redirection Account in an amount
equal to the surrender charges assessed by the insurer which
held the assets in those accounts in the plan which was merged
into this Plan. Such Qualified Nonelective Contributions shall
be added to the Salary Redirection Accounts of those
Participants in amounts equal to the allocation of the surrender
charges to the Participant's combined Prior Plan Employer and
Prior Plan Salary Redirection Accounts, shall be 100% vested
when made, subject to the same distribution rules as Salary
Redirection Contribution, and shall be tested for
nondiscrimination as Salary Redirection Contributions in
accordance with the provisions of Section 3.4.
Section 3.9 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF
1994 ("USERRA")
Effective December 12, 1994, notwithstanding any provision of
this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
Section 414(u) generally provides that an employer maintaining a
plan shall be treated as meeting the requirements of USERRA only
if an employee reemployed under USERRA is treated as not having
incurred a break in service because of the period of military
service, the employee's military service is treated as service
with the employer for vesting and benefit accrual purposes, the
employee is permitted to make additional elective deferrals and
employee contributions in an amount not exceeding the maximum
amount the employee would have been permitted or required to
contribute during the period of military service if the employee
had actually been employed by the employer during that period
("make-up contributions"), and the employee is entitled to any
accrued benefits that are contingent on employee contributions
or elective deferrals to the extent the employee pays the
contributions or elective deferrals to the plan. Make-up
contributions must be permitted during the period that begins on
the date of reemployment and continues for five years or, if
less, three times the period of military service. With respect
to make-up contributions, the employer must make
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matching contributions that would have been required if the
make-up contributions had actually been made during the period
of military service.
Section 414(u) provides that an employee is treated as receiving
compensation from the employer during the period of military
service equal to the compensation the employee otherwise would
have received from the employer during that period, or, if the
compensation the employee otherwise would have received is not
reasonably certain, the employee's average compensation from the
employer during the period immediately preceding the period of
military service. For purpose of (S) 414(u), USERRA is not
treated as requiring the crediting of earnings to an employee
with respect to any contribution before the contribution is
actually made or requiring any allocation of forfeitures to the
employee for the period of military service.
Section 414(u) generally provides that a contribution that is
made by an employer or employee to an individual account plan or
by an employee to a contributory defined benefit plan, and that
is required under USERRA, is taken into account for purposes of
the limitations of Section 402(g), 402(h), 403(b), 404(a),
404(h), 408, 415 or 457 in the year to which the contribution
relates, not the year in which the contribution is made. In
addition, Section 414(u) provides that a plan is not treated
as failing to meet the requirements of Section 401(a)(4),
401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m),
403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 because
of the contribution (or the right to make the contribution).
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ARTICLE 4
ALLOCATION TO INDIVIDUAL ACCOUNTS
Section 4.1 INDIVIDUAL ACCOUNTS
The Committee shall establish and maintain an Individual Account
in the name of each Participant to which the Committee shall
credit all amounts allocated to each such Participant pursuant
to Article 3 and the following Sections of this Article.
Section 4.2 INVESTMENT OF ACCOUNTS
(a) There shall be established the following Investment Funds
within the Trust Fund:
(1) INTEREST INCOME - A fund generally invested in
investment contracts with banks and insurance
companies to generate interest income returns above
the rates earned by money market funds, while
generally maintaining a stable principal value. This
fund may also be referred to as the Stable Value Fund.
(2) BALANCED FUND - A fund consisting of both fixed income
obligations of the United States Government and its
agencies and of companies other than the Sponsoring
Employer to provide protection of principal consistent
with an attractive rate of return, and equity
investments other than the common stock of the
sponsoring employer.
(3) GROWTH FUND - A fund consisting primarily of common
stocks with an objective of capital growth over both
the intermediate and long-term.
(4) AGGRESSIVE GROWTH FUND - a fund consisting primarily
of common stocks of companies that are early in their
life cycle and which have the potential to grow
significantly, with the objective to provide long term
capital appreciation without regard to current income.
(5) COMPANY STOCK FUND - a fund consisting primarily of
shares of common stock of the Sponsoring Employer and
dividends and distributions attributable to said
common stock, plus temporary investments held pending
purchase of additional shares of common stock of the
Sponsoring Employer.
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(b) Each Participant shall have the right to direct the
Committee to invest the cumulative balance in his
Individual Account attributable to Salary Redirection,
Prior Plan Salary Redirection Contributions, Prior Plan
Employer Contributions and current Salary Redirection in
increments of 10% (25% if elections made prior to January
1, 1997, in which case they continue until a change is made
by the Participant) in the Investment Funds provided in
Section 4.2(a). Such direction shall be effected as soon as
practicable after the end of the month, provided the
Participant gives the direction by identity-secured
telephonic instructions (or in writing if telephonic
instructions are impracticable) no later than the 15th day
of the month. Neither the Trustee nor any other Fiduciary
shall be responsible for investment losses resulting from a
Participant's exercise of investment discretion, in
accordance with ERISA Section 404(c).
(c) A Participant who does not make any election under this
Section shall have the Individual Account attributable to
Salary Redirection, Prior Plan Salary Redirection
Contributions, Prior Plan Employer Contributions and
current Salary Redirection made on his behalf invested in
the Stable Value Fund. A Participant who began
participation in the Plan prior to January 1, 1997 shall
have investments formerly in the Equity Fund transferred to
the Growth Fund and those formerly in the Fixed Income Fund
transferred to the Stable Value Fund, subject to further
redirection by the Participant in accordance with the Plan.
A Participant who has funds transferred to this Plan from
The Hillhaven Retirement or Deferred Savings Plan shall
have assets formerly invested in the Short-Term Investment
or Bond Fund transferred to the Stable Value Fund, those
formerly in the U.S. Balanced Fund to the Balanced Fund,
those formerly in the Large Stock or International Fund to
the Growth Fund, and those formerly in the Small Stock Fund
to the Aggressive Growth Fund.
(d) All cumulative and current contributions attributable to
Employer Contributions (other than contributions in a Prior
Plan Employer Contribution Account) and the Profit Sharing
Contribution Account shall either be made (i) in kind in
Company Stock (in an amount determined based on the per-
share market value on the date as of which the contribution
is to be allocated) or (ii) in cash which is invested in
the Company Stock Fund.
Section 4.3 VALUATION OF ACCOUNTS
(a) INDIVIDUAL ACCOUNT. As of each Valuation Date, the
Committee shall determine the fair market value of the
Individual Account of each Participant for each Investment
Fund in which the Individual Account is invested as
follows:
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(1) The value of the Individual Account of each
Participant as of the last Valuation Date;
(2) Minus the amount of any withdrawals and distributions
made from such account since the last Valuation Date;
(3) Plus any contributions to the Participant's Salary
Redirection Account since the last Valuation Date;
(4) Plus any allocation to the Participant's Matching
Contribution Account since the last Valuation Date;
(5) Plus any allocation to the Participant's Profit
Sharing Account since the last Valuation Date;
(6) Plus the Individual Account's proportionate share of
any investment earnings allocated to each Investment
Fund held within the Individual Account since the last
Valuation Date;
(7) Minus the Individual Account's proportionate share of
any investment losses allocated to each Investment
Fund held within the Individual Account since the last
Valuation Date.
(b) INVESTMENT EARNINGS OR LOSSES. The investment earnings (or
losses, if such computation is negative) from the
Investment Funds shall mean the difference between the unit
price of any Investment Fund (other than the Company Stock
Fund) from one business day to the next, and any net gain
or loss on non-mutual fund investments in an Investment
Fund, as reflected by interest payments, dividends,
realized and unrealized gains and losses on securities,
other investment transactions and expenses paid from the
fund.
(c) ALLOCATION OF INVESTMENT EARNINGS OR LOSSES. Except as
provided in Section 4.3(e), the investment earnings or
losses from the Trust Fund shall be allocated to the
Individual Account of each Participant invested in the
respective Investment Fund in the ratio of "A" divided by
"B" where "A" is an amount determined pursuant to Section
4.3(d) for the portion of the Individual Account of each
Participant invested in the respective Investment Fund and
"B" is an amount determined pursuant to Section 4.3(d) for
the portion of the Individual Account of all Participants
invested in the respective Investment Fund.
(d) DETERMINATION OF RATIO. For purposes of determining the
ratio is Section 4.3(c), the amounts shall be determined as
follows:
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(1) the value of the portion of such Individual Account(s)
in the Investment Fund as of the last Valuation Date;
(2) Minus withdrawals and benefit payments to or on behalf
of Participants from the portion of such Individual
Account(s) in the Investment Fund since the last
Valuation Date.
(e) COMPANY STOCK FUND. As of each Valuation Date with respect
to the portion of a Participant's Individual Account
invested in the Company Stock Fund: (i) dividends paid
since the preceding Valuation Date on the number of shares
of Sponsoring Employer common stock held in the
Participant's Individual Account invested in the Company
Stock Fund as of the preceding Valuation Date (as adjusted
for any distributions or withdrawals since that date) shall
be added to the portion of the Participant's Individual
Account invested in the Company Stock Fund in the ratio
that the number of said shares of stock held in each
Participant's Individual Accounts as of the preceding
Valuation Date (as adjusted for any distributions or
withdrawals since that date) bears to the total number of
said shares of stock held in all Participants' Individual
Accounts as of the preceding Valuation Date as so adjusted;
(ii) any remaining dividends and other earnings of the
Company Stock Fund since the preceding Valuation Date shall
be added to the Individual Accounts of each Participant in
the Company Stock Fund in the ratio that the non-stock
balance held in each Participant's Individual Account in
the Company Stock Fund as of the preceding Valuation Date
(as adjusted for any distributions or withdrawals since
that date, one-half of the Matching Contributions and one-
half of any Salary Redirection contributions added to such
Individual Accounts in the Company Stock Fund since the
preceding Valuation Date) bears to the total non-stock
balance in all Participant's Individual Accounts in the
Company Stock Fund as of the preceding Valuation Date as so
adjusted; and (iii) the shares of Sponsoring Employer
common stock acquired with cash attributable to the Company
Stock Fund since the preceding Valuation Date shall be
added to each Participant's Individual Account in the
Company Stock Fund in the ratio that the non-stock balance
held in each Participant's Individual Account in the
Company Stock Fund as of the preceding Valuation Date (as
adjusted for any distributions, withdrawals, Matching
Contributions, Salary Redirection contributions and
earnings and dividends as of the current Valuation Date)
bears to the total non-stock balance of all Participant's
Individual Accounts in the Company Stock Fund as so
adjusted and the cost of the shares so added shall be
subtracted from the non-stock portion of the Participant's
Individual Account held in the Company Stock Fund.
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Section 4.4 TRUSTEE AND COMMITTEE JUDGMENT CONTROLS
In determining the fair market value of the Trust Fund and of
Individual Accounts, the Trustee shall exercise its best
judgment, and all such determinations of value (in the absence
of bad faith) shall be binding upon all Participants and their
beneficiaries.
Section 4.5 MAXIMUM ADDITIONS
Anything herein to the contrary notwithstanding, the total
Annual Additions of a Participant for any Limitation Year when
combined with any similar annual additions credited to the
Participant for the same period from another qualified Defined
Contribution Plan maintained by the Company, shall not exceed
the lesser of the amounts determined pursuant to Section 4.5(a)
or (b).
(a) $30,000 or, if larger, 25% of the dollar limitation in
effect under Code Section 415(b)(1)(A) determined by the
Commissioner of Internal Revenue as of January 1 of each
year to apply to the Limitation Year ending with or within
that calendar year; or
(b) 25% of the Participant's compensation received from the
Company for such Limitation Year, as determined pursuant to
Section 415 of the Code.
(c) In the event a Participant is covered by one or more
Defined Contribution Plans maintained by the Company, the
maximum annual additions as noted above shall be decreased
in the last Defined Contribution Plan maintained by the
Company in which he participated to ensure that all such
plans will remain qualified under the Code.
Section 4.6 CORRECTIVE ADJUSTMENTS
In the event that corrective adjustments in the Annual Addition
to any Participant's Individual Account are required as the
result of a reasonable error in estimating a Participant's
compensation, the corrective adjustments shall be made pursuant
to and in the order of the subsections in this Section.
(a) The portion of the Participant's unmatched Salary
Redirection made pursuant to Subsection 3.1(a) shall be
returned by distribution to the Participant, with earnings
thereon. Any amount so returned shall be disregarded for
purposes of the tests in Sections 3.4 and 3.5.
(b) The portion of the Participant's matched Salary Redirection
made pursuant to Subsection 3.1(a) and his Matching
Contributions shall be proportionally reduced to insure
compliance with Section 4.5. Any affected Salary
Redirection will be distributed to the Participant and
shall not be considered for purposes of the tests in
Sections 3.4 and 3.5. Any
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affected Matching Contributions shall be used to reduce
future Matching Contributions.
(c) The Participant's Profit Sharing Contribution shall be
reduced to insure compliance with Section 4.5. Any such
amount reduced shall be allocated as of the end of the next
Plan Year among the Profit Sharing Contribution Accounts of
all other Participants in the same manner as is indicated
in Section 3.3.
Section 4.7 DEFINED CONTRIBUTION AND DEFINED BENEFIT PLAN FRACTION
If a Participant is a participant in a Defined Benefit Plan
maintained by the Company, the sum of his defined benefit plan
fraction and his defined contribution plan fraction for any
Limitation Year may not exceed 1.0.
(a) For purposes of this Section, the term "defined
contribution plan fraction" shall mean a fraction the
numerator of which is the sum of all of the Annual
Additions of the Participant under this Plan and any other
Defined Contribution Plan maintained by the Company as of
the close of the Limitation Year and the denominator of
which is the sum of the lesser of the following amounts
determined for such Limitation Year and for each prior
Limitation Year of employment with the Company:
(1) the product of 1.25 multiplied by the dollar
limitation in effect under Section 415(c)(1)(A) of the
Code; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account under Code Section 415(c)(1)(B)
with respect to each individual under the Plan for
such Limitation Year.
(b) For purposes of this Section, the term "defined benefit
plan fraction" shall mean a fraction, the numerator of
which is the Participant's projected annual benefit (as
defined in the Defined Benefit Plan) determined as of the
close of the Limitation Year and the denominator of which
is the lesser of:
(1) the product of 1.25 multiplied by the dollar
limitation in effect pursuant to Section 415(b)(1)(A)
of the Code for such Limitation year; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account pursuant to Section 415(b)(1)(B)
of the Code with respect to each individual under the
Plan for such Limitation year.
(c) The limitation on aggregate benefits from a Defined Benefit
Plan and a Defined Contribution Plan which is contained in
Section 2004 of ERISA,
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as amended, shall be complied with by a reduction (if
necessary) in the Participant's benefits under the Defined
Benefit Plan.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 NORMAL RETIREMENT
When a Participant lives to his Normal Retirement Date and
retires, he shall become entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date the distribution check is
prepared.
Section 5.2 LATE RETIREMENT
A Participant may continue his employment past his Normal
Retirement Date on a year to year basis. He shall continue to be
an active Participant under the Plan. Upon his actual
retirement, he shall become entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date of distribution check is
prepared.
Section 5.3 DEATH
If a Participant dies while an active Participant under the
Plan, his Beneficiary shall be entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date of distribution check is
prepared.
Section 5.4 DISABILITY
When it is determined that a Participant is Totally and
Permanently Disabled, the Committee shall certify such fact to
the Trustee and such Disabled Participant shall be entitled to
receive the full value of his Individual Account as soon as
practicable after the distribution forms are completed, at a
value determined as of the date of distribution check is
prepared.
Section 5.5 TERMINATION OF EMPLOYMENT
(a) Subject to Section 5.5(l) below, upon termination of
employment for any reason (other than Normal Retirement,
Late Retirement, Disability Retirement or Death), a
Participant shall be entitled to a benefit equal to the
vested portion (as determined in this Section) of the
balance of his Individual Account as soon as practicable
after the distribution forms are completed, at a value
determined as of the date of distribution check is
prepared.
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(b) A Participant shall always be 100% vested in the balance of
his Salary Redirection Account, and Prior Plan Salary
Redirection Account.
(c) Effective for Participants who terminate employment on or
after July 1, 1990, a Participant shall be vested in the
balance attributable to his Prior Plan Employer
Contribution Account, Matching Contribution Account and
Profit Sharing Contribution Account based on years of
Service as of his date of termination, in accordance with
the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 years or more 100%
(d) Notwithstanding the above, a Participant who has a Prior
Plan Employer Contribution Account from The Hillhaven
Corporation Retirement Savings Plans, shall be vested in
the balance attributable to such account based on years of
Service as of his date of termination, in accordance with
the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
(e) Notwithstanding the above, a Participant who has a Prior
Plan Employer Contribution Account from The Hillhaven
Corporation Deferred Savings Plans, shall be vested in the
balance attributable to such account based on years of
Service as of his date of termination, in accordance with
the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
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(f) For purposes of calculating years of Service for purposes
of vesting in the Prior Plan accounts from The Hillhaven
Corporation Retirement Savings and Deferred Savings Plans
as provided in subsections 5.5(d) and (e) above, in which
plans elapsed time was used to determine years of Service,
Participants in this Plan shall be credited with one year
of Service if they remain employed by the Company, or a
Company which participates in the RSP (as defined in
Section 2.1(d)), until the anniversary of their employment
commencement date in 1997, and shall receive another year
of Service if the Participant logs 1000 Hours of Service
for the Company or a company which participates in the RSP
during the Plan year ending on December 31, 1997.
(g) Notwithstanding the above, a Participant who attains Normal
Retirement Age or dies or becomes Totally and Permanently
Disabled, while employed by the Company, shall be fully
vested in his Individual Account under the Plan.
(h) A Participant who terminates employment pursuant to this
Section with a zero percent vested percentage shall be
deemed to have received a distribution on the date he
terminates employment. If a Former Participant receives a
distribution of the vested portion of his Individual
Account prior to incurring five consecutive Breaks in
Service or said Former Participant is zero percent vested
in his Individual Account, the non-vested balance of such
terminated Participant's Individual Account shall be
forfeited as of the date he receives or is deemed to
receive said distribution. If a Participant who has
received a distribution (or deemed distribution) is later
rehired before the period described in subsection 5.5(j)
below, the Participant need not repay the distributed
amount, but his Account shall automatically have the
forfeited amount restored to it at the earlier of (1) the
last day of the Plan Year in which rehired, or (2) the date
of a subsequent termination of employment. Restoration of a
forfeiture will come from forfeitures in the year in which
he is reemployed and, to the extent such forfeitures are
not sufficient, from a special Employer Contribution. Upon
a subsequent termination of employment prior the
Participant becoming 100% vested, the gross distribution
shall be determined by multiplying the vested percentage at
the subsequent termination by the account balance then
actually restored to the Plan, plus the distribution
previously received. The amount to be distributed to the
Participant shall be the vested percentage of the adjusted
account, minus the amount previously distributed.
(i) The non-vested balance of the Individual Account of a
terminated Participant shall be forfeited as of the last
day of the Plan Year in which such terminated Participant
incurs five consecutive Breaks in Service if the
Participant is vested in any portion of his Individual
Account and does not receive a distribution prior to
incurring five consecutive Breaks in Service.
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(j) A terminated Participant who is reemployed and again
becomes a Participant after incurring five or more
consecutive Breaks in Service shall not have any amount
forfeited pursuant to this Section restored to his
Individual Account.
(k) Any Matching Contributions and Profit Sharing Contributions
forfeited will be first used to reduce Matching
Contributions pursuant to Section 3.2.
(l) Notwithstanding anything to the contrary in this Section
5.5 or in Section 5.6(a), no portion of a Participant's
Individual Account shall be distributed to him until the
participant has separated from service within the meaning
of Code Section 401(k)(2)(B), unless the distribution is in
connection with an event described in Code Section
401(k)(10) and the Treasury Regulations under that Section.
Section 5.6 COMMENCEMENT OF BENEFITS
(a) Any benefits payable under this Article shall be paid as
soon as reasonably possible following the actual date of
severance, at the value determined as of the Valuation Date
coincident with or immediately preceding receipt of
properly completed distribution forms from the Participant,
subject to the Participant's consent if his actual date of
severance is prior to Normal Retirement Age and subject to
Subsection 5.7(a). In no event, however, shall payment
begin beyond 60 days after the last day of the Plan Year in
which occurs the latest of (i) the Participant's reaching
Normal Retirement Age; (ii) the 10th anniversary of the
date the Employee became a Participant; or (iii)
termination of the Participant's employment.
Notwithstanding anything in the Plan to the contrary and
notwithstanding the Participant's lack of consent, benefits
under this Plan shall be paid as soon as reasonably
possible following the later of the Participant's actual
date of severance or his Normal Retirement Date.
(b) Except as required in this Section for a Participant who
has an Individual Account to which Section 5.7(b) or
Section 5.6(c) applies, a Participant may defer
distribution to a subsequent date. If the Participant does
not consent to a distribution as provided above, such
distribution shall be made based on the value of the
Individual Account as of the date the check for the
distribution is prepared and shall be delivered as soon as
reasonably practical after notice to the Committee of the
election to receive a distribution.
(c) Notwithstanding any other provisions of the Plan, the
payment of a Participant's benefits hereunder shall begin
by payment of a lump sum of the entire Accounts of the
Participant no later than the April 1 following the
calendar year in which the Participant has both attained
age 70 1/2 and
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has retired, provided that for 5% owners as defined in
Section 416 of the Code, distribution must begin by April 1
following the calendar year in which the Participant
attains age 70 1/2, regardless of whether the Participant
has retired; and further provided that, if the Internal
Revenue Service in regulations or other pronouncements
provides that eliminating the automatic distribution from
this Plan beginning after age 70 1/2 for a non-5% owner who
has not yet separated from service is a prohibited cut-back
of benefits, then a Participant shall have the option to
take a lump sum distribution even while employed, at the
April 1 following attainment of age 70 1/2, if the
Participant so elects in writing, and, if so elected, shall
receive a distribution on or before December 31 of the year
after attainment of age 70 1/2, and again each year
thereafter while still employed, shall receive a similar
distribution of all amounts accrued in Accounts of the
Participant since the last such distribution.
(d) Notwithstanding anything in the Plan to the contrary, any
benefit payable to an alternate payee pursuant to a
qualified domestic relations order, as defined in Section
414(p) of the Code, shall be paid as soon as
administratively possible following the determination that
the order meets the requirements of Section 414(p) of the
Code.
(e) Notwithstanding anything in the Plan to the contrary, in
the event a Participant terminates employment for any
reason and recommences employment prior to distribution of
his entire vested account in the Plan, the undistributed
portion of his vested account shall remain in the Plan
until his account again becomes distributable due to a
subsequent termination.
Section 5.7 METHODS OF PAYMENT
(a) A Participant or Beneficiary shall elect a distribution of
the Individual Account in a single lump sum payment in cash
as provided hereinafter. Notwithstanding the preceding
sentence, a Participant may request that the Company Stock
Fund be distributed in kind provided that the Participant
has at least 100 shares of Sponsoring Employer common stock
in his Individual Account at the date of distribution. Any
non-stock balance in his Company Stock Fund will be paid in
cash and fractional shares will be paid in cash based on
the fair market value of such fractional shares as of the
day those shares liquidated or valued for distribution. In
the event a Participant elects to receive his Company Stock
Fund in cash, the shares of Sponsoring Employer stock as of
the date of the distribution check is prepared will be
converted to cash based on the fair market value of such
shares as of such date. Except as provided in Section
5.7(c) or Section 5.11, no other manner of distribution
shall be provided. The request by the Participant or the
Beneficiary shall be in writing and shall be filed with the
Committee. The Committee may not require a distribution
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without the consent of the Participant prior to his
reaching Normal Retirement Age or, if the Participant is
deceased, without the consent of his spouse, if the spouse
is living and if the spouse is his Beneficiary, unless the
vested value of the Individual Account is $3,500 or less.
If the vested value of the Participant's Individual Account
is $3,500 or less, the benefits payable will be paid as
soon as reasonably possible following the actual date of
severance, notwithstanding lack of consent. If the vested
value of the Participant's Individual Account has been more
than $3,500 at the time of any distribution, the value the
Participant's Individual Account will be deemed to be more
than $3,500 at the time of any subsequent distribution for
purposes of the consent requirements of this Section.
(b) If the Participant dies before distribution occurs, the
Participant's entire interest will be distributed no later
than five years after the Participant's death, except, if
the designated Beneficiary is the Participant's surviving
spouse, the distribution must be made no later than the
date on which the Participant would have attained age 65.
(c) Notwithstanding anything in this Section to the contrary,
in the case of a Participant who has a Prior Plan Salary
Redirection Account or a Prior Plan Employer Contribution
Account, the Participant may take distribution of his Prior
Plan Salary Redirection Account or Prior Plan Employer
Contribution Account at such time or in such other form as
was provided in the plan (as in effect as of the date of
transfer) from which the Prior Plan Salary Redirection
Account or Prior Plan Employer Contribution Account was
transferred.
Section 5.8 BENEFITS TO MINORS AND INCOMPETENTS
If any person entitled to receive payment under the Plan shall
be a minor, the Committee, in its discretion, may dispose of
such amount in any one or more of the ways specified in
Subsections (a) through (c) of this Section.
(a) By payment thereof directly to such minor;
(b) By application thereof for benefit of such minor;
(c) By payment thereof to either parent of such minor or to any
adult person with whom such minor may at the time be living
or to any person who shall be legally qualified and shall
be acting as guardian of the person or the property of such
minor; provided only that the parent or adult person to
whom any amount shall be paid shall have advised the
Committee in writing that he will hold or use such amount
for the benefit of such minor.
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In the event that it shall be found that person entitled to
receive payment under the Plan is physically or mentally
incapable of personally receiving and giving a valid receipt for
any payment due (unless prior claim therefor shall have been
made by a duly qualified committee or other legal
representative), such payment may be made to the spouse, son,
daughter, parent, brother, sister or other person deemed by the
Committee to have incurred expense for such person otherwise
entitled to payment.
Section 5.9 UNCLAIMED BENEFITS
(a) The Plan does not require either the Trustee or the
Committee to search for, or ascertain the whereabouts of,
any Participant or Beneficiary. The Committee, by certified
mail addressed to his last known address of record with the
Committee or the Employer, shall notify any Participant, or
Beneficiary, that he is entitled to a distribution under
this Plan. If the Participant, or Beneficiary, fails to
claim his distributive share or make his whereabouts known
in writing to the Committee within six months from the date
of mailing of the notice, or before the termination or
discontinuance of this Plan, whichever should first occur,
the Committee shall thereafter treat the Participant's or
Beneficiary's unclaimed payable Account as a Forfeiture. A
Forfeiture under this Section shall occur when the
Committee determines that the Participant or Beneficiary
cannot be located, but not earlier than the end of the
notice period, or if later, the earliest date applicable
Treasury regulations would permit the Forfeiture.
(b) If a Participant or Beneficiary who has incurred a
forfeiture of his Account under this Section makes a claim,
at any time, for his forfeited Account, the Committee shall
restore the Participant's or Beneficiary's forfeited
Account to the same dollar amount as the dollar amount of
the Account forfeited, unadjusted for any gains or losses
occurring subsequent to the date of the forfeiture. The
Committee shall make the restoration during the Plan Year
in which the Participant or Beneficiary makes the claim,
first from the amount, if any, of forfeitures the
Administrator otherwise would allocate for the Plan Year,
then from the amount, if any, of the Trust net income or
gain for the Plan Year and then from the amount, or
additional amount, the Employer shall contribute to enable
the Committee to make the required restoration. The
Committee shall direct the Trustee to distribute the
Participant's or Beneficiary's restored Account to him not
later than 60 days after the close of the Plan Year in
which the Committee restores the forfeited Account. The
forfeiture provisions of this Section shall apply solely to
the Participant's or to the Beneficiary's Account derived
from Employer contributions.
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Section 5.10 PARTICIPANT DIRECTED ROLLOVERS
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at
the time and in the manner prescribed by the Committee, to
have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) For purposes of this Section, an eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a
specified period of 10 years or more; any distribution to
the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution
that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(c) For purposes of this Section, an eligible retirement plan
is an individual retirement account described in Section
408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However,
in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
For purposes of this Section, a distributee includes an Employee
or former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(d) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
Section 5.11 JOINT AND SURVIVOR OPTIONS
(a) This Section shall only apply to a Participant who has a
Prior Plan Employer Contribution Account and/or a Prior
Plan Salary Redirection
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Account that was transferred as a result of a plan merger
from a plan that provided for an annuity form of
distribution.
(b) QUALIFIED JOINT AND SURVIVOR ANNUITY. Except as otherwise
provided below, unless an optional form of benefit is
selected pursuant to a qualified election within the 90 day
period ending on the date benefit payments would commence,
a Participant's vested Prior Plan Employer Contribution
Account and Prior Plan Salary Redirection Account will be
paid in the form of a qualified joint and survivor annuity,
and an unmarried Participant's benefit shall be paid in the
form of a life annuity unless otherwise elected by the
Participant. A qualified joint survivor annuity will not be
applicable and this Section shall not apply if the
following conditions are met:
(1) The Participant's vested Individual Account is payable
in full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-
spouse Beneficiary in the manner prescribed under this
Section, and
(2) Such Participant does not elect a payment of benefits
in the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is
described in clause (i) or (ii) of Code Section
401(a)(11)(B), or
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $3,500
or less.
(b) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. Except as
otherwise provided in this Subsection, unless an optional
form of benefit has been selected within the election
period pursuant to a qualified election, if a Participant
dies before benefits have commenced, then the Participant's
vested Prior Plan Employer Contribution Account and Prior
Plan Salary Redirection Account shall be applied toward the
purchase of an annuity for the life of the surviving
spouse. Benefits will not be required to be paid in the
form of a preretirement survivor annuity if the following
conditions are met:
(1) The Participant's vested Individual Account is payable
in full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-
spouse Beneficiary in the manner prescribed under this
Section, and
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(2) Such Participant does not elect a payment of benefits
in the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is
described in clause (i) or (ii) of Section
401(a)(11)(b) of the Code, and
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $3,500
or less.
(c) ELECTION PERIOD shall mean, for purposes of this Section,
the period which begins on the first day of the Plan Year
in which the Participant attains age 35 and ends on the
date of the Participant's death. If a Participant separates
from service prior to the first day of the Plan Year in
which age 35 is attained, with respect to the Individual
Account Balance as of the date of separation, the election
period shall begin on the date of separation.
(d) EARLY RETIREMENT AGE shall mean, for purposes of this
Section, the earliest date on which, under the Plan, the
Participant could elect to receive retirement benefits.
(e) QUALIFIED ELECTION shall mean, for purposes of this
Section, an election pursuant to this Subsection. A waiver
of a qualified joint and survivor annuity or a qualified
preretirement survivor annuity is permitted. The waiver
must be in writing, must be executed by the Participant,
must specify the Beneficiary and the optional form of
benefit and must be consented to by the Participant's
spouse. The spouse's consent to a waiver must be witnessed
by a Plan representative or a notary public.
Notwithstanding this consent requirement, if the
Participant establishes to the satisfaction of a Plan
representative that such written consent may not be
obtained because there is no spouse or the spouse cannot be
located, a waiver will be deemed a qualified election. Any
consent necessary under this provision will be valid only
with respect to the spouse who signs the consent, or in the
event of a deemed qualified election, the designated
spouse. Additionally a revocation of a prior waiver may be
made by a Participant without the consent of the spouse at
any time before the commencement of benefits. The number of
revocations shall not be limited.
(f) QUALIFIED JOINT AND SURVIVOR ANNUITY shall mean, for
purposes of this Section, an annuity for the life of the
Participant with a survivor annuity for the life of the
spouse which is not less than 50% and not more than 100% of
the amount of the annuity which is payable during the joint
lives of the Participant and the spouse and which is the
amount of benefit
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which can be purchased with the Participant's vested Prior Plan
Employer Contribution Account and Prior Plan Salary Redirection
Account.
(g) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY shall mean, for purposes
of this Section, a survivor annuity for the life of the surviving
spouse, the actuarial equivalent of which is not less than 50% of
the vested Prior Plan Employer Contribution Account and Prior Plan
Salary Redirection Account of the Participant as of the date of
death, which may become payable as a result of the Participant's
death prior to his Normal Retirement Date.
(h) NOTICE REQUIREMENTS.
(1) In the case of a qualified joint and survivor annuity the
Committee shall provide each Participant no less than 30 days
and no more than 90 day prior to the annuity starting date
(or such other time as provided by regulations or other
pronouncements), a written explanation of (i) the terms and
conditions of a qualified joint and survivor annuity; (ii)
the Participant's right to make and the effect of an election
to waive the qualified joint and survivor annuity form of
benefit; (iii) the rights of a Participant's spouse; and (iv)
the right to make and the effect of a revocation of a
previous election to waive the qualified joint and survivor
annuity.
(2) In the case of a qualified preretirement survivor annuity the
Committee shall provide each Participant within the period
beginning on the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant
attains age 35, a written explanation of the qualified
preretirement survivor annuity in such terms and in such
manner as would be comparable to the explanation provided for
meeting the requirement of a qualified joint and survivor
annuity. If a Participant enters the Plan after the first day
of the Plan Year in which the Participant attained age 32,
the Committee shall provide notice no later than the close of
the third Plan Year succeeding the entry of the Participant
in the Plan.
(3) Notwithstanding the other requirements of this Section, the
respective notices prescribed by this Section need not be
given to a Participant if the Plan "fully subsidizes" the
costs of a qualified joint and survivor annuity or qualified
preretirement survivor annuity, and the Participant cannot
elect another form of benefit. For purposes of this Section,
the Plan fully subsidizes the costs of a benefit if under the
Plan the failure to waive such benefit by a Participant would
not result in a decrease in any plan benefits with
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respect to such Participant and would not result in increased
contributions from the Participant.
