<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant {X}
Filed by a Party other than the Registrant{}
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use
of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VENTAS, INC.
-----------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction compute
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
VENTAS, INC.
4360 Brownsboro Road
Suite 115
Louisville, Kentucky 40207-1642
(502) 357-9000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
Ventas, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Ventas, Inc.
(the "Company") will be held at 10:00 a.m., local time on Tuesday, May 18,
1999, in the North Room of the Hyatt Regency Hotel, 320 West Jefferson Street,
Louisville, Kentucky, to consider and vote on:
1. The election of directors for the ensuing year; and
2. Such other business as may properly come before the Annual Meeting or
any adjournments thereof.
The close of business on March 22, 1999, has been fixed as the record date
for determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. A list of all stockholders entitled
to vote at the Annual Meeting will be available for inspection by any
stockholder for any purpose reasonably related to the Annual Meeting during
ordinary business hours for a period of ten days prior to the Annual Meeting at
the Company's principal executive offices located at 4360 Brownsboro Road,
Suite 115, Louisville, Kentucky. Your attention is directed to the proxy
statement accompanying this notice.
You are cordially invited to attend the Annual Meeting in person. EVEN IF
YOU PLAN TO ATTEND IN PERSON, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE. This will not prevent you from
voting your shares in person if you choose to attend the Annual Meeting.
By Order of the Board of Directors,
/s/ W. Bruce Lunsford
W. Bruce Lunsford
Chairman of the Board
Louisville, Kentucky
April 13, 1999
<PAGE>
VENTAS, INC.
4360 Brownsboro Road
Suite 115
Louisville, Kentucky 40207-1642
(502) 357-9000
PROXY STATEMENT
for
Annual Meeting of Stockholders
May 18, 1999
GENERAL INFORMATION
The Annual Meeting of Stockholders (the "Annual Meeting") of Ventas, Inc.
(the "Company") will be held at 10:00 a.m., local time on Tuesday, May 18,
1999, in the North Room of the Hyatt Regency Hotel, 320 West Jefferson Street,
Louisville, Kentucky. This Proxy Statement is being furnished in connection
with the solicitation of proxies by the Board of Directors of the Company to be
used at the Annual Meeting and at any adjournments thereof.
Only stockholders of record at the close of business on March 22, 1999, are
entitled to vote at the Annual Meeting or any adjournments thereof. A list of
all stockholders entitled to vote at the Annual Meeting will be available for
inspection by any stockholder for any purpose reasonably related to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the Company's principal executive offices located at 4360
Brownsboro Road, Suite 115, Louisville, Kentucky. On the record date,
67,895,781 shares of the Company's common stock, par value $.25 per share
("Common Stock"), were outstanding. Each share of Common Stock entitles the
owner to one vote.
A majority of the outstanding shares of Common Stock present in person or by
proxy is required to constitute a quorum to transact business at the Annual
Meeting. The vote of a plurality of the outstanding shares of Common Stock
present in person or by proxy will be necessary to elect the director-nominees
listed in this Proxy Statement. The affirmative vote of a majority of the
outstanding shares of Common Stock present in person or by proxy will be
necessary to approve any other matter that may come before the Annual Meeting
for stockholder consideration. Abstentions and proxies relating to "street
name" shares for which brokers have not received voting instruction from the
beneficial owner ("Broker Non-Votes") are counted in determining whether a
quorum is present. In the election of directors, the nominees receiving the
highest number of votes will be elected. Therefore, abstentions or Broker Non-
Votes for a director-nominee will have no effect. With respect to any matters
submitted to the stockholders for their consideration, other than the election
of directors, abstentions will be counted as part of the total number of votes
cast on such proposals in determining whether the proposals have received the
requisite number of favorable votes, whereas Broker Non-Votes will not be
counted as part of the total number of votes cast on such proposals. Thus
abstentions will have the same effect as votes against any such proposal,
whereas Broker Non-Votes will have no effect in determining whether any such
proposal has been approved by the stockholders.
The Company intends to first distribute this Proxy Statement and the
materials accompanying it on or about April 13, 1999. If the enclosed proxy
card is properly signed, returned to the Company and not revoked, it will be
voted in accordance with the instructions contained therein. Unless contrary
instructions are given, the proxy will be voted (i) in favor of the nominees
for director named in this Proxy Statement and (ii) in the discretion of the
proxy holders on such other business as may properly come before the Annual
Meeting.
A person giving the enclosed proxy has the power to revoke it at any time
before it is exercised. However, such revocation must be made in writing and
received by the General Counsel of the Company at the Company's principal
executive offices located at 4360 Brownsboro Road, Suite 115, Louisville,
Kentucky 40207-1642 at or before the time and date of the Annual Meeting. A
stockholder may also attend the Annual Meeting and vote in person, in which
event any prior proxy given by the stockholder will be revoked automatically.
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The cost of soliciting proxies by the Board of Directors will be borne by
the Company. Such solicitation will be made by mail and in addition may be made
personally or by telephone by directors, officers and employees of the Company,
none of whom will receive additional compensation for these services. The
Company's regularly retained investor relations firm, Corporate Communications,
Inc., may also solicit proxies by telephone and mail and, if it is so engaged,
it will be paid a customary fee. Forms of proxies and proxy materials will also
be distributed through brokers, custodians and other like parties to the
beneficial owners of Common Stock. The Company will reimburse such parties for
their reasonable out-of-pocket expenses incurred in connection with the
distribution.
On May 1, 1998, the Company effected a reorganization (the "Reorganization")
pursuant to which the Company was separated into two publicly held
corporations. A new corporation, subsequently renamed Vencor, Inc. ("Vencor"),
was formed to operate the hospital, nursing center and ancillary services
businesses. Pursuant to the terms of the Reorganization, the Company
distributed the common stock of Vencor to stockholders of record of the Company
as of April 27, 1998. The Company, through its subsidiaries, continued to hold
title to substantially all of the real property and to lease such real property
to Vencor. At the time of the Reorganization, the Company also changed its name
to Ventas, Inc. For financial reporting periods subsequent to the
Reorganization, the historical financial statements of the Company were assumed
by Vencor, and the Company is deemed to have commenced operations on May 1,
1998. In addition, for certain reporting purposes under this Proxy Statement
and other filings, the Securities and Exchange Commission treats the Company as
having commenced operations on May 1, 1998.