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ARTICLE 6
WITHDRAWALS
Section 6.1 HARDSHIP WITHDRAWAL
(a) Except as otherwise provided in this Section, and upon proper
written application of a Participant made at least 30 days in
advance of the withdrawal date, in such form as the Committee
may specify, the Committee in its sole discretion may permit
the Participant to withdraw a portion or all of the balance
of his Salary Redirection Account and Prior Plan Salary
Redirection Account, provided that earnings allocated to said
account may not be withdrawn. Such withdrawal shall be based
on the Valuation Date coincident with or immediately
preceding the date of distribution and may not be less than
$500.00, or if the amount of hardship exceeds $500.00 but the
amount available for distribution is lower, the total amount
available for distribution as a hardship withdrawal.
(b) The reason for a withdrawal pursuant to this Section must be
to enable the Participant to meet unusual or special
situations in his financial affairs resulting in immediate
and heavy financial needs of the Participant. Such situations
shall be limited to:
(1) uninsured medical expenses (described in Code Section
213(d)) incurred by or needed to procure services for the
Participant, the Participant's spouse or any dependents
of the Participant (as defined in Code Section 152);
(2) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) payment of tuition for the next 12 months of post-
secondary education for the Participant, his or her
spouse, children, or dependents;
(4) the need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of
the Participant's principal residence; or
(5) any additional items which may be added to the list of
deemed immediate and heavy financial needs by the
Commissioner of Internal Revenue through the publication
of revenue rulings, notices, and other documents of
general applicability.
Any withdrawal hereunder may not exceed the amount required
to meet the immediate financial need created, and provided
further that such
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amount must not be reasonably available from other resources
of the Participant.
(c) The Committee may shorten the notice period if it finds it is
administratively feasible. In granting or refusing any
request for withdrawal or in shortening the notice period,
the Committee shall apply uniform standards consistently and
such discretionary power shall not be applied so as to
discriminate in favor of Highly Compensated Employees.
(d) The withdrawals under this Section shall in no way affect
said Participant's continued participation in this Plan
except by the reduction in account balances caused by such
withdrawal.
(e) A Participant shall present evidence to the Committee that
the requested withdrawal is not in excess of the amount
necessary to relieve the financial need of the Participant
and that the need can not be satisfied from other resources
that are reasonably available to the Participant. The
determination by the Committee that the distribution will be
necessary to satisfy an immediate and heavy financial need
will be made on the basis of all relevant facts and
circumstances. A distribution generally will be treated as
necessary to satisfy a financial need if the Committee
relies, without actual knowledge to the contrary, on the
Participant's representation that the need cannot be
relieved:
1. through reimbursement of compensation by insurance or
otherwise;
2. by reasonable liquidation of the Participant's assets, to
the extent such liquidation would not itself cause an
immediate and heavy financial need;
3. by cessation of Salary Redirection under the Plan; or
4. by other distributions or non-taxable loans from the plans
maintained by the Employer or by any other employer, or by
borrowing from commercial sources on reasonable commercial
terms.
For purposes of this Subsection, the Participant's resources
shall be deemed to include those of his spouse and minor children
that are reasonably available to the Participant.
Section 6.2 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT WITHDRAWALS
Upon proper written application in such manner and in such form
as the Committee may specify, a Participant shall be permitted to
withdraw a portion or all of the balance of his Prior Plan
Employer Contribution Account and Prior
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Plan Salary Redirection Account while employed, determined as of
the Valuation Date coincident with or immediately preceding the
date of application but only to the extent that he would have been
permitted to withdraw the funds in the account if they had not
been transferred from the prior plan which was merged into this
Plan.
Section 6.3 PARTICIPANT LOANS
No Participant loans are permitted under this Plan. However, to
the extent that a plan that is merged into this Plan has loans
outstanding, the outstanding loan balance and accrued interest may
be transferred to this Plan and segregated in the Participant's
Individual Account until repaid. The loan shall be repaid and
subject to the terms of the loan agreement, including the
provisions of the merged plan.
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ARTICLE 7
FUNDING
Section 7.1 CONTRIBUTIONS
Contributions by the Employer and by the Participants as provided
for in Article 3 shall be paid over to the Trustee. All
contributions by the Employer shall be irrevocable, except as
herein provided, and may be used only for the exclusive benefit of
the Participants, Former Participants and their Beneficiaries.
Section 7.2 TRUSTEE
The Sponsoring Employer has entered into an agreement with the
Trustee whereunder the Trustee will receive, invest and administer
trust fund contributions made under this Plan in accordance with
the Trust Agreement.
Such Trust Agreement is incorporated by reference as a part of the
Plan, and the rights of all persons hereunder are subject to the
terms of the Trust Agreement. The Trust Agreement specifically
provides, among other things, for the investment and reinvestment
of the Fund and the income thereof, the management of the Trust
Fund, the responsibilities and immunities of the Trustee, removal
of the Trustee and appointment of a successor, accounting by the
Trustee and the disbursement of the Trust Fund.
The Trustee shall, in accordance with the terms of such Trust
Agreement, accept and receive all sums of money paid to it from
time to time by the Employer, and shall hold, invest, reinvest,
manage and administer such moneys and the increment, increase,
earnings and income thereof as a trust fund for the exclusive
benefit of the Participants, Former Participants and their
Beneficiaries or the payment of reasonable expenses of
administering the Plan.
In the event that affiliated or subsidiary Employers become
signatory hereto, completely independent records, allocations, and
contributions shall be maintained for each Employer. The Trustee
may invest all funds without segregating assets between or among
signatory Employers.
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ARTICLE 8
FIDUCIARIES
Section 8.1 GENERAL
(a) Each Fiduciary who is allocated specific duties or
responsibilities under the Plan or any Fiduciary who assumes
such a position with the Plan shall discharge his duties
solely in the interest of the Participants, Former
Participants and Beneficiaries and for the exclusive purpose
of providing such benefits as stipulated herein to such
Participants, Former Participants and Beneficiaries, or
defraying reasonable expenses of administering the Plan. Each
Fiduciary, in carrying out such duties and responsibilities,
shall act with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in
exercising such authority or duties.
(b) A Fiduciary may serve in more than one Fiduciary capacity and
may employ one or more persons to render advice with regard to
his Fiduciary responsibilities. If the Fiduciary is serving as
such without compensation, all expenses reasonably incurred by
such Fiduciary shall be paid from the Trust Fund or by the
Employer.
(c) A Fiduciary may allocate any of his responsibilities for the
operation and administration of the Plan. In limitation of
this right, a Fiduciary may not allocate any responsibilities
as contained herein relating to the management or control of
the Trust Fund except through the employment of an investment
manager as provided in Section 8.3 of this Article and in the
Trust Agreement relating to the Fund.
Section 8.2 EMPLOYER
(a) The Sponsoring Employer established and maintains the Plan for
the benefit of its Employees and for Employees of
Participating Employers and of necessity retains control of
the operation and administration of the Plan. The Sponsoring
Employer, in accordance with specific provisions of the Plan,
has as herein indicated, delegated certain of these rights and
obligations to the Trustee, and the Committee and these
parties shall be solely responsible for these, and only these,
delegated rights and obligations.
(b) The Employer shall supply such full and timely information for
all matters relating to the Plan as (a) the Committee, (b) the
Trustee, and (c) the accountant engaged on behalf of the Plan
by the Sponsoring Employer may require for the effective
discharge of their respective duties.
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Section 8.3 TRUSTEE
The Trustee, in accordance with the Trust Agreement, shall be a
directed Trustee with respect to Trust Fund, except that the
Committee may in its discretion employ the Trustee any time and
from time to time as an investment manager (as defined in Section
3(38) of ERISA) with respect to all or a designated portion of the
assets comprising the Trust Fund. The committee or an investment
manager so appointed shall have the exclusive authority or
discretion to manage the Trust Fund.
Section 8.4 RETIREMENT COMMITTEE
(a) The Board of the Sponsoring Employer shall appoint a Committee
of one or more persons to hold office at the pleasure of the
Board, such committee to be known as the Retirement Committee
or Committee. No compensation shall be paid members of the
Committee from the Trust Fund for service on such Committee.
The Committee shall choose from among its members a chairman
and a secretary. Any action of the Committee shall be
determined by the vote of a majority of its members. Either
the chairman or the secretary may execute any certificate or
written direction on behalf of the Committee.
(b) Every decision and action of the Committee shall be valid if
concurrence is by a majority of the members then in office,
which concurrence may be had without a formal meeting.
(c) In accordance with the provisions hereof, the Committee has
been delegated certain administrative functions relating to
the Plan with all powers necessary to enable it to properly
carry out such duties. The Committee shall have no power in
any way to modify, alter, add to or subtract from, any
provisions of the Plan. The Committee shall have the power and
authority in its sole, absolute and uncontrolled discretion to
control and manage the operation and administration of the
Plan and its investment and shall have all powers necessary to
accomplish these purposes, and to make factual determinations
regarding Participants and their accounts. The responsibility
and authority of the Committee shall include, but shall not be
limited to, (i) determining all questions relating to the
eligibility of employees to participate; (ii) determining the
amount and kind of benefits payable to any Participant, spouse
or Beneficiary; (iii) establishing and reducing to writing and
distributing to any Participant or Beneficiary a claims
procedure and administering that procedure, including the
processing and determination of all appeals thereunder and
(iv) interpreting the provisions of the Plan including the
publication of rules for the regulation of the Plan as in its
sole, absolute and uncontrolled discretion are deemed
necessary or advisable and which are not inconsistent with the
express terms hereto the Code or ERISA, as
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amended. All disbursements by the Trustee, except for the
ordinary expenses of administration of the Trust Fund or the
reimbursement of reasonable expenses at the direction of the
Sponsoring Employer, as provided herein, shall be made upon,
and in accordance with, the written directions of the
Committee. When the Committee is required in the performance
of its duties hereunder to administer or construe, or to reach
a determination, under any of the provisions of the Plan, it
shall do so on a uniform, equitable and nondiscriminatory
basis.
(d) The Committee shall establish rules and procedures to be
followed by the Participants, Former Participants and
Beneficiaries in filing applications for benefits and for
furnishing and verifying proofs necessary to establish age,
Service, and any other matters required in order to establish
their rights to benefits in accordance with the Plan.
Additionally, the Committee shall establish accounting
procedures for the purpose of making all allocations,
valuations and adjustments to Participants' accounts. Should
the Committee determine that the strict application of its
accounting procedures will not result in an equitable and
nondiscriminatory allocation among the accounts of
Participants, it may modify its procedures for the purpose of
achieving an equitable and non-discriminatory allocation in
accordance with the general concepts of the Plan, provided
however that such adjustments to achieve equity shall not
reduce the vested portion of a Participant's interest.
(e) The Committee may employ such counsel, accountants, and other
agents as it shall deem advisable. The Sponsoring Employer
shall pay, or cause to be paid from the Trust Fund, the
compensation of such counsel, accountants, and other agents
and any other expenses incurred by the Committee in the
administration of the Plan and Trust.
Section 8.5 CLAIMS PROCEDURES
The Committee has delegated to the Human Resources Department (the
"Claims Coordinator") the processing of all applications for
benefits. Upon receipt by the Claims Coordinator of such an
application, it shall determine all facts which are necessary to
establish the right of an applicant to benefits under the
provisions of the Plan and the amount thereof as herein provided.
Upon request, the Claims Coordinator will afford the applicant the
right of a hearing with respect to any finding of fact or
determination. The applicant shall be notified in writing of any
adverse decision with respect to his claim within 90 days after
its submission. The notice shall be written in a manner calculated
to be understood by the applicant and shall include the items
specified in Section 8.5(a) through (d).
(a) The specific reason or reasons for the denial;
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(b) Specific references to the pertinent Plan provisions on which
the denial is based;
(c) A description of any additional material or information
necessary for the applicant to perfect the claim and an
explanation why such material or information is necessary; and
(d) An explanation of the Plan's claim review procedures.
(e) If special circumstances require an extension of time for
processing the initial claim, a written notice of the
extension and the reason therefor shall be furnished to the
claimant before the end of the initial 90 day period. In no
event shall such extension exceed 90 days.
(f) In the event a claim for benefits is denied or if the
applicant has had no response to such claim within 90 days of
its submission (in which case the claim for benefits shall be
deemed to have been denied), the applicant or his duly
authorized representative, at the applicant's sole expense,
may appeal the denial to the Committee within 60 days of the
receipt of written notice of denial or 60 days from the date
such claim is deemed to be denied. In pursuing such appeal the
applicant or his duly authorized representative:
(1) May request in writing that the Committee review the
denial;
(2) May review pertinent documents; and
(3) May submit issues and comments in writing.
(g) The decision on review shall be made within 60 days of receipt
of the request for review, unless special circumstances
require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later
than 120 days after receipt of a request for review. If such
an extension of time is required, written notice of the
extension shall be furnished to the claimant before the end of
the original 60 day period. The decision on review shall be
made in writing, shall be written in a manner calculated to be
understood by the claimant, and shall include specific
references to the provisions of the Plan on which such denial
is based. If the decision on review is not furnished within
the time specified above, the claim shall be deemed denied on
review.
Section 8.6 RECORDS
All acts and determinations of the Claims Coordinator or the
Committee shall be duly recorded by the Claims Coordinator or the
secretary of the Committee thereof and all such records together
with such other documents as may be
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necessary in exercising their duties under the Plan shall be
preserved in the custody of such secretary. Such records and
documents shall at all times be open for inspection and for the
purpose of making copies by any person designated by the
Sponsoring Employer. The Committee shall provide such timely
information, resulting from the application of its
responsibilities under the Plan, as needed by the Trustee and the
accountant engaged on behalf of the Plan by the Sponsoring
Employer, for the effective discharge of their respective duties.
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ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
Section 9.1 AMENDMENT OF THE PLAN
The Sponsoring Employer shall have the right at any time by action
of the Board to modify, alter or amend the Plan in whole or in
part; provided, however, that the duties, powers and liability of
the Trustee hereunder shall not be increased without its written
consent; and provided, further, that the amount of benefits which,
at the time of any such modification, alteration or amendment,
shall have accrued for any Participant, Former Participant or
Beneficiary hereunder shall not be adversely affected thereby; and
provided, further, that no such amendments shall have the effect
of reverting to the Employer any part of the principal or income
of the Trust Fund. No amendment to the Plan shall decrease the
balance of a Participant's Individual Account or eliminate an
optional form of distribution.
Section 9.2 TERMINATION OF THE PLAN
The Sponsoring Employer expects to continue the Plan indefinitely,
but continuance is not assumed as a contractual obligation and the
Sponsoring Employer reserves the right at any time by action of
the Board to terminate its participation in the Plan. If the
Sponsoring Employer terminates or partially terminates its
participation in the Plan or permanently discontinues its
Contributions at any time, each Participant affected thereby shall
be then vested with the amount allocated to his Individual
Account.
In the event of termination or partial termination of the Plan by
the Sponsoring Employer, the Committee shall value the Trust Fund
as of the date of termination. That portion of the Trust Fund for
which the Plan has not been terminated shall be unaffected.
Section 9.3 RETURN OF CONTRIBUTIONS
It is intended that this Plan shall be approved and qualified
under the Code and Regulations issued thereunder with respect to
Employees' Plans and Trusts (1) so as to permit the Employers to
deduct for federal income tax purposes the amounts of
contributions to the Trust; (2) so that contributions so made and
the income of the Trust Fund will not be taxable to Participants
as income until received; (3) so that the income of the Trust Fund
shall be exempt from federal income tax. In the event the
Commissioner of Internal Revenue or his delegate rules that the
deduction for all or a part of any Employer Contribution (or
Salary Redirection) is not allowed, the Employers reserve the
right to recover that portion or all of their contributions for
which no deduction is allowed, provided such recovery is made
within one year of the disallowance.
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ARTICLE 10
MISCELLANEOUS
Section 10.1 GOVERNING LAW
The Plan shall be construed, regulated and administered according
to the laws of the Commonwealth of Kentucky, except in those areas
preempted by the laws of the United States of America.
Section 10.2 CONSTRUCTION
The headings and subheadings in the Plan have been inserted for
convenience of reference only and shall not affect the
construction of the provisions hereof. In any necessary
construction the masculine shall include the feminine and the
singular the plural, and vice versa.
Section 10.3 ADMINISTRATION EXPENSES
The expenses of administering the Trust Fund and the Plan shall be
paid from the Trust Fund, unless they are paid by the Employer.
Section 10.4 PARTICIPANT'S RIGHTS
No Participant in the Plan shall acquire any right to be retained
in the Employer's employ by virtue of the Plan, nor, upon his
dismissal, or upon his voluntary termination of employment, shall
he have any right or interest in and to the Trust Fund other than
as specifically provided herein. The Employer shall not be liable
for the payment of any benefit provided for herein; all benefits
hereunder shall be payable only from the Trust Fund.
Section 10.5 NONASSIGNABILITY
(a) The benefit or interest under the Plan and Trust of any person
shall not be assignable or alienable by that person and shall
not be subject to alienation by operation of law or legal
process. The preceding sentence shall apply to the creation,
assignment or recognition of any right to any benefit pay able
with respect to a Participant pursuant to a domestic relations
order, unless such order is determined to be a qualified
domestic relations order, as defined in Section 414(p) of the
Code. A domestic relations order entered before January 1,
1985, shall be treated as a qualified domestic relations order
if payment of benefits pursuant to the order has commenced as
of such date, and may be treated as a qualified domestic
relations order if payment of benefits is not commenced as of
such date, even though the order does not satisfy the
requirements of Section 414(p) of the Code.
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(b) This Plan specifically permits a distribution to an alternate
payee under a qualified domestic relations order at any time,
irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code Section 414(p))
under the Plan. A distribution to an alternate payee prior to
the Participant's attainment of earliest retirement age is
available only if: (a) the order specifies distribution at
that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (b)
if the present value of the alternate payee's benefits under
the Plan exceeds $3,500, and the order requires, the alternate
payee consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age. Nothing
in this Section 10.5 gives a Participant a right to receive
distribution at a time otherwise not permitted under the Plan
nor does it permit the alternate payee to receive a form of
payment not permitted under the Plan.
Section 10.6 MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with
another plan or transfer of assets or liabilities from the Plan to
another plan, each then Participant, Former Participant or
Beneficiary shall not, as a result of such event, be entitled on
the day following such merger, consolidation or transfer under the
termination of the Plan provisions to a lesser benefit than the
benefit he was entitled to on the date prior to the merger,
consolidation or transfer if the Plan had then terminated.
Section 10.7 COUNTERPARTS
The Plan and the Trust Agreement may be executed in any number of
counterparts, each of which shall constitute but one and the same
instrument and may be sufficiently evidenced by any one
counterpart.
Section 10.8 ADMINISTRATIVE MISTAKE
If the Committee discovers that a mistake has been made in
crediting Salary Redirection Contributions or Employer
Contributions, withholding Salary Redirection Contributions from a
Participant's compensation, or crediting earnings to the account
of any Participant, the Committee shall take any administrative
action which it deems necessary or appropriate to remedy the
mistake in question, and may request the Employer to make a
special contribution to the account of the Participant where
appropriate. If the Committee discovers that a mistake has been
made in calculating the amount of any excess Salary Redirection or
other contribution under Sections 3.4, 3.5 or 4.6, or earnings on
such excess amount, which amount is required to be distributed to
a Participant, the Committee shall take such administrative action
as it deems necessary or appropriate to remedy the mistake in
question.
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ARTICLE 11
TOP HEAVY PLAN PROVISIONS
Section 11.1 GENERAL
Notwithstanding anything in the Plan to the contrary, if this Plan
when combined with all other plans required to be aggregated
pursuant to Code Section 416(g) is deemed to be a top-heavy plan
for any Plan Year, the provisions of this Article shall apply to
such Plan Year.
Section 11.2 MINIMUM CONTRIBUTION
Regardless of hours worked, each active Participant who is not a
Key Employee shall be entitled to a minimum allocation of
contributions and forfeitures equal to the lesser of (i) three
percent (3%) of the Participant's Compensation for the Plan Year;
and (ii) provided that the Plan is not part of a Required
Aggregation Group with a Defined Benefit Plan because the Plan
enables the Defined Benefit Plan to meet the requirements of Code
Section 401(a)(4) or 410, the highest percentage of Compensation
contributed on behalf of, plus forfeitures allocated to, a Key
Employee. In the case of a Participant who is also a participant
in a defined benefit plan maintained by the Employer, the minimum
accrued benefit provided in the defined benefit plan pursuant to
Code Section 416(c)(1) equal to two percent of the Participant's
average monthly compensation for the five consecutive years when
his aggregate compensation was highest multiplied by his years of
credited service up to ten years for each plan year in which the
Plan is top heavy, shall be the only minimum benefit for both that
plan and this Plan, and the minimum allocation described above
shall not apply.
Section 11.3 SUPER TOP HEAVY PLAN
The multiplier of 1.25 in Section 4.7 shall be reduced to 1.0
unless (i) all plans of the Required Aggregation Group or the
Permissive Aggregation Group, when aggregated, are 90% or less top
heavy, and (ii) the minimum accrued benefit referenced in clause
(i) of Section 11.2 is modified by substituting three percent with
four percent. In the case of each Participant who is also a
participant in a defined benefit plan maintained by the Employer,
the minimum accrued benefit provided in the defined benefit plan
pursuant to Code Sections 416(c)(1) and 416(h) equal to three
percent of the Participant's average monthly compensation for the
five highest consecutive years when his aggregate compensation was
highest multiplied by his years of credited service up to ten
years for each plan year in which the Plan is top heavy shall be
the only minimum benefit for both that plan and this Plan, and the
minimum allocation described above shall not apply.
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Section 11.4 MINIMUM VESTING
In the event that the regular vesting schedule in Article 5 is
less liberal than the vesting schedule hereinafter provided, then
such vesting schedule shall be substituted with the following to
the extent that the following schedule is more favorable:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 years or more 100%
Should the Plan cease to be a Top Heavy Plan, the regular vesting
schedule in Article 5 shall be put back into effect. However, the
vested percentage of any Participant cannot be decreased as a
result of the return to the prior vesting schedule and any
Participant with three or more years of Service may elect within
the later of: (1) 60 days after the Plan ceases to be a Top Heavy
Plan or (2) 60 days after the date the Participant is issued
written notification of the change in the vesting schedules, to
remain under the special vesting rules described in this Section.
Section 11.5 COMPENSATION
For purposes of this Article, compensation shall have the same
meaning as assigned to it by Code Section 415 and shall be limited
to such amount as required by Code Section 401(a)(17).
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ARTICLE 12
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN
Section 12.1 GENERAL. Any Employer that, with the Committee's consent, adopts
this Plan and becomes a party to the Trust Agreement shall be a
"Participating Employer." Participating Employers as of January 1,
1997 are listed on Appendix B to the Plan, and any Participating
Employers added in the future shall be so listed as soon as
reasonably practicable after the Committee consents to their
adoption of this Plan. Each Participating Employer shall be
subject to the terms and conditions of this Plan as in effect at
the effective date of adoption by the Participating Employer and
as subsequently amended from time to time by the Vencor, Inc. (For
purposes of this section, the "Sponsoring Employer"), subject to
such modifications as are set forth in the document evidencing the
Participating Employer's adoption of the Plan. Unless the context
of the Plan clearly indicates to the contrary, the terms "Company"
and "Employer" shall be deemed to include each Participating
Employer as relates to its adoption of the Plan. When an entity
ceases to be an "Employer" because it is no longer part of the
Company, the entity shall cease to be a Participating Employer.
Section 12.4 shall not apply to such cessation.
Section 12.2 SINGLE PLAN. This Plan shall be deemed to be a single plan of all
Employers that have adopted this Plan. Employer contributions
shall not be accounted for separately, and all Plan assets shall
be available to pay benefits to all Participants and their
Beneficiaries. Employees may be transferred among Participating
Employer or employed simultaneously by more than one Participating
Employer, and no such transfer or simultaneous employment shall
effect a termination of employment, be deemed retirement or be the
cause of a Forfeiture or a loss of years of Service under this
Plan. For purposes of determining years of Service and the payment
of benefits upon death or other termination of employment, all
Participating Employers shall be deemed one Employer. Any
Participant employed by a Participating Employer during a Plan
Year who receives any Compensation from a Participating Employer
during that Plan Year shall receive an allocation of any Employer
Contributions and Forfeitures for the Plan Year in accordance with
Article 3 based on his Compensation during that Plan Year.
Section 12.3 SPONSORING EMPLOYER AS AGENT. Each Participating Employer shall be
deemed to have designated irrevocably the Sponsoring Employer as
its sole agent (1) for all purposes under Section 8 (including
fixing the number of members of, and the appointment and removal
of, the Committee); (2) with respect to all its relations with the
Trustee (including the Trustee's appointment and removal, and
fixing the number of Trustees); and (3) for the purpose of
amending this Plan. The Committee shall make any and all rules and
regulations which it shall deem necessary or appropriate to
effectuate the purpose of this Article 12, and such rules and
regulations shall be binding upon the Sponsoring Employer, the
Participating Employers, the Participants and Beneficiaries.
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Section 12.4 WITHDRAWAL OF EMPLOYER. Any Participating Employer may withdraw
its participation in the Plan by giving written notice to the
Administrator stating that it has adopted a separate plan. The
notice shall be given at least six months prior to a designated
Valuation Date, unless the Committee shall accept a shorter period
of notification. Upon request of the withdrawing Participating
Employer, the Committee may, but shall not be obligated to,
instruct the Trustee to transfer the withdrawing Participating
Employer's interest in the Fund to the Participating Employer's
separate plan in accordance with the following rules: Promptly
after the Valuation Date as of which the transfer is to occur, the
Committee, shall establish the withdrawing Participating
Employer's interest in the Trust Fund, after a reduction for fees
and other expenses related to the Participating Employer's
withdrawal. The Trustee shall then, in accordance with the
Committee's instructions, transfer the withdrawing Participating
Employer's interest in the Fund to the trustee or other funding
agent of the Participating Employer's separate plan. Neither the
Trustee nor the Committee shall be obligated to transfer or direct
the transfer of assets under this Article until they are satisfied
as to all matters pertain ing to the transfer, including, but not
limited to, the tax qualification of the plan into which the
transfer will be made. The Committee and the Trustee may rely
fully on the representations and instructions of the withdrawing
Participating Employer and shall be fully protected and discharged
with respect to any transfer made in accordance with such
representations or instructions. Any transfer of assets in
accordance with this Article shall constitute a complete discharge
of responsibility of the Sponsoring Employer, the remaining
Participating Employer, their Boards of Directors and officers,
and the Trustee without any responsibility on their part
collectively or individually to see to the application thereof.
The Committee in its sole discretion shall have the right to
transfer the withdrawing Participating Employer's interest in the
Fund to the new plan in the form of installments, in cash, or in
cash and kind and over a period of time not to exceed one year
following the designated Valuation Date as of which the transfer
is to occur. Any assets which are invested in accordance with an
investment contract or agreement which by its terms precludes the
realization upon and distribution of such assets for a stated
period of time shall continue to be held by the Trustee under the
terms and conditions of this Plan until the expiration of such
period, sub ject to the Committee's instructions. The Committee
may in its sole discretion direct the Trustee to segregate the
Accounts of all affected Participants into a separate fund to
facilitate transfer, and the Administrator may in its sole
discretion direct the Trustee to invest the separate fund only in
cash equivalent investments.
Section 12.5 TERMINATION OF PARTICIPATION. The Board of Directors of a
Participating Employer may at any time terminate this Plan with
respect to its Employees by adopting a resolution to that effect
and delivering a certified copy to the Committee. Section 9.2
shall not apply to vest the Individual Accounts of a Participating
Company's Employees upon such termination (unless the termination
results in a partial termination of the entire Plan), and the
continuation of the Plan by the Sponsoring Employer and other
Participating Employers shall not be
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affected. The termination of the Plan with respect to a
Participating Employer's Employees shall not effect a termination
with respect to an Employee of the Sponsoring Employer or another
Participating Employer if such Employee was not employed by the
terminating Participating Employer on the effective date of the
termination, even though he may have been employed by the
terminating Participating Employer at an earlier date, and shall
not entitle a Participant to a distribution until an actual
separation from service with the meaning prescribed under Code
Section 401(k)(2)(B) has occurred, unless the distribution follows
an event in Code Section 401(k)(10) and the Treasury Regulations
thereunder. Any fees and other expenses related to a Participating
Employer's termination shall be charged against the Accounts of
the affected Participants, if not paid by the terminating
Participating Employer.
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SIGNATURES
----------
IN WITNESS WHEREOF, THE SPONSORING EMPLOYER HAS CAUSED THIS PLAN TO BE
EXECUTED THIS 31 DAY OF DECEMBER, 1997, BUT EFFECTIVE JANUARY 1, 1997.
VENCOR, INC.
BY /s/ Cecelia A. Hagan
---------------------------------------
TITLE: Vice-President of Human Resources
-----------------------------------
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APPENDIX "A"
PAST SERVICE PURSUANT TO SECTION 1.44(c)
(FOR COMPANIES ACQUIRED BUT PLANS NOT MERGED)
---
Location Date of Acquisition
-------- -------------------
Vencor Dallas 2/27/89
Vencor Ft. Lauderdale 12/20/89
Vencor Sycamore 10/10/86
Vencor LaGrange 9/4/85
Vencor So. Texas 9/9/88
Vencor Tampa 10/19/88
Vencor So. Louisiana 8/30/88
Nationwide Care, Inc.--Service for all periods from date of hire with this
company Any company for which past service was granted for purposes of the
Hillhaven Retirement or Deferred Savings Plan, as determined by that plan as in
effect prior to January 1, 1997
* * * * * *
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APPENDIX "B"
PARTICIPATING EMPLOYERS
AS OF JANUARY 1, 1997
Advanced Infusion Systems, Inc.
Brim of Massachusetts, Inc.
BORA Acquisition, Inc.
Cornerstone Insurance Company
First Healthcare Corporation
First Rehab, Inc.
Hahnemann Hospital, Inc.
Healthcare Rehabilitation Inc.
Hillhaven Home Care, Inc.
Hillhaven of Central Florida, Inc.
and the partnership which it and First Healthcare own
100% Carrollwood Care Center
LV Acquisition Corp.
Meadowvale Skilled Care Center, Inc.
Medisave of Florida, Inc.
Medisave of Tennessee, Inc.
Nationwide Care, Inc.
and the partnerships which it and First Healthcare own 100% -
Hillhaven/Indiana Partnership, New Pond Village Associates, St. George
Nursing Home Limited Partnership and Stickton Healthcare Center, Ltd.
NFM, Inc.
Northwest Health Care, Inc.
Pasatiempo Development Corp.
Peach Acquisition Corp.
Twenty-Nine Hundred Corporation
VCI Specialty Services, Inc.
Vencare Hospice, Inc.
Vencare, Inc.
Vencor Home Health Services, Inc.
Vencor Hospitals of California, Inc.
Vencor Hospitals East, Inc.
Vencor Hospitals Illinois, Inc.
Vencor Hospitals South, Inc.
Vencor Investments, Inc.
Vencor Kentucky, Inc.
Vencor Properties, Inc.
and the partnership which it and VCI Specialty Services, Inc.
own 100% - Vencor Hospitals Texas, Ltd.
Vencor, Inc.
Ventech Systems, Inc.
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EXHIBIT 10.3
AMENDMENT NO. 1 TO THE
VENCOR RETIREMENT SAVINGS PLAN
This is Amendment No. 1 ("Amendment") to the Vencor Retirement Savings Plan
("Plan") as amended and restated as of January 1, 1997 ("Plan").
RECITALS
A. For various business organization purposes, two subsidiaries (and all
of those companies' first and second tier subsidiaries) of TheraTx, Inc., a new
subsidiary of Vencor, Inc., will be moved to the Vencor, Inc. payroll system
before other subsidiaries in the TheraTx group.
B. When these companies are added to the Vencor, Inc. payroll system, it
will be impracticable to continue 401(k) plan deferrals to the existing TheraTx
401(k) Plan ("TheraTx Plan") in which those companies currently participate, and
the companies do not desire to have a long gap in retirement plan participation
for their employees.
C. The TheraTx Plan allows immediate participation of new hires who are
over the age of 21, while the Plan requires a 12 month waiting period before
participation.
D. It is anticipated that the TheraTx Plan will eventually be merged with
the Plan, in which event the Plan would require counting of past service with
employers participating in the TheraTx Plan for purposes of vesting in the Plan.
AMENDMENTS
1. This Amendment shall be effective July 1, 1997.
2. All capitalized terms used in this Amendment and not otherwise defined
shall have the meanings given in the Plan.
3. Section 2.1 is hereby amended by adding new paragraphs (e), (f) and
(g) to the end thereof to read in their entirety as follows:
(e) If on or before July 1, 1997, the Board of Directors of Respiratory
Care Services, Inc. ("RCS") and PersonaCare, Inc., and all of its
first and second tier subsidiaries ("PersonaCare"), shall have adopted
a resolution to become a participating employer in this Plan,
notwithstanding the provisions of Section 2.3(d), all Non-Highly
Compensated RCS Employees as of May 1, 1997 and all Non-Highly
Compensated PersonaCare Employees as of July 1, 1997, who, in each
case is age 21 or older, shall be eligible to participate in this Plan
as of July 1, 1997.
(f) All Highly Compensated Employees of RCS and PersonaCare who meet the
age and service requirements of Section 2.1(a) of this Plan as of July
1, 1997 (counting service with RCS and PersonaCare) shall be eligible
to participate as of July 1, 1997, or, if later, the Entry Date
coinciding with
<PAGE>
or next following the date they meet those age and service
requirements.