On March 5, 1999, Thomas T. Ladt resigned from his position as President,
Chief Executive Officer and Chief Operating Officer of the Company and from the
Company's Board of Directors. Effective March 5, 1999, the Company appointed
Debra A. Cafaro as President and Chief Executive Officer and as a director of
the Company. In addition, Greg D. Hudson, a director of the Company, has
decided not to stand for reelection as director.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of eight positions.
The Board of Directors has nominated the six persons listed below to be elected
as directors at the Annual Meeting. Following the Annual Meeting, the Board of
Directors intends to appoint one additional person to serve as a director. In
addition, pursuant to the Cafaro Employment Agreement (as defined below), Debra
A. Cafaro and Douglas Crocker II will jointly designate a person to be
appointed to serve as a director, subject to the approval of the full Board of
Directors. Proxies cannot be voted for a greater number of persons than the
number of nominees named. Each director elected at the Annual Meeting will
serve, subject to the provisions of the Company's bylaws, until his or her
successor is duly elected and qualified. The names of the nominees proposed for
election as directors, all of whom are presently directors of the Company,
together with certain information concerning the nominees, are set forth below:
NOMINEES FOR DIRECTORS
WALTER F. BERAN (age 72) has served as a director of the Company since May
1, 1998. Since September 1986, Mr. Beran has served as Chairman of the Pacific
Alliance Group, a merger and acquisition services firm. Previously, Mr. Beran
served as Vice Chairman and Western Regional Managing Partner of the accounting
firm of Ernst & Whinney (now Ernst & Young LLP) from 1971 until his retirement
in September 1986. Mr. Beran serves as a director of Fleetwood Enterprises,
Inc. and as a Trustee of Eureka Mutual Funds.(1)(4)
DEBRA A. CAFARO (age 41) joined the Company on March 5, 1999. From April
1997 to May 1998, she served as President and Director of Ambassador
Apartments, Inc. (NYSE: AAH), a real estate investment
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trust. Ms. Cafaro was a founding member of the Chicago law firm Barack
Ferrazzano Kirschbaum Perlman & Nagelberg, becoming a partner in 1987, where
her areas of concentration were real estate, finance and corporate
transactions. Ms. Cafaro is admitted to the Bar in Illinois and Pennsylvania.
She is a member of the National Association of Real Estate Investment Trusts
("NAREIT"), the National Multi-Housing Council, and both the American and
Chicago Bar Associations.
DOUGLAS CROCKER II (age 58) has been a director of the Company since
September 1998. Mr. Crocker has been a Trustee, Chief Executive Officer and
President of Equity Residential Properties Trust, the nation's largest
apartment real estate investment trust, since March 1993. Mr. Crocker has been
President and Chief Executive Officer of First Capital Corporation, previously
a sponsor of public limited real estate partnerships, since December 1992 and a
director of First Capital Corporation since January 1993. Mr. Crocker also
served as Executive Vice President of Equity Financial and Management Company,
a subsidiary of Equity Group Investments, Inc. ("EGI") which provides strategic
direction and services for EGI's real estate and corporate activities, from
November 1992 until March 1997. Mr. Crocker is also a director of Wellsford
Real Properties, Inc., a real estate merchant banking firm.(3)(4)
RONALD G. GEARY (age 51), an attorney and certified public accountant, has
served as a director of the Company since May 1, 1998. Mr. Geary has served as
a director and President of Res-Care, Inc., a provider of residential training
and support services for persons with developmental disabilities and certain
vocational training services, since February 1990 and as Chief Executive
Officer of Res-Care since 1993. Since June 1998, Mr. Geary also has served as
Chairman of the Board of Res-Care, Inc. Prior to becoming Chief Executive
Officer, Mr. Geary was Chief Operating Officer of Res-Care from 1990 to
1993.(1)(2)(4)
W. BRUCE LUNSFORD (age 51), an attorney, has served as Chairman of the Board
since May 1, 1998. From May 1, 1998 through December 1998, Mr. Lunsford also
served as Chief Executive Officer of the Company. Mr. Lunsford was a founder of
Vencor and served as Chairman of the Board, Chief Executive Officer and
President of Vencor from the time it commenced operations in 1985 until the
time of the Reorganization. Mr. Lunsford served as Chairman of the Board and
Chief Executive Officer of Vencor from May 1, 1998 until January 21, 1999 and
as President of Vencor from May 1, 1998 until November 1998. Mr. Lunsford is a
director of Churchill Downs Incorporated, National City Kentucky, Inc. and Res-
Care, Inc. (3)
R. GENE SMITH (age 64) has served as a director the Company since May 1,
1998. Mr. Smith was a founder of Vencor and served as one of its directors from
1985 through the time of the Reorganization. Mr. Smith also served as Vice
Chairman of Vencor from 1987 through the time of Reorganization. From 1987 to
1995, Mr. Smith was President of New Jersey Blockbuster, Ltd., which held the
Blockbuster Video franchise for northern New Jersey. Since 1988, Mr. Smith has
been Chairman of the Board of Taco Tico, Inc., an operator of Mexican fast-food
restaurants. From 1993 to 1997, Mr. Smith was Managing General Partner of
Direct Programming Services, a marketing company of direct broadcast satellite
television services. Mr. Smith has been President and owner of R. Gene Smith,
Inc., a private investment firm, since 1980. (2)(3)
The information given in this Proxy Statement concerning the nominees is
based upon statements made or confirmed to the Company by or on behalf of such
nominees, except to the extent certain information appears in the Company's
records. Directors' ages are given as of January 1, 1999.
- --------
(1) Member of the Audit and Compliance Committee, of which Mr. Beran is
Chairman.
(2) Member of the Executive Compensation Committee, of which Mr. Geary is
Chairman.
(3) Member of the Executive Committee, of which Mr. Lunsford is Chairman.
(4) Member of the Independent Committee, of which Mr. Crocker is Chairman.
SHARES OF COMMON STOCK OF THE COMPANY COVERED BY PROXIES EXECUTED AND
RECEIVED IN THE ACCOMPANYING FORM WILL BE VOTED FOR THE ELECTION AS
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DIRECTORS OF ALL OF THE NOMINEES, UNLESS OTHERWISE SPECIFIED ON THE PROXY. The
Board of Directors does not contemplate that any of the nominees will be unable
to accept election as a director. However, in the event that one or more
nominees are unable or unwilling to accept or are unavailable to serve, the
persons named in the proxies or their substitutes will have authority,
according to their judgment, to vote or refrain from voting for other
individuals as directors.
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
During 1998, the Board of Directors of the Company held two regular meetings
and one special meeting. The Company has an Executive Committee, Executive
Compensation Committee, Audit and Compliance Committee and Independent
Committee. The Company does not have a nominating or similar committee.
The Executive Compensation Committee did not hold any meetings in 1998,
however, it did take certain actions by unanimous written consent of the
committee members during 1998 and as of the date of this Proxy Statement has
held one meeting during 1999. The functions of the Executive Compensation
Committee are to establish annual salary levels, approve fringe benefits and
administer any special compensation plans or programs for executive officers of
the Company.
The Audit and Compliance Committee held one meeting during 1998. The Audit
and Compliance Committee reviews the adequacy of the Company's system of
internal controls and accounting practices. In addition, the Audit and
Compliance Committee reviews the scope of the annual audit of the Company's
auditors, Ernst & Young LLP, prior to its commencement, and reviews the types
of services for which the Company retains Ernst & Young LLP. The Audit and
Compliance Committee also oversees the Company's financial reporting activities
and the accounting standards and principles followed.
The Executive Committee did not hold any meetings during 1998. The Board of
Directors has delegated to the Executive Committee the power to direct the
management of the business and affairs of the Company in the intervals between
meetings of the Board (except for matters reserved to the Board).
The Independent Committee held one meeting during 1998. The function of the
Independent Committee is to review and approve all agreements and transactions
between the Company and Vencor to ensure that such agreements and transactions
represent arm's length negotiations, including without limitation, the
negotiation, enforcement and renegotiation of the terms of any leases between
the Company and Vencor.
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 5, 1999 (except
as otherwise noted) by (a) each person known to the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock, (b)
each director or director-nominee of the Company, (c) the Chief Executive
Officer and each of the other four most highly compensated officers of the
Company (collectively, the "Named Executive Officers"), and (d) all of the
Company's directors and executive officers, as a group.
<TABLE>
<CAPTION>
Common Stock
Name of Individual or Beneficially Percent
Number in Group Owned(1)(2) of Class
--------------------- ------------ --------
<S> <C> <C>
Walter F. Beran........................................ 19,580(3) *
Douglas Crocker II..................................... 2,000 *
Debra A. Cafaro........................................ 266,666(4) *
Steven T. Downey....................................... 62,450(5) *
Ronald G. Geary........................................ 13,250 *
Greg D. Hudson......................................... 137,741(6) *
Thomas T. Ladt......................................... 348,233(7) *
W. Bruce Lunsford...................................... 2,297,777(8) 3.4%
T. Richard Riney....................................... 36,050 *
R. Gene Smith.......................................... 1,418,402(9) 2.1%
All executive officers and directors as a group (10
persons).............................................. 4,602,149 6.7%
Brinson Partners, Inc. and UBS AG...................... 6,043,783(10) 8.9%
Franklin Resources, Inc., Charles B. Johnson, Rupert H.
Johnson, Jr. and
Franklin Mutual Advisers, Inc. ....................... 9,012,700(11) 13.3%
Tenet Healthcare Corporation........................... 8,301,067(12) 12.2%
The Baupost Group, L.L.C. ............................. 5,443,900(13) 8.0%
</TABLE>
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(*) Less than 1%
(1) Beneficial ownership of shares, for purposes of this Proxy Statement, as
determined in accordance with applicable Securities and Exchange
Commission (the "Commission") rules, includes shares as to which a person
has or shares voting power and/or investment power.
(2) Except as set forth in the accompanying footnotes, the named persons have
sole voting power and sole investment power over the shares beneficially
owned by them. The number of shares shown does not include the interest of
certain persons in shares held by family members in their own right, or in
shares held for their benefit in the 401(k) plan that the Company
maintained for its employees prior to the Reorganization. The numbers
shown include the shares which may be acquired by them through the
exercise of options, which are exercisable as of or within 60 days after,
March 5, 1999, under the Company's stock option plans as follows: Mr.
Beran--5,609 shares; Mr. Geary--1,250 shares; Mr. Hudson--10,533 shares;
Mr. Ladt--183,000 shares; Mr. Lunsford--647,000 shares; Mr. Riney--17,250
shares; Mr. Smith--9,126 shares; and Ms. Cafaro--166,666 shares.
(3) Excludes 1,834 Common Stock share equivalents held by the Company under
the Non-Employee Directors Deferred Compensation Plan (the "Directors
Plan"). See "Compensation of Directors."
(4) Includes 100,000 shares of restricted stock.
(5) Includes 12,000 shares with respect to which Mr. Downey shares voting and
investment power with his spouse.
(6) Includes 108,921 shares with respect to which Mr. Hudson shares voting and
investment power with his spouse, 562 shares held by a trust of which Mr.
Hudson is a co-trustee, 13,392 shares held by his gift trust, and 1,923
shares held by a trust for the benefit of Mr. Hudson and his siblings.
Includes 2,590 Common Stock share equivalents held under the Directors
Plan which will be granted to Mr. Hudson following the expiration of Mr.
Hudsons's term as a director at the Annual Meeting.
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(7) Includes 9,029 shares held by his spouse as custodian for his children and
22,058 shares held by his spouse. With respect to these 31,087 shares, Mr.
Ladt shares voting and investment power with his spouse.
(8) Includes 102,127 shares held by a private foundation with respect to which
Mr. Lunsford has sole voting power and shared investment power. Excludes
16,365 shares held in trust for the benefit of his children.
(9) Includes 36,250 shares held by a private foundation with respect to which
Mr. Smith shares voting and investment power and 140,625 shares held by a
limited partnership with respect to which he has sole voting and
investment power.
(10) As of December 31, 1998, based on a Schedule 13G/A filed jointly by
Brinson Partners, Inc. ("BPI") and UBS AG ("UBS AG") on February 16, 1999
with the Commission. According to the Schedule 13G/A, BPI and UBS AG share
voting and dispositive power with respect to these shares but disclaim
beneficial ownership of the shares. The address of BPI is 209 South
LaSalle, Chicago, Illinois 60604-1295. The address of UBS AG is
Bahnhofstrasse 45, 8021, Zurich, Switzerland.