(g) Any person hired by RCS after April 30, 1997, or by PersonaCare after
June 30, 1997, shall be eligible to participate in accordance with
Section 2.1(a).
4. Appendix "A" to the Plan is hereby amended to add to the end of the
Appendix all of the companies listed on Annex A of this Amendment, so that past
service with these companies shall be counted for purposes of vesting Service
under the Plan.
5. Section 9.1 of the Plan is hereby amended so that as amended it shall
read in its entirety as follows:
Section 9.1 AMENDMENT OF THE PLAN
The Sponsoring Employer shall have the right at any time by action of
the Board (or, in the case of amendments to the eligibility, vesting
and service-counting provisions of the Plan with respect to
Participating Employers, the Board or the Committee) to modify, alter
or amend the Plan in whole or in part; provided, however, that the
duties, powers and liability of the Trustee hereunder shall not be
increased without its written consent; and provided, further, that the
amount of benefits which, at the time of any such modification,
alteration or amendment, shall have accrued for any Participant,
Former Participant or Beneficiary hereunder shall not be adversely
affected thereby; and provided, further, that no such amendments shall
have the effect of reverting to the Employer any part of the principal
or income of the Trust Fund. No amendment to the Plan shall decrease
the balance of a Participant's Individual Account or eliminate an
optional form of distribution.
6. Section 2.3(d) of the Plan is hereby amended so that as amended it
shall read in its entirety as follows:
(d) If an Employee transfers employment from a non-adopting employer
which is a part of the Company or which participates in the RSP
(as defined in Section 2.1(d)) to the Employer (for purposes of
this Section, an "Affiliate"), the Employee shall become a
Participant under this Plan as of the date of transfer of
employment to the Employer, provided he has been employed by the
Affiliate, as of the date of transfer of employment, for the
period required in Section 2.1(a) or (b), calculated from his
original date of hire with the Affiliate. If the Employee who
transfers employment from an Affiliate to the Employer has not
been employed, as of the date of transfer of employment, for the
period required in Section 2.1(a) or (b), he shall become a
Participant under this Plan upon meeting the eligibility
requirements of Section 2.1(a) or (b), counting all past Service
with the Affiliate for that purpose. Notwithstanding the
preceding
-2-
<PAGE>
sentences, if an Employee other than a Highly Compensated
Employee was eligible to participate in TheraTx, Incorporated
401(k) Plan prior to transferring to the Employer, the Employee
shall be eligible to participate in this Plan immediately upon
such transfer.
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment No. 1 to
be executed this the 31st day of December, 1997, but effective as of July 1,
1997.
VENCOR, INC.
By /s/ Cecelia A. Hagan
--------------------------------------
Title Vice President of Human Resources
-----------------------------------
-3-
<PAGE>
ANNEX A
Respiratory Care Services, Inc.
PersonaCare, Inc.
PersonaCare of San Antonio, Inc.
PersonaCare of Wisconsin, Inc.
PersonaCare of Huntsville, Inc.
PersonaCare of Pompano West, Inc.
PersonaCare of Rhode Island, Inc.
PersonaCare of San Pedro, Inc.
Tucker Nursing Center, Inc.
PersonaCare of Pennsylvania, Inc.
PersonaCare of Owensboro, Inc.
PersonaCare of Georgia, Inc.
PersonaCare of Connecticut, Inc.
Stamford Health Facilities, Inc.
Homestead Health Center, Inc.
Courtland Gardens Residence, Inc.
Courtland Gardens Health Care Center, Inc.
PersonaCare of Shreveport, Inc.
PersonaCare of Bradenton, Inc.
PersonaCare of Reading, Inc.
PersonaCare of Warner Robbins, Inc.
Lafayette Health Care Center, Inc.
PersonaCare of St. Petersburg, Inc.
PersonaCare of Clearwater, Inc.
PersonaCare of Pompano East, Inc.
PersonaCare of Ohio, Inc.
PersonaCare Living Center of Clearwater, Inc.
THTX, Inc.
Health Care Holdings, Inc.
Health Care Technology, Inc.
NFM, Inc.
PersonaCare Properties, Inc.
-4-
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 2 TO THE
VENCOR RETIREMENT SAVINGS PLAN
This is Amendment No. 2 ("Amendment") to the Vencor Retirement Savings Plan
("Plan") as amended and restated as of January 1, 1997 ("Plan").
RECITALS
A. For various business organization purposes, TheraTx, Inc., a
subsidiary of Vencor, Inc., and all of the subsidiaries of TheraTx, Inc. (and
all of those companies' first and second tier subsidiaries), except Respiratory
Care Services, Inc., and PersonaCare, Inc. (and all its subsidiaries), will be
moved to the Vencor, Inc. payroll system.
B. When these companies are added to the Vencor, Inc. payroll system, it
will be impracticable to continue 401(k) plan deferrals to the existing TheraTx
401(k) Plan ("TheraTx Plan") in which those companies currently participate, and
the companies do not desire to have a long gap in retirement plan participation
for their employees.
C. The TheraTx Plan allows immediate participation of new hires who are
over the age of 21, while the Plan requires a 12 month waiting period before
participation.
D. It is anticipated that the TheraTx Plan will eventually be merged with
the Plan, in which event the Plan would require counting of past service with
employers participating in the TheraTx Plan for purposes of vesting in the Plan.
AMENDMENTS
1. This Amendment shall be effective January 1, 1998.
2. All capitalized terms used in this Amendment and not otherwise defined
shall have the meanings given in the Plan.
3. Section 2.1 is hereby amended by adding new paragraphs (h), (i) and
(j) to the end thereof to read in their entirety as follows:
(h) If on or before January 1, 1998, the Board of Directors of TheraTx,
Inc. and all its subsidiaries, including first and second tier
subsidiaries, other than RCS and PersonaCare (and its subsidiaries),
("TheraTx and its Subsidiaries") shall have adopted a resolution to
become a participating employer in this Plan, notwithstanding the
provisions of Section 2.3(d), all Non-Highly Compensated Employees of
TheraTx and its Subsidiaries who are age 21 or older shall be eligible
to participate in this Plan as of January 1, 1998.
(i) All Highly Compensated Employees of TheraTx and its Subsidiaries who
meet the age and service requirements of Section 2.1(a) of this Plan
as of January 1, 1998 (counting their service with TheraTx and its
Subsidiaries)
<PAGE>
shall be eligible to participate as of January 1, 1998, or, if later,
the Entry Date coinciding with or next following the date they meet
those age and service requirements.
(j) Any person hired by TheraTx or its Subsidiaries after December 31,
1997, shall be eligible to participate in accordance with Section
2.1(a).
4. Appendix "A" to the Plan is hereby amended to add to the end of the
Appendix all of the companies listed on Annex A of this Amendment, so that past
service with these companies shall be counted for purposes of vesting Service
under the Plan.
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment No. 2 to
be executed this the 31st day of December, 1997, but effective as of January 1,
1998.
VENCOR, INC.
By /s/ Cecelia A. Hagan
---------------------------------------
Title Vice President of Human Resources
------------------------------------
-2-
<PAGE>
ANNEX A
TheraTx, Inc.
TheraTx Medical Supplies, Inc.
TheraTx Staffing, Inc.
TheraTx Management Services, Inc.
TheraTx Health Services, Inc.
TheraTx Rehabilitation Services, Inc.
TheraTx Healthcare Management, Inc.
WorkNet, Inc.
HORA Acquisition, Inc.
Horizon Healthcare Services, Inc.
Tunstall Enterprises, Inc.
-3-
<PAGE>
EXHIBIT 10.5
AMENDMENT NO. 3 TO THE
VENCOR RETIREMENT SAVINGS PLAN
This is Amendment No. 3 to the Vencor Retirement Savings Plan (the "VRSP")
as amended and restated as of January 1, 1997.
RECITALS
A. For various business organization purposes, Community Psychiatric
Centers, Inc. ("CPC"), a subsidiary of Vencor, Inc. ("Vencor"), and most of
CPC's first and second tier subsidiaries (collectively, the "CPC Companies"),
will be moved to the Vencor payroll system effective January 1, 1998.
B. When the CPC Companies are added to the Vencor payroll system, it will
be impracticable to continue 401(k) plan deferrals to the existing THC
Employees' Profit Sharing Plan (the "THC Plan") in which the CPC Companies
currently participate, and the CPC Companies do not desire to have a long gap in
retirement plan participation for their employees.
C. It is anticipated that the THC Plan will eventually be merged with the
VRSP, in which event the VRSP would require counting of past service with
employers participating in the THC Plan for purposes of vesting in the VRSP, and
Vencor wishes to credit employees of the CPC Companies who are employed on
January 1, 1998 with past service with employers participating in the THC Plan
for purposes of vesting in the VRSP.
AMENDMENTS
1. This Amendment shall be effective January 1, 1998.
2. All capitalized terms used in this Amendment and not otherwise defined
shall have the meanings given in the Plan.
3. Appendix "A" to the Plan is hereby amended to add to the end of the
Appendix all of the companies listed on Annex A of this Amendment, so that past
service with these companies shall be counted for purposes of vesting Service
under the Plan.
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment No. 3
to be executed this the 31st day of December, 1997, but effective as of January
1, 1998.
VENCOR, INC.
By /s/ Cecelia A. Hagan
--------------------------------------
Title Vice President of Human Resources
-----------------------------------
<PAGE>
ANNEX A
Community Psychiatric Centers
Community Psychiatric Centers of Indiana, Inc.
Community Psychiatric Centers of Kansas, Inc.
Community Psychiatric Centers of Mississippi, Inc.
Community Psychiatric Centers of Arkansas, Inc.
Community Psychiatric Centers of Florida, Inc.
Community Psychiatric Centers of Idaho, Inc.
Community Psychiatric Centers of Missouri, Inc.
Community Psychiatric Centers of North Carolina, Inc.
Community Psychiatric Centers of Oklahoma, Inc.
Community Psychiatric Centers of Oregon, Inc.
Community Psychiatric Centers of Texas, Inc.
Cottonwood Hill, Inc.
Old Orchard Hospital, Inc.
Peachtree-Parkwood Hospital, Inc.
Community Psychiatric Centers of Utah, Inc.
Community Psychiatric Centers of Wisconsin, Inc.
C.P.C. of Louisiana, Inc.
Community Residential Centers of San Antonio, Inc.
CPC Properties of Oklahoma, Inc.
CPC Properties of Texas, Inc.
CPC Properties of Utah, Inc.
CPC Properties of Arkansas, Inc.
CPC Properties of Illinois, Inc.
CPC Properties of Kansas, Inc.
Florida Hospital Properties
CPC Properties of Louisiana, Inc.
CPC of Georgia, Inc.
CPC Properties of Mississippi, Inc.
CPC Properties of Indiana, Inc.
CPC Properties of Missouri, Inc.
CPC Properties of Wisconsin, Inc.
CPC Properties of N. Carolina, Inc.
Community Psychiatric Centers of California
Community Psychiatric Centers Properties Incorporated
CPC Investment Corporation
Transitional Hospitals Corporation
THC Chicago, Inc.
THC Orange County, Inc.
THC of Massachusetts, Inc.
THC of Florida, Inc.
-2-
<PAGE>
THC Hollywood, Inc.
THC San Diego, Inc.
J.B. King Hospital, Inc.
THC Houston, Inc.
THC Seattle, Inc.
THC of Nevada, Inc.
THC Minneapolis, Inc.
THC St. Petersburg, Inc.
THC of New Mexico, Inc.
THC of Wisconsin, Inc.
THC of Indiana, Inc.
THC of Tampa, Inc.
THC North Shore, Inc.
THC of Louisiana, Inc.
THC of Texas, Inc.
Belmedco
CPC Managed Care Health Services, Inc.
Community Behavioral Health System, Inc.
CPC Pharmacy, Inc.
CPC Laboratories, Inc.
Miami Valley Community Centers, Inc.
Solutions Counseling and Treatment Centers, Inc.
P.P.P, Inc.
Transitional Family Services of Georgia, Inc.
Atlantic Psychiatric Centers, Inc.
Interamericana Health Care Group, Inc.
Caribbean Behavioural Health Systems, Inc.
CPC-PHP, Inc.; and
-3-
<PAGE>
EXHIBIT 10.6
VENCOR, INC. 401(k)
-------------------
MASTER TRUST AGREEMENT
----------------------
Amended and Restated
--------------------
Effective as of
---------------
January 1, 1997
---------------
<PAGE>
VENCOR, INC. 401(k)
-------------------
MASTER TRUST AGREEMENT
----------------------
TABLE OF CONTENTS
-----------------
ARTICLE 1---TITLE...........................................................1
ARTICLE 2---CONTRIBUTIONS...................................................2
ARTICLE 3---THE RETIREMENT COMMITTEE........................................2
ARTICLE 4---THE TRUST FUND..................................................3
ARTICLE 5---POWERS AND DUTIES OF THE TRUSTEE................................5
ARTICLE 6---REMOVAL OR RESIGNATION OF THE TRUSTEE...........................8
ARTICLE 7---AMENDMENTS......................................................8
ARTICLE 8---DISCONTINUANCE OF THE PLANS.....................................8
ARTICLE 9---LIABILITY OF TRUSTEE............................................9
ARTICLE 10--MISCELLANEOUS..................................................11
<PAGE>
VENCOR, INC.401(k) MASTER
TRUST AGREEMENT
THIS MASTER TRUST AGREEMENT effective January 1, 1997, made and entered
into this ________ day of December, 1996, by Vencor, Inc. ("Employer"), and
Wachovia Bank of North Carolina, N.A., acting in its fiduciary capacity
("Trustee").
WITNESSETH THAT:
WHEREAS, the Employer maintains the Vencor, Inc. Retirement Savings Plan
("VRSP") to cover certain of its employees, continues to maintain after the
Employer's merger with The Hillhaven Corporation, the Hillhaven Retirement
Savings Plan ("RSP") and the Hillhaven Deferred Savings Plan (the "DSP ") for a
short period prior to its merger with the RSP or VRSP, to cover other employees
of the Employer, all of which are being amended and restated as of January 1,
1997 (together, the "Plans"); and
WHEREAS, the duties of the current trustee of the Plans will cease on
January 1, 1997 and Employer desires to enter into a master trust agreement
effective January 1, 1997 which will amend and restate the trust agreements for
each of the Plans, with Wachovia Bank of North Carolina, N.A. as Trustee; and
WHEREAS, Wachovia Bank of North Carolina, N.A. desires to serve as Trustee;
NOW, THEREFORE, the Employer enters into this amended and restated Vencor,
Inc. Retirement Savings Plan Trust Agreement ("Trust Agreement") in order to
carry out the provisions of the Plans for the benefit of those employees who
qualify for benefits under the provisions of the Plans. The Trustee agrees and
declares it will hold, administer and disburse all funds received in trust by it
from time to time as Trustee hereunder, for the uses and purposes and upon the
terms and conditions hereinafter stated. The Employer, in consideration hereof,
agrees with the Trustee as follows:
ARTICLE 1
TITLE
-----
Section 1.01 The Trust shall be known as the Vencor, Inc. 401(k) Master
------------
Trust Agreement. The Employer intends that this Trust shall constitute a part
of its Plans, and that they will together meet the requirements of the Act and
qualify under Code Sections 401(a) and 501(a).
<PAGE>
Section 1.02 All defined words and phrases in Article 1 of the VRSP, when
------------
used in this Trust Agreement, shall have the same meaning as given in Article 1
of the VRSP, unless a different meaning is clearly required by the context.
ARTICLE 2
CONTRIBUTIONS
-------------
Section 2.01 The Employer intends to deposit with the Trustee from time
------------
to time funds which will provide the benefits under the Plans. The Trustee
shall have no duty to collect or enforce payment to it of any contributions, or
to require any contributions to be made, and shall have no duty to compute any
amount to be paid to it nor to determine whether amounts paid comply with the
terms of a Plan. The Trustee shall hold the Trust Fund without distinction
between principal and income.
Section 2.02 All necessary expenses that may arise in connection with the
------------
administration of the Plans and Trust, including but not limited to Trustee
fees, will be paid from the Trust, unless otherwise paid by the Employer.
Section 2.03 The Trustee's fees shall be as set forth on Annex A hereto
------------
and incorporated herein by reference, which fees may not increase prior to
January 1, 2001. Except for the restriction on changes in the preceding
sentence, the Trustee's fees may be amended at any time by 60 days advance
written notice from the Trustee to the Committee, provided that, if the
Committee objects in writing to the change within that 60 days period, the fees
may not change as so noted, although the Trustee reserves the right to resign if
no change is agreed upon. Such fees shall be deducted by the Trustee from the
earnings or corpus of the Trust Fund, unless first paid by the Employer, with
the exception of any expenses which are specifically indicated on Annex A as
requiring Employer direction before payment from the Trust.
Section 2.04 Pursuant to the provisions of the Plans, subsidiaries or
------------
affiliates of the Employer may become parties hereto and make contributions
hereunder. The Trustee may commingle the assets of the Employer and its
subsidiaries or affiliates for investment purposes without maintaining separate
records of the entity from which contributions were deposited, unless
specifically directed by the Employer.
ARTICLE 3
THE RETIREMENT COMMITTEE
------------------------
Section 3.01 The Board of Directors of the Employer has, pursuant to the
------------
provisions of the Plans, appointed a Retirement Committee ("Committee") to
administer the Plans, keep records of individual Participant benefits, and
notify each Participant of the amount of his benefits periodically. The
operation of the Committee shall be governed by the terms of the
3
<PAGE>
Plans. The Employer will notify the Trustee of the names of the members of the
Committee and of any changes in membership that may take place from time to
time.
Section 3.02 The Committee shall direct the Trustee in writing to make
------------
payments from the Trust Fund to Participants who qualify for such payments under
the terms of the Plans. Such written order (which may be conveyed by facsimile)
to the Trustee shall specify the name of the Participant, his Social Security
number, his address, and the amount and frequency of such payments.
Section 3.03 The Trustee may request instructions in writing from the
------------
Committee on other matters and may rely and act thereon. The Committee may
further delegate its authority hereunder to direct the Trustee, and if it does
so shall notify the Trustee in writing of that delegation.
Section 3.04 The Committee shall be responsible for the determination of
------------
individual accounts, and the Trustee need not segregate accounts among
Participants for investment purposes, except as indicated in the Plans.
Section 3.05 The Trustee shall be a directed Trustee only, with no
------------
discretionary authority or responsibility, with respect to the assets of the
Plans allocated or allocable to the accounts of the Participants. The
Committee, as a named fiduciary, shall be solely responsible for the investment
of the assets of the Plans allocated or allocable to the accounts of
Participants (except as provided more specifically in paragraph (i) immediately
below or by Section 5.18 of the Trust). Without limitation, the Committee, as
named fiduciary,
(i) shall be responsible for investing such assets, except to the
extent that such investment responsibility is delegated to one or more
investment managers (other than the Trustee) under Section 403(a)(2) of the
Act;
(ii) shall, to the extent that Participants and their Beneficiaries
are given the right to direct the investment of their accounts, be the
fiduciary to whom Participants and Beneficiaries are entitled to give such
investment directions and the fiduciary responsible for carrying out such
investment directions (by directing the Trustee or otherwise);
(iii) shall be responsible for any loss, or by reason of any breach,
which results from the Participant's or Beneficiary's exercise of control
over his account, except to the extent that Section 404(c) of the Act
provides otherwise; and
(iv) shall be responsible for determining whether the documents and
instruments governing the investment of the assets allocated or allocable
to the accounts are consistent with the provisions of Titles I and IV of
the Act, and if not, investing such assets in accordance with Titles I and
IV of the Act notwithstanding such documents and instruments.
4
<PAGE>
Notwithstanding the above, the Trustee shall be responsible for voting all
securities held by the Trust, including Employer stock, and shall be responsible
for prudently carrying out the investment instructions conveyed to it with care,
skill and diligence normally exercised by prudent persons familiar with like
matters. If a proxy is solicited on mutual fund shares held in the Trust with
regard to an issue that might increase fees within the fund or alter its
invesment policy, the Trustee shall promptly notify the Committee in writing,
and shall not vote that proxy unless and until directed by the Committee how to
vote. This Section 3.05 supersedes any contrary provision of the Plans or this
Trust Agreement.
ARTICLE 4
THE TRUST FUND
--------------
Section 4.01 The contributions provided under Article 2 shall be
------------
deposited with the Trustee from time to time. All such deposits and such other
funds or securities that shall be deposited with the Trustee under the terms
hereof, and any increment thereto and income therefrom shall constitute the
Trust Fund and shall be held by the Trustee in trust in a manner consistent with
the objectives of the Plans for the exclusive benefit of Participants, Former
Participants, or their Beneficiaries.
Section 4.02 The Trust is established and proposed to be continued in
------------
order to provide benefits for employees who are Participants in the event of
their termination of employment, and death benefits for Beneficiaries of
deceased Participants and Former Participants, all in accordance with the terms
and provisions of the Plans.
Section 4.03 Title to the Trust Fund, including all funds and investments
------------
held hereunder by the Trustee from time to time, shall be and remain in the
Trust and no Employee, Participant, Former Participant, Beneficiary or person
claiming through any of them shall have any legal or equitable rights or
interests in the Trust Fund except to the extent that such rights or interests
may be expressly granted under the provisions of the Plans or this Trust
Agreement.
Section 4.04 None of the benefits under the Plans are subject to the
------------
claims of creditors of Participants, Former Participants or their Beneficiaries
and will not be subject to attachment, garnishment or any other legal process.
Neither a Participant, a Former Participant, a Beneficiary, a contingent
Beneficiary, nor a spouse may assign, sell, borrow on or otherwise encumber any
of his beneficial interest in this Trust nor shall any such benefits be in any
manner liable for or subject to the deeds, contracts, liabilities, engagements,
or torts of any Participant, terminated Participant, Beneficiary, contingent
Beneficiary or spouse. The preceding sentences shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
section 414(p) of the Code, by the Committee.
5
<PAGE>
Section 4.05 In no event shall any of the principal or income of the
------------
Trust Fund be used for, or diverted to, purposes other than the exclusive
benefit of Participants, Former Participants, Beneficiaries, contingent
Beneficiaries, and spouses, or in the payment of the expense of the Plans as set
forth in this Trust Agreement, except as provided in the Plans.
Section 4.06 All contributions made by the Employer are expressly
------------
conditioned upon the initial and continued qualification of the Plans under the
Code, and upon the deductibility of contributions made to the Plans under
Section 404 of the Code. Upon the Employer's request, a contribution which is
made by a mistake of fact, or conditioned upon qualification of the Plans, or
any amendment thereof, or upon the deductibility of contributions, shall be
refunded to the Employer within one year after the payment of the contribution,
the denial of the qualification or the disallowance of the deduction (to the
extent disallowed), whichever is applicable.
Section 4.07 Assets transferred pursuant to the terms hereof shall be
------------
invested by the Trustee in accordance with the terms of this Trust Agreement,
and shall be distributed to the Participants under the terms of the Plans and
this Trust Agreement. The Trust will consist of Investment Funds designated
from time to time by the Committee, suitably distinct in investment
characteristics and objectives, from which participants in the Plans may choose
for investment of assets in their accounts.
Section 4.08 The Trustee shall hold the assets of the Trust as a
------------
commingled fund or commingled funds in which each separate Plan shall be deemed
to have a proportionate undivided interest in the fund or funds in which it
participates, except any such assets required to be segregated by the provisions
herein or by the provisions of the Plans.
Section 4.09 The Trustee may be directed to maintain such records as will
------------
enable it to effect, as of any time, an equitable allocation and segregation of
such commingled assets into one or more separate funds held for the benefit of
all, or some, of the Participants and Beneficiaries under the Plans. If in the
future the Trustee receives written notice from the Committee to effect such
allocation and segregation, the Trustee shall do so as soon thereafter as
practicable. Thereafter, the Trustee shall administer each such separate fund
in the manner provided in Section 4, or if so directed by the Committee, shall
deliver the assets of any such separate fund to such successor trustee or
trustees as shall be designated by the Employer.
ARTICLE 5
POWERS AND DUTIES OF THE TRUSTEE
--------------------------------
The Trustee shall have all the powers necessary to carry out the provisions
hereunder. In amplification, but not in limitation of such powers, the Trustee
shall have the following powers and immunities and be subject to the following
duties:
Section 5.01 The Trustee shall receive all contributions hereunder and
------------
apply such contributions as hereinafter set forth.
6
<PAGE>
Section 5.02 The Trustee shall have the custody of and safely keep all
------------
cash, securities, property and investments received or purchased in accordance
with the terms hereof.
Section 5.03 Subject to any limitations that may be contained elsewhere
------------
in this Trust Agreement, the Trustee shall take control and management of the
Trust and shall hold, sell, buy, exchange, invest and reinvest the corpus and
income of the Trust, including qualifying employer securities or qualifying
employer real property. All contributions paid to the Trustee shall be held and
administered by the Trustee as a single trust fund, and the Trustee shall not be
required to segregate and invest separately any part of the Trust Fund
representing accruals or interests of individual Participants of the Plans
except as specifically directed in the Plans or by the Committee.
Section 5.04 The Trustee shall allocate to and invest contributions as
------------
part of each Investment Fund pursuant to any investment directives made by the
Participants and received from the Committee. Income from investments in each
Investment Fund shall be reinvested in the same Investment Fund.
Section 5.05 The Trustee may engage in any transaction with (i) a common
------------
or collective trust fund or pooled or mutual investment fund maintained by a
"party in interest" (as defined in Section 3(14) of the Act) which is a bank or
trust company, including the Trustee or an affiliate of the Trustee, or a
related entity thereto supervised by a state or federal agency or (ii) a pooled
investment fund of an insurance company authorized to do business in a state if
the transaction is a sale or purchase of an interest in the fund and the bank,
trust company, related entity or insurance company receives not more than
reasonable compensation. The instrument creating such collective or common
trust fund or pooled or mutual investment fund, together with any amendments,
modifications, or supplements herein and made a part hereof as fully, and for
all intents and purposes, as if set forth herein in their entirety which shall
be controlling notwithstanding any contrary provision of this Trust Agreement
including the time and manner of withdrawal from any fund which shall be in the
discretion of the Trustee of the fund.
Section 5.06 The Trustee may sell or exchange any property or asset of
------------
the Trust at public or private sale, with or without advertisement upon terms
acceptable to the Trustee and in such manner as the Trustee may deem wise and
proper. The proceeds of any such sale or exchange may be reinvested as provided
in this Trust Agreement. The purchaser of any such property from the Trustee
shall not be required to look to the application of the proceeds of any such
sale or exchange of the Trustee.
Section 5.07 The Trustee shall have full power to borrow, pledge, lease,
------------
or otherwise dispose of the property of the Trust without securing any order of
court therefor, without advertisement, and to execute any instruments containing
any provisions which the Trustee may deem proper in order to carry out such
actions. Any such lease so made by the Trustee
7
<PAGE>
shall be binding, notwithstanding the fact the term of the lease may extend
beyond the termination of the Trust.
Section 5.08 The Trustee shall have the power to borrow money upon terms
------------
agreeable to the Trustee and pay interest thereon at rates agreeable to the
Trustee, and to repay any debts so created.
Section 5.09 The Trustee may participate in the reorganization,
------------
recapitalization, merger, or consolidation of any corporation wherein the
Trustee may own stock or securities and may deposit such stock or other
securities in any voting trust or protective committee or like committee or
trustee or with the depositories designated thereby, and may exercise any
subscription rights or conversion privileges, and generally may exercise any of
the powers of any owner, including but not limited to, voting proxies with
respect to any stock or other securities or property comprising the Trust.
Section 5.10 The Trustee shall not be responsible for the adequacy of the
------------
Trust to discharge any and all payments under this Trust Agreement. Cash
received under any of the provisions hereof may be deposited by the Trustee in
accounts in its own banking division, or in such other banking institutions as
may be selected by the Trustee under such provisions with respect to interest as
may be permitted by law. All persons dealing with the Trustee are released from
inquiry into the decision or authority of the Trustee to act.
Section 5.11 The Trustee shall not be required to institute any legal
------------
action for the protection of the Trust or in carrying out the duties of the
Trustee hereunder unless it shall first be indemnified by the Employer for any
and all expenses in connection therewith.
Section 5.12 The Trustee shall keep an accurate record of its
------------
administration of this Trust and shall include a detailed account of all
investments, receipts and disbursements, and other transactions hereunder, and
all accounts, books and records relating hereto shall be open for inspection to
any person designated by the Committee or the officers of the Employer at all
reasonable times. Within 30 days following the close of each calendar month,
quarter and year, the Trustee shall file with the Employer a written report
setting forth all investments, receipts and disbursements and other transactions
during such period. Such reports shall contain an exact description of all
securities purchased, exchanged or sold, the cost or net proceeds of sale, and
shall show the securities and investments held at the end of such period, and
the cost of each item, as carried on the books of the Trustee.
Section 5.13 The Trustee may hold stocks, bonds or other securities in
------------
its own name as Trustee, with or without the designation of said trust estate,
or in the name of a nominee selected by it for the purpose, but said Trustee
shall nevertheless be obligated to account for all securities received by it as
a part of the corpus of the trust estate herein created, notwithstanding the
name in which the same may be held.
8
<PAGE>
Section 5.14 No broker, transfer agent, or purchaser shall be required to
------------
ascertain whether or not the Trustee has obtained prior approval from any source
for the sale or purchase of any of the assets of the Trust.
Section 5.15 At no time during the administration of this Trust shall the
------------
Trustee be required to obtain any court approval of any act required of it in
connection with the performance of its duties or in the performance of any act
required of it in the administration of its duties as Trustee. The Trustee
shall have full authority to exercise its judgment in all matters and at all
times without court approval of such decisions; provided, however, that if any
application to or proceeding or action in the courts is made, only the Employer
and the Trustee shall be necessary parties, and no Participants in the Plans or
other person having an interest in the Trust shall be entitled to any notice or
service of process. Any judgment entered in such proceeding or action shall be
conclusive upon all persons claiming an interest under the Trust.
Section 5.16 The Trustee may consult with legal counsel (who may also be
------------
counsel to the Employer) concerning any question which may arise with reference
to its duties under this agreement, and the opinion of such counsel shall be
full and complete protection in respect to any action taken or suffered by the
Trustee hereunder in good faith and in accordance with the opinion of such
counsel.
Section 5.17 The Trustee may employ such counsel, accountants, and other
------------
agents as it shall deem advisable, after first notifying the Employer of the
employment. The Trustee may charge the compensation of such counsel,
accountants and other agents against the Fund if not paid by the Employer within
90 days following invoice of those costs.
Section 5.18 The Employer may appoint an investment manager or managers
------------
to manage any assets of the Plans. Without limiting the generality of the
above, it is specifically provided that such power of management includes the
power to acquire or dispose of said assets, to direct brokerage transactions and
all other powers and authority concerning the Trust Fund investments it is
managing hereby granted to the Trustee. In such event, the responsibility for
investment decisions shall be clearly allocated in writing between the
investment manager, Trustee and Committee, and neither shall be responsible for
the action or inaction of the other.
ARTICLE 6
REMOVAL OR RESIGNATION OF THE TRUSTEE
-------------------------------------
Section 6.01 The Trustee may be removed by the Employer at any time upon
------------
30 days advance notice in writing to the Trustee. The Trustee may resign at any
time upon 30 days notice in writing to the Employer. Within 30 days after such
removal or resignation of the Trustee, the Trustee shall file with the Employer
a written report setting forth all investments, receipts and disbursements, and
other transactions effected by it since the end of the preceding fiscal year.
Such report shall contain an exact description of all securities and property
9
<PAGE>
purchased and sold, the cost or net proceeds of sale and shall further indicate
such assets held to such date of removal or resignation, together with the cost
of each item, as carried on the books of the Trustee.
Section 6.02 Immediately upon the removal or resignation of the Trustee,
------------
the Employer shall appoint and designate a new Trustee with the same powers and
duties as those conferred upon the Trustee hereunder, and the Trustee shall
assign, transfer and pay to the successor Trustee the assets then constituting
the Trust hereunder, and shall fully cooperate with the Employer and the
successor trustee to transition its custody and duties in a timely manner.
Section 6.03 The Trustee (if fees are due and not paid by the Employer)
------------
is authorized first to reserve such sum of money, or to liquidate such property
and reserve the proceeds thereof, as it may deem advisable for the payment of
its expenses or outstanding charges in connection with the settlement of its
account or otherwise, and any balance of such reserve remaining after the
payment of such expenses and charges shall be paid over to the successor
Trustee.
ARTICLE 7
AMENDMENTS
----------
Section 7.01 This Trust Agreement may be modified, altered or amended by
------------
an instrument in writing, duly executed and acknowledged by the Employer,
provided, however, that the duties, powers and liabilities of the Trustee shall
not be substantially increased without the written consent of the Trustee; and
provided, further, an executed copy of such instrument must be delivered to the
Trustee. Any such modification, alteration or amendment may be made effective
retroactively if necessary to bring the Trust into conformity with governmental
regulations which must be complied with in order to make the Plans or Trust
eligible for tax benefits. No amendment or modification shall operate to
deprive any Participant, Former Participant, Beneficiary, contingent
Beneficiary, or spouse of any vested rights or benefits accrued to him prior to
such amendment or modification, nor shall any amendment or modification cause or
authorize any part of the funds of the Trust to revert to or be refunded to the
Employer, except as indicated in the Plans. Moreover, no amendment to the Plans
or Trust shall decrease the balance of a Participant's Individual Account or
eliminate an optional form of distribution.