(11) As of December 31, 1998, based on a Schedule 13G/A filed jointly by
Franklin Resources, Inc. ("FRI"), Charles B. Johnson and Rupert H.
Johnson, Jr. ("Principal Shareholders") and Franklin Mutual Advisers, Inc.
("FMA") on January 29, 1999 with the Commission. According to the Schedule
13G/A, FMA has sole voting and dispositive power with respect to these
shares and the other reporting persons disclaim beneficial ownership of
these shares. FRI and the Principal Shareholders disclaim any beneficial
ownership in any of the shares covered by the Schedule 13G/A. The address
of FRI and the Principal Shareholders is 777 Mariners Island Boulevard,
San Mateo, CA 94404. The address of FMA is 51 John F. Kennedy Parkway,
Short Hills, NJ 07078.
(12) The ownership given for Tenet Healthcare Corporation is as of January 10,
1996 and is based on information contained in the Schedule 13D/A dated
January 10, 1996, filed by Tenet Healthcare Corporation and certain
subsidiaries with the Commission. The address of Tenet Healthcare
Corporation and such subsidiaries is 3820 State Street, Santa Barbara,
California 93105.
(13) As of April 8, 1999, based on information supplied by The Baupost Group,
L.L.C. ("Baupost"). Baupost is an investment advisor to The Baupost Fund,
a non-diversified open-ended management company registered under the
Investment Company Act of 1940. Baupost has sole voting and dispositive
power with respect to these shares but disclaims beneficial ownership of
the shares. The address of Baupost and The Baupost Fund is 44 Brattle
Street, 5th Floor, P.O. Box 381288, Cambridge, Massachusetts 02238.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
Executive Compensation Philosophy. The Executive Compensation Committee of
the Board (the "Committee") is composed entirely of outside directors. The
Committee is responsible for setting and administering the policies and
programs that govern both annual compensation and stock-based incentive
compensation plans for the executive officers of the Company. The Company's
executive compensation policy is designed to establish an appropriate
relationship between total executive pay and the achievement of strategic goals
including enhancement of stockholder value, while at the same time motivating
and retaining executive officers. The key components of the Company's
compensation philosophy are base salary, an annual incentive award and long-
term stock-based incentives. These components are administered with the goals
of (i) providing total compensation that is competitive with comparable
positions in other real estate investment trusts ("REITs"), (ii) rewarding
successful short-term and long-term performance and (iii) aligning the
interests of the executive officers with those of stockholders. The Committee
will review each component of executive compensation on an annual basis.
Base Salary. Base salaries for executive officers are set by the
Committee and are believed to be sufficient to attract and retain qualified
executive officers. Base salary increases are provided to executive
officers based on an evaluation of each executive's performance, as well as
the performance of the Company as a whole, and the value of the executive's
stock-based compensation. While the Committee does not establish a specific
formula or targets to determine base salaries, the Committee considers the
financial performance of the Company as compared to other REITs, and the
performance of the individual
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executive and his or her level of responsibility. The Committee also
considers the success of the executive officer in developing and executing
the Company's strategic plans, exercising leadership and creating
stockholder value. In 1998, the Committee approved entering into employment
agreements with the Company's Named Executive Officers. Each agreement
establishes the executive officer's base salary and entitles him or her to
participate in the Company's benefit plans. The agreements also provide for
certain benefits to the Named Executive Officers upon termination of
employment. See "Employment and Other Agreements."
Annual Incentive. The Committee believes that a significant proportion
of total cash compensation for executive officers should be subject to the
attainment of specific Company earnings criteria and other short-term and
long-term goals. This approach creates a direct incentive for executive
officers to achieve desired performance goals and places a significant
percentage of each executive officer's compensation at risk. The Committee
established potential bonuses for executive officers based on the Company's
achievement of certain funds from operations goals within the ranges
established by the Committee. The Committee established bonus targets for
1998 of up to 50% of base salaries contingent upon the Company's
achievement of a range of the predetermined funds from operations goals.
The Committee established the potential bonuses and funds from operations
goals based on the Committee's judgment as to desirable financial results
for the Company and the appropriate percentage of compensation which should
be based on the attainment of such results. For 1998, the Committee awarded
bonuses equal to 50% of base salary upon the achievement of the
predetermined funds from operations goals.
Stock-Based Long-Term Incentives. Equity participation is a key
component of the Committee's executive compensation philosophy. The use of
such awards provides a long-term link between the results achieved for the
Company's stockholders and the reward provided to executive officers. Stock
options and restricted stock are granted to executive officers primarily
based on the officer's actual and potential contribution to the Company's
growth, long-term performance and the practices of other REITs. Stock-based
compensation is designed to retain executive officers and motivate them to
enhance stockholder value by aligning the financial interests of executive
officers with those of the Company's stockholders. Stock-based compensation
also provides an effective incentive for management to create stockholder
value over the long term since the full benefit of the compensation package
cannot be realized unless an appreciation in the price of the Common Stock
occurs over a number of years.
On May 7, 1998, the Committee granted options to purchase 385,000 shares
of Common Stock to certain of the Named Executive Officers, including Mr.
Lunsford, with an exercise price equal to $16.25 per share, the fair market
value of the underlying Common Stock at the date of grant. To encourage
long-term performance, these options vest cumulatively in four annual
installments beginning on the first anniversary of the date of grant and
expire ten years from the date of grant. In addition, the Committee granted
107,500 shares of restricted stock to the Named Executive Officers,
including Mr. Lunsford. These shares of restricted stock vest cumulatively
in four equal annual installments beginning on the first anniversary of the
date of the grant. These awards were made in recognition of the substantial
efforts expended by certain of the Named Executive Officers to complete the
Reorganization.
On September 11, 1998, the Committee granted options to purchase 125,000
shares of Common Stock to certain of the Named Executive Officers,
including Mr. Lunsford, with an exercise price equal to $10.8125 per share,
the fair market value of the underlying Common Stock at the date of grant.
These options vest cumulatively in four equal annual installments beginning
on the first anniversary of the date of grant and expire ten years from the
date of grant. The Committee granted this number of options based on its
judgment that this number is appropriate and desirable considering these
executive officers' actual and potential contribution to the Company. The
assessment of actual and potential contribution was based on the
Committee's subjective evaluation of each executive officer's ability,
skills, efforts and leadership.
In connection with the commencement of his employment on September 21,
1998, the Committee granted Mr. Downey options to purchase 75,000 shares of
Common Stock with an exercise price equal to $11.25 per share, the fair
market value of the underlying Common Stock at the date of grant. These
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options vest cumulatively in four equal annual installments beginning on
the first anniversary of the date of grant and expire ten years from the
date of grant. In addition, the Committee also granted 25,000 shares of
restricted stock to Mr. Downey. These shares of restricted stock vest
cumulatively in four equal annual installments beginning on the first
anniversary of the date of the grant. The Committee granted the options and
restricted stock described above based on its judgment that the number and
terms were appropriate and sufficient to attract Mr. Downey to accept the
position as Vice President and Chief Financial Officer.
Compensation of Chief Executive Officer. Consistent with the executive
compensation policy and components described above, the Committee determined
the salary, bonus and stock-based compensations for services rendered by W.
Bruce Lunsford as Chairman of the Board and Chief Executive Officer of the
Company. Mr. Lunsford received an annual base salary of $350,000 for 1998. The
Committee took into consideration that Mr. Lunsford devoted less than 50% of
his time to the Company as its Chief Executive Officer during 1998. The
Committee believes that this base salary was adequate compared to the base
salaries paid to chief executive officers of other REITs. Mr. Lunsford earned a
$116,667 bonus under the Company's 1997 Incentive Compensation Plan. Mr.
Lunsford received the bonus for the Company attaining certain funds from
operations goals specified in advance by the Committee. Mr. Lunsford also
received options to purchase 200,000 shares of Common Stock in 1998. The
Committee determined the number of options granted to Mr. Lunsford based on its
judgment that this number was appropriate and desirable in light of his efforts
in completing the Reorganization and his actual and potential contribution to
the Company and his leadership in connection with the implementation of the
Company's investment and business strategy. The assessment of actual and
potential contribution was based on the Committee's subjective evaluation of
Mr. Lunsford's abilities, skills, efforts and leadership.
Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget Reconciliation
Act of 1993 amended the Internal Revenue Code (the "Code") to provide generally
that the compensation paid by publicly held corporations to the chief executive
officer and the four most highly paid senior executive officers in excess of
$1,000,000 per executive will be deductible by the Company only if paid
pursuant to a qualifying performance-based compensation plan approved by
stockholders of the Company. Compensation as defined by the Code includes,
among other things, base salary, incentive compensation and gains on stock
options and restricted stock. It is the Committee's policy to maximize the
effectiveness of the Company's executive compensation plans. In that regard,
the Committee intends to maintain flexibility to take actions which are deemed
to be in the best interests of the Company and its stockholders. Such actions
may not always result in executive compensation qualifying for the maximum
possible tax deductibility under the Code. The Company believes that it has
taken the necessary steps to qualify the Company's performance-based
compensation plans for tax deductibility. The Company also believes that
substantially all of the compensation paid in 1998 is deductible for federal
income tax purposes.
The foregoing report of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed
filed under such acts except to the extent that the Company specifically
incorporates this information by reference.
EXECUTIVE COMPENSATION COMMITTEE
Ronald G. Geary, Chairman
R. Gene Smith
Greg D. Hudson
8
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by the Company to each
of the Named Executive Officers during 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation
----------------------- --------------------------------
Name and Principal Restricted Stock Options All Other
Position Year Salary Cash Bonus (2) Awards (3) (No. of Shares) Compensation
- ------------------ ---- -------- -------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford (4) .. 1998 $230,192 $116,667 $812,500 200,000 $109,124(5)
Chairman of the Board
and Chief Executive
Officer
Thomas T. Ladt (6) ..... 1998 $230,535 $116,667 $812,500 250,000 $ 5,301(7)
President and Chief
Operating Officer
Steven T. Downey (8) ... 1998 $ 53,846 $ 33,333 $281,250 75,000 $ 1,308(9)
Vice President and
Chief
Financial Officer
T. Richard Riney........ 1998 $ 94,846 $ 45,667 $121,875 60,000 $ 267(10)
Vice President, General
Counsel and Secretary
</TABLE>
- --------
(1) These amounts represent the total compensation paid by the Company since
May 1, 1998.
(2) Except as otherwise specified below, the amounts shown represent cash
bonuses awarded under the Company's 1997 Incentive Compensation Plan which
were based on the Company's profitability.
(3) These amounts shown in the table represent the fair market value on the
date of grant of shares of restricted stock granted by the Company. These
shares will vest in four equal annual installments beginning on the first
anniversary of the date of grant. Based on the closing price of $12.1875
of the Common Stock on December 31, 1998, the value of the award for each
Named Executive Officer is as follows: Mr. Lunsford--$609,375 (50,000
shares), Mr. Ladt--$609,375 (50,000 shares), Mr. Downey--$304,688 (25,000
shares), and Mr. Riney--$91,406 (7,500 shares). Any dividends paid on the
Common Stock also will be paid on these shares of restricted stock.
(4) Mr. Lunsford resigned from his position as Chief Executive Officer,
effective December 31, 1998, but remains Chairman of the Board of the
Company.
(5) Includes $108,188 of interest on Mr. Lunsford's Tax Loan (as defined
below) which was forgiven by the Company in 1998 and life insurance
premiums paid on Mr. Lunsford's behalf of $936. See "Certain Relationships
and Related Transactions" for a discussion of Mr. Lunsford's Tax Loan.
(6) Mr. Ladt resigned from his position with the Company, effective March 5,
1999.
(7) Includes $4,051 of interest on Mr. Ladt's Tax Loan (as defined below)
which was forgiven by the Company in 1998 and life insurance premiums paid
on Mr. Ladt's behalf of $1,250. See "Certain Relationships and Related
Transactions" for a discussion of Mr. Ladt's Tax Loan.
(8) Mr. Downey first became employed by the Company in September 1998.
(9) Represents imputed interest on a loan made by the Company to Mr. Downey to
pay for his taxes in connection with an award of restricted stock by the
Company. See "Certain Relationships and Related Transactions."