ARTICLE 8
DISCONTINUANCE OF THE PLANS
---------------------------
Section 8.01 The Employer may terminate the Plans at any time.
------------
Section 8.02 If the Employer discontinues the Plans, the Committee shall
------------
compute the value of the Individual Accounts of Participants and the accounts of
other persons having an
10
<PAGE>
interest in the Trust Fund. The Individual Accounts of Participants and any
other persons having an interest in the Trust Fund computed in the manner
aforementioned shall immediately vest and be applied by the Trustee in the
manner and at such times as directed by the Committee.
Section 8.03 In the event of the discontinuance of the Plans where there
------------
is no continuing Employer, the Trustee is empowered to pay from the Trust Fund
the necessary expenses incurred under such discontinuance by reduction of the
individual accounts of Participants, Former Participants and beneficiaries on a
pro rata basis. If an Employer continues to be associated with the Plans, the
Employer shall direct the Trustee with respect to payment of final Plans'
expenses.
ARTICLE 9
LIABILITY OF TRUSTEE
--------------------
Section 9.01 The Trustee shall be fully protected in relying upon the
------------
existence of any fact or state of facts represented to it in writing by the
Employer or the Committee.
Section 9.02 Except with respect to fiduciary responsibility for any
------------
error or loss that may result by reason of the exercise or non-exercise of that
fiduciary responsibility which is allocated to the Trustee hereunder which is
determined to be the result of the Trustee's own negligence or willful
misconduct, the Employer shall indemnify the Trustee, directly from the
Employer's own assets (including the proceeds of any insurance policy the
premiums of which are paid from the Employer's own assets), from and against any
and all claims, demands, losses, damages, expenses (including, by way of
illustration and not limitation, reasonable attorneys' fees and other legal and
litigation costs), judgments and liabilities arising from, out of, or in
connection with the administration of the Plans and Trust. The Trustee shall
not be liable for any action taken by the Trustee or any failure to act by the
Trustee if the action taken or the failure to act was directed by the
Administrator, the Committee, the Company, or an Investment Manager or any other
named fiduciary, if the Trustee reasonably relied on such direction and the
Trustee reasonably believed such direction was consistent with the Act.
Section 9.03 The indemnity provided by Section 9.02 shall survive the
------------
termination of this Trust Agreement.
Section 9.04 The Trustee shall discharge its duties hereunder with the
------------
care, skill, prudence and diligence under the circumstances then prevailing that
a prudent person acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims.
Section 9.05 The Trustee shall be under no obligation to determine the
------------
amount of benefits to which Participants or their beneficiaries will be entitled
or to keep any records of the respective interest of any individual Participant
or beneficiary in the Plans. The Trustee,
11
<PAGE>
upon written instructions from the Committee, shall make payments to the
Participants who qualify for such benefits. The Trustee shall have no liability
to the Employer, Committee, or to any other person in making such payments. The
Trustee shall not be required to determine or make any investigation to
determine the identity or mailing address of any person entitled to benefits and
shall have discharged its obligation in that respect when it shall have sent
checks, securities and other papers by ordinary mail to such person or persons
and addresses as may be certified to it in writing by the Committee.
Section 9.06 It is recognized that the Trustee does not guarantee the
------------
assets of the Trust from loss or depreciation and shall be liable only for
failure to discharge his duties in accordance with this Trust Agreement.
ARTICLE 10
MISCELLANEOUS
-------------
Section 10.01 For purposes of Part 4 of Title I of the Act, the Employer,
-------------
the Trustee, and the Committee and those parties to whom any duties are
allocated under Section 5.18 of the Trust Agreement, as such provision may
hereinafter be amended, shall each be named fiduciaries. All actions by named
fiduciaries shall be in accordance with the terms of the Plans and this Trust as
such documents are consistent with the provisions of Title I of the Act. Each
named fiduciary shall act solely in the interest of Participants and
beneficiaries and for the exclusive purpose of providing benefits and defraying
reasonable administrative expenses. Each named fiduciary shall discharge his
duties hereunder with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims.
Section 10.02 The Employer shall be responsible for the administration and
-------------
management of the Plans except for those duties hereinafter specifically
allocated to the Committee or the Trustee. The Trustee shall have exclusive
responsibility for the management and control of the assets of the Plans, except
to the extent that (i) an investment manager is appointed under Section 5.18 or
(ii) the Committee assumes investment responsibility under Section 3.05. Each
fiduciary shall be responsible only for the specific duties assigned hereunder
or in the Plans and shall not be directly or indirectly responsible for the
duties assigned to another fiduciary. The Employer shall be deemed the
administrator for purposes of the Plan and the Act.
Section 10.03 This Trust Agreement is made in contemplation of the laws of
-------------
the Commonwealth of Kentucky and shall be construed in accordance with the laws
thereof, except where such laws are superseded by Act or the Code, in which case
such Act or law shall control.
Section 10.04 In making any distribution to or for the benefit of any
-------------
minor or incompetent beneficiary, the Committee, in its sole, absolute and
uncontrolled discretion, may,
12
<PAGE>
but need not, order the Trustee to make such distribution to a legal or natural
guardian or other relative of such minor or court appointed committee of such
incompetent, or to any adult with whom such minor or incompetent temporarily or
permanently resides, and any such guardian, committee, relative or other person
shall have full authority and discretion to expend such distribution for the use
and benefit of such minor or incompetent, and the receipt of such guardian,
committee, relative or other person shall be a complete discharge to the
Trustee, without any responsibility on its part or on the part of the Retirement
Committee to see to the application thereof.
Section 10.05 Titles of Articles and headings to Sections in this Trust
-------------
Agreement are inserted for convenience of reference only and, in the event of
any conflict, the text of this instrument, rather than such titles or headings,
shall control.
* * * * * * * * * * *
IN WITNESS WHEREOF, the Employer has caused this instrument to be executed,
and the Trustee has executed this instrument to evidence its acceptance of the
Trust hereby effective as of January 1, 1997.
VENCOR, INC.
By /s/ Jill L. Force
Title: V P
--------------------------------------------
Date: 12/26/96
---------------------------------------------
WACHOVIA BANK OF NORTH CAROLINA, N.A.
By /s/ Peter Quinn
-----------------------------------------------
Title: VICE PRESIDENT
--------------------------------------------
Date: 12/30/96
---------------------------------------------
13
<PAGE>
ANNEX A
TRUSTEE FEES
1. Ad Valorem fee for Vencor stock or other assets not included in #2 below of
10 basis points for first $10,000,000 of market value; 5 basis points for
next $40,000,000 in market value, over $50,000,000 negotiated to a lower
rate.
2. Ad Valorem charge of .0003 per $1,000 of value for each account which
consists entirely of Guaranteed Investment Contracts, Bank Investment
Contracts, Mutual Funds, and Commingled Funds.
3. Distributions made during the period will be added back to the market
value.
4. A $1,000 charge will be assessed for each account which consists entirely
of guaranteed investment contracts, bank investment contracts, mutual funds
and commingled funds.
5. There will be a $30 charge per transaction for all GICs, BIC's, mutual or
commingled funds of other banks or institutions.
6. $1,000 per account will be charged for each Biltmore Fund, but no ad
valorem or transaction charges apply to these accounts.
7. Master Trust Plan accounting charge of $750 for each assets pool maintained
separately. For plan accounts first 5, $.00; next 5, $500 each; next 5,
$300 each; over 15, $200 each.
8. $10 for each wire transfer, other than to GIC's, BIC's, mutual or
commingled funds.
9. Annual rate of $1.50 per $1,000 of average daily balance of cash swept
daily into Wachovia Diversified Short Term Fund.
10. Periodic benefit payments by check are $1.25 plus postage for standard form
input; $2.00 plus postage for non-standard form input; $1.00 by ACH.
11. Non-periodic benefit payments by check, with complete amount and taxability
instructions:
$2.50 plus postage by tape input
$5.00 plus postage by standard form input
$10.00 plus postage by other input
$25.00 plus postage for priority and customized processing
12. Vendor fee payments $5.00 plus postage by check (including 1099 MISC
processing) where required.
13. Periodic payment conversion fee of $2.00 each.
14. Security distributions at $15.00 plus postage (discounted for automated
registration).
15. $5.00 each for transmittals of prepared forms with variable input (discount
for automated registration).
16. $1.00 each for matching with checks, certificates, etc.
17. Life insurance premium payments and policy distributions $15.00 each; $5.00
each for PS-58 reporting.
18. Stop payments $15.00 initialization.
19. $5.00 each to checking account funding at Wachovia; $10.00 each for wires
to other accounts.
20. $0.06 each to address proxies; $0.04 to address labels; $0.04 each to affix
labels to proxies and their envelopes; $0.05 for the first enclosure
insert; $0.04 for each additional insert; $0.37 to tabulate proxies for the
first 2 elections, and $0.07 for each additional election.
21. Postage expense, mail processing, cost of materials and reproduction
expense will be charged at cost of materials plus labor.
22. Fair and reasonable negotiated fees (chargeable only with advance approval
and then not payable from Trust unless specifically directed to do so) will
be charged for extraordinary services.
23. Travel beyond four meetings (one each quarter) and systems work and other
expenses will be charged at cost, with advance approval, and will not be
charged to the trust unless specifically directed to do so.
24. $5,000 per year for voting of Employer stock - additional fees may apply
for corporate actions, significant proxy issues, reorganizations,
bankruptcy and other significant events requiring substantial additional
activity or additional fiduciary liability.
25. Fees are payable quarterly with minimum quarterly charge of $625.
26. Fees will be guaranteed until December 31, 1999.
<PAGE>
EXHIBIT 10.7
AMENDMENT NO. 1
TO THE
VENCOR, INC. 401(K)
MASTER TRUST AGREEMENT
This is Amendment No. 1 ("Amendment") to the Vencor, Inc. Master Trust
Agreement which was effective January 1, 1997 with Wachovia Bank of North
Carolina, N.A. (The "Trust Agreement").
RECITAL
The parties wish to amend the Trust Agreement to clarify its original
intent.
AMENDMENT
1. This Amendment shall be effective as of January 1, 1997.
2. All capitalized terms used herein and not otherwise defined shall have
the meaning given in the Trust Agreement.
3. Section 3.5 of the Trust Agreement is hereby amended so that as
amended it shall read in its entirety as follows:
"Section 3.05 The Trustee shall be a directed Trustee only, with no
------------
discretionary authority or responsibility, with respect to the assets
of the Plans allocated or allocable to the accounts of the
Participants. The Committee, as a named fiduciary, shall be solely
responsible for the investment of the assets of the Plans allocated or
allocable to the accounts of Participants (except as provided more
specifically in paragraph (i) immediately below or by Section 5.18 of
the Trust). Without limitation, the Committee, as named fiduciary,
(i) shall be responsible for investing such assets, except to the
extent that such investment responsibility is delegated to one or
more investment managers (other than the Trustee) under Section
403(a)(2) of the Act;
(ii) shall, to the extent that Participants and their
Beneficiaries are given the right to direct the investment of
their accounts, be the fiduciary to whom Participants and
Beneficiaries are entitled to give such investment directions and
the fiduciary responsible for carrying out such investment
directions (by directing the Trustee or otherwise);
<PAGE>
(iii) shall, except to the extent that Section 404(c) of the Act
provides that it is not responsible because the Participant or
Beneficiary has exercised control over his account, be
responsible for any loss by reason of any breach of its fiduciary
obligations hereunder; and
(iv) shall be responsible for determining whether the documents
and instruments governing the investment of the assets allocated
or allocable to the accounts are consistent with the provisions
of Titles I and IV of the Act, and if not, investing such assets
in accordance with Titles I and IV of the Act notwithstanding
such documents and instruments.
IN WITNESS WHEREOF, this Amendment has been executed as of the dates set forth
below.
VENCOR, INC.
By /s/ Cecelia A. Hagan
--------------------------------------
Title: Vice President of Human Resources
----------------------------------
Date: 7/16/97
-----------------------------------
WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By /s/ JOHN TRALONGO
--------------------------------------
Title: Vice President
------------------------------
Date: 5/13/97
-------------------------------
<PAGE>
EXHIBIT 10.8
RETIREMENT SAVINGS PLAN
FOR CERTAIN EMPLOYEES OF VENCOR
AND ITS AFFILIATES
Amended and Restated Effective
as of
January 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
INTRODUCTION................................................................................... 1
DEFINITIONS.................................................................................... 2
Section 1.1 ADJUSTMENT............................................................ 2
Section 1.2 ANNUAL ADDITIONS...................................................... 2
Section 1.3 BENEFICIARY........................................................... 2
Section 1.4 BOARD................................................................. 2
Section 1.5 BREAK(S).............................................................. 2
Section 1.6 CODE.................................................................. 3
Section 1.7 COMMITTEE............................................................. 3
Section 1.8 COMPANY............................................................... 3
Section 1.9 COMPENSATION.......................................................... 3
Section 1.10 CONSTRUCTION.......................................................... 3
Section 1.11 DEFINED BENEFIT PLAN.................................................. 3
Section 1.12 DEFINED CONTRIBUTION PLAN............................................. 3
Section 1.13 EFFECTIVE DATE........................................................ 4
Section 1.14 EMPLOYEE.............................................................. 4
Section 1.15 EMPLOYER.............................................................. 4
Section 1.16 EMPLOYER CONTRIBUTIONS................................................ 5
Section 1.17 ENTRY DATE............................................................ 5
Section 1.18 ERISA................................................................. 5
Section 1.19 FIDUCIARY............................................................. 5
Section 1.20 FORMER PARTICIPANT.................................................... 5
Section 1.21 HIGHLY COMPENSATED EMPLOYEE........................................... 5
Section 1.22 HOUR OF SERVICE....................................................... 5
Section 1.23 INDIVIDUAL ACCOUNT.................................................... 8
Section 1.24 INVESTMENT FUND....................................................... 8
Section 1.25 KEY EMPLOYEE.......................................................... 8
Section 1.26 LIMITATION YEAR....................................................... 8
Section 1.27 MATCHING CONTRIBUTION ACCOUNT......................................... 9
Section 1.28 MATCHING CONTRIBUTIONS................................................ 9
Section 1.30 NORMAL RETIREMENT DATE................................................ 9
Section 1.31 PARTICIPANT........................................................... 9
Section 1.32 PERMISSIVE AGGREGATION GROUP.......................................... 9
Section 1.33 PLAN.................................................................. 9
Section 1.34 PLAN YEAR............................................................. 9
Section 1.35 PRIOR PLAN............................................................ 9
Section 1.36 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT.............................. 9
Section 1.37 PRIOR PLAN SALARY REDIRECTION ACCOUNT................................. 9
Section 1.38 PROFIT SHARING CONTRIBUTION ACCOUNT................................... 10
Section 1.39 PROFIT SHARING CONTRIBUTIONS.......................................... 10
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C>
Section 1.40 REQUIRED AGGREGATION GROUP............................................ 10
Section 1.41 SALARY REDIRECTION.................................................... 10
Section 1.42 SALARY REDIRECTION ACCOUNT............................................ 10
Section 1.43 SERVICE............................................................... 10
Section 1.44 TOP HEAVY PLAN........................................................ 12
Section 1.45 TOTAL AND PERMANENT DISABILITY OR TOTALLY AND PERMANENTLY DISABLED.... 12
Section 1.46 TRUST AGREEMENT....................................................... 13
Section 1.47 TRUST FUND............................................................ 13
Section 1.48 TRUSTEE............................................................... 13
Section 1.49 VALUATION DATE........................................................ 13
PARTICIPATION.................................................................................. 14
Section 2.1 ELIGIBILITY REQUIREMENTS.............................................. 14
Section 2.2 PLAN BINDING.......................................................... 14
Section 2.3 REEMPLOYMENT AND TRANSFERS............................................ 15
Section 2.4 BENEFICIARY DESIGNATION............................................... 16
Section 2.5 NOTIFICATION OF INDIVIDUAL ACCOUNT BALANCE............................ 16
CONTRIBUTIONS.................................................................................. 17
Section 3.1 SALARY REDIRECTION.................................................... 17
Section 3.2 MATCHING CONTRIBUTIONS................................................ 17
Section 3.3 PROFIT SHARING CONTRIBUTIONS.......................................... 18
Section 3.4 NONDISCRIMINATION TEST FOR SALARY REDIRECTION......................... 19
Section 3.5 NONDISCRIMINATION TEST FOR OTHER CONTRIBUTIONS........................ 21
Section 3.6 MAXIMUM INDIVIDUAL DEFERRAL........................................... 24
Section 3.7 MISTAKE OF FACT....................................................... 25
Section 3.8 QUALIFIED NONELECTIVE CONTRIBUTIONS................................... 25
Section 3.9 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF
1994 ("USERRA")....................................................... 25
ACCOUNTS....................................................................................... 27
Section 4.1 INDIVIDUAL ACCOUNTS................................................... 27
Section 4.2 INVESTMENT OF ACCOUNTS................................................ 27
Section 4.3 VALUATION OF ACCOUNTS................................................. 28
Section 4.4 TRUSTEE AND COMMITTEE JUDGMENT CONTROLS............................... 29
Section 4.5 MAXIMUM ADDITIONS..................................................... 30
Section 4.6 CORRECTIVE ADJUSTMENTS................................................ 30
Section 4.7 DEFINED CONTRIBUTION AND DEFINED BENEFIT PLAN FRACTION................ 31
DISTRIBUTIONS.................................................................................. 32
Section 5.1 NORMAL RETIREMENT..................................................... 32
Section 5.2 LATE RETIREMENT....................................................... 32
Section 5.3 DEATH................................................................. 32
Section 5.4 DISABILITY............................................................ 32
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
Section 5.5 TERMINATION OF EMPLOYMENT............................................. 32
Section 5.6 COMMENCEMENT OF BENEFITS.............................................. 34
Section 5.7 METHODS OF PAYMENT.................................................... 36
Section 5.8 BENEFITS TO MINORS AND INCOMPETENTS................................... 36
Section 5.9 UNCLAIMED BENEFITS.................................................... 37
Section 5.10 PARTICIPANT DIRECTED ROLLOVERS........................................ 38
Section 5.11 JOINT AND SURVIVOR OPTIONS............................................ 39
WITHDRAWALS.................................................................................... 43
Section 6.1 HARDSHIP WITHDRAWAL................................................... 43
Section 6.2 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT WITHDRAWALS.................. 44
FUNDING........................................................................................ 46
Section 7.1 CONTRIBUTIONS......................................................... 46
Section 7.2 TRUSTEE............................................................... 46
FIDUCIARIES.................................................................................... 47
Section 8.1 GENERAL............................................................... 47
Section 8.2 EMPLOYER.............................................................. 47
Section 8.3 TRUSTEE............................................................... 47
Section 8.4 RETIREMENT COMMITTEE.................................................. 48
Section 8.5 CLAIMS PROCEDURES..................................................... 49
Section 8.6 RECORDS............................................................... 50
AMENDMENT AND TERMINATION OF THE PLAN.......................................................... 51
Section 9.1 AMENDMENT OF THE PLAN................................................. 51
Section 9.2 TERMINATION OF THE PLAN............................................... 51
Section 9.3 RETURN OF CONTRIBUTIONS............................................... 51
MISCELLANEOUS.................................................................................. 52
Section 10.1 GOVERNING LAW......................................................... 52
Section 10.2 CONSTRUCTION.......................................................... 52
Section 10.3 ADMINISTRATION EXPENSES............................................... 52
Section 10.4 PARTICIPANT'S RIGHTS.................................................. 52
Section 10.5.............................................................................. 52
Nonassignability.......................................................................... 52
Section 10.6 MERGER, CONSOLIDATION OR TRANSFER..................................... 53
Section 10.7 COUNTERPARTS.......................................................... 53
TOP HEAVY PLAN PROVISIONS...................................................................... 54
Section 11.1 GENERAL............................................................... 54
Section 11.2 MINIMUM CONTRIBUTION.................................................. 54
Section 11.3 SUPER TOP HEAVY PLAN.................................................. 54
Section 11.4 MINIMUM VESTING....................................................... 55
Section 11.5 COMPENSATION.......................................................... 55
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C>
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN........................................... 56
Section 12.2 SINGLE PLAN........................................................... 56
Section 12.3 SPONSORING EMPLOYER AS AGENT.......................................... 56
Section 12.4 WITHDRAWAL OF EMPLOYER................................................ 57
Section 12.5 TERMINATION OF PARTICIPATION.......................................... 57
</TABLE>
- iv -
<PAGE>
INTRODUCTION
Effective January 1, 1997 except as otherwise provided herein, the Board of
Directors of Vencor, Inc., successor by merger to the Hillhaven Corporation (the
"Sponsoring Employer"), desires to amend and restate in its entirety the Plan
formerly known as The Retirement Savings Plan of The Hillhaven Corporation and
originally effective as of January 1, 1991 to be called the Retirement Savings
Plan for Certain Employees of Vencor and Its Affiliates, as hereinafter set
forth.
Also effective January 1, 1997, or as soon as practicable thereafter, the
Plan and Trust shall accept assets in a spinoff from The Hillhaven Corporation
Deferred Savings Plan and Employer desires to make provision for how to account
for assets transferred from that plan.
It is intended that this Plan, together with the Trust Agreement, meet all
the pertinent requirements of the Internal Revenue Code of 1986, as amended
("Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be interpreted, wherever possible, to comply with the terms
of said laws, as amended, and all formal regulations and rulings issued
thereunder. It is also intended that this Plan shall be a profit sharing plan
under Code Section 401(a).
- 1 -
<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 ADJUSTMENT means the net increases and decreases in the market
value of the Trust Fund during a Plan Year or other period
exclusive of any contribution or distribution during such year
or other period. Such increases and decreases shall include such
items as realized or unrealized investment gains and losses and
investment income, and may include expenses of administering the
Trust Fund and the Plan.
Section 1.2 ANNUAL ADDITIONS means for any Employee in any Plan Year, the
sum of Employer Contributions, Salary Redirection and
forfeitures allocated to the Employee's Individual Account.
Amounts allocated to an individual medical account, as defined
in Section 415(1) of the Code, which is part of a pension or
annuity plan maintained by the Company are treated as Annual
Additions to a Defined Contribution Plan. Also, amounts derived
from contributions paid or accrued which are attributable to
post-retirement medical benefits allocated to the separate
account of a Key Employee as required by Section 419(d) of the
Code, maintained by the Company, are treated as Annual Additions
to a Defined Contribution Plan.
Section 1.3 BENEFICIARY means any person designated by a Participant to
receive such benefits as may become payable hereunder after the
death of such Participant, provided, however, that a married
Participant may not name as a Beneficiary someone other than the
Participant's spouse unless the spouse consents in writing to
such designation, which consent shall be acknowledged by a Plan
representative or by a notary public.
Section 1.4 BOARD means the Board of Directors of the Sponsoring Employer,
except as otherwise provided.
Section 1.5 BREAK(S) IN SERVICE means a Plan Year during which an Employee
has been credited with fewer than 501 Hours of Service due to
termination of employment. Solely to determine whether a Break
in Service has occurred, an Employee who is absent from work for
maternity or paternity reasons or on a military or Family and
Medical Leave Act leave of absence shall receive credit for the
Hours of Service which would otherwise have been credited to
such Employee but for such absence, or in any case in which
Hours of Service cannot be determined, eight Hours of Service
per day of such absence. In no event will the number of Hours of
Service credited to an Employee pursuant to the immediately
preceding sentence exceed 501. For purposes of this Section, an
absence from work for maternity or paternity reasons means an
absence (1) by reason of the pregnancy of the Employee, (2) by
reason of the birth of a child of the Employee, (3) by reason of
the placement of a child with the Employee in connection with
the adoption of such child by the Employee, or (4) for purposes
of caring for such child for a period beginning immediately
following such birth or placement. The Hours of Service credited
under this paragraph shall be credited (1) in the Plan Year or
other applicable computation period in which the
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absence begins if the crediting is necessary to prevent a Break
in Service in that period, or (2) in all other cases, in the
next following Plan Year or other applicable computation period.
Section 1.6 CODE means the Internal Revenue Code of 1986, as amended.
Section 1.7 COMMITTEE means the Retirement Committee provided for in Article
8.
Section 1.8 COMPANY means Vencor, Inc. and all of the legal entities which
are part of the controlled group or affiliated service group
with Vencor, Inc. pursuant to the provisions of Code Sections
414(b), (c), (m) or (o).
Section 1.9 COMPENSATION means, for any Plan Year or portion thereof during
which an Employee is eligible to participate in this Plan (which
shall not include compensation payable for periods after
employment terminates, such as severance pay, but shall include
vacation time earned but not yet paid as of that last date at
work), total compensation paid to an Employee by the Employer
that is includable in the Participant's gross income, including
bonuses, commissions and overtime, but excluding (i)
reimbursements or other expense allowances, (ii) fringe benefits
(cash and noncash), (iii) moving expenses, (iv) deferred
compensation, (v) welfare benefits, and (vi) amounts realized
from the exercise of a nonqualified stock option (or the lifting
of restrictions on restricted stock) or the sale or exchange of
stock acquired under a qualified stock option. Despite the
exclusions in the preceding sentence, Compensation shall include
any amounts deducted pursuant to Code Sections 125 (flexible
benefit plans), 402(a)(8) (salary redirection), 402(h)(1)(B)
(simplified employee plans) and 403(b). Effective for Plan Years
beginning on or after January 1, 1989, Compensation shall be
limited to such amount as determined pursuant to Code Section
401(a)(17).
Section 1.10 CONSTRUCTION. The words and phrases defined in this Article when
used in this Plan with an initial capital letter shall have the
meanings specified in this Article, unless a different meaning
is clearly required by the context. Any words herein used in the
masculine shall be read and construed in the feminine where they
would so apply. Words in the singular shall be read and
construed as though used in the plural in all cases where they
would so apply.
Section 1.11 DEFINED BENEFIT PLAN means a plan established and qualified
under Section 401 of the Code, except to the extent it is, or is
treated as, a Defined Contribution Plan.
Section 1.12 DEFINED CONTRIBUTION PLAN means a plan which is established and
qualified under Section 401 of the Code, which provides for an
individual account for each participant therein and for benefits
based solely on the amount contributed to each participant's
account and any income, expenses, gains or losses (both realized
and unrealized) which may be allocated to such account.
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Section 1.13 EFFECTIVE DATE means January 1, 1991, the original effective
date of the Plan. The effective date of this amended and
restated Plan is January 1, 1997, except as otherwise provided.
Section 1.14 EMPLOYEE means any person whom the Employer classifies as a
common law employee of the Employer and who is paid though the
normal payroll system of the Employer, and with respect to any
separate entity other than those defined in Section 1.15 (iv) or
(v) or (vi), which person is also either:
(a) a member of a collective bargaining unit for which benefits
have been the subject of good faith negotiation, unless and
until the Company and the collective bargaining unit
representative for that unit through the process of good
faith bargaining agree in writing for coverage under the
VRSP;
(b) working in a facility that is managed by the Employer
pursuant to a management agreement, except to the extent
that the management agreement specifies that certain
employees will report to and be provided benefits by a
member of the Vencor, Inc. group of Companies, in which
event the specified employee(s) shall be eligible to
participate in the VRSP rather than this Plan.
The term "Employee" shall exclude any person who is classified
on the payroll records of the Employer as "on call" or as a per
diem employee. The term "Employee" shall also exclude any person
who is a leased Employee.
For purposes of this Section the term "leased employee" shall
mean any person who is not an employee of the Employer and who
provides services to the Employer if (i) such services are
provided pursuant to an agreement between the Employer and any
other person ("leasing organization"); (ii) such person has
performed such services for the Employer on a substantially
full-time basis for a period of at least one year; and (iii)
such services are performed under the primary direction and
control of the Employer.
Section 1.15 EMPLOYER means (i)Vencor, Inc.; and (ii) each of the legal
entities, or any successor thereto, which participates in the
VRSP as of January 1, 1997 or which thereafter is a part of the
Company and adopts the VRSP for its eligible Employees with the
consent of the Sponsoring Employer; and (iii) any entity that is
managed by the Company pursuant to a management agreement,
provided that the entity which provides management services has
adopted this Plan for the benefit of its employees (as evidenced
as of January 1, 1997 by their name being listed on Appendix A);
and (iv) Atria Communities, Inc.; and (v) each of the legal
entities, or any successor thereto, which would be part of the
Company if Atria Communities, Inc. were substituted for Vencor,
Inc. in the definition of "Company" herein, and which have
adopted the Plan for its eligible Employees with the consent of
the Sponsoring Employer (as evidenced as of January 1, 1997 by
their name being listed on Appendix A); and (vi) the
partnerships listed on Appendix A hereto or which
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hereafter become participating employers pursuant to the
procedure in Article 12 hereof. The Sponsoring Employer shall be
Vencor, Inc. For application of various provisions of the
Internal Revenue Code to this Plan, the rules apply to each
entity included as an Employer which is a member of a controlled
group or a group under common control within the meaning of Code
Sections 414(b), (c), (m) or (o). Reference to "an Employer"
herein shall refer separately to each such employer group.
References to "the Employer" shall apply to all Employers set
out above as a group.
Section 1.16 EMPLOYER CONTRIBUTIONS means Matching Contributions and Profit
Sharing Contributions made to the Trust Fund by the Employer.
Salary Redirection shall not be included in the term Employer
Contribution when used in this Plan.
Section 1.17 ENTRY DATE means the first day of each calendar month.
Section 1.18 ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
Section 1.19 FIDUCIARY means the Employer, the Trustee, the Committee and any
individual, corporation, firm or other entity which assumes, in
accordance with Article 8, responsibilities of the Employer, the
Trustee or the Committee respecting management of the Plan or
the disposition of its assets.
Section 1.20 FORMER PARTICIPANT means a Participant whose participation in
the Plan has terminated but who has not received payment in full
of the balance in his Individual Account to which he is
entitled.
Section 1.21 HIGHLY COMPENSATED EMPLOYEE means any Employee of an Employer
who (i) was a five percent owner of the Employer during the
current Plan Year or the preceding Plan Year, or (ii) during the
preceding Plan Year, received Compensation from an Employer in
excess of $80,000 (as such amount may be adjusted from time to
time by the Secretary of the Treasury) and, if the Sponsoring
Employer elects, was in the top-paid group of employees for such
Plan Year.
The determination of who is a Highly Compensated Employee,
including the determination of the number and identity of
employees in the top-paid group and the Compensation that is
considered, shall be made in accordance with section 414(q) of
the Code and the regulations thereunder, taking into account,
when appropriate, Code Section 410(b)(6)(C)'s acquisition
transition rule which allows exclusion of certain Employees from
consideration. The determination of Highly Compensated Employees
shall be determined on an aggregate basis for each Employer that
is treated as a controlled group under Code Sections 414(b),
(c), (m) and (o), except as otherwise provided in applicable
Treasury Regulations.
Section 1.22 HOUR OF SERVICE means any hour for which an Employee is paid or
entitled to payment by an Employer during the Plan Year or other
applicable computation period (1) for the performance of duties
for an Employer; (2) on account of a period
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of time during which no duties are performed (irrespective of
whether the employment relationship has terminated); and (3) as
a result of a back pay award which has been agreed to or made by
an Employer, irrespective of mitigation of damages, to the
extent that such hour has not been previously credited under
item (1) or item (2) preceding.
(a) The number of Hours of Service to be credited on account of
a period of time during which no duties are performed
(including hours resulting form a back pay award) shall be
determined as follows. If the payment which is made or due
is calculated on the basis of units of time, the number of
Hours of Service to be credited shall be the number of
regularly scheduled working hours included in the units of
time on the basis of which the payment is calculated; if an
Employee does not have a regular work schedule, the number
of Hours of Service to be credited shall be calculated on
the basis of an eight hour work day. If the payment which
is made or due is not calculated on the basis of units of
time, the number of Hours of Service to be credited shall
be calculated by dividing the amount of the payment by the
Employee's most recent hourly rate of compensation before
the period during which no duties were performed,
determined as follows:
(1) If the Employee's compensation is determined on the
basis of an hourly rate, such hourly rate shall be the
Employee's most recent hourly rate of compensation.
(2) If the Employee's compensation is determined on the
basis of a fixed rate for a specified period of time
other than hours, his hourly rate of compensation
shall be his most recent rate of compensation for the
specified period of time, divided by the number of
hours regularly scheduled for the performance of
duties during such period of time; if an Employee does
not have a regular work schedule, his hourly rate of
compensation shall be calculated on the basis of an
eight hour work day.
(3) If the Employee's compensation is not determined on
the basis of a fixed rate for a specified period of
time, his hourly rate of compensation shall be the
lowest hourly rate of compensation paid to Employees
in his job classification, or, if no Employees in his
job classification have an hourly rate of
compensation, the minimum wage in effect under Section
6(a)(1) of the Fair Labor Standard Act of 1938, as
amended.
(b) In no event shall the application of the terms of Section
1.23(a) result in crediting an Employee with a number of
Hours of Service during the period which is greater than
the number of hours regularly scheduled for the performance
of duties. If an Employee has no regular work schedule, the
number of Hours of Service to be credited to him shall not
exceed the
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number which would be credited calculated on the basis of
an eight hour work day.
(c) No Employee shall be credited with more than 501 Hours of
Service as a result of the application of Section 1.22(a)
for any single continuous period during which he performs
no duties, regardless of whether such period extends beyond
one Plan Year or other applicable computation period.
(d) The Plan Year or other applicable computation period to
which Hours of Service shall be credited shall be
determined as follows:
(1) Except as hereinafter provided, Hours of Service
credited in accordance with item (1) of the first
paragraph of this Section shall be credited in the
Plan Year or other applicable computation period in
which the duties were performed.