(10) Represents life insurance premiums paid on Mr. Riney's behalf of $267.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of Common Stock granted to the Named Executive Officers during 1998:
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to for Option Term(3)
Options Employees Exercise Price Expiration -------------------
Name Granted(1) in 1998 Per Share(2) Date 5%($) 10%($)
---- ---------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford....... 150,000 24.0% $ 16.25 5/07/08 1,532,930 3,884,747
50,000 8.0% $10.8125 9/11/08 339,996 861,617
Thomas T. Ladt.......... 200,000 32.1% $ 16.25 5/07/08 2,043,907 5,179,663
50,000 8.0% $10.8125 9/11/08 339,996 861,617
Steven T. Downey........ 75,000 12.0% $ 11.25 9/21/08 530,630 1,344,720
T. Richard Riney........ 35,000 5.6% $ 16.25 5/07/08 357,684 906,441
25,000 4.0% $10.8125 9/11/08 169,998 430,808
</TABLE>
- --------
(1) All options shown in the above table become exercisable in four equal
annual installments, beginning on the first anniversary of the date of
grant. All options become fully exercisable upon a change in control of the
Company.
(2) All options were granted at fair market value (closing price on the New
York Stock Exchange on the date of grant). The exercise price and any tax
withholding obligations related to exercise may be paid by delivery of
shares of Common Stock.
(3) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions, as well as the option holder's continued employment with the
Company throughout the vesting period. The amounts reflected in this table
will not necessarily be achieved.
In connection with the Reorganization, all options to purchase shares of
Common Stock outstanding at the time of the Reorganization (the "Existing
Options") were divided into the same number of options to purchase both shares
of Common Stock and shares of Vencor common stock. The Existing Options
remained options to purchase shares of Common Stock and new options were
granted by Vencor to evidence the option to purchase shares of Vencor common
stock (the "Vencor Options"). Vencor assumed the obligation to issue the Vencor
Options in connection with the Reorganization. The exercise price of the
Existing Options was modified, and the exercise price of the Vencor Options was
set, so that the combined exercise price of the options equaled the exercise
price of the Existing Options prior to the Reorganization. The exercise prices
were based on the relative fair market value of the Common Stock and Vencor
common stock on the date of the Reorganization. All other terms of the Existing
Options remained the same. Messrs. Lunsford, Ladt, Riney, Beran, Hudson and
Smith held Existing Options at the time of the Reorganization that were subject
to the treatment described above.
10
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1998 and
unexercised options held as of December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Shares Fiscal Year End at Fiscal Year End(1)
Acquired Value ------------------------------- -------------------------
Name On Exercise Realized Exercisable(2) Unexercisable(3) Exercisable Unexercisable
---- ----------- -------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford....... -- -- 505,500 641,500 -0- $68,750
Thomas T. Ladt.......... -- -- 109,400 354,225 $31,167 $68,750
Steven T. Downey........ -- -- -0- 75,000 -0- $70,313
T. Richard Riney........ -- -- 4,750 73,750 -0- $34,375
</TABLE>
- --------
(1) These amounts were calculated by subtracting the exercise price from the
market value of the underlying Common Stock as of December 31, 1998. The
market value of the Common Stock was $12.1875 per share as of December 31,
1998, based on the closing price per share on the New York Stock Exchange.
(2) Includes only Existing Options.
(3) Includes Existing Options as follows: Mr. Lunsford--442,000, Mr. Ladt--
104,225 and Mr. Riney--13,750.
EMPLOYMENT AND OTHER AGREEMENTS
During 1998, the Company entered into employment agreements with each of the
Named Executive Officers. These agreements have an initial one year term. The
term of each agreement will be automatically extended by one additional day for
each day following the effective date of the agreement that the Named Executive
Officer remains employed by the Company until the Company elects to cease such
extension by giving notice to the Named Executive Officer. Upon such
notification, the employment agreements will terminate in one year. The
employment agreements provide base salary and the ability of the Named
Executive Officer to be eligible for bonuses and to participate in the
Company's incentive and other employee benefit plans. The base salaries for
1998 for the Named Executive Officers under the employment agreements were as
follow: Mr. Lunsford--$350,000; Mr. Ladt--$335,000; Mr. Downey--$200,000; and
Mr. Riney--$137,000. The Named Executive Officers may receive increases in
their base salaries as approved by the Board of Directors. Under certain
circumstances, the employment agreements also provide for severance payments if
the executive is terminated.
If employment is terminated by reason of death or disability, the Named
Executive Officer is entitled to a prorated portion of his target bonus. If the
Named Executive Officer is terminated for cause, no additional payments are
made under the employment agreements.
If the executive's employment is terminated by the executive for good reason
(as defined in the employment agreements) or by the Company for other than
cause (collectively, an "Involuntary Termination"), certain levels of severance
payments are provided under the employment agreements. Upon such a termination,
the employment agreement for Mr. Lunsford and Mr. Ladt provide for a cash
payment equal to the prorated portion of their target bonus in the year of
termination and two times their base salary and target bonus in the year of
termination. In addition, Mr. Lunsford and Mr. Ladt would be entitled to
coverage under the Company's employee benefit plans for two years, two years of
additional vesting of restricted stock awards and two additional years in which
to exercise stock options. Upon the Involuntary Termination of Mr. Downey and
Mr. Riney, they would be entitled to a cash payment equal to the prorated
portion of their target bonus in the year of termination and one times their
base salary and target bonus in the year of termination. In addition, they
would be entitled to coverage under the Company's employee benefit plans for
one year, one year of additional vesting of restricted stock awards and one
additional year in which to exercise stock options.
11
<PAGE>
The employment agreements for Mr. Lunsford and Mr. Ladt also provide for a
restructuring of their Tax Loans (as defined) if they are subject to an
Involuntary Termination. See "Certain Relationships and Related Transactions"
for a description of the Tax Loans. The Tax Loans would be amended to provide
that any payment of the principal will be made in equal annual installments
with a final maturity date ten years from the date of the Tax Loan.
Effective December 31, 1998, the terms of Mr. Lunsford's employment
agreement were revised in recognition of his resignation as Chief Executive
Officer and continuing status as Chairman of the Board. His annual base salary
was reduced to $150,000. In addition, if Mr. Lunsford resigns as Chairman at
the request of the Board for any reason other than cause, all amounts owed
under the Tax Loan will be forgiven.