(2) Except as hereinafter provided, Hours of Service
credited in accordance with item (2) of the first
paragraph of this Section shall be credited: if
calculated on the basis of units of time, to the Plan
Year or Plan Years or other applicable computation
periods in which the period during which no duties are
performed occurs, beginning with the first unit of
time to which the payment relates; otherwise to the
Plan Year or other applicable computation period in
which the period during which no duties are performed
occurs, provided that if the period during which no
duties are performed extends beyond one (1) Plan Year
or other applicable computation period, such Hours of
Service shall be allocated between not more than the
first two (2) Plan Years or other applicable
computation periods on any reasonable basis
consistently applied.
(3) Except as hereinafter provided, Hours of Service
credited in accordance with item (3) of the first
paragraph of this Section shall be credited to the
Plan Year or other applicable computation period to
which the award or agreement for back pay pertains
rather than to the Plan Year or other applicable
computation period in which the award, agreement, or
payment is made.
(4) Hours of Service to be credited to an Employee in
connection with a period of no more than 31 days which
extends beyond one Plan Year or other applicable
computation period may be credited to the first or the
second Plan Year or other applicable computation
period, provided that such crediting is done on a
reasonable and nondiscriminatory basis.
(e) Nothing in this Section shall be construed to alter, amend,
modify, invalidate, impair or supersede any law of the
United States or any rule or
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regulation issued under any such law, including but not
limited to laws regarding eligibility and benefit accrual
during and after a military leave of absence. The nature
and extent of any credit for Hours of Service under this
Section shall be determined under such law including
Department of Labor regulation Section 2530.200b-2.
Section 1.23 INDIVIDUAL ACCOUNT means the detailed record kept of the amounts
credited or charged to each Participant in accordance with the
terms hereof. Such Individual Account is comprised of the
following accounts: a Profit Sharing Contribution Account, a
Salary Redirection Account, a Matching Contribution Account, a
Prior Plan Salary Redirection Account, if applicable, and a
Prior Plan Employer Contribution Account, if applicable.
Section 1.24 INVESTMENT FUND means an investment fund established pursuant to
Section 4.2.
Section 1.25 KEY EMPLOYEE shall mean any Employee, former Employee or
beneficiary thereof in an Internal Revenue Service qualified
plan adopted by an Employer who at any time during the Plan Year
or any of the four preceding Plan Years is
(a) an officer of an Employer having an annual compensation
from an Employer during the Plan Year greater than 50% of
the amount in effect under Code Section 415(b)(1)(A) for
the calendar year in which such Plan Year ends;
(b) one of the 10 Employees having an annual compensation from
an Employer for a Plan Year of more than the limitation in
effect under Code Section 415(c)(1)(A) for the calendar
year in which such Plan Year ends and owning (or considered
as owning within the meaning of Code Section 318) both more
than a 1/2% interest, and the largest interest in an
Employer;
(c) a five percent owner of an Employer; or
(d) a one percent owner of an Employer having an annual
compensation from an Employer for a Plan Year of more than
$150,000.
(e) For purposes of this Section, compensation mean
compensation as defined in Code Section 415.
(f) This definition shall be interpreted consistent with Code
Section 415 and rules and regulations issued thereunder.
Further, such law and regulations shall be controlling in
all determinations under this definition, inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.26 LIMITATION YEAR means the 12 month period beginning on January 1
and ending on December 31.
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Section 1.27 MATCHING CONTRIBUTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) Matching
Contributions allocated to such Participant pursuant to Section
3.2 and (ii) the Participant's proportionate share, attributable
to his Matching Contribution Account, of the Adjustments,
reduced by any distributions from such Account.
Section 1.28 MATCHING CONTRIBUTIONS means contributions made to the Trust
Fund by the Employer pursuant to Section 3.2
Section 1.29 NON-HIGHLY COMPENSATED EMPLOYEE means, for any Plan Year, a
Participant who is not a Highly Compensated Employee.
Section 1.30 NORMAL RETIREMENT DATE means the first day of the month
coincident with or next following the Participant's 60th
birthday.
Section 1.31 PARTICIPANT means any Employee who becomes a Participant as
provided in Article 2 hereof.
Section 1.32 PERMISSIVE AGGREGATION GROUP means the Required Aggregation
Group and each other plan or plans of an Employer that are not
required to be included in the Required Aggregation Group, and
which, if treated as being part of such group, would not cause
such group to fail to meet the requirements of Code Sections
401(a) and 410.
Section 1.33 PLAN means this Retirement Savings Plan for Certain Employees of
Vencor and Its Affiliates.
Section 1.34 PLAN YEAR means the 12 month period beginning on January 1 and
ending on December 31.
Section 1.35 PRIOR PLAN means the plan of any Employer, the assets of which
are merged, in whole or in part, with the Trust Fund.
Section 1.36 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) any
employer contributions and accumulated earnings allocated to
such Participant under the terms of a plan which has been merged
into this Plan, and (ii) the Participant's proportionate share
attributable to his Prior Plan Employer Contribution Account, of
the Adjustments, reduced by any distributions from such Account.
Section 1.37 PRIOR PLAN SALARY REDIRECTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) any pretax
deferrals and accumulated earnings allocated to such Participant
under the terms of a plan which has been merged into this Plan
and (ii) the Participant's proportionate share attributable to
his Prior Plan Salary Redirection Account, of the Adjustments,
reduced by any distributions from such Account.
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Section 1.38 PROFIT SHARING CONTRIBUTION ACCOUNT means that portion of a
Participant's Individual Account attributable to (i) Profit
Sharing Contributions allocated to such Participant pursuant to
Section 3.3, and (ii) the Participant's proportionate share
attributable to his Profit Sharing Contribution Account, of the
Adjustments, reduced by any distributions from such account.
Section 1.39 PROFIT SHARING CONTRIBUTIONS mean contributions made to the
Trust Fund by the Employer pursuant to Section 3.3.
Section 1.40 REQUIRED AGGREGATION GROUP means
(a) each plan of an Employer in which a Key Employee is a
participant; and
(b) each other plan of an Employer which enables any plan in
subsection (1) to meet the requirements of Code Sections
401(a)(4) or 410, and
(c) each terminated plan maintained by an Employer within the
last five years ending on the determination date for the
Plan Year in question and which, but for the fact that it
terminated, would be part of a Required Aggregation Group
for such Plan Year.
Section 1.41 SALARY REDIRECTION means contributions made to the Trust Fund by
the Employer pursuant to Section 3.1.
Section 1.42 SALARY REDIRECTION ACCOUNT means that portion of a Participant's
Individual Account attributable to (i) Salary Redirection
amounts made on his behalf pursuant to Section 3.1, and (ii) the
Participant's proportionate share, attributable to his Salary
Redirection Account, of the Adjustments, reduced by any
distributions or withdrawals from such Account.
Section 1.43 SERVICE shall be accumulated as follows: (1) prior to January 1,
1997, a year of Service shall be credited for each 12 month
period of service from the Employee's date of hire, subject to
the rules and limitations set forth in this Plan prior to this
restatement, (2) for the service year of an Employee which ends
in calendar year 1997, one year of Service shall be credited,
and (3) after January 1, 1997, a year of Service shall be
credited for each Plan Year during which a Participant has been
credited with 1000 or more Hours of Service for the Company or
an Employer (whether before or after participation begins)
subject to the following:
(a) Years of Service for periods beginning after January 1,
1997 prior to the date an Employee attains age 18 shall not
be taken into account in determining that a Participant's
vesting percentage pursuant to Section 5.5.
(b) Service for periods beginning after January 1, 1997 shall
include periods of employment with any entity acquired by
the Company or an Employer, or any entity which operates a
facility acquired by the Company or an
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Employer, provided that no Employee shall receive credit
for more than seven years of Service as a result of periods
of employment with said entity and provided that said
entity is either listed on Appendix "A" or maintained a
plan that has been merged with this Plan. If the entity's
records are inadequate to determine Hours of Service for
years of employment with the entity, Service will be
credited (subject to the seven year limitation) from the
Employee's most recent date of hire with the acquired
entity, rounded to the nearest whole year.
(c) Years of Service for periods beginning after January 1,
1997 prior to a Break in Service shall not be taken into
account until such time as the Employee has completed a
year of Service after he returns to the employ of the
Employer.
(d) Effective January 1, 1997, if the Employee does not have a
nonforfeitable interest in his Employer-provided benefit,
and the Employee incurs consecutive Breaks in Service, the
Employee's Service prior to the Breaks in Service will be
disregarded if the consecutive Breaks in Service equal or
exceed the greater of (i) five, or (ii) the Employee's
Service prior to the Break in Service.
(e) Years of Service after five or more consecutive Breaks in
Service shall not be taken into account in determining the
vesting percentage of a Participant pursuant to Section 5.5
derived from Employer Contributions subject to said vesting
schedule made before such five consecutive Breaks in
Service.
(f) Service with a predecessor employer will be credited to an
employee as Service for the Employer as required pursuant
to Code Section 414(a). For purposes of this Subsection, a
predecessor employer is an employer who sponsored a plan
qualified under Code Section 401(a) which is maintained by
the Employer.
(g) An Employee shall be credited with a year of Service for
each 12 month period of service prior to December 31, 1997
from the Employee's most recent date of hire with
Convalescent Pharmaceutical Services, Inc. or any other
employer participating in the CKP Savings and Retirement
Plan at the time some of its assets were merged into this
Plan, or with Nationwide Care, Inc., for purposes of
eligibility under Section 2.1 and vesting under Section
5.5, provided that no Employee shall be credited with more
than 5 Years of Service under this Paragraph 1.43(g). For
purposes of this Section 1.43(g), if an Employee
transferred employment from a partner of a partnership
employer participating in the CKP Savings and Retirement
Plan to that partnership, his most recent date of hire
shall be his most recent date of hire with the partner.
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Section 1.44 TOP HEAVY PLAN means any plan under which, as of any
determination date (the last day of the preceding Plan Year),
the present value of the cumulative accrued benefits under the
plan for Key Employees exceeds 60% of the present value of
cumulative accrued benefits under the Plan for all Employees.
For purposes of this definition the following provisions shall
apply:
(a) If such plan is a Defined Contribution Plan, the present
value of cumulative accrued benefits shall be deemed to be
the market value of all Employee accounts under the plan,
other than voluntary deductible Employee contributions. If
such plan is a Defined Benefit Plan, the present value of
cumulative accrued benefits shall be the lump sum present
value determined pursuant to the plan. Moreover, the
present value of the cumulative accrued benefits shall be
increased by the amount of all Plan distributions made with
respect to a current or former employee during the five
year period ending on the determination date, including
distributions under a terminated plan which, if it had not
been terminated, would have been required to be included in
a Required Aggregation Group.
(b) A plan shall be considered to be a Top Heavy Plan for any
Plan Year if, on the last day of the preceding Plan Year,
the above rules were met. For the first Plan Year that the
Plan shall be in effect, the determination of whether the
Plan is a Top Heavy Plan shall be made as of the last day
of such Plan Year.
(c) Each plan of an Employer required to be included in a
Required Aggregation Group shall be treated as a Top Heavy
Plan if such group is a top heavy group.
(d) With regard to a Participant or former Participant who (i)
has not performed any service for an Employer at any time
during the five year period ending on the determination
date, or (ii) was formerly a Key Employee, but who is not a
Key Employee on the determination date, the present value
of the cumulative Accrued Benefit for such Participant or
former Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top Heavy
Plan.
(e) This definition shall be interpreted consistent with Code
Section 416 and rules and regulations issued thereunder.
Further, such law and regulation shall be controlling in
all determinations under this definition inclusive of any
provisions and requirements stated thereunder but
hereinabove absent.
Section 1.45 TOTAL AND PERMANENT DISABILITY OR TOTALLY AND PERMANENTLY
DISABLED means a physical or mental condition arising after the
original date of employment of the Participant which is expected
to totally and permanently prevent him from substantially
performing his usual duties with the Employer or from performing
like duties for which he is reasonably qualified based upon
education, experience and
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abilities. The determination by the Committee as to whether a
Participant is totally and permanently disabled shall be made
(i) on medical evidence by a licensed physician designated by
the Committee, (ii) on evidence that the Participant is eligible
for disability benefits under any long-term disability plan
sponsored by the Employer, or (iii) on evidence that the
Participant is eligible for disability benefits under the Social
Security Act in effect at the date of disability.
Section 1.46 TRUST AGREEMENT means the agreement entered into between the
Sponsoring Employer and the Trustee pursuant to Article 7
hereof.
Section 1.47 TRUST FUND means the trust fund created in accordance with
Article 7 hereof.
Section 1.48 TRUSTEE means such individual or corporation as shall be
designated in the Trust Agreement to hold in trust any assets of
the plan for the purpose of providing benefits under the Plan,
and shall include any successor trustee designated thereunder.
Section 1.49 VALUATION DATE means each date on which the U.S. securities
trading markets are open on or after January 1, 1997. As of each
Valuation Date the Trust Fund shall be valued at fair market
value.
Section 1.50 VRSP means the Vencor Retirement Savings Plan as amended from
time to time.
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ARTICLE 2
PARTICIPATION
Section 2.1 ELIGIBILITY REQUIREMENTS
(a) Effective January 1, 1997, any Employee who has attained
the age of 21 and has remained an Employee until 12 months
following the first date on which the Employee logged an
Hour of Service, shall be eligible as of the next Entry
Date, provided, however, that an Employee who does not meet
these rules shall nonetheless be eligible no later than the
Entry Date coincident with or next following the [1]
completion of 1000 Hours of Service in a 12 consecutive
month period and [2] attainment the age of 21. Thereafter,
the period shall be the Plan Year in which occurs the
anniversary of the date the Employee completes his first
Hour of Service.
(b) Any employee in a class of employees that was eligible to
participate in The Hillhaven Corporation Deferred Savings
Plan ("Affiliate Plan") prior to January 1, 1997 and who
was hired prior to January 1, 1997 shall be eligible to
participate in this Plan on January 1, 1997 if, at that
date, that employee is employed in a capacity defined as an
Employee in this Plan. Any Employee hired prior to January
1, 1997 in a class of employees eligible to participate in
this Plan prior to January 1, 1997 shall become eligible
for the Plan at the next Entry Date coincident with or
following the date they meet the eligibility rule
applicable to them at their hire date under the Plan (e.g.,
no age 21 requirement shall apply to those hired prior to
January 1, 1997).
(c) For purposes of this Section, in the event that an employee
of an entity that is or would be an Employer if the entity
adopted this Plan for its employees or of an entity that is
a participating employer in the VRSP becomes an Employee as
defined in Section 1.14 (either because of a change in
employment status or adoption of this Plan by the entity by
which he is employed), all periods of service while an
employee of the Employer or of an entity which participates
in the VRSP, shall be counted for purposes of determining
eligibility to participate in the Plan. In all events, this
Plan and the VRSP shall be construed so that, at no point
in time, does any one Participant have a right to
participate in both this Plan and the VRSP.
Section 2.2 PLAN BINDING
Upon becoming a Participant, a Participant shall be bound then
and thereafter by the terms of this Plan and the Trust
Agreement, including all amendments to the Plan and the Trust
Agreement made in the manner herein authorized.
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<PAGE>
Section 2.3 REEMPLOYMENT AND TRANSFERS
Solely for purposes of this Section 2.3, the following rules
shall apply:
(a) Termination of employment shall be deemed to occur when an
Employee has an interruption in continuity of his
employment by the Employer. Such termination may have
resulted from retirement, death, voluntary or involuntary
termination of employment, unauthorized absence, or by
failure to return to active employment with the Employer or
to retire by the date on which an authorized leave of
absence expired.
(b) If an Employee who was not eligible to become a Participant
in the Plan during his prior period of employment is
reemployed, he shall be eligible to participate in the Plan
after he has met the requirements of Section 2.1(a),
calculated from his original date of hire, unless he has
had a one-year Break in Service, in which case Service
before such Break in Service shall not be taken into
account for purposes of this Section until the Employee has
met the requirements of Section 2.1(a) calculated from his
date of rehire.
(c) If an Employee who was a Participant in the Plan during his
prior period of employment (or who had met the age and
service requirements of Section 2.1(a) or (b) but did not
remain employed until the applicable Entry Date) is
reemployed, he shall be eligible to again become a
Participant as of the Entry Date first following his date
of rehire.
(d) If an Employee transfers employment from an entity that
would be an Employer if it adopted this Plan for the
benefit of its employees or from an entity which
participates in the VRSP to the Employer (for purposes of
this Section, an "Affiliate"), the Employee shall become a
Participant under this Plan as of the date of transfer of
employment to the Employer, provided he has been employed
by the Affiliate, as of the date of transfer of employment,
for the period required in Section 2.1(a) or (b),
calculated from his original date of hire with the
Affiliate. If the Employee who transfers employment from an
Affiliate to the Employer has not been employed, as of the
date of transfer of employment, for the period required in
Section 2.1(a) or (b), he shall become a Participant under
this Plan upon meeting the eligibility requirements of
Section 2.1(a) or (b), counting all past Service with the
Affiliate for that purpose.
(e) The Individual Account in this Plan of an Employee who
transfers to or from an Affiliate shall remain in this Plan
and be eligible for the same Investment Funds as an active
Participant. No distribution shall be made of an Individual
Account (other than on account of hardship or after age 70
1/2) until and unless the former Employee has terminated
service with all Affiliates.
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<PAGE>
Section 2.4 BENEFICIARY DESIGNATION
Upon commencing participation, each Participant shall designate
a Beneficiary on forms furnished by the Committee. Such
Participant may then from time to time change his Beneficiary
designation by written notice to the Committee and, upon such
change, the rights of all previously designated Beneficiaries to
receive any benefits under this Plan shall cease. A married
Participant may not name as a Beneficiary someone other than the
Participant's spouse unless the spouse consents in writing to
such other designation, which consent shall be acknowledged by a
Plan representative or by a notary public. The consent of the
spouse must be limited to a specific Beneficiary and must be
obtained each time the Beneficiary is changed. If, at the time
of a Participant's death while benefits are still outstanding,
his named Beneficiary does not survive him, the benefits shall
be paid to his named contingent Beneficiary. If a deceased
Participant is not survived by either a named Beneficiary or
contingent Beneficiary (or if no Beneficiary was effectively
named), the benefits shall be paid in a single sum to the person
or in equal parts to the persons in the first of the following
classes of successive preference beneficiaries then surviving:
the Participant's (i) surviving spouse, unless the spouse
disclaims the benefit, (ii) natural and adopted children, (iii)
parents, (iv) brothers and sisters, (v) estate. If the
Beneficiary or contingent Beneficiary is living at the death of
the Participant, but such person dies prior to receiving the
entire death benefit, the remaining portion of such death
benefits shall be paid in a single sum to the estate of such
deceased Beneficiary or contingent Beneficiary.
Section 2.5 NOTIFICATION OF INDIVIDUAL ACCOUNT BALANCE
After the end of each calendar quarter, or more frequently as
determined by the Committee, the Committee shall notify each
Participant of the amount of his share in the Adjustments and
Contributions for the period just completed, and the new balance
of his Individual Account.
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<PAGE>
ARTICLE 3
CONTRIBUTIONS
Section 3.1 SALARY REDIRECTION
Each Participant may elect to have Salary Redirection made on
his behalf by agreeing to salary reduction contributions from
cash wages payable via an identity-secure telephonic enrollment
system (or in writing, if the telephonic system is
impracticable) ("IVR"). A new Participant in this Plan who was,
immediately prior to becoming an Employee, a Participant in the
VRSP or The Hillhaven Deferred Savings Plan, shall be deemed to
have made a salary reduction agreement for this Plan in the same
amount as was in effect for that other plan, unless and until
the Participant changes his salary reduction agreement by the
IVR.
(a) Salary Redirection each payroll period must equal an whole
percentage from 1% to 16% of a Participant's Compensation.
Salary Redirection shall begin, be increased or revoked
effective with the first pay date processed in the month
after a Participant has entered into or changed his salary
reduction agreement via IVR, provided that such enrollment
is concluded before 11:59 p.m. Central Standard Time on the
15th day of the month (the "enrollment deadline"). In the
event a Participant does not so elect when initially
eligible, he may subsequently elect to have Salary
Redirection made on his behalf at any time effective for
the first pay date in the month after the Participant has
entered into a salary reduction agreement via IVR, subject
to the enrollment deadline.
(b) The Employer shall pay to the Trustee any Salary
Redirection made on behalf of any Participant as soon as
practicable following the end of each regular pay period.
(c) The Employer may amend, to the extent it deems appropriate,
a Participant's salary reduction Agreement for any Plan
Year or portion thereof if the Employer determines that
such amendment is necessary to ensure that a Participant's
Annual Additions for any Plan Year might exceed the
limitations of Sections 3.4, 3.5, 3.6 or 4.5 the
requirements of Code Sections 401(k) or (m) or such other
requirements prescribed by law.
Section 3.2 MATCHING CONTRIBUTIONS
(a) As of the end of each calendar quarter, the Employer shall
make a Matching Contribution to the Trust Fund on behalf of
eligible Participants. If Matching Contributions are made
prior to the end of a calendar quarter, they shall
nonetheless be left unallocated until the quarter ends.
Matching contributions will be equal to the "applicable
percentage" of the eligible Participant's net eligible
Salary Redirection.
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<PAGE>
(b) Net eligible Salary Redirection means Salary Redirection of
up to 4% of Compensation, during the period since the last
preceding calendar-quarter end, which Salary Redirection
has not been withdrawn since the preceding calendar-quarter
end. For purposes of calculating net eligible Salary
Redirection, withdrawals shall be deemed to have been made
from the earliest Salary Redirection not yet withdrawn. Any
Matching Contribution shall be allocated to the Matching
Contribution Account of each eligible Participant.
(c) For purposes of this Section, the term "eligible
Participant" shall mean a Participant who is either (i)
actively employed by the Employer or an employer which
participates in the VRSP (even if not still an "Employee")
as of the end of each calendar quarter, or (ii) died since
the end of the preceding calendar quarter, or (iii) retired
or became disabled pursuant to Section 5.1, 5.2, or 5.4
since end of the preceding calendar quarter, or (iv) on a
Family and Medical Leave Act leave of absence at the end of
the calendar quarter.
(d) The "applicable percentage" for each calendar quarter shall
be determined based on the number of the Participant's
completed years of Service as of March 31 of the Plan Year
in which the last day of the quarter occurs, as follows:
PERCENTAGE OF NET ELIGIBLE
SALARY REDIRECTION
YEARS OF SERVICE AS OF CONTRIBUTIONS UP TO
MARCH 31 OF PLAN YEAR FIRST 4% OF COMPENSATION
At least 1, but less than 2 12 1/2 %
At least 2, but less than 3 25%
At least 3, but less than 4 37 1/2%
4 or more 50%
Section 3.3 PROFIT SHARING CONTRIBUTIONS
As of the last day of each Plan Year, the Employer may make a
Profit Sharing Contribution to the Trust Fund. Any such Profit
Sharing Contribution shall be allocated to the Profit Sharing
Contribution Account of each Participant who (i) has satisfied
the eligibility requirements of Section 2.1 (without regard to
whether the Participant has made an election pursuant to Section
3.1), (ii) is actively employed by the Company on said date and
in a class which is included in the definition of "Employee,"
and (iii) has been credited with at least 1000 Hours of Service
during the Plan Year. Any such Profit Sharing Contribution shall
also be allocated to the
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<PAGE>
Profit Sharing Account of each Former Participant (i) who died
since the end of the preceding Plan Year, or (ii) who retired or
became disabled pursuant to Section 5.1, 5.2, or 5.4 since the
end of the preceding Plan Year, (iii) who is on a Family and
Medical Leave Act leave of absence on the last day of the Plan
Year. Any such Profit Sharing Contributions shall be allocated
to the Profit Sharing Contribution Accounts of the Participants
described in the two immediately preceding sentences in the
proportion that each such Participant's Compensation during the
Plan Year bears to the total Compensation of all such
Participants and Former Participants during such Plan Year.
Section 3.4 NONDISCRIMINATION TEST FOR SALARY REDIRECTION
(a) Periodically as determined by the Committee, the Employer
shall check the actual deferral percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section shall mean all Participants under this Plan who are
eligible to make Salary Redirection contributions during
the Plan Year for which the tests are being made.
(c) The term "actual deferral percentage," means the average of
the percentages (calculated separately for each eligible
Participant) of Salary Redirection and Qualified
Nonelective Contributions on behalf of each eligible
Participant divided by the compensation of the eligible
Participant.
(d) The term "compensation" for purposes of this Section shall
include Compensation is defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any Plan Year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two tests need be satisfied not
to have a reduction in Salary Redirection.
Test I - The actual deferral percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual deferral
percentage for the preceding Plan Year of all
Non-Highly Compensated Employees, multiplied by
1.25.
Test II - The excess of the actual deferral percentage for
the current Plan Year of the group of Highly
Compensate Employees over the actual deferral
percentage for the preceding Plan Year of all
Non-Highly Compensated Employees is not more
than two percentage points, and the actual
deferral percentage for the current Plan Year of
the group of Highly Compensated Employees is not
more than the actual deferral percentage for
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<PAGE>
the preceding Plan Year of all Non-Highly
Compensated Employees, multiplied by two. If
Test II in Subsection 3.5(e) is used in testing
other contributions pursuant to that Section,
Test II under this Section shall be limited as
provided for in Code Section 401(m)(9) and the
regulations issued by the Secretary of the
Treasury of notices issued by the Internal
Revenue Service. If a multiple use of Test II
occurs, such multiple use shall be corrected by
reducing either the actual deferral percentage
or actual contribution percentage of the Highly
Compensated Employee in an amount calculated in
the manner provided in Section 3.4(f) or Section
3.5(f).
Notwithstanding the above, the Sponsoring Employer may
elect to perform the tests using the Average Actual
Deferral Percentage for the current Plan Year for
Participants who are Non-Highly Compensated Employees for
the current Plan Year rather than using prior Plan Year
data, provided that if such election is made for the 1998
or a later Plan Year, the test must continue to be
performed based on current Plan Year data until the
election is changed in a manner prescribed by the Secretary
of the Treasury. Unless the Sponsoring Employer elects to
use current Plan Year data, the Participants taken into
account in determining the prior Plan Year's Average Actual
Deferral Percentage for Non-Highly Compensated Employees
are those individuals who were Non-Highly Compensated
Employees during the preceding Plan Year, without regard to
the Participants' status during the current Plan Year
(i.e., a Participant who was a Non-Highly Compensated
Employee for the preceding Plan Year is included in the
calculation as a Non-Highly Compensated Employee even if
the Participant is no longer employed by the Employer or
has become a Highly Compensated Employee for the current
Plan Year). For the 1997 Plan Year, the determination of
who was a Non-Highly Compensated Employee for the 1996 Plan
Year shall be made using the definition of Non-Highly
Compensated Employee in effect prior to this restatement.
For purposes of these tests, the actual deferral percentage
for any Participant who is a Highly Compensated Employee
for the Plan Year and who is eligible to have Salary
Redirection allocated to his accounts under two or more
arrangements described in Code Section 401(k) that are
maintained by the Company, shall be determined as if such
Salary Redirection were made under a single arrangement.
(f) If neither Test I nor Test II is initially satisfied for
any Plan Year, the Plan shall nevertheless be deemed to
comply with the requirements of Section 401(k)(3)(A)(ii) of
the Code for such Plan Year if, before the last day of the
following Plan Year, the amount of any excess contribution
(and any income thereon) is distributed to Participants who
are Highly Compensated Employees. The amount to be returned
shall be determined as follows:
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<PAGE>
[i] Calculate the dollar amount that would be
returned to each Highly Compensated Employee if
the Average Deferral Percentage of Highly
Compensated Employees were reduced by returning
Salary Redirection contributions to such
Participants, beginning with those Highly
Compensated Employees' with the highest Actual
Deferral Percentage and only to the extent
necessary to meet either test above.
[ii] Determine the total of the dollar amounts
calculated in Step [i], and return that amount
to Highly Compensated Employees in accordance
with Steps [iii] and [iv] below by distributing
Salary Redirection contributions as Excess
Contributions. Excess Contributions, adjusted
for any income or loss allocable thereto, may be
distributed before the end of the following Plan
Year to Participants on whose behalf such Excess
Contributions were made for such preceding Plan
Year. Excess Contributions shall be adjusted for
income or loss, and the income or loss allocable
to Excess Contributions shall be determined by
multiplying the income or loss allocable to the
Participant's Salary Redirection contributions
for the Plan Year by a fraction, the numerator
of which is the Excess Contribution on behalf of
the Participant for the preceding Plan Year and
the denominator of which is the value of the
Participant's Salary Redirection Account on the
last day of the preceding Plan Year.
[iii] Reduce the Salary Redirection contributions of
the Highly Compensated Employee with the highest
dollar amount of Salary Redirection
contributions by the amount required to cause
that Highly Compensated Employee's Salary
Redirection contributions to equal the dollar
amount of the Salary Redirection contributions
of the Highly Compensated Employee with the next
highest dollar amount of Salary Redirection
Contributions. However, if a lesser reduction
would equal the total remaining excess
contributions to be distributed, the lesser
reduction amount is distributed.
[iv] If the total amount distributed is less than the
total excess contributions from Step [ii], Step
[iii] is repeated.
If it is necessary to reduce the matched Salary
Redirection, the Participant shall nevertheless receive
from the Plan a distribution equal to the vested portion of
the Employer Matching Contribution plus any income thereon
that would have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
Section 3.5 NONDISCRIMINATION TEST FOR OTHER CONTRIBUTIONS
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<PAGE>
(a) Periodically as determined by the Committee, the Employer
shall check the actual contribution percentages against the
tests identified below.
(b) The term "eligible Participants," for purposes of this
Section, shall mean all Participants under this Plan who
are eligible to make Salary Redirection contributions, and
receive Matching Contributions during the Plan Year for
which the tests are being made.
(c) The term "actual contribution percentage," means the
average of the following percentages (calculated separately
for each eligible Participant): Matching Contributions (and
Salary Redirection to the extent elected by the Employer
and permitted by Regulations under Code Section 401(m)) on
behalf of each eligible Participant divided by compensation
of the eligible Participant.
(d) The term "compensation" for purposes of this Section shall
include compensation as defined in Treasury Regulations
(S)1.414(s)-1T(c)(1) and (2) as modified by Treasury
Regulation (S)1.414(s)-1T(c)(4), applied uniformly to all
employees for any plan year or portion thereof during which
they are eligible to participate. Compensation for purposes
of this Section shall be limited pursuant to Code Section
401(a)(17).
(e) Only one of the following two test need be satisfied not to
have a reduction in contribution tested pursuant to this
Section.
Test I - The actual contribution percentage for the
current Plan Year of the group of Highly
Compensated Employees is not more than the
actual contribution percentage for the preceding
Plan Year of all Non-Highly Compensated
Employees, multiplied by 1.25.
Test II - The excess of the actual contribution percentage
for the current Plan Year of the group of Highly
Compensated Employees over the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees is
not more than two percentage points, and the
actual contribution percentage for the current
Plan Year of the group of Highly Compensated
Employees is not more than the actual
contribution percentage for the preceding Plan
Year of all Non-Highly Compensated Employees,
multiplied by two. If Test II in Subsection
3.4(e) is used in testing Salary Redirection
pursuant to that Section, Test II under this
Section shall be limited as provided for in Code
Section 401(m)(9) and the regulations issued by
the Secretary of the Treasury of notices issued
by the Internal Revenue Service. If a multiple
use of Test II occurs, such multiple use shall
be
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<PAGE>
corrected by reducing either the actual deferral
percentage or actual contribution percentage of
the Highly Compensated Employee in an amount
calculated in the manner provided in Section
3.4(f) or Section 3.5(f).
Notwithstanding the above, the Sponsoring Employer may
elect to perform the tests using the Average Contribution
Percentage for the current Plan Year for Participants who
are Non-Highly Compensated Employees for the current Plan
Year rather than using prior Plan Year data, provided that
if such election is made for the 1998 or a later Plan Year,
the test must continue to be performed based on current
Plan Year data until the election is changed in a manner
prescribed by the Secretary of the Treasury. Unless the
Sponsoring Employer elects to use current Plan Year data,
the Participants taken into account in determining the
prior Plan Year's Average Contribution Percentage for Non-
Highly Compensated Employees are those individuals who were
Non-Highly Compensated Employees during the preceding Plan
Year, without regard to the Participants' status during the
current Plan Year (i.e., a Participant who was a Non-Highly
Compensated Employee for the preceding Plan Year is
included in the calculation as a Non-Highly Compensated
Employee even if the Participant is no longer employed by
the Employer or has become a Highly Compensated Employee
for the current Plan Year). For the 1997 Plan Year, the
determination of who was a Non-Highly Compensated Employee
for the 1996 Plan Year shall be made using the definition
of Non-Highly Compensated Employee in effect prior to this
restatement.
For purposes of these tests, the actual contribution
percentage for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have
Matching Contributions allocated to his accounts under two
or more arrangements described in Code Section 401(k) that
are maintained by the Company, shall be determined as if
such Matching Contributions were made under a single
arrangement.
(f) If neither Test I nor Test II is initially satisfied for
any Plan Year, the Plan shall nevertheless be deemed to
comply with the requirements of Section 401(m) of the Code
for such Plan Year if, before the last day of the following
Plan Year, the amount of any excess contribution (and any
income thereon) is distributed to Participants who are
Highly Compensated Employees or if forfeitable, is
forfeited. The amount to be reduced shall be determined as
follows:
[i] Calculate the dollar amount by which each Highly
Compensated Employee's Employer Matching
contributions must be reduced to pass wither
test, beginning with those Highly Compensated
Employees with the highest Contribution
Percentage and only to the extent necessary to
meet either test above.