On May 1, 1998, the Company entered into Change-in-Control Severance
Agreements with each of the Named Executive Officers. These agreements provide
for the payment of severance benefits under certain circumstances. These
benefits become payable at any time within two years of a change in control of
the Company (as defined in the agreement) if: (i) the Company terminates the
employee without cause; (ii) the employee terminates employment with the
Company for good reason (as defined in the agreement) or within either of two
30-day periods commencing 30 days after the change in control and one year
after the change in control, respectively. The benefits to be afforded to
Messrs. Lunsford and Ladt include: (i) a cash payment equal to three times base
salary, target bonus and performance share award target as of the termination
of employment; (ii) continuation of health, life and disability insurance
coverage for three years; (iii) full vesting under the Company's retirement
savings plan; and (iv) an additional payment for any excise taxes the Named
Executive Officer may incur as a result of the change in control. The benefits
to be afforded to Messrs. Downey and Riney include: (i) a cash payment equal
two times base salary, target bonus and performance share award target as of
the termination of employment; (ii) continuation of health, life and disability
insurance coverage for two years; (iii) full vesting under the Company's
retirement savings plan; and (iv) an additional payment for any excise taxes
the Named Executive Officer may incur as a result of the change in control.
The Company entered into a Separation Agreement and Release of Claims (the
"Separation Agreement") with Thomas T. Ladt pursuant to which Mr. Ladt resigned
as President, Chief Executive Officer and Chief Operating Officer of the
Company and from the Board of Directors of the Company as of March 5, 1999.
Pursuant to the Separation Agreement, Mr. Ladt is entitled to receive (i) his
base salary through March 31, 1999, (ii) $62,812.50, representing the prorated
portion of his target bonus for 1999, (iii) 37,500 shares of Common Stock,
representing two years of additional vesting of restricted stock awards
previously made to Mr. Ladt, (iv) $670,000, representing two times his annual
base salary, and (v) $502,500, representing two times his target bonus for
1999. In addition, Mr. Ladt is entitled to coverage under the Company's
employee benefit plans for two years from the date of his resignation. The
Company further agreed to amend Mr. Ladt's Tax Loan such that no principal or
interest payments thereunder will be due prior to March 5, 2004. Pursuant to
the Separation Agreement, Mr. Ladt agreed, among other things, to accept the
consideration he received under the Separation Agreement in lieu of the
benefits to which his was otherwise entitled under his Change of Control
Severance Agreement and to waive any claim arising out of such agreement.
Effective March 5, 1999, the Company and Debra A. Cafaro entered into an
employment agreement (the "Cafaro Employment Agreement") pursuant to which Ms.
Cafaro became President, Chief Executive Officer and a director of the Company.
The initial term of the Cafaro Employment Agreement will expire on December 31,
2001. The Cafaro Employment Agreement provides for (i) an initial annual base
salary of $335,000 (with a minimum annual increase of 5% thereafter), (ii) the
eligibility to participate in the Company's bonus program and to receive a
bonus for 1999 in an amount not less than $200,000, (iii) a grant of 100,000
restricted shares of Common Stock, and (iv) a grant of options to purchase
500,000 shares of Common Stock. Such options will be "incentive stock options"
under the Internal Revenue Code ("ISOs") to the maximum extent permissible. The
per share exercise price for the ISOs will be $8.1875, the closing price of the
Common Stock on March 5, 1999 (the "Effective Date"). The per share exercise
price for the remaining options will be the lesser of the closing price of the
Common Stock on the Effective Date and the closing price of the Common Stock
120 days
12
<PAGE>
after the Effective Date. In addition, Ms. Cafaro will receive a loan
sufficient to cover income taxes payable on the shares of restricted stock, and
she will be eligible to participate in the Company's incentive and other
benefit plans.
If Ms. Cafaro's employment is terminated (other than for cause) within the
first twelve months, she will be entitled to receive a cash payment of $1.5
million. If Ms. Cafaro's employment is terminated (other than for cause) after
the first twelve months, she will be entitled to receive a cash payment equal
to the sum of three times her base salary and target bonus for the year of
termination plus the prorated portion of the target bonus for the year of
termination. In addition, Ms. Cafaro will be entitled to full vesting of her
shares of restricted stock and stock options and forgiveness of the tax loan.
In the event of a change of control within the first twelve months of Ms.
Cafaro's employment, Ms. Cafaro will be entitled to a cash payment of $1.5
million. If a change of control occurs after the first twelve months of her
employment, Ms. Cafaro will be entitled to a cash payment equal to 2.99 times
the sum of her base salary and target bonus on the date of a change of control
plus the fair market value of any targeted restricted shares to be issued in
the year the change of control occurs. In addition, Ms. Cafaro will be entitled
to full vesting of her shares of restricted stock and stock options and
forgiveness of the tax loan; provided, however, that in the event an agreement
for a change of control is executed and approved by the Board of Directors of
the Company on or before July 4, 1999, and such transaction is subsequently
closed in accordance with the terms of the agreement, only options to purchase
250,000 shares of Common Stock will vest upon the change of control.
COMPENSATION OF DIRECTORS
During 1998, directors not employed by the Company received $2,000 for each
board meeting they attended. Non-employee directors also received $1,000 for
each committee meeting they attended. In addition, non-employee directors
received a $2,500 retainer for each calendar quarter that they served as a
director.
Prior to the Reorganization, a non-employee director could defer the receipt
of fees which would otherwise be paid to the director for services on the Board
and its committees pursuant to the Directors Plan. Directors who chose to defer
fees could elect to have the deferred amounts invested 100% in shares of Common
Stock ("Share Election") or to accumulate and earn interest ("Cash Election").
If a Share Election was made, the director's deferral account was credited with
110% of the compensation otherwise payable to the director. As of the end of
each calendar quarter, such deferred amounts were converted into share
equivalents of Common Stock based on the fair market value of the Common Stock
on that date. If a Cash Election was made, the deferred amounts earned interest
at a floating rate of interest, compounded annually. In connection with the
Reorganization, the Directors Plan was discontinued. Following the
Reorganization, the Company continued to hold the share equivalents pursuant to
the terms of the Directors Plan for its directors who were directors of the
Company prior to the Reorganization and for whom the Company was holding share
equivalents under the Directors Plan at the time of the Reorganization. The
Company is currently holding such share equivalents for Messrs. Beran and
Hudson. The Company will grant Mr. Hudson the number of shares of Common Stock
equal to the share equivalents it is holding on his behalf following the
expiration of Mr. Hudson's term as a director at the Annual Meeting.