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<PAGE>
[ii] Determine the total of the dollar amounts
calculated in Step [i], and reduce Highly
Compensated Employees' Employer Matching
contributions in accordance with Steps [iii] and
[iv] below.
[iii] Reduce the Employer Matching contributions of
the Highly Compensated Employee with the highest
dollar amount of Employer Matching contributions
by the amount required to cause that Highly
Compensated Employee's Employer Matching
contributions to equal the dollar amount of the
Employer Matching contributions of the Highly
Compensated Employee with the next highest
dollar amount of Employer Matching
contributions. However, if a lesser reduction
would equal the total remaining excess
contributions to be distributed, the lesser
reduction amount is distributed.
[iv] If the total amount distributed is less than the
total excess contributions from Step [ii], Step
[iii] is repeated.
If it is necessary to reduce the Employer Matching
Contribution, the Participant shall nevertheless receive
from the Plan a distribution equal to the vested portion of
the Employer Matching Contribution plus any income thereon
that would have been allocated to him had such reduction in
contribution not been necessary. Any remaining portion of
the Matching Contribution shall be forfeited in accordance
with the provisions of Section 5.5.
(g) This Section shall be governed by Code Section 401(m) and
any rules or regulations issued pursuant thereto, which may
include coordination and/or combination with allocations
subject to Section 401(k) in accordance with Treasury
Regulation Section 1.401(m)-2.
Section 3.6 MAXIMUM INDIVIDUAL DEFERRAL
A Participant shall not be permitted to have his Employer
redirect an amount in excess of $9,500 in any calendar year
pursuant to the provisions of Section 3.1, including
contributions to any other plan of an Employer which are made
pursuant to Code Section 402(a)(8). The $9,500 limitation shall
be adjusted in accordance with cost-of-living adjustments made
by the Secretary of the Treasury pursuant to Code Section
402(g)(5). If any amount is redirected pursuant to Section 3.1
in excess of this limit (as adjusted), or if a Participant
notifies the Committee, in writing, by March 1 following the
close of the taxable year of the amount contributed in excess of
this limit (as adjusted) to all plans pursuant to Code Section
402(a)(8), such amount shall be deemed an "excess deferral" and
the Committee shall direct the Trustee to distribute to the
Participant (not later than the April 15 following the calendar
year in which the excess deferral was made) the amount of the
excess deferral plus any income allocable to such amount.
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<PAGE>
Section 3.7 MISTAKE OF FACT
If due to a mistake of fact, Employer Contributions to the Trust
Fund for any Plan Year exceed the amount intended to be
contributed, notwithstanding any provision to the contrary, the
Employer, as soon as such mistake of fact is discovered, shall
notify the Trustee. The Employer shall direct that the Trustee
return such excess to the Employer, provided such return is made
within one year of the date on which the Employer made the
contribution.
Section 3.8 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may, as of the end of any calendar quarter, make a
Qualified Nonelective Contribution to the Trust Fund on behalf
of any Participant with a Prior Plan Employer Contribution
Account or Prior Plan Salary Redirection Account in an amount
equal to the surrender charges assessed by the insurer which
held the assets in those accounts in the plan which was merged
into this Plan. Such Qualified Nonelective Contributions shall
be added to the Salary Redirection Accounts of those
Participants in amounts equal to the allocation of the surrender
charges to the Participant's combined Prior Plan Employer and
Prior Plan Salary Redirection Accounts, shall be 100% vested
when made, subject to the same distribution rules as Salary
Redirection Contribution, and shall be tested for
nondiscrimination as Salary Redirection Contributions in
accordance with the provisions of Section 3.4.
Section 3.9 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF
1994 ("USERRA")
Effective December 12, 1994, notwithstanding any provision of
this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
Section 414(u) generally provides that an employer maintaining a
plan shall be treated as meeting the requirements of USERRA only
if an employee reemployed under USERRA is treated as not having
incurred a break in service because of the period of military
service, the employee's military service is treated as service
with the employer for vesting and benefit accrual purposes, the
employee is permitted to make additional elective deferrals and
employee contributions in an amount not exceeding the maximum
amount the employee would have been permitted or required to
contribute during the period of military service if the employee
had actually been employed by the employer during that period
("make-up contributions"), and the employee is entitled to any
accrued benefits that are contingent on employee contributions
or elective deferrals to the extent the employee pays the
contributions or elective deferrals to the plan. Make-up
contributions must be permitted during the period that begins on
the date of reemployment and continues for five years or, if
less, three times the period of military service. With respect
to make-up contributions, the employer must make matching
contributions
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<PAGE>
that would have been required if the make-up contributions had
actually been made during the period of military service.
Section 414(u) provides that an employee is treated as receiving
compensation from the employer during the period of military
service equal to the compensation the employee otherwise would
have received from the employer during that period, or, if the
compensation the employee otherwise would have received is not
reasonably certain, the employee's average compensation from the
employer during the period immediately preceding the period of
military service. For purpose of (S) 414(u), USERRA is not
treated as requiring the crediting of earnings to an employee
with respect to any contribution before the contribution is
actually made or requiring any allocation of forfeitures to the
employee for the period of military service.
Section 414(u) generally provides that a contribution that is
made by an employer or employee to an individual account plan or
by an employee to a contributory defined benefit plan, and that
is required under USERRA, is taken into account for purposes of
the limitations of Section 402(g), 402(h), 403(b), 404(a),
404(h), 408, 415 or 457 in the year to which the contribution
relates, not the year in which the contribution is made. In
addition, Section 414(u) provides that a plan is not treated
as failing to meet the requirements of Section 401(a)(4),
401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m),
403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 because
of the contribution (or the right to make the contribution).
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<PAGE>
ARTICLE 4
ALLOCATION TO INDIVIDUAL ACCOUNTS
Section 4.1 INDIVIDUAL ACCOUNTS
The Committee shall establish and maintain an Individual Account
in the name of each Participant to which the Committee shall
credit all amounts allocated to each such Participant pursuant
to Article 3 and the following Sections of this Article.
Section 4.2 INVESTMENT OF ACCOUNTS
(a) There shall be established the following Investment Funds
within the Trust Fund:
(1) INTEREST INCOME FUND - A fund generally invested in
investment contracts with banks and insurance
companies to generate interest income returns above
the rates earned by money market funds, while
generally maintaining a stable principal value. This
fund may also be referred to as the Stable Value Fund.
(2) BALANCED FUND - A fund consisting of both fixed income
obligations of the United States Government and its
agencies and of companies other than the Sponsoring
Employer to provide protection of principal consistent
with an attractive rate of return, and equity
investments other than the common stock of the
sponsoring employer.
(3) GROWTH FUND - A fund consisting primarily of common
stocks with an objective of capital growth over both
the intermediate and long-term.
(4) AGGRESSIVE GROWTH FUND - a fund consisting primarily
of common stocks of companies that are early in their
life cycle and which have the potential to grow
significantly, with the objective to provide long term
capital appreciation without regard to current income.
(5) COMPANY STOCK FUND - solely for Participants who
became eligible to participate in the VRSP effective
January 1, 1997, a fund consisting primarily of shares
of common stock of the Sponsoring Employer and
dividends and distributions attributable to said
common stock, plus temporary investments held pending
purchase of additional shares of common stock of the
Sponsoring Employer, which fund shall be subject to
the same provisions,
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terms and conditions as the Company Stock Fund
available under the VRSP.
(b) Each Participant shall have the right to direct the
Committee to invest the cumulative balance in his
Individual Account in increments of 10% (25% if elections
made prior to January 1, 1997, in which case they continue
until a change is made by the Participant) in the
Investment Funds provided in Section 4.2(a). Such direction
shall be effected as soon as practicable after the end of
the month, provided the Participant gives the direction by
identity-secured telephonic instructions (or in writing if
telephonic instructions are impracticable) no later than
the 15th day of the month. Neither the Trustee nor any
other Fiduciary shall be responsible for investment losses
resulting from a Participant's exercise of investment
discretion, in accordance with ERISA Section 404(c).
(c) A Participant who does not make any election under this
Section shall have the Individual Account invested in the
Stable Value Fund. A Participant who began participation in
the Plan prior to January 1, 1997 or who has funds
transferred to this Plan from The Hillhaven Deferred
Savings Plan shall have assets formerly invested in the
Short-Term Investment or Bond Fund transferred to the
Stable Value Fund, those formerly in the U.S. Balanced Fund
to the Balanced Fund, those formerly in the Large Stock or
International Fund to the Growth Fund, and those formerly
in the Small Stock Fund to the Aggressive Growth Fund.
(d) Notwithstanding Section 4.2(b) and (c) above, a Participant
who became eligible to participate int he VRSP effective
January 1, 1997 shall have the portion of his Individual
Account attributable to his Profit Sharing Contribution
Account and Matching Contribution Account invested in the
Company Stock fund pending the spinoff of those Accounts to
the VRSP.
Section 4.3 VALUATION OF ACCOUNTS
(a) INDIVIDUAL ACCOUNT. As of each Valuation Date, the
Committee shall determine the fair market value of the
Individual Account of each Participant for each Investment
Fund in which the Individual Account is invested as
follows:
(1) The value of the Individual Account of each
Participant as of the last Valuation Date;
(2) Minus the amount of any withdrawals and distributions
made from such account since the last Valuation Date;
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(3) Plus any contributions to the Participant's Salary
Redirection Account since the last Valuation Date;
(4) Plus any allocation to the Participant's Matching
Contribution Account since the last Valuation Date;
(5) Plus any allocation to the Participant's Profit
Sharing Account since the last Valuation Date;
(6) Plus the Individual Account's proportionate share of
any investment earnings allocated to each Investment
Fund held within the Individual Account since the last
Valuation Date;
(7) Minus the Individual Account's proportionate share of
any investment losses allocated to each Investment
Fund held within the Individual Account since the last
Valuation Date.
(b) INVESTMENT EARNINGS OR LOSSES. The investment earnings (or
losses, if such computation is negative) from the
Investment Funds shall mean the difference between the unit
price of any Investment Fund from one business day to the
next, and any net gain or loss on non-mutual fund
investments in an Investment Fund, as reflected by interest
payments, dividends, realized and unrealized gains and
losses on securities, other investment transactions and
expenses paid from the fund.
(c) ALLOCATION OF INVESTMENT EARNINGS OR LOSSES. The investment
earnings or losses from the Trust Fund shall be allocated
to the Individual Account of each Participant invested in
the respective Investment Fund in the ratio of "A" divided
by "B" where "A" is an amount determined pursuant to
Section 4.3(d) for the portion of the Individual Account of
each Participant invested in the respective Investment Fund
and "B" is an amount determined pursuant to Section 4.3(d)
for the portion of the Individual Account of all
Participants invested in the respective Investment Fund.
(d) DETERMINATION OF RATIO. For purposes of determining the
ratio is Section 4.3(c), the amounts shall be determined as
follows:
(1) the value of the portion of such Individual Account(s)
in the Investment Fund as of the last Valuation Date;
(2) Minus withdrawals and benefit payments to or on behalf
of Participants from the portion of such Individual
Account(s) in the Investment Fund since the last
Valuation Date.
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Section 4.4 TRUSTEE AND COMMITTEE JUDGMENT CONTROLS
In determining the fair market value of the Trust Fund and of
Individual Accounts, the Trustee shall exercise its best
judgment, and all such determinations of value (in the absence
of bad faith) shall be binding upon all Participants and their
beneficiaries.
Section 4.5 MAXIMUM ADDITIONS
Anything herein to the contrary notwithstanding, the total
Annual Additions of a Participant for any Limitation Year when
combined with any similar annual additions credited to the
Participant for the same period from another qualified Defined
Contribution Plan maintained by an Employer, shall not exceed
the lesser of the amounts determined pursuant to Section 4.5(a)
or (b).
(a) $30,000 or, if larger, 25% of the dollar limitation in
effect under Code Section 415(b)(1)(A) determined by the
Commissioner of Internal Revenue as of January 1 of each
year to apply to the Limitation Year ending with or within
that calendar year; or
(b) 25% of the Participant's compensation received from the
Employer for such Limitation Year, as determined pursuant
to Section 415 of the Code.
(c) In the event a Participant is covered by one or more
Defined Contribution Plans maintained by an Employer, the
maximum annual additions as noted above shall be decreased
in the last Defined Contribution Plan maintained by an
Employer in which he participated to ensure that all such
plans will remain qualified under the Code.
Section 4.6 CORRECTIVE ADJUSTMENTS
In the event that corrective adjustments in the Annual Addition
to any Participant's Individual Account are required as the
result of a reasonable error in estimating a Participant's
compensation, the corrective adjustments shall be made pursuant
to and in the order of the subsections in this Section.
(a) The portion of the Participant's unmatched Salary
Redirection made pursuant to Subsection 3.1(a) shall be
returned by distribution to the Participant, with earnings
thereon. Any amount so returned shall be disregarded for
purposes of the tests in Sections 3.4 and 3.5.
(b) The portion of the Participant's matched Salary Redirection
made pursuant to Subsection 3.1(a) and his Matching
Contributions shall be proportionally reduced to insure
compliance with Section 4.5. Any affected Salary
Redirection will be distributed to the Participant and
shall not be considered
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for purposes of the tests in Sections 3.4 and 3.5. Any
affected Matching Contributions shall be used to reduce
future Matching Contributions.
(c) The Participant's Profit Sharing Contribution shall be
reduced to insure compliance with Section 4.5. Any such
amount reduced shall be allocated as of the end of the next
Plan Year among the Profit Sharing Contribution Accounts of
all other Participants in the same manner as is indicated
in Section 3.3.
Section 4.7 DEFINED CONTRIBUTION AND DEFINED BENEFIT PLAN FRACTION
If a Participant is a participant in a Defined Benefit Plan
maintained by an Employer, the sum of his defined benefit plan
fraction and his defined contribution plan fraction for any
Limitation Year may not exceed 1.0.
(a) For purposes of this Section, the term "defined
contribution plan fraction" shall mean a fraction the
numerator of which is the sum of all of the Annual
Additions of the Participant under this Plan and any other
Defined Contribution Plan maintained by an Employer as of
the close of the Limitation Year and the denominator of
which is the sum of the lesser of the following amounts
determined for such Limitation Year and for each prior
Limitation Year of employment with an Employer:
(1) the product of 1.25 multiplied by the dollar
limitation in effect under Section 415(c)(1)(A) of the
Code; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account under Code Section 415(c)(1)(B)
with respect to each individual under the Plan for
such Limitation Year.
(b) For purposes of this Section, the term "defined benefit
plan fraction" shall mean a fraction, the numerator of
which is the Participant's projected annual benefit (as
defined in the Defined Benefit Plan) determined as of the
close of the Limitation Year and the denominator of which
is the lesser of:
(1) the product of 1.25 multiplied by the dollar
limitation in effect pursuant to Section 415(b)(1)(A)
of the Code for such Limitation year; or
(2) the product of 1.4 multiplied by the amount which may
be taken into account pursuant to Section 415(b)(1)(B)
of the Code with respect to each individual under the
Plan for such Limitation year.
(c) The limitation on aggregate benefits from a Defined Benefit
Plan and a Defined Contribution Plan which is contained in
Section 2004 of ERISA,
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as amended, shall be complied with by a reduction (if
necessary) in the Participant's benefits under the Defined
Benefit Plan.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 NORMAL RETIREMENT
When a Participant lives to his Normal Retirement Date and
retires, he shall become entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date the distribution check is
prepared.
Section 5.2 LATE RETIREMENT
A Participant may continue his employment past his Normal
Retirement Date on a year to year basis. He shall continue to be
an active Participant under the Plan. Upon his actual retirement,
he shall become entitled to the full value of his Individual
Account as soon as practicable after the distribution forms are
completed (or their time for completion has elapsed), at a value
determined as of the date of distribution check is prepared.
Section 5.3 DEATH
If a Participant dies while an active Participant under the Plan,
his Beneficiary shall be entitled to the full value of his
Individual Account as soon as practicable after the distribution
forms are completed (or their time for completion has elapsed),
at a value determined as of the date of distribution check is
prepared.
Section 5.4 DISABILITY
When it is determined that a Participant is Totally and
Permanently Disabled, the Committee shall certify such fact to
the Trustee and such Disabled Participant shall be entitled to
receive the full value of his Individual Account as soon as
practicable after the distribution forms are completed, at a
value determined as of the date of distribution check is
prepared.
Section 5.5 TERMINATION OF EMPLOYMENT
(a) Subject to Section 5.5(j) below, upon termination of
employment for any reason (other than Normal Retirement, Late
Retirement, Disability Retirement or Death), a Participant
shall be entitled to a benefit equal to the vested portion
(as determined in this Section) of the balance of his
Individual Account as soon as practicable after the
distribution forms are completed, at a value determined as of
the date of distribution check is prepared.
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(b) A Participant shall always be 100% vested in the balance of
his Salary Redirection Account, and Prior Plan Salary
Redirection Account. A Participant shall be 100% vested in
all amounts in his Prior Plan Employer Contribution Account
that were transferred from the CKP Savings and Retirement
Plan (the "CKP Plan"). A Participant who had three years of
service under the CKP Plan and whose plan benefit was
transferred from that plan to this Plan shall be 100%
immediately vested in all accounts under this Plan. All
participants in the CKP Plan who do not have three Years of
Service on the date a portion of the CKP Plan was merged into
this Plan, and all participants employed by Nationwide Care,
Inc., regardless of their Years of Service, shall be subject
to the vesting schedule contained in Section 5.5 of this Plan
for purposes of Employer Contributions made to this Plan.
(c) A Participant shall be vested in the balance attributable to
his Matching and Profit Sharing Contribution Accounts based
on years of Service as of his date of termination, in
accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
(d) Notwithstanding the above, a Participant who has a Prior Plan
Employer Contribution Account from The Hillhaven Corporation
Deferred Savings Plans, shall be vested in the balance
attributable to such account based on years of Service as of
his date of termination, in accordance with the following
schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
In addition, any Participant who had an account in The
Hillhaven Corporation Deferred Savings Plan and who
terminated employment during the 1996 calendar year shall be
100% vested in the Participant's Individual
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Account transferred to this Plan from The Hillhaven
Corporation Deferred Savings Plan.
(e) Notwithstanding the above, a Participant who attains
Normal Retirement Age or dies or becomes Totally and
Permanently Disabled, while employed by an Employer,
shall be fully vested in his Individual Account under the
Plan.
(f) A Participant who terminates employment pursuant to this
Section with a zero percent vested percentage shall be
deemed to have received a distribution on the date he
terminates employment. If a Former Participant receives a
distribution of the vested portion of his Individual
Account prior to incurring five consecutive Breaks in
Service or said Former Participant is zero percent vested
in his Individual Account, the non-vested balance of such
terminated Participant's Individual Account shall be
forfeited as of the date he receives or is deemed to
receive said distribution. If a Participant who has
received a distribution (or deemed distribution) is later
rehired before the period described in subsection 5.5(h)
below, the Participant need not repay the distributed
amount, but his Account shall automatically have the
forfeited amount restored to it at the earlier of (1) the
last day of the Plan Year in which rehired, or (2) the
date of a subsequent termination of employment.
Restoration of a forfeiture will come from forfeitures in
the year in which he is reemployed and, to the extent
such forfeitures are not sufficient, from a special
Employer Contribution. Upon a subsequent termination of
employment prior to the Participant becoming 100% vested,
the gross distribution shall be determined by multiplying
the vested percentage at the subsequent termination by
the account balance then actually restored to the Plan,
plus the distribution previously received. The amount to
be distributed to the Participant shall be the vested
percentage of the adjusted account, minus the amount
previously distributed.
(g) The non-vested balance of the Individual Account of a
terminated Participant shall be forfeited as of the last
day of the Plan Year in which such terminated Participant
incurs five consecutive Breaks in Service if the
Participant is vested in any portion of his Individual
Account and does not receive a distribution prior to
incurring five consecutive Breaks in Service.
(h) A terminated Participant who is reemployed and again
becomes a Participant after incurring five or more
consecutive Breaks in Service shall not have any amount
forfeited pursuant to this Section restored to his
Individual Account.
(i) Any Matching Contributions and Profit Sharing
Contributions forfeited will be first used to reduce
Matching Contributions pursuant to Section 3.2.
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(j) Notwithstanding anything to the contrary in this Section 5.5
or in Section 5.6(a), no portion of a Participant's
Individual Account shall be distributed to him until the
participant has separated from service within the meaning of
Code Section 401(k)(2)(B), unless the distribution is in
connection with an event described in Code Section 401(k)(10)
and the Treasury Regulations under that Section.
Section 5.6 COMMENCEMENT OF BENEFITS
(a) Any benefits payable under this Article shall be paid as soon
as reasonably possible following the actual date of
severance, at the value determined as of the Valuation Date
coincident with or immediately preceding receipt of properly
completed distribution forms from the Participant, subject to
the Participant's consent if his actual date of severance is
prior to Normal Retirement Age and subject to Subsection
5.7(a). In no event, however, shall payment begin beyond 60
days after the last day of the Plan Year in which occurs the
latest of (i) the Participant's reaching Normal Retirement
Age; (ii) the 10th anniversary of the date the Employee
became a Participant; or (iii) termination of the
Participant's employment. Notwithstanding anything in the
Plan to the contrary and notwithstanding the Participant's
lack of consent, benefits under this Plan shall be paid as
soon as reasonably possible following the later of the
Participant's actual date of severance or his Normal
Retirement Date.
(b) Except as required in this Section for a Participant who has
an Individual Account to which Section 5.7(b) or Section
5.6(c) applies, a Participant may defer distribution to a
subsequent date. If the Participant does not consent to a
distribution as provided above, such distribution shall be
made based on the value of the Individual Account as of the
date the check for the distribution is prepared and shall be
delivered as soon as reasonably practical after notice to the
Committee of the election to receive a distribution.
(c) Notwithstanding any other provisions of the Plan, the payment
of a Participant's benefits hereunder shall begin by payment
of a lump sum of the entire Accounts of the Participant no
later than the April 1 following the calendar year in which
the Participant has both attained age 70 1/2 and has retired,
provided that for 5% owners as defined in Section 416 of the
Code, distribution must begin by April 1 following the
calendar year in which the Participant attains age 70 1/2,
regardless of whether the Participant has retired; and
further provided that, if the Internal Revenue Service in
regulations or other pronouncements provides that eliminating
the automatic distribution from this Plan beginning after age
70 1/2 for a non-5% owner who has not yet separated from
service is a prohibited cut-back of benefits, then a
Participant shall have the option to take a lump sum
distribution even while employed, at the April 1 following
attainment of age 70 1/2, if the Participant so elects
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in writing, and, if so elected, shall receive a distribution
on or before December 31 of the year after attainment of age
70 1/2, and again each year thereafter while still employed,
shall receive a similar distribution of all amounts accrued
in Accounts of the Participant since the last such
distribution.
(d) Notwithstanding anything in the Plan to the contrary, any
benefit payable to an alternate payee pursuant to a
qualified domestic relations order, as defined in Section
414(p) of the Code, shall be paid as soon as
administratively possible following the determination that
the order meets the requirements of Section 414(p) of the
Code.
(e) Notwithstanding anything in the Plan to the contrary, in the
event a Participant terminates employment for any reason and
recommences employment prior to distribution of his entire
vested account in the Plan, the undistributed portion of his
vested account shall remain in the Plan until his account
again becomes distributable due to a subsequent termination.
Section 5.7 METHODS OF PAYMENT
(a) A Participant or Beneficiary shall elect a distribution of
the Individual Account in a single lump sum payment in cash
as provided hereinafter. Except as provided in Section
5.7(c) or Section 5.11, no other manner of distribution
shall be provided. The request by the Participant or the
Beneficiary shall be in writing and shall be filed with the
Committee. The Committee may not require a distribution
without the consent of the Participant prior to his reaching
Normal Retirement Age or, if the Participant is deceased,
without the consent of his spouse, if the spouse is living
and if the spouse is his Beneficiary, unless the vested
value of the Individual Account is $3,500 or less. If the
vested value of the Participant's Individual Account is
$3,500 or less, the benefits payable will be paid as soon as
reasonably possible following the actual date of severance,
notwithstanding lack of consent. If the vested value of the
Participant's Individual Account has been more than $3,500
at the time of any distribution, the value the Participant's
Individual Account will be deemed to be more than $3,500 at
the time of any subsequent distribution for purposes of the
consent requirements of this Section.
(b) If the Participant dies before distribution occurs, the
Participant's entire interest will be distributed no later
than five years after the Participant's death, except, if
the designated Beneficiary is the Participant's surviving
spouse, the distribution must be made no later than the date
on which the Participant would have attained age 65.
(c) Notwithstanding anything in this Section to the contrary, in
the case of a Participant who has a Prior Plan Salary
Redirection Account or a Prior Plan
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Employer Contribution Account, the Participant may take
distribution of his Prior Plan Salary Redirection Account or
Prior Plan Employer Contribution Account at such time or in
such other form as was provided in the plan (as in effect as
of the date of transfer) from which the Prior Plan Salary
Redirection Account or Prior Plan Employer Contribution
Account was transferred.
Section 5.8 BENEFITS TO MINORS AND INCOMPETENTS
If any person entitled to receive payment under the Plan shall be
a minor, the Committee, in its discretion, may dispose of such
amount in any one or more of the ways specified in Subsections
(a) through (c) of this Section.
(a) By payment thereof directly to such minor;
(b) By application thereof for benefit of such minor;
(c) By payment thereof to either parent of such minor or to any
adult person with whom such minor may at the time be living
or to any person who shall be legally qualified and shall be
acting as guardian of the person or the property of such
minor; provided only that the parent or adult person to whom
any amount shall be paid shall have advised the Committee in
writing that he will hold or use such amount for the benefit
of such minor.
In the event that it shall be found that person entitled to
receive payment under the Plan is physically or mentally
incapable of personally receiving and giving a valid receipt for
any payment due (unless prior claim therefor shall have been made
by a duly qualified committee or other legal representative),
such payment may be made to the spouse, son, daughter, parent,
brother, sister or other person deemed by the Committee to have
incurred expense for such person otherwise entitled to payment.
Section 5.9 UNCLAIMED BENEFITS
(a) The Plan does not require either the Trustee or the Committee
to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Committee, by certified mail
addressed to his last known address of record with the
Committee or the Employer, shall notify any Participant, or
Beneficiary, that he is entitled to a distribution under this
Plan. If the Participant, or Beneficiary, fails to claim his
distributive share or make his whereabouts known in writing
to the Committee within six months from the date of mailing
of the notice, or before the termination or discontinuance of
this Plan, whichever should first occur, the Committee shall
thereafter treat the Participant's or Beneficiary's unclaimed
payable Account as a Forfeiture. A Forfeiture under this
Section shall occur when the Committee determines that the
Participant or Beneficiary cannot be located, but not earlier
than the
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end of the notice period, or if later, the earliest date
applicable Treasury regulations would permit the Forfeiture.
(b) If a Participant or Beneficiary who has incurred a forfeiture
of his Account under this Section makes a claim, at any time,
for his forfeited Account, the Committee shall restore the
Participant's or Beneficiary's forfeited Account to the same
dollar amount as the dollar amount of the Account forfeited,
unadjusted for any gains or losses occurring subsequent to
the date of the forfeiture. The Committee shall make the
restoration during the Plan Year in which the Participant or
Beneficiary makes the claim, first from the amount, if any,
of forfeitures the Administrator otherwise would allocate for
the Plan Year, then from the amount, if any, of the Trust net
income or gain for the Plan Year and then from the amount, or
additional amount, the Employer shall contribute to enable
the Committee to make the required restoration. The Committee
shall direct the Trustee to distribute the Participant's or
Beneficiary's restored Account to him not later than 60 days
after the close of the Plan Year in which the Committee
restores the forfeited Account. The forfeiture provisions of
this Section shall apply solely to the Participant's or to
the Beneficiary's Account derived from Employer
contributions.
Section 5.10 PARTICIPANT DIRECTED ROLLOVERS
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the plan to
the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) For purposes of this Section, an eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a
specified period of 10 years or more; any distribution to the
extent such distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(c) For purposes of this Section, an eligible retirement plan is
an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan
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described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
For purposes of this Section, a distributee includes an Employee
or former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the interest
of the spouse or former spouse.
(d) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
Section 5.11 JOINT AND SURVIVOR OPTIONS
(a) This Section shall only apply to a Participant who has a
Prior Plan Employer Contribution Account and/or a Prior Plan
Salary Redirection Account that was transferred as a result
of a plan merger from a plan that provided for an annuity
form of distribution.
(b) QUALIFIED JOINT AND SURVIVOR ANNUITY. Except as otherwise
provided below, unless an optional form of benefit is
selected pursuant to a qualified election within the 90 day
period ending on the date benefit payments would commence, a
Participant's vested Prior Plan Employer Contribution Account
and Prior Plan Salary Redirection Account will be paid in the
form of a qualified joint and survivor annuity, and an
unmarried Participant's benefit shall be paid in the form of
a life annuity unless otherwise elected by the Participant. A
qualified joint survivor annuity will not be applicable and
this Section shall not apply if the following conditions are
met:
(1) The Participant's vested Individual Account is payable in
full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-spouse
Beneficiary in the manner prescribed under this Section,
and
(2) Such Participant does not elect a payment of benefits in
the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is described
in clause (i) or (ii) of Code Section 401(a)(11)(B), or
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(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $3,500 or
less.
(b) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. Except as otherwise
provided in this Subsection, unless an optional form of
benefit has been selected within the election period pursuant
to a qualified election, if a Participant dies before
benefits have commenced, then the Participant's vested Prior
Plan Employer Contribution Account and Prior Plan Salary
Redirection Account shall be applied toward the purchase of
an annuity for the life of the surviving spouse. Benefits
will not be required to be paid in the form of a
preretirement survivor annuity if the following conditions
are met:
(1) The Participant's vested Individual Account is payable in
full, on the death of the Participant, to the
Participant's surviving spouse, or if there is no
surviving spouse, or if the surviving spouse has
previously consented to the designation of a non-spouse
Beneficiary in the manner prescribed under this Section,
and
(2) Such Participant does not elect a payment of benefits in
the form of a life annuity, and
(3) With respect to such Participant, such Plan is not a
direct or indirect transfer of a Plan which is described
in clause (i) or (ii) of Section 401(a)(11)(b) of the
Code, and
(4) If the distribution is subject to the terms and
conditions contained in Section 5.7 concerning the
distribution of vested Individual Accounts of $3,500 or
less.
(c) ELECTION PERIOD shall mean, for purposes of this Section, the
period which begins on the first day of the Plan Year in
which the Participant attains age 35 and ends on the date of
the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age
35 is attained, with respect to the Individual Account
Balance as of the date of separation, the election period
shall begin on the date of separation.
(d) EARLY RETIREMENT AGE shall mean, for purposes of this
Section, the earliest date on which, under the Plan, the
Participant could elect to receive retirement benefits.
(e) QUALIFIED ELECTION shall mean, for purposes of this Section,
an election pursuant to this Subsection. A waiver of a
qualified joint and survivor annuity or a qualified
preretirement survivor annuity is permitted. The waiver must
be in writing, must be executed by the Participant, must
specify
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the Beneficiary and the optional form of benefit and must be
consented to by the Participant's spouse. The spouse's
consent to a waiver must be witnessed by a Plan
representative or a notary public. Notwithstanding this
consent requirement, if the Participant establishes to the
satisfaction of a Plan representative that such written
consent may not be obtained because there is no spouse or the
spouse cannot be located, a waiver will be deemed a qualified
election. Any consent necessary under this provision will be
valid only with respect to the spouse who signs the consent,
or in the event of a deemed qualified election, the
designated spouse. Additionally a revocation of a prior
waiver may be made by a Participant without the consent of
the spouse at any time before the commencement of benefits.
The number of revocations shall not be limited.
(f) QUALIFIED JOINT AND SURVIVOR ANNUITY shall mean, for purposes
of this Section, an annuity for the life of the Participant
with a survivor annuity for the life of the spouse which is
not less than 50% and not more than 100% of the amount of the
annuity which is payable during the joint lives of the
Participant and the spouse and which is the amount of benefit
which can be purchased with the Participant's vested Prior
Plan Employer Contribution Account and Prior Plan Salary
Redirection Account.
(g) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY shall mean, for
purposes of this Section, a survivor annuity for the life of
the surviving spouse, the actuarial equivalent of which is
not less than 50% of the vested Prior Plan Employer
Contribution Account and Prior Plan Salary Redirection
Account of the Participant as of the date of death, which may
become payable as a result of the Participant's death prior
to his Normal Retirement Date.
(h) NOTICE REQUIREMENTS.
(1) In the case of a qualified joint and survivor annuity the
Committee shall provide each Participant no less than 30
days and no more than 90 day prior to the annuity
starting date (or such other time as provided by
regulations or other pronouncements), a written
explanation of (i) the terms and conditions of a
qualified joint and survivor annuity; (ii) the
Participant's right to make and the effect of an election
to waive the qualified joint and survivor annuity form of
benefit; (iii) the rights of a Participant's spouse; and
(iv) the right to make and the effect of a revocation of
a previous election to waive the qualified joint and
survivor annuity.
(2) In the case of a qualified preretirement survivor annuity
the Committee shall provide each Participant within the
period beginning on the first day of the Plan Year in
which the Participant attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which
the Participant attains age 35, a written explanation of
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the qualified preretirement survivor annuity in such
terms and in such manner as would be comparable to the
explanation provided for meeting the requirement of a
qualified joint and survivor annuity. If a Participant
enters the Plan after the first day of the Plan Year in
which the Participant attained age 32, the Committee
shall provide notice no later than the close of the third
Plan Year succeeding the entry of the Participant in the
Plan.
(3) Notwithstanding the other requirements of this Section,
the respective notices prescribed by this Section need
not be given to a Participant if the Plan "fully
subsidizes" the costs of a qualified joint and survivor
annuity or qualified preretirement survivor annuity, and
the Participant cannot elect another form of benefit. For
purposes of this Section, the Plan fully subsidizes the
costs of a benefit if under the Plan the failure to waive
such benefit by a Participant would not result in a
decrease in any plan benefits with respect to such
Participant and would not result in increased
contributions from the Participant.
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ARTICLE 6
WITHDRAWALS
Section 6.1 HARDSHIP WITHDRAWAL
(a) Except as otherwise provided in this Section, and upon proper
written application of a Participant made at least 30 days in
advance of the withdrawal date, in such form as the Committee
may specify, the Committee in its sole discretion may permit
the Participant to withdraw a portion or all of the balance
of his Salary Redirection Account and Prior Plan Salary
Redirection Account, provided that earnings allocated to said
account may not be withdrawn. Such withdrawal shall be based
on the Valuation Date coincident with or immediately
preceding the date of distribution and may not be less than
$500.00, or if the amount of hardship exceeds $500.00 but the
amount available for distribution is lower, the total amount
available for distribution as a hardship withdrawal.
(b) The reason for a withdrawal pursuant to this Section must be
to enable the Participant to meet unusual or special
situations in his financial affairs resulting in immediate
and heavy financial needs of the Participant. Such situations
shall be limited to:
(1) uninsured medical expenses (described in Code Section
213(d)) incurred by or needed to procure services for the
Participant, the Participant's spouse or any dependents
of the Participant (as defined in Code Section 152);
(2) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) payment of tuition for the next 12 months of post-
secondary education for the Participant, his or her
spouse, children, or dependents;
(4) the need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of
the Participant's principal residence; or
(5) any additional items which may be added to the list of
deemed immediate and heavy financial needs by the
Commissioner of Internal Revenue through the publication
of revenue rulings, notices, and other documents of
general applicability.
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Any withdrawal hereunder may not exceed the amount required
to meet the immediate financial need created, and provided
further that such amount must not be reasonably available
from other resources of the Participant.
(c) The Committee may shorten the notice period if it finds it is
administratively feasible. In granting or refusing any
request for withdrawal or in shortening the notice period,
the Committee shall apply uniform standards consistently and
such discretionary power shall not be applied so as to
discriminate in favor of Highly Compensated Employees.
(d) The withdrawals under this Section shall in no way affect
said Participant's continued participation in this Plan
except by the reduction in account balances caused by such
withdrawal.
(e) A Participant shall present evidence to the Committee that
the requested withdrawal is not in excess of the amount
necessary to relieve the financial need of the Participant
and that the need can not be satisfied from other resources
that are reasonably available to the Participant. The
determination by the Committee that the distribution will be
necessary to satisfy an immediate and heavy financial need
will be made on the basis of all relevant facts and
circumstances. A distribution generally will be treated as
necessary to satisfy a financial need if the Committee
relies, without actual knowledge to the contrary, on the
Participant's representation that the need cannot be
relieved:
1. through reimbursement of compensation by insurance or
otherwise;
2. by reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself cause
an immediate and heavy financial need;
3. by cessation of Salary Redirection under the Plan; or
4. by other distributions or non-taxable loans from the
plans maintained by the Employer or by any other
employer, or by borrowing from commercial sources on
reasonable commercial terms.
For purposes of this Subsection, the Participant's resources
shall be deemed to include those of his spouse and minor children
that are reasonably available to the Participant.
Section 6.2 PRIOR PLAN EMPLOYER CONTRIBUTION ACCOUNT WITHDRAWALS
Upon proper written application in such manner and in such form
as the Committee may specify, a Participant shall be permitted to
withdraw a portion or all of the balance of his Prior Plan
Employer Contribution Account and Prior Plan Salary
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Redirection Account while employed, determined as of the
Valuation Date coincident with or immediately preceding the date
of application but only to the extent that he would have been
permitted to withdraw the funds in the account if they had not
been transferred from the prior plan which was merged into this
Plan.
Section 6.3 PARTICIPANT LOANS
No Participant loans are permitted under this Plan. However, to
the extent that a plan that is merged into this Plan has loans
outstanding, the outstanding loan balance and accrued interest
may be transferred to this Plan and segregated in the
Participant's Individual Account until repaid. The loan shall be
repaid and subject to the terms of the loan agreement, including
the provisions of the merged plan.
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ARTICLE 7
FUNDING
Section 7.1 CONTRIBUTIONS
Contributions by the Employer and by the Participants as provided
for in Article 3 shall be paid over to the Trustee. All
contributions by the Employer shall be irrevocable, except as
herein provided, and may be used only for the exclusive benefit
of the Participants, Former Participants and their Beneficiaries.
Section 7.2 TRUSTEE
The Sponsoring Employer has entered into an agreement with the
Trustee whereunder the Trustee will receive, invest and
administer trust fund contributions made under this Plan in
accordance with the Trust Agreement.
Such Trust Agreement is incorporated by reference as a part of
the Plan, and the rights of all persons hereunder are subject to
the terms of the Trust Agreement. The Trust Agreement
specifically provides, among other things, for the investment and
reinvestment of the Fund and the income thereof, the management
of the Trust Fund, the responsibilities and immunities of the
Trustee, removal of the Trustee and appointment of a successor,
accounting by the Trustee and the disbursement of the Trust Fund.
The Trustee shall, in accordance with the terms of such Trust
Agreement, accept and receive all sums of money paid to it from
time to time by the Employer, and shall hold, invest, reinvest,
manage and administer such moneys and the increment, increase,
earnings and income thereof as a trust fund for the exclusive
benefit of the Participants, Former Participants and their
Beneficiaries or the payment of reasonable expenses of
administering the Plan.
In the event that affiliated or subsidiary Employers become
signatory hereto, completely independent records, allocations,
and contributions shall be maintained for each Employer. The
Trustee may invest all funds without segregating assets between
or among signatory Employers.
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ARTICLE 8
FIDUCIARIES
Section 8.1 GENERAL
(a) Each Fiduciary who is allocated specific duties or
responsibilities under the Plan or any Fiduciary who assumes
such a position with the Plan shall discharge his duties
solely in the interest of the Participants, Former
Participants and Beneficiaries and for the exclusive purpose
of providing such benefits as stipulated herein to such
Participants, Former Participants and Beneficiaries, or
defraying reasonable expenses of administering the Plan. Each
Fiduciary, in carrying out such duties and responsibilities,
shall act with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would use
in exercising such authority or duties.
(b) A Fiduciary may serve in more than one Fiduciary capacity and
may employ one or more persons to render advice with regard
to his Fiduciary responsibilities. If the Fiduciary is
serving as such without compensation, all expenses reasonably
incurred by such Fiduciary shall be paid from the Trust Fund
or by the Employer.
(c) A Fiduciary may allocate any of his responsibilities for the
operation and administration of the Plan. In limitation of
this right, a Fiduciary may not allocate any responsibilities
as contained herein relating to the management or control of
the Trust Fund except through the employment of an investment
manager as provided in Section 8.3 of this Article and in the
Trust Agreement relating to the Fund.
Section 8.2 EMPLOYER
(a) The Sponsoring Employer established and maintains the Plan
for the benefit of its Employees and for Employees of
Participating Employers and of necessity retains control of
the operation and administration of the Plan. The Sponsoring
Employer, in accordance with specific provisions of the Plan,
has as herein indicated, delegated certain of these rights
and obligations to the Trustee, and the Committee and these
parties shall be solely responsible for these, and only
these, delegated rights and obligations.
(b) The Employer shall supply such full and timely information
for all matters relating to the Plan as (a) the Committee,
(b) the Trustee, and (c) the accountant engaged on behalf of
the Plan by the Sponsoring Employer may require for the
effective discharge of their respective duties.
Section 8.3 TRUSTEE
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The Trustee, in accordance with the Trust Agreement, shall be a
directed Trustee with respect to Trust Fund, except that the
Committee may in its discretion employ the Trustee any time and
from time to time as an investment manager (as defined in Section
3(38) of ERISA) with respect to all or a designated portion of
the assets comprising the Trust Fund. The committee or an
investment manager so appointed shall have the exclusive
authority or discretion to manage the Trust Fund.
Section 8.4 RETIREMENT COMMITTEE
(a) The Board of the Sponsoring Employer shall appoint a
Committee of one or more persons to hold office at the
pleasure of the Board, such committee to be known as the
Retirement Committee or Committee. No compensation shall be
paid members of the Committee from the Trust Fund for service
on such Committee. The Committee shall choose from among its
members a chairman and a secretary. Any action of the
Committee shall be determined by the vote of a majority of
its members. Either the chairman or the secretary may execute
any certificate or written direction on behalf of the
Committee.
(b) Every decision and action of the Committee shall be valid if
concurrence is by a majority of the members then in office,
which concurrence may be had without a formal meeting.
(c) In accordance with the provisions hereof, the Committee has
been delegated certain administrative functions relating to
the Plan with all powers necessary to enable it to properly
carry out such duties. The Committee shall have no power in
any way to modify, alter, add to or subtract from, any
provisions of the Plan. The Committee shall have the power
and authority in its sole, absolute and uncontrolled
discretion to control and manage the operation and
administration of the Plan and its investment and shall have
all powers necessary to accomplish these purposes, and to
make factual determinations regarding Participants and their
accounts. The responsibility and authority of the Committee
shall include, but shall not be limited to, (i) determining
all questions relating to the eligibility of employees to
participate; (ii) determining the amount and kind of benefits
payable to any Participant, spouse or Beneficiary; (iii)
establishing and reducing to writing and distributing to any
Participant or Beneficiary a claims procedure and
administering that procedure, including the processing and
determination of all appeals thereunder and (iv) interpreting
the provisions of the Plan including the publication of rules
for the regulation of the Plan as in its sole, absolute and
uncontrolled discretion are deemed necessary or advisable and
which are not inconsistent with the express terms hereto the
Code or ERISA, as amended. All disbursements by the Trustee,
except for the ordinary expenses of administration of the
Trust Fund or the reimbursement of reasonable expenses at the
direction of the Sponsoring Employer, as provided herein,
shall be made upon, and in accordance with, the written
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directions of the Committee. When the Committee is required
in the performance of its duties hereunder to administer or
construe, or to reach a determination, under any of the
provisions of the Plan, it shall do so on a uniform,
equitable and nondiscriminatory basis.
(d) The Committee shall establish rules and procedures to be
followed by the Participants, Former Participants and
Beneficiaries in filing applications for benefits and for
furnishing and verifying proofs necessary to establish age,
Service, and any other matters required in order to establish
their rights to benefits in accordance with the Plan.
Additionally, the Committee shall establish accounting
procedures for the purpose of making all allocations,
valuations and adjustments to Participants' accounts. Should
the Committee determine that the strict application of its
accounting procedures will not result in an equitable and
nondiscriminatory allocation among the accounts of
Participants, it may modify its procedures for the purpose of
achieving an equitable and non-discriminatory allocation in
accordance with the general concepts of the Plan, provided
however that such adjustments to achieve equity shall not
reduce the vested portion of a Participant's interest.
(e) The Committee may employ such counsel, accountants, and other
agents as it shall deem advisable. The Sponsoring Employer
shall pay, or cause to be paid from the Trust Fund, the
compensation of such counsel, accountants, and other agents
and any other expenses incurred by the Committee in the
administration of the Plan and Trust.
Section 8.5 CLAIMS PROCEDURES
The Committee has delegated to the Human Resources Department
(the "Claims Coordinator") the processing of all applications for
benefits. Upon receipt by the Claims Coordinator of such an
application, it shall determine all facts which are necessary to
establish the right of an applicant to benefits under the
provisions of the Plan and the amount thereof as herein provided.
Upon request, the Claims Coordinator will afford the applicant
the right of a hearing with respect to any finding of fact or
determination. The applicant shall be notified in writing of any
adverse decision with respect to his claim within 90 days after
its submission. The notice shall be written in a manner
calculated to be understood by the applicant and shall include
the items specified in Section 8.5(a) through (d).
(a) The specific reason or reasons for the denial;
(b) Specific references to the pertinent Plan provisions on which
the denial is based;
(c) A description of any additional material or information
necessary for the applicant to perfect the claim and an
explanation why such material or information is necessary;
and
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(d) An explanation of the Plan's claim review procedures.
(e) If special circumstances require an extension of time for
processing the initial claim, a written notice of the
extension and the reason therefor shall be furnished to the
claimant before the end of the initial 90 day period. In no
event shall such extension exceed 90 days.
(f) In the event a claim for benefits is denied or if the
applicant has had no response to such claim within 90 days of
its submission (in which case the claim for benefits shall be
deemed to have been denied), the applicant or his duly
authorized representative, at the applicant's sole expense,
may appeal the denial to the Committee within 60 days of the
receipt of written notice of denial or 60 days from the date
such claim is deemed to be denied. In pursuing such appeal the
applicant or his duly authorized representative:
(1) May request in writing that the Committee review the
denial;
(2) May review pertinent documents; and
(3) May submit issues and comments in writing.
(g) The decision on review shall be made within 60 days of receipt
of the request for review, unless special circumstances
require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later
than 120 days after receipt of a request for review. If such
an extension of time is required, written notice of the
extension shall be furnished to the claimant before the end of
the original 60 day period. The decision on review shall be
made in writing, shall be written in a manner calculated to be
understood by the claimant, and shall include specific
references to the provisions of the Plan on which such denial
is based. If the decision on review is not furnished within
the time specified above, the claim shall be deemed denied on
review.
Section 8.6 RECORDS
All acts and determinations of the Claims Coordinator or the
Committee shall be duly recorded by the Claims Coordinator or the
secretary of the Committee and all such records together with such
other documents as may be necessary in exercising their duties
under the Plan shall be preserved in the custody of such
secretary. Such records and documents shall at all times be open
for inspection and for the purpose of making copies by any person
designated by the Sponsoring Employer. The Committee shall provide
such timely information, resulting from the application of its
responsibilities under the Plan, as needed by the Trustee and the
accountant engaged on behalf of the Plan by the Sponsoring
Employer, for the effective discharge of their respective duties.
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ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
Section 9.1 AMENDMENT OF THE PLAN
The Sponsoring Employer shall have the right at any time by action
of the Board to modify, alter or amend the Plan in whole or in
part; provided, however, that the duties, powers and liability of
the Trustee hereunder shall not be increased without its written
consent; and provided, further, that the amount of benefits which,
at the time of any such modification, alteration or amendment,
shall have accrued for any Participant, Former Participant or
Beneficiary hereunder shall not be adversely affected thereby; and
provided, further, that no such amendments shall have the effect
of reverting to the Employer any part of the principal or income
of the Trust Fund. No amendment to the Plan shall decrease the
balance of a Participant's Individual Account or eliminate an
optional form of distribution.
Section 9.2 TERMINATION OF THE PLAN
The Sponsoring Employer expects to continue the Plan indefinitely,
but continuance is not assumed as a contractual obligation and the
Sponsoring Employer reserves the right at any time by action of
the Board to terminate its participation in the Plan. If the
Sponsoring Employer terminates or partially terminates its
participation in the Plan or permanently discontinues its
Contributions at any time, each Participant affected thereby shall
be then vested with the amount allocated to his Individual
Account.
In the event of termination or partial termination of the Plan by
the Sponsoring Employer, the Committee shall value the Trust Fund
as of the date of termination. That portion of the Trust Fund for
which the Plan has not been terminated shall be unaffected.
Section 9.3 RETURN OF CONTRIBUTIONS
It is intended that this Plan shall be approved and qualified
under the Code and Regulations issued thereunder with respect to
Employees' Plans and Trusts (1) so as to permit the Employers to
deduct for federal income tax purposes the amounts of
contributions to the Trust; (2) so that contributions so made and
the income of the Trust Fund will not be taxable to Participants
as income until received; (3) so that the income of the Trust Fund
shall be exempt from federal income tax. In the event the
Commissioner of Internal Revenue or his delegate rules that the
deduction for all or a part of any Employer Contribution (or
Salary Redirection) is not allowed, the Employers reserve the
right to recover that portion or all of their contributions for
which no deduction is allowed, provided such recovery is made
within one year of the disallowance.
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ARTICLE 10
MISCELLANEOUS
Section 10.1 GOVERNING LAW
The Plan shall be construed, regulated and administered according
to the laws of the Commonwealth of Kentucky, except in those areas
preempted by the laws of the United States of America.
Section 10.2 CONSTRUCTION
The headings and subheadings in the Plan have been inserted for
convenience of reference only and shall not affect the
construction of the provisions hereof. In any necessary
construction the masculine shall include the feminine and the
singular the plural, and vice versa.
Section 10.3 ADMINISTRATION EXPENSES
The expenses of administering the Trust Fund and the Plan shall be
paid from the Trust Fund, unless they are paid by the Employer.
Section 10.4 PARTICIPANT'S RIGHTS
No Participant in the Plan shall acquire any right to be retained
in the Employer's employ by virtue of the Plan, nor, upon his
dismissal, or upon his voluntary termination of employment, shall
he have any right or interest in and to the Trust Fund other than
as specifically provided herein. The Employer shall not be liable
for the payment of any benefit provided for herein; all benefits
hereunder shall be payable only from the Trust Fund.
Section 10.5 NONASSIGNABILITY
(a) The benefit or interest under the Plan and Trust of any person
shall not be assignable or alienable by that person and shall
not be subject to alienation by operation of law or legal
process. The preceding sentence shall apply to the creation,
assignment or recognition of any right to any benefit payable
with respect to a Participant pursuant to a domestic relations
order, unless such order is determined to be a qualified
domestic relations order, as de fined in Section 414(p) of the
Code. A domestic relations order entered before January 1,
1985, shall be treated as a qualified domestic relations order
if payment of benefits pursuant to the order has commenced as
of such date, and may be treated as a qualified domestic
relations order if payment of benefits is not commenced as of
such date, even though the order does not satisfy the
requirements of Section 414(p) of the Code.
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(b) This Plan specifically permits a distribution to an alternate
payee under a qualified domestic relations order at any time,
irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code Section 414(p))
under the Plan. A distribution to an alternate payee prior to
the Participant's attainment of earliest retirement age is
available only if: (a) the order specifies distribution at
that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (b)
if the present value of the alternate payee's benefits under
the Plan exceeds $3,500, and the order requires, the alternate
payee consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age. Nothing
in this Section 10.5 gives a Participant a right to receive
distribution at a time otherwise not permitted under the Plan
nor does it permit the alternate payee to receive a form of
payment not permitted under the Plan.
Section 10.6 MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with
another plan or transfer of assets or liabilities from the Plan to
another plan, each then Participant, Former Participant or
Beneficiary shall not, as a result of such event, be entitled on
the day following such merger, consolidation or transfer under the
termination of the Plan provisions to a lesser benefit than the
benefit he was entitled to on the date prior to the merger,
consolidation or transfer if the Plan had then terminated.
Section 10.7 COUNTERPARTS
The Plan and the Trust Agreement may be executed in any number of
counterparts, each of which shall constitute but one and the same
instrument and may be sufficiently evidenced by any one
counterpart.
Section 10.8 ADMINISTRATIVE MISTAKE
If the Committee discovers that a mistake has been made in
crediting Salary Redirection contributions or Employer
contributions, withholding Salary Redirection Contributions from a
Participant's Compensation, or crediting earnings to the account
of any Participant, the Committee shall take any administrative
action which it deems necessary or appropriate to remedy the
mistake in question, and may request the Employer to make a
special contribution to the account of the Participant where
appropriate. If the Committee discovers that a mistake has been
made in calculating the amount of any excess Salary Redirection or
other contribution under Sections 3.4, 3.5 or 4.6, or earnings on
such excess amount, which amount is required to be distributed to
a Participant, the Committee shall take such administrative action
as it deems necessary or appropriate to remedy the mistake in
question.
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ARTICLE 11
TOP HEAVY PLAN PROVISIONS
Section 11.1 GENERAL
Notwithstanding anything in the Plan to the contrary, if this Plan
when combined with all other plans required to be aggregated
pursuant to Code Section 416(g) is deemed to be a top-heavy plan
for any Plan Year, the provisions of this Article shall apply to
such Plan Year.
Section 11.2 MINIMUM CONTRIBUTION
Regardless of hours worked, each active Participant who is not a
Key Employee shall be entitled to a minimum allocation of
contributions and forfeitures equal to the lesser of (i) three
percent (3%) of the Participant's Compensation for the Plan Year;
and (ii) provided that the Plan is not part of a Required
Aggregation Group with a Defined Benefit Plan because the Plan
enables the Defined Benefit Plan to meet the requirements of Code
Section 401(a)(4) or 410, the highest percentage of Compensation
contributed on behalf of, plus forfeitures allocated to, a Key
Employee. In the case of a Participant who is also a participant
in a defined benefit plan maintained by the Employer, the minimum
accrued benefit provided in the defined benefit plan pursuant to
Code Section 416(c)(1) equal to two percent of the Participant's
average monthly compensation for the five consecutive years when
his aggregate compensation was highest multiplied by his years of
credited service up to ten years for each plan year in which the
Plan is top heavy, shall be the only minimum benefit for both that
plan and this Plan, and the minimum allocation described above
shall not apply.
Section 11.3 SUPER TOP HEAVY PLAN
The multiplier of 1.25 in Section 4.7 shall be reduced to 1.0
unless (i) all plans of the Required Aggregation Group or the
Permissive Aggregation Group, when aggregated, are 90% or less top
heavy, and (ii) the minimum accrued benefit referenced in clause
(i) of Section 11.2 is modified by substituting three percent with
four percent. In the case of each Participant who is also a
participant in a defined benefit plan maintained by the Employer,
the minimum accrued benefit provided in the defined benefit plan
pursuant to Code Sections 416(c)(1) and 416(h) equal to three
percent of the Participant's average monthly compensation for the
five highest consecutive years when his aggregate compensation was
highest multiplied by his years of credited service up to ten
years for each plan year in which the Plan is top heavy shall be
the only minimum benefit for both that plan and this Plan, and the
minimum allocation described above shall not apply.
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Section 11.4 MINIMUM VESTING
In the event that the regular vesting schedule in Article 5 is
less liberal than the vesting schedule hereinafter provided, then
such vesting schedule shall be substituted with the following to
the extent that the following schedule is more favorable:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 years or more 100%
Should the Plan cease to be a Top Heavy Plan, the regular vesting
schedule in Article 5 shall be put back into effect. However, the
vested percentage of any Participant cannot be decreased as a
result of the return to the prior vesting schedule and any
Participant with three or more years of Service may elect within
the later of: (1) 60 days after the Plan ceases to be a Top Heavy
Plan or (2) 60 days after the date the Participant is issued
written notification of the change in the vesting schedules, to
remain under the special vesting rules described in this Section.
Section 11.5 COMPENSATION
For purposes of this Article, compensation shall have the same
meaning as assigned to it by Code Section 415 and shall be limited
to such amount as required by Code Section 401(a)(17).
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ARTICLE 12
PROVISIONS RELATED TO EMPLOYERS INCLUDED IN THE PLAN
Section 12.1 GENERAL. Any Employer that, with the Committee's consent, adopts
this Plan and becomes a party to the Trust Agreement shall be a
"Participating Employer." Participating Employers as of January 1,
1997 are listed on Appendix B to the Plan, and any Participating
Employers added in the future shall be so listed as soon as
reasonably practicable after the Committee consents to their
adoption of this Plan. Each Participating Employer shall be
subject to the terms and conditions of this Plan as in effect at
the effective date of adoption by the Participating Employer and
as subsequently amended from time to time by the Vencor, Inc. (For
purposes of this section, the "Sponsoring Employer"), subject to
such modifications as are set forth in the document evidencing the
Participating Employer's adoption of the Plan. Unless the context
of the Plan clearly indicates to the contrary, the terms "Company"
and "Employer" shall be deemed to include each Participating
Employer as relates to its adoption of the Plan. When an entity
ceases to be an "Employer" because it is no longer a part of the
Company, or ceases to be managed by an entity in the Vencor, Inc.
or Atria Communities, Inc. controlled group, the entity shall
cease to be a Participating Employer. Section 12.4 shall not apply
to such cessation.
Section 12.2 SINGLE PLAN. This Plan shall be deemed to be a single plan of all
Employers that have adopted this Plan. Employer contributions
shall not be accounted for separately, and all Plan assets shall
be available to pay benefits to all Participants and their
Beneficiaries. Forfeitures shall not be specially allocated to
reduce the Matching Contribution obligation of the Employer whose
employees suffered the forfeiture. Employees may be transferred
among Participating Employer or employed simultaneously by more
than one Participating Employer, and no such transfer or
simultaneous employment shall effect a termination of employment,
be deemed retirement or be the cause of a Forfeiture or a loss of
years of Service under this Plan. For purposes of determining
years of Service and the payment of benefits upon death or other
termination of employment, all Participating Employers shall be
deemed one Employer. Any Participant employed by a Participating
Employer during a Plan Year who receives any Compensation from a
Participating Employer during that Plan Year shall receive an
allocation of any Employer Contributions and Forfeitures for the
Plan Year in accordance with Article 3 based on his Compensation
during that Plan Year.
Section 12.3 SPONSORING EMPLOYER AS AGENT. Each Participating Employer shall be
deemed to have designated irrevocably the Sponsoring Employer as
its sole agent (1) for all purposes under Section 8 (including
fixing the number of members of, and the appointment and removal
of, the Committee); (2) with respect to all its relations with the
Trustee (including the Trustee's appointment and removal, and
fixing the number of Trustees); and (3) for the purpose of
amending this Plan. The Committee shall make any and all rules and
regulations which it shall deem necessary or appropriate to
effectuate the purpose of this Article 12, and such rules and
regulations shall be
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<PAGE>
binding upon the Sponsoring Employer, the Participating Employers,
the Participants and Beneficiaries.
Section 12.4 WITHDRAWAL OF EMPLOYER. Any Participating Employer may withdraw
its partic ipation in the Plan by giving written notice to the
Administrator stating that it has adopted a separate plan. The
notice shall be given at least six months prior to a designated
Valuation Date, unless the Committee shall accept a shorter period
of notification. Upon request of the withdrawing Participating
Employer, the Committee may, but shall not be obligated to,
instruct the Trustee to transfer the withdrawing Participating
Employer's interest in the Plan to the Participating Employer's
separate plan in accordance with the following rules: Promptly
after the Valuation Date as of which the transfer is to occur, the
Committee shall establish the withdrawing Participating Employer's
interest in the Trust Fund, after a reduction for fees and other
expenses related to the Participating Employer's withdrawal. The
Trustee shall then, in accordance with the Committee's
instructions, transfer the withdrawing Participating Employer's
interest in the Fund to the trustee or other funding agent of the
Participating Employer's separate plan. Neither the Trustee nor
the Committee shall be obligated to transfer or direct the
transfer of assets under this Article until they are satisfied as
to all matters pertaining to the transfer, including, but not
limited to, the tax qualification of the plan into which the
transfer will be made. The Committee and the Trustee may rely
fully on the representations and instructions of the withdrawing
Participating Employer and shall be fully protected and discharged
with respect to any transfer made in accordance with such
representations or instructions. Any transfer of assets in
accordance with this Article shall constitute a complete discharge
of responsibility of the Sponsoring Employer, the remaining
Participating Employer, their Boards of Directors and officers,
and the Trustee without any responsibility on their part
collectively or individually to see to the application thereof.
The Committee in its sole discretion shall have the right to
transfer the withdrawing Participating Employer's interest in the
Fund to the new plan in the form of installments, in cash, or in
cash and kind and over a period of time not to exceed one year
following the designated Valuation Date as of which the transfer
is to occur. Any assets which are invested in accordance with an
investment contract or agreement which by its terms precludes the
realization upon and distribution of such assets for a stated
period of time shall continue to be held by the Trustee under the
terms and conditions of this Plan until the expiration of such
period, subject to the Committee's instructions. The Committee may
in its sole discretion direct the Trustee to segregate the
Accounts of all affected Participants into a separate fund to
facilitate transfer, and the Administrator may in its sole dis
cretion direct the Trustee to invest the separate fund only in
cash equivalent investments.
Section 12.5 TERMINATION OF PARTICIPATION. The Board of Directors of a
Participating Employer may at any time terminate this Plan with
respect to its Employees by adopting a resolution to that effect
and delivering a certified copy to the Committee. Section 9.2
shall not apply to vest the Individual Accounts of a Participating
Company's Employees upon such termination (unless the termination
results in a
-58-
<PAGE>
partial termination of the entire Plan), and the continuation of
the Plan by the Sponsoring Employer and other Participating
Employers shall not be affected. The termination of the Plan with
respect to a Participating Employer's Employees shall not effect a
termination with respect to an Employee of the Sponsoring Employer
or another Participating Employer if such Employee was not
employed by the term inating Participating Employer on the
effective date of the termination, even though he may have been
employed by the terminating Participating Employer at an earlier
date, and shall not entitle a Participant to a distribution until
an actual separation from service with the meaning prescribed
under Code Section 401(k)(2)(B) has occurred, unless distribution
follows an event in Code Section 401(k)(10) and the Treasury
Regulations thereunder. Any fees and other expenses related to a
Participating Employer's termination shall be charged against the
Accounts of the affected Participants, if not paid by the
terminating Participating Employer.
Section 12.6 MULTIPLE EMPLOYER PLAN TESTING. This Plan covers the employees of
employers not considered a controlled group under Code Section
414. Each of the discrimination tests and limitations on
contributions in the Plan shall be applied on a controlled group
by controlled group basis where required by the Code and
applicable Treasury Regulations.
-59-
<PAGE>
SIGNATURES
----------
IN WITNESS WHEREOF, THE SPONSORING EMPLOYER HAS CAUSED THIS PLAN TO BE
EXECUTED THIS 31 DAY OF DECEMBER, 1997, BUT EFFECTIVE JANUARY 1, 1997.
VENCOR, INC.
BY /s/ CECELIA A. HAGAN
--------------------------------------
TITLE: Vice President of Human Resources
---------------------------------
-60-
<PAGE>
APPENDIX "A"
PAST SERVICE PURSUANT TO SECTION 1.43(b)
Nationwide Care, Inc.--service for all periods from date of hire with this
company
Any company for which past service was granted prior to January 1, 1997 under
this Plan prior to its restatement, or under The Hillhaven Corporation
Deferred Savings Plan
-61-
<PAGE>
APPENDIX "B"
PARTICIPATING EMPLOYERS
(AS OF JANUARY 1, 1997)
ATRIA COMPANIES:
Atria Communities Southeast, Inc.
Atria Communities, Inc.
Atrium at Buckhead, LLC
Atrium at Germantown, LLC
Atrium at Weston Court, LLC
Atrium at Weston Place, LLC
Hillhaven Properties, Ltd.
<TABLE>
<CAPTION>
PARTNERSHIPS:
Name of Partnership Partners Total Direct or Indirect
Vencor (Atria)Ownership
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Respiratory Care Advanced Infusion System, 51%
d/b/a California Respiratory Inc.--51%
Care Partnership Alta Bates Medical Center--
49%
- ----------------------------------------------------------------------------------------
Bartlesville Nursing Home First Healthcare 50%
Partnership Corporation-
-50%
LIC-HHE Limited
Partnership--50%
- ----------------------------------------------------------------------------------------
CPS Sacramento Advanced Infusion Systems, 60%
Inc.--60%
Western Hospital Equipment
& Supply Co.--40%
- ----------------------------------------------------------------------------------------
Castle Gardens Retirement Hillhaven Properties, Ltd.-- 0% (Atria 100%)
Center L/P 2%
Atria Communities, Inc.--
98%
- ----------------------------------------------------------------------------------------
Foothill Nursing Company First Healthcare 50%
Partnership Corporation-
-50%
Foothill Skilled Nursing,
Inc.--50%
- ----------------------------------------------------------------------------------------
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Name of Partnership Partners Total Direct or Indirect
Vencor (Atria)Ownership
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Fox Hill Village Partnership- Brim of Massachusetts--50% 50%
- -until it terminated its MGH Health Services--50%
participation effective
3/31/97
- ----------------------------------------------------------------------------------------
Hillhaven-MSC Partnership First Healthcare Corporation 50%
--50%
Mercy Services corporation--
50%
- ----------------------------------------------------------------------------------------
Medlife Pharmacy Network Medsave of Tennessee, Inc.-- 50%
Partnership 50%
Life Care Pharmacy Services,
Inc.--50%
- ----------------------------------------------------------------------------------------
Pharmaceutical Infusion Visiting Nurse Assoc. & 50.99%
Therapy Partnership Hospice of No. CA--49.01%
Advanced Infusion Therapy,
Inc.--50.99%
- ----------------------------------------------------------------------------------------
Sandy Retirement Center Hillhaven Properties Ltd.--2% 0% (100% Atria)
Limited Partnership Atria Communities, Inc.--
98%
- ----------------------------------------------------------------------------------------
San Marcos Nursing Home First Healthcare 100%
Partnership Corporation-
-50%
Nationwide Care, Inc.--50%
- ----------------------------------------------------------------------------------------
Starr Farm Partnership First Healthcare 50%
Corporation-
-50%
Vermont Health Ventures,
Inc.--50%
- ----------------------------------------------------------------------------------------
Topeka Retirement Center, Hillhaven Properties Ltd.-- 0% (100% Atria)
LTD 90%
Atria Communities, Inc.--
10%
- ----------------------------------------------------------------------------------------
Tucson Retirement Center, Hillhaven Properties Ltd. 0% (100% Atria)
Ltd. Partnership and
Atria Communities, Inc.
- ----------------------------------------------------------------------------------------
</TABLE>
-63-
<PAGE>
<TABLE>
<CAPTION>
Name of Partnership Partners Total Direct or Indirect
Vencor (Atria)Ownership
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Visiting Nurse Advanced Advanced Infusion Systems, 50.010%
Infusion Systems-Anaheim Inc.--50.010%
Partnership Strategic Health
Technologies, Inc.--24.995%
Valley Support Services of
VNA, Inc.--24.995%
- ----------------------------------------------------------------------------------------
Visiting Nurse Advanced Advanced Infusion Systems, 51.01%
Infusion Systems-Colton Inc.--51.01%
Partnership Inland Empire roadrunners,
Inc.--16.33%
Visiting Nurse Association
Pomona-Pharmacy, Inc.--
16.33%
RVNA Comprehensive
Health Services, Inc.--
16.33%
- ----------------------------------------------------------------------------------------
Visiting Nurse Advanced Advanced Infusion Systems, 51.01%
Infusion Systems-Newbury Inc.--51.01%
Park Partnership Livingston Memorial VNA-
Pharmacy--16.33%
Verdugo Hills VNA-
Pharmacy--16.33%
The Visiting Nurse Service,
Inc.--16.33%
- ----------------------------------------------------------------------------------------
VNA/CPS Partnership Visiting Nurse Association, 46.2875%
Inc.--46.2875%
MISCO Investments, Inc.--
7.425%
Advanced Infusion Systems,
Inc.--46.2875%
- ----------------------------------------------------------------------------------------
Woodhaven Partners, Ltd. Hillhaven Properties, Ltd.-- 0% (100% Atria)
49.0196%
Atria Communities, Inc.--
49.0196%
- ----------------------------------------------------------------------------------------
</TABLE>
-64-
<PAGE>
MANAGED ENTITIES:
<TABLE>
<CAPTION>
FACILITY OWNER MANAGER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Marietta Convalescent #920 Jackson Browne Enterprises, Inc. Nationwide Care, Inc.
- -----------------------------------------------------------------------------------------
Salemhaven #950 Salemhaven, Inc. First Healthcare Corp.
- -----------------------------------------------------------------------------------------
Clark House @ Foxhill Foxhill Village Partnership Atria
Village #983 (until 3/31/97
withdrawal)
- -----------------------------------------------------------------------------------------
Foothill #981 Foothill Nursing Home Partnership Hillhaven, Inc.
- -----------------------------------------------------------------------------------------
San Marcos Healthcare San Marcos Nursing Home Hillhaven Holding
Center #982 Partnership Company
- -----------------------------------------------------------------------------------------
Starr Farm #995 Starr Farm Partnership First Healthcare Corp.
- -----------------------------------------------------------------------------------------
Brookhaven Nursing Center Hillhaven Corp./Tenet First Healthcare Corp.
#226
- -----------------------------------------------------------------------------------------
Holladay Healthcare Center Paul Randle Assoc. Hillhaven, Inc.
#992
- -----------------------------------------------------------------------------------------
Ledgewood #949 Ledgewood Healthcare Corp. Hillhaven Corp.
- -----------------------------------------------------------------------------------------
Heritage Village Nursing Bartlesville Nursing Home Hillhaven Inc.
Center - #955 Partnership
- -----------------------------------------------------------------------------------------
Windsor Woods Windsor Woods Nursing Home
Convalescent Center - #922 Partnership Hillhaven Inc.
- -----------------------------------------------------------------------------------------
Carrollwood Care Center -
#972 Carrollwood Care Center Hillhaven Corp.
- -----------------------------------------------------------------------------------------
19th Ave. Healthcare Center
- - #926 Hillhaven MS Partnership Hillhaven Corp.
- -----------------------------------------------------------------------------------------
Convalescent Center - #918 Hillhaven Community Health
Partnership Hillhaven Corp.
- -----------------------------------------------------------------------------------------
The French Quarter - #974 NME Hospitals Inc./Tenet First Healthcare Corp.
- -----------------------------------------------------------------------------------------
The Menorah House - #169 Hillhaven Inc./Tenet First Healthcare Corp.
- -----------------------------------------------------------------------------------------
The North Shore Living
Center - #978 Hillhaven Corp./Tenet First Healthcare Corp.
- -----------------------------------------------------------------------------------------
The Healthcare Center of
Palm Bay - #815 Tenet Healthcare Corp. First Healthcare Corp.
- -----------------------------------------------------------------------------------------
</TABLE>
-65-
<PAGE>
<TABLE>
<CAPTION>
FACILITY OWNER MANAGER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Jo Ellen Smith Convalescent
Center - #990 Hillhaven Corp./Tenet First Healthcare Corp.
- -----------------------------------------------------------------------------------------
Alvarado Convalescent &
Rehab Hospital - #902 Hillhaven West, Inc./Tenet First Healthcare Corp.
- -----------------------------------------------------------------------------------------
</TABLE>
-66-
<PAGE>
EXHIBIT 10.32
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE-IN-CONTROL SEVERANCE AGREEMENT (the "Agreement") is made as of
the ____ day of _____________, 199__, by and between VENCOR, INC., a Delaware
corporation ("Vencor"), and ___________________________ (the "Employee").
RECITALS:
--------
A. The Employee is employed by Vencor, either directly or through one of
its wholly owned subsidiaries (collectively, the "Company").
B. The Company recognizes that the Employee's contribution to the Company's
growth and success has been and continues to be significant.
C. The Company wishes to encourage the Employee to remain with and devote
full time and attention to the business affairs of the Company and wishes to
provide income protection to the Employee for a period of time in the event of a
Change in Control.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT:
---------
1. DEFINITIONS.
-----------
A. "BASE SALARY" shall mean the Employee's regular annual rate of base
-----------
pay in gross as of the date of Employee's Termination of Employment or the
Change-in-Control Date, as determined under Section 3(a).
B. "CAUSE" shall mean the Employee's (i) conviction of or plea of nolo
-----
contendere to a crime involving moral turpitude; or (ii) willful and material
breach by Employee of his duties and responsibilities, which is committed in bad
faith or without reasonable belief that such breaching conduct is in the best
interests of the Company, but with respect to (ii) only if the Board of
Directors adopts a resolution by a vote of at least 75% of its members so
finding after giving the Employee and his attorney an opportunity to be heard by
the Board of Directors.
C. CHANGE IN CONTROL. The term "Change in Control" shall mean any one
-----------------
of the following events:
<PAGE>
(i) An acquisition (other than directly from Vencor) of any voting
securities of Vencor (the "Voting Securities") by any "Person" (as defined in
Section 1(f) hereof) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 under the 1934 Act) of 20% or more
of the combined voting power of Vencor's then outstanding Voting Securities;
provided, however, that in determining whether a Change in Control has occurred,
Voting Securities which are acquired in an acquisition by (i) Vencor or any of
its subsidiaries, (ii) an employee benefit plan (or a trust forming a part
thereof) maintained by Vencor or any of its subsidiaries or (iii) any Person in
connection with an acquisition referred to in the immediately preceding clauses
(i) and (ii) shall not constitute an acquisition which would cause a Change in
Control.
(ii) The individuals who, as of February 15, 1995, constituted the
Board of Directors of Vencor (the "Incumbent Board") cease for any reason to
constitute over 50% of the Board; provided, however, that if the election, or
nomination for election by Vencor's stockholders, of any new director was
approved by a vote of over 50% of the Incumbent Board, such new director shall,
for purposes of this Section 1.c.(ii), be considered as though such person were
a member of the Incumbent Board; provided, further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors of Vencor (a "Proxy Contest"), including by reason
of any agreement intended to avoid or settle any Election Contest or Proxy
Contest.
(iii) Approval by stockholders of Vencor of a merger, consolidation
or reorganization involving Vencor, unless each of the following events occurs
in connection with such merger, consolidation or reorganization:
(A) the stockholders of Vencor, immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, over 50% of the combined
voting power of all voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving Company") over which
any Person has Beneficial Ownership in substantially the same proportion as
their ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute over 50% of the members of the board
of directors of the Surviving Company; and
(C) no Person (other than Vencor, any of its subsidiaries, any
employee benefit plan [or any trust forming a part thereof] maintained by
Vencor, the Surviving Company or any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of 20% or more
of the then outstanding Voting Securities) has Beneficial
2
<PAGE>
Ownership of 20% or more of the combined voting power of the Surviving Company's
then outstanding voting securities.
(iv) Approval by Vencor's stockholders of a complete liquidation or
dissolution of Vencor.
(v) Approval by stockholders of an agreement for the sale or other
disposition of all or substantially all of the assets of Vencor to any Person
(other than a transfer to a subsidiary of Vencor).
(vi) Any other event that the Committee shall determine constitutes
an effective Change in Control of Vencor.
(vii) Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by Vencor which,
by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person; provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by Vencor, and after such
share acquisition by Vencor, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
D. "CHANGE-IN-CONTROL DATE" shall mean the date immediately prior to
----------------------
the effectiveness of the Change in Control.
E. "GOOD REASON." The Employee shall have good reason to terminate
-----------
employment with the Company if (i) the Employee's title, duties,
responsibilities or authority is reduced or diminished from those in effect on
the Change-in-Control Date without the Employee's written consent; (ii) the
Employee's compensation is reduced; (iii) the Employee's benefits are reduced,
other than pursuant to a uniform reduction applicable to all managers of the
Company; or (iv) the Employee is asked to relocate his office to a place more
than 30 miles from his business office on the Change-in-Control Date.
F. "PERSON" shall have the meaning ascribed to such term in Section
------
3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section 13(d).
G. "PRIOR YEAR'S BONUS" shall mean the full amount of bonuses and/or
------------------
performance compensation (other than Base Salary and awards under the Company's
1997 Incentive Compensation Program) to the Employee from Vencor and its
subsidiaries in respect of services for the most recent calendar year
immediately preceding the date in question.
3
<PAGE>
H. "TERMINATION OF EMPLOYMENT" shall mean (i) the termination of the
-------------------------
Employee's employment by the Company other than such a termination in connection
with an offer of immediate reemployment by a successor or assign of the Company
or a purchaser of the Company or its assets under terms and conditions which
would not permit the Employee to terminate his employment for Good Reason or
otherwise during any Window Period; or (ii) the Employee's termination of
employment with the Company for Good Reason or during any Window Period.
I. "WINDOW PERIOD" shall mean either of two 30-day periods of time
-------------
commencing 30 days after (i) a Change in Control and (ii) one year after a
Change in Control.
2. TERM. The initial term of this Agreement shall be for a three-year
----
period commencing on _______________, 199__ (the "Effective Date"). The Term
shall be automatically extended by one additional day for each day beyond the
Effective Date that the Employee remains employed by the Company until such time
as the Company elects to cease such extension by giving written notice of such
election to the Employee. In such event, the Agreement shall terminate on the
third anniversary of the effective date of such election notice.
Notwithstanding the foregoing, this Agreement shall automatically terminate if
and when the Employee terminates his employment with the Company or two years
after the Change-in-Control Date, whichever first occurs.
3. SEVERANCE BENEFITS. If at any time following a Change in Control and
------------------
continuing for two years thereafter, the Company terminates the Employee without
Cause, or the Employee terminates employment with the Company either for Good
Reason or during any Window Period, then as compensation for services previously
rendered the Employee shall be entitled to the following benefits:
A. CASH PAYMENT. The Employee shall be paid cash equal to three times
------------
the greater of:
(i) the sum of the Employee's Base Salary and Prior Year's Bonus as
of the Termination of Employment, or
(ii) the sum of the Employee's Base Salary and Prior Year's Bonus as
of the Change-in-Control Date.
In addition, notwithstanding any provision to the contrary in the Company's
bonus plan, Employee shall be paid a pro rata portion of the maximum bonus to
which he or she would have been entitled if (i) Employee had been employed by
the Company as of the year-end in which the Termination of Employment had
occurred, and (ii) the Company had achieved the highest targeted goals under the
bonus plan at year-end. The pro rata portion shall be determined based on the
number of days within the year that Employee was employed by the Company,
divided by 365 days. Payment shall be made in a single lump sum within ten days
following the date in which Employee's Termination of Employment occurs.
B. CONTINUATION OF BENEFITS.
------------------------
4
<PAGE>
(i) For a period of three years following the Termination of
Employment, the Employee shall be treated as if he or she had continued to be an
employee for all purposes under the Company's Health Insurance Plan and Dental
Insurance Plan; or if the Employee is prohibited from participating in such
plan, the Company shall otherwise provide such benefits. Following this
continuation period, the Employee shall be entitled to receive continuation
coverage under Part 6 of Title I or ERISA ("COBRA Benefits") treating the end of
this period as a termination of the Employee's employment if allowed by law.
(ii) For a period of three years following the Termination of
Employment, the Company shall maintain in force, at its expense, the Employee's
life insurance in effect under the Company's Voluntary Life Insurance Benefit
Plan as of the Change-in-Control Date or as of the date of Termination of
Employment, whichever coverage limits are greater.
(iii) For a period of three years following the Employee's
Termination of Employment, the Company shall provide short-term and long-term
disability insurance benefits to Employee equivalent to the coverage that the
Employee would have had had he remained employed under the Company's disability
insurance plans applicable to Employee on the date of Termination of Employment,
or, at the Employee's election, the plans applicable to Employee as of the
Change-in-Control Date. Should Employee become disabled during such period,
Employee shall be entitled to receive such benefits, and for such duration, as
the applicable plan provides.
C. RETIREMENT SAVINGS PLAN. To the extent not already vested pursuant
-----------------------
to the terms of such plan, the Employee's interests under the Company's
Retirement Savings Plan shall be automatically fully (i.e., 100%) vested,
without regard to otherwise applicable percentages for the vesting of employer
matching contributions based upon the Employee's years of service with the
Company.
D. PLAN AMENDMENTS. The Company shall adopt such amendments to its
---------------
employee benefit plans, if any, as are necessary to effectuate the provisions of
this Agreement.
4. GOLDEN PARACHUTE TAX REIMBURSEMENT. Whether or not any payments are
----------------------------------
made pursuant to Section 3 above, if a Change in Control of the Company occurs
at any time and the Employee reasonably determines that any payment or
distribution by the Company to or for the benefit of the Employee, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any restricted stock,
stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exerciseablility of any of
the foregoing (individually and collectively, the "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor provision
thereto), or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and
5
<PAGE>
penalties, being hereinafter collectively referred to as the "Excise Tax"), then
the Company shall pay to the Employee an additional payment or payments
(individually and collectively, the "Gross-Up Payment"). The Gross-Up Payment
shall be in an amount such that, after payment by the Employee of all taxes
required to be paid by the Employee with respect to the receipt thereof under
the terms of any federal, state or local government or taxing authority
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed with respect to the Gross-Up Payment, the
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment. The Company shall pay the Gross-Up Payment to the
Employee within 30 days of its receipt of written notice from the Employee that
such Excise Tax has been paid or will be payable at any time in the future.
5. NO MITIGATION REQUIRED OR SETOFF PERMITTED. In no event shall Employee
------------------------------------------
be obligated to seek other employment or take other action by way of mitigation
of the amounts payable to Employee under the terms of this Agreement, and all
such amounts shall not be reduced whether or not Employee obtains other
employment. Further, the Company's obligations to make any payments hereunder
shall not be subject to or affected by any setoff, counterclaims or defenses
which the Company may have against Employee or others.
6. WAIVER OF OTHER SEVERANCE BENEFITS. The benefits payable pursuant to
----------------------------------
this Agreement are in lieu of any other severance benefits which may otherwise
be payable by the Company to the Employee upon termination of employment
pursuant to a Company-wide severance program (including, without limitation, any
benefits to which Employee might otherwise be entitled under any other severance
or change in control or similar agreement previously entered into between
Employee and Company).
7. EMPLOYMENT AT WILL. Notwithstanding anything to the contrary contained
------------------
herein, the Employee's employment with the Company is not for any specified term
and may be terminated by the Employee or by the Company at any time, for any
reason, with or without cause, without any liability, except with respect to the
payments provided hereunder or as required by law or any other contract or
employee benefit plan.
8. DISPUTES. Any dispute or controversy arising under, out of, or in
--------
connection with this Agreement shall, at the election and upon written demand of
either party, be finally determined and settled by binding arbitration in the
City of Louisville, Kentucky, in accordance with the Labor Arbitration rules and
procedures of the American Arbitration Association, and judgment upon the award
may be entered in any court having jurisdiction thereof. The Company shall pay
all costs of the arbitration and all attorneys' and accountants' fees of the
Employee in connection therewith, including any litigation to enforce any
arbitration award.
9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall not be terminated
-----------------------------
by the voluntary or involuntary dissolution of the Company or by any merger or
consolidation where the Company is not the surviving corporation, or upon any
transfer of all or substantially all of the Company's stock assets or any other
Change in Control. In the event of such merger, consolidation or transfer, or
other Change in Control, the provisions of this Agreement shall be
6
<PAGE>
binding upon and shall inure to the benefit of the surviving corporation or
corporation to which such stock or assets of the Company shall be transferred.
10. NOTICES. Any notice or other communication hereunder shall be in
-------
writing and shall be effective upon receipt (or refusal of receipt) if delivered
personally, or sent by overnight courier if signature for the receiving party is
obtained, or sent by certified or registered mail, postage prepaid, to the other
party at the address set forth below:
If to the Company: Vencor, Inc.
Suite 3300, 400 West Market Street
Louisville, KY 40202
Attention: Secretary
If to Employee: ____________________________
____________________________
____________________________
Either party may change its specified address by giving notice in
writing to the other.
11. INDEMNIFICATION. The Company shall indemnify, defend and hold the
---------------
Employee harmless from and against any liability, damages, costs and expenses
(including attorneys' fees) in connection with any claim, cause of action,
investigation, litigation or proceeding involving him by reason of his having
been an officer, director, employee or agent of the Company, except to the
extent it is judicially determined that the Employee was guilty of gross
negligence or willful misconduct in connection with the matter giving rise to
the claim for indemnification. This indemnification shall be in addition to and
shall not be substituted for any other indemnification or similar agreement or
arrangement which may be in effect between the Employee and the Company or may
otherwise exist. The Company also agrees to maintain adequate directors and
officers liability insurance, if applicable, for the benefit of Employee for the
term of this Agreement and for five years thereafter.
12. ERISA. Many or all of the employee benefits addressed in Sections 3(c)
-----
and (d) exist under plans which constitute employee welfare benefit plans
("Welfare Plans") within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Any payments pursuant to
this Agreement which could cause any of such Plans not to constitute a Welfare
Plan shall be deemed instead to be made pursuant to a separate "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA or a "top hat" plan
under Section 201(2) of ERISA as to which the applicable portions of the
document constituting the Welfare Plan shall be deemed to be incorporated by
reference. None of the benefits hereunder may be assigned in any way.
13. SEVERABILITY. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision, which other provisions shall remain in full force and effect.
7
<PAGE>
14. INTERPRETATION. The headings used herein are for convenience only and
--------------
do not limit or expand the contents of this Agreement. Use of any male gender
pronoun shall be deemed to include the female gender also.
15. NO WAIVER. No waiver of a breach of any provision of this Agreement
---------
shall be construed to be a waiver of any other breach of this Agreement. No
waiver of any provision of this Agreement shall be enforceable unless it is in
writing and signed by the party against whom it is sought to be enforced.
16. SURVIVAL. Any provisions of this Agreement creating obligations
--------
extending beyond the term of this Agreement shall survive the expiration or
termination of this Agreement, regardless of the reason for such termination.
17. AMENDMENTS. Any amendments to this Agreement shall be effective only if
----------
in writing and signed by the parties hereto.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the subject matter hereof.
19. GOVERNING LAW. This Agreement shall be interpreted in accordance with
-------------
and governed by the law of the State of Delaware.
20. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
VENCOR, INC. EMPLOYEE
By: __________________________ _____________________
W. Bruce Lunsford
Chairman, President and
Chief Executive Officer
8
<PAGE>
Exhibit 21
REGISTRANT'S SUBSIDIARIES
VCI Specialty Services, Inc., a Delaware corporation
Vencor Properties, Inc., a Delaware corporation
Vencor Investments, Inc., a Delaware corporation
Vencor Hospitals California, Inc., a Delaware corporation
Vencor Hospitals South, Inc., a Delaware corporation
Ventech Systems, Inc., a Delaware corporation
Vencor Hospitals East, Inc., a Delaware corporation
Hahnemann Hospital, Inc., a Delaware corporation
Vencor Hospitals Illinois, Inc., a Delaware corporation
Vencor Kentucky, Inc., a Delaware corporation
Vencare, Inc., a Delaware corporation
Vencare Hospice, Inc., a Kentucky corporation
Vencor Assisted Living Holdings, Inc., a Delaware corporation
Vencor Facility Services, Inc., a Delaware corporation
Vencor Insurance Holdings, Inc., a Delaware corporation
Vencor Provider Network, Inc., a Delaware corporation
Vencor Insurance Company, an Indiana corporation
Vencor Pediatric Care, Inc., a Delaware corporation
Vencor Home Health Services, Inc., a Delaware corporation
Healthcare Rehabilitation, a California corporation
First Healthcare Corporation, a Delaware corporation
Hillhaven of Central Florida, Inc., a Delaware corporation
Northwest Health Care, Inc., an Idaho corporation
Pasatiempo Development Corp., a California corporation
Ledgewood Health Care Corporation, a Massachusetts corporation*
<PAGE>
Cornerstone Insurance Company, a Cayman Islands corporation
Brim of Massachusetts, Inc., a Massachusetts corporation
Medisave Pharmacies, Inc., a Delaware corporation
Medisave of Tennessee, Inc., a Delaware corporation
American X-Rays, Inc., a Louisiana corporation
First Rehab, Inc., a Delaware corporation
Advanced Infusion Systems, Inc., a California corporation
Nationwide Care, Inc., an Indiana corporation
Meadowvale Skilled Care Center, Inc., a Delaware corporation
TheraTx, Incorporated, a Delaware corporation
Health Care Holdings, Inc., a Delaware corporation
Health Care Technology, Inc., a Delaware corporation
Helian Health Group, Inc., a Delaware corporation
Helian ASC of Northridge, Inc., a California corporation
MedEquities, Inc., a California corporation
Helian Recovery Corporation, a California corporation
Recovery Inns of America, Inc., a California corporation
VC - OIA, Inc., an Arizona corporation
Palo Alto Surgecenter Corporation, a California corporation
VC - TOCH, Inc., an Arizona corporation
Horizon Healthcare Services, Inc., a Georgia corporation
Tunstall Enterprises, Inc., a Georgia corporation
PersonaCare, Inc., a Delaware corporation
Lafayette Health Care Center, Inc., a Georgia corporation
PersonaCare Living Center of Clearwater, Inc., a Delaware
corporation
PersonaCare of Bradenton, Inc., a Delaware corporation
PersonaCare of Clearwater, Inc., a Delaware corporation
2
<PAGE>
PersonaCare of Connecticut, Inc., a Connecticut corporation
Courtland Gardens Health Center, Inc., a Connecticut corporation
Homestead Health Center, Inc., a Connecticut corporation
Stamford Health Facilities, Inc., a Connecticut corporation
PersonaCare of Georgia, Inc., a Delaware corporation
PersonaCare of Huntsville, Inc., a Delaware corporation
PersonaCare of Little Rock, Inc., a Delaware corporation
PersonaCare of Ohio, Inc., a Delaware corporation
PersonaCare of Owensboro, Inc., a Delaware corporation
PersonaCare of Pennsylvania, Inc., a Delaware corporation
PersonaCare of Pompano East, Inc., a Delaware corporation
PersonaCare of Pompano West, Inc., a Delaware corporation
PersonaCare of Reading, Inc., a Delaware corporation
PersonaCare of Rhode Island, Inc., a Rhode Island corporation
PersonaCare of San Antonio, Inc., a Delaware corporation
PersonaCare of San Pedro, Inc., a Delaware corporation
PersonaCare of Shreveport, Inc., a Delaware corporation
PersonaCare of St. Petersburg, Inc., a Delaware corporation.
PersonaCare of Warner Robbins, Inc., a Delaware corporation
PersonaCare of Wisconsin, Inc., a Delaware corporation
PersonaCare Properties, Inc., a Georgia corporation
THTX, Inc., a Delaware corporation
Tucker Nursing Center, Inc., a Georgia corporation
Respiratory Care Services, Inc., a Delaware corporation
TheraTx Health Services, Inc., a Delaware corporation
TheraTx Rehabilitation Services, Inc., a Delaware corporation
TheraTx Healthcare Management, Inc., a Delaware corporation
3
<PAGE>
TheraTx Management Services, Inc., a California corporation
TheraTx Medical Supplies, Inc., a Delaware corporation
TheraTx Staffing, Inc., an Illinois corporation
VC - WM, Inc., a Florida corporation
Transitional Hospitals Corporation, a Nevada corporation
Community Psychiatric Centers of Oklahoma, Inc., an Oklahoma
corporation
Community Psychiatric Centers Properties of Oklahoma, Inc., an
Oklahoma corporation
CPC of Georgia, Inc., a Georgia corporation
Peachtree - Parkwood Hospital, Inc., a Georgia corporation
Interamericana Health Care Group, a Nevada corporation
Caribbean Behavioral Health Systems, Inc., a Nevada corporation
InteHgro Holdings, Ltd., a Cayman Islands corporation
Gorgas International Medical Center, LLC, a Delaware limited
liability company
Transitional Hospitals Corporation, a Delaware corporation
JB Thomas Hospital, Inc., a Maine corporation
THC - Chicago, Inc., an Illinois corporation
THC - North Shore, Inc., an Illinois corporation
THC - Hollywood, Inc., a Florida corporation
THC - Houston, Inc., a Texas corporation
THC - Minneapolis, Inc., a Minnesota corporation
THC - Orange County, Inc., a California corporation
THC - San Diego, Inc., a California corporation
THC - Seattle, Inc., a Washington corporation
Transitional Hospitals Corporation of Indiana, Inc., an Indiana
corporation
Transitional Hospitals Corporation of Louisiana, Inc., a
Louisiana corporation
Transitional Hospitals Corporation of New Mexico, Inc., a New
Mexico corporation
Transitional Hospitals Corporation of Nevada, Inc., a Nevada
corporation
4
<PAGE>
Transitional Hospitals Corporation of Tampa, Inc., a Florida
corporation
Transitional Hospitals Corporation of Texas, Inc., a Texas
corporation
Transitional Hospitals Corporation of Wisconsin, Inc., a
Wisconsin corporation
Transitional Hospitals Corporation of Michigan, Inc., a Michigan corporation
Community Psychiatric Centers of Arkansas, Inc., an Arkansas corporation
Community Psychiatric Centers of California, a California corporation
Community Psychiatric Centers Properties Incorporated, a
California corporation
CPC Investment Corp., a California corporation
CPC Properties of Illinois, Inc., an Illinois corporation
CPC Properties of Missouri, Inc., a Missouri corporation
Community Psychiatric Centers of Florida, Inc., a Florida corporation
Community Psychiatric Centers of Idaho, Inc., an Idaho corporation
Community Psychiatric Centers of Indiana, Inc., an Indiana corporation
Community Psychiatric Centers of Kansas, Inc., a Kansas corporation
Community Psychiatric Centers of Mississippi, Inc., a Mississippi corporation
Community Psychiatric Centers of Missouri, Inc., a Missouri corporation
Community Psychiatric Centers of North Carolina, Inc., a North Carolina
corporation
Community Psychiatric Centers of Utah, Inc., a Utah corporation
Community Psychiatric Centers Properties of Texas, Inc., a Texas corporation
Community Psychiatric Centers Properties of Utah, Inc., a Utah corporation
C.P.C. of Louisiana, Inc., a Louisiana corporation
CPC Managed Care Health Services, Inc., a Delaware corporation
Community Behavioral Health System, Inc., a Louisiana corporation
CPC Properties of Arkansas, Inc., an Arkansas corporation
CPC Properties of Indiana, Inc., an Indiana corporation
CPC Properties of Kansas, Inc., a Kansas corporation
CPC Properties of Louisiana, Inc., a Louisiana corporation
5
<PAGE>
CPC Properties of Mississippi, Inc., a Mississippi corporation
CPC Properties of North Carolina, Inc., a North Carolina corporation
Florida Hospital Properties, a Florida corporation
Old Orchard Hospital, Inc., an Illinois corporation
Partnerships
Vencor Hospitals Texas, Ltd., a Texas limited partnership
Windsor Woods Nursing Home Partnership, a Washington general partnership
St. George Nursing Home Limited Partnership, an Oregon limited partnership
Bartlesville Nursing Home Partnership, an Oregon general partnership*
Carrollwood Care Center, a Tennessee general partnership
Foothill Nursing Company Partnership, a California general partnership*
San Marcos Nursing Home Partnership, a California general partnership
Fox Hill Village Partnership, a Massachusetts general partnership*
Starr Farm Partnership, a Vermont general partnership*
New Pond Village Associates, a Massachusetts general partnership
Hillhaven-MSC Partnership, a California general partnership*
Stockton Health Care Center Limited Partnership, an Oregon limited partnership
Medilife Pharmacy Network Partnership, a Tennessee general partnership*
Hillhaven/Indiana Partnership, a Washington general partnership
Hillhaven/Westfield Partnership, a Washington general partnership
Pharmaceutical Infusion Therapy, a California general partnership**
CPS-Sacramento, a California general partnership***
California Respiratory Care Partnership, a California general partnership**
Visiting Nurse Advanced Infusion Systems - Anaheim, a California general
partnership*
Visiting Nurse Advanced Infusion Systems - Colton, a California general
partnership**
Visiting Nurse Advanced Infusion Systems - Newbury Park, a California general
partnership**
TheraTx Management Services, L.P., a Georgia limited partnership
6
<PAGE>
Care Venture Partners, L.P., a Rhode Island limited partnership
Health Haven Associates, L.P., a Rhode Island limited partnership
Stamford Health Associates, L.P., a Connecticut limited partnership
Oak Hill Nursing Associates, L.P., a Rhode Island limited partnership
Northridge Surgery Center, Ltd., a California limited partnership****
Northridge Surgery Center Development Ltd., a California limited
partnership*****
* Only fifty percent (50%) is owned by one of the Registrant's subsidiaries
** Only fifty-one percent (51%) is owned by one of the Registrant's
subsidiaries
*** Only sixty percent (60%) is owned by one of the Registrant's subsidiaries
**** Only seventy percent (70%) is owned by the Registrant's subsidiaries
***** Only forty-three percent (43%) general partnership interest is owned by
the Registrant's subsidiaries
7
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-38188) pertaining to the Vencor, Inc. Retirement Savings Plan;
in the Registration Statement (Form S-8 No. 33-34191) pertaining to the Vencor,
Inc. 1987 Incentive Compensation Program; in the Registration Statement (Form S-
8 No. 33-40949) pertaining to the Vencor, Inc. 1987 Incentive Compensation
Program - additional shares; in the Registration Statement (Form S-8 No. 33-
34192) pertaining to the Vencor, Inc. 1987 Stock Option Plan for Non-Employee
Directors; in the Registration Statement (Form S-8 No. 33-66774) pertaining to
the Vencor, Inc. Non-Employee Directors Deferred Compensation Plan; in the
Registration Statement (Form S-8 No. 33-81988) pertaining to the Vencor, Inc.
1987 Incentive Compensation Program - additional shares; in the Registration
Statement (Form S-8 No. 333-02717) pertaining to the Vencor, Inc. 1987 Incentive
Compensation Program - additional shares; in the Registration Statement (Form S-
8 No. 333-25519) pertaining to the TheraTx, Incorporated 1996 Stock Option/Stock
Issuance Plan, TheraTx, Incorporated Amended and Restated 1994 Stock
Option/Stock Issuance Plan, 1989 Amended and Restated Stock Option Plan of
Helian Health Group, Inc.; in the Registration Statement (Form S-8 No. 333-
40733) pertaining to the Vencor Retirement Savings Plan - additional shares; in
the Registration Statement (Form S-8 No. 333-40735) pertaining to the Vencor,
Inc. 1997 Stock Option Plan for Non-Employee Directors; in the Registration
Statement (Form S-8 No. 333-40737) pertaining to the Vencor, Inc. 1997 Incentive
Compensation Plan; and in the Registration Statement (Form S-3 No. 33-71910)
pertaining to shares to be issued in connection with acquisitions, of our report
dated January 26, 1998, with respect to the consolidated financial statements
and schedule of Vencor, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1997.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Vencor, Inc.'s
consolidated financial statements for the twelve months ended December 31, 1997
and is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 82,473
<SECURITIES> 0
<RECEIVABLES> 619,068
<ALLOWANCES> (63,551)
<INVENTORY> 27,605
<CURRENT-ASSETS> 858,148
<PP&E> 1,996,030
<DEPRECIATION> (488,212)
<TOTAL-ASSETS> 3,334,739
<CURRENT-LIABILITIES> 413,062
<BONDS> 1,919,624
0
0
<COMMON> 18,368
<OTHER-SE> 886,982
<TOTAL-LIABILITY-AND-EQUITY> 3,334,739
<SALES> 0
<TOTAL-REVENUES> 3,116,004
<CGS> 0
<TOTAL-COSTS> 2,180,667
<OTHER-EXPENSES> 459,151
<LOSS-PROVISION> 31,176
<INTEREST-EXPENSE> 102,736
<INCOME-PRETAX> 224,466
<INCOME-TAX> 89,338
<INCOME-CONTINUING> 135,128
<DISCONTINUED> 0
<EXTRAORDINARY> (4,195)
<CHANGES> 0
<NET-INCOME> 130,933
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.86
</TABLE>