During 1998, directors not employed by the Company received options pursuant
to the Company's 1997 Stock Option Plan for Non-Employee Directors (the
"Directors Stock Plan"). Under the Directors Stock Plan, each non-employee
director is granted an option to purchase 3,000 shares of Common Stock on each
January 1, with an exercise price equal to the fair market value of the Common
Stock on the date the option is granted. Accordingly, the Company issued
options with respect to an aggregate of 21,000 shares to the seven persons who
were serving as non-employee directors on January 1, 1998. All options become
exercisable in four equal annual installments, beginning on the first
anniversary of the date of grant. In connection with the Reorganization, all of
the options granted under the Directors Stock Plan prior to the Reorganization
were subject to the treatment of Existing Options, as described under "Option
Grants in Last Fiscal Year." Messrs. Beran, Geary, Hudson and Smith currently
hold such options.
13
<PAGE>
In connection with the Reorganization, on May 1, 1998, each non-employee
member of the Board was granted 2,000 restricted shares of Common Stock and an
option to purchase 5,000 shares of Common Stock. The restrictions on all
restricted shares lapse in four equal annual installments beginning on the
first anniversary of their grant date. Each stock option has an exercise price
equal to the fair market value of the Common Stock on the date of grant. These
options become exercisable in four equal annual installments beginning on the
first anniversary of their grant date.
During September 1998, in connection with Mr. Crocker's appointment to the
Board of Directors, the Company issued to Mr. Crocker options to purchase
10,000 shares of Common Stock with an exercise price equal to the fair market
value of the Common Stock on the date the option was granted. These options
become exercisable in four equal annual installments beginning on the first
anniversary of the date of grant. The Company also granted Mr. Crocker 2,000
shares of restricted stock which vest in four annual equal installments
beginning on the first anniversary of the date of grant. At the same time, the
Company issued a special, one-time grant of stock options to purchase 5,000
shares of Common Stock to each non-employee director other than Mr. Crocker.
The exercise price of these stock options was equal to the fair market value of
the Common Stock on the date the options were granted. These options are
exercisable in four equal annual installments beginning on the first
anniversary of the date of grant.
14
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative total return to the
holders of the Common Stock from May 1, 1998, the date on which the Company is
deemed to have commenced operations, to December 31, 1998, compared to the
Standard & Poor's 500 Stock Index, the NAREIT REIT Index (the "REIT Index") and
the Standard & Poor's Hospital Management Composite Index (the "Hospital
Index"). The Company has included the Hospital Index in the performance graph
because it has compared the performance of the Common Stock to the Hospital
Index in proxy statements for previous years. However, following the
Reorganization, the Company believes that the REIT Index is more representative
of the industry in which the Company competes and is more relevant to an
assessment of the Company's performance than the Hospital Index.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
May 1, 1998 December 31, 1998
----------- -----------------
<S> <C> <C>
The Company................................. $100 $ 70
S&P 500 Index............................... $100 $111
REIT Index.................................. $100 $ 85
Hospital Index.............................. $100 $ 74
</TABLE>
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1998, the following persons served on the Executive
Compensation Committee of the Company's Board of Directors: R. Gene Smith, Greg
D. Hudson and Ronald G. Geary. None of the members of the Executive
Compensation Committee are, or have been, employees of the Company; however, W.
Bruce Lunsford, who served as Chief Executive Officer of the Company during
1998, was a member of the Compensation Committee of Res-Care, Inc., and Ronald
G. Geary, who served as Chief Executive Officer of Res-Care, Inc. during 1998,
was a member of the Executive Compensation Committee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1998, the Company adopted a policy which provides that any
transaction between the Company and any of its officers, directors or their
affiliates must be approved by the disinterested members of the Company's Board
of Directors and must be on terms no less favorable to the Company than those
available from unaffiliated parties. In connection with the Reorganization,
Vencor issued 17,700 shares of its 6% Series A Non-Voting Convertible Preferred
Stock for $1,000 per share (the "Preferred Stock") to the Company as part of
the consideration for the assets transferred from the Company to Vencor. On
April 30, 1998, the Company offered and sold the Preferred Stock at $1,000 per
share to Messrs. Lunsford and Ladt and certain other officers of Vencor for an
aggregate consideration of $17.7 million. Mr. Lunsford and Mr. Ladt purchased
4,543 shares and 725 shares, respectively, of such Preferred Stock. On or after
April 30, 2002, each share of the Preferred Stock will be convertible, at the
option of the holder, in whole or in part, into such number of shares of Vencor
common stock as is equal to the aggregate principal amount of the shares of
Preferred Stock being converted divided by the conversion price. The conversion
price is $12.50, which is equal to 118% of the average of the high and low
sales price of the Vencor common stock on the date of the Reorganization. In
connection with the sale of the Preferred Stock, Vencor Operating, Inc., a
wholly owned subsidiary of Vencor, loaned the purchasers 90% of the purchase
price of the Preferred Stock (the "Preferred Stock Loans"). Each Preferred
Stock Loan is evidence by a promissory note which has a ten year term and bears
interest at 5.74%, payable annually. No principal payments are due under the
promissory notes until their maturity. The promissory notes are secured by a
first priority security interest in the Preferred Stock purchased by each such
officer. Mr. Lunsford and Mr. Ladt were loaned $4,088,700 and $652,500,
respectively. As of March 1, 1999, the Preferred Stock Loans payable to Messrs.
Lunsford and Ladt remain outstanding.
In connection with the Reorganization, the Company agreed to loan Mr.
Lunsford and Mr. Ladt an amount sufficient to cover estimated income taxes
payable by them as a result of the distribution of Vencor common stock (the
"Tax Loans"). Each Tax Loan is evidenced by a promissory note which has a term
of ten years and bears interest at 5.77%. Principal on the tax loans is
scheduled to be repaid in ten equal annual installments beginning on June 15,
1999. Interest is payable quarterly, however, any interest payment on the Tax
Loan is forgiven, if the officer remains employed in his position with the
Company on the date on which such interest payment is due. Moreover, in the
event of a change in control of the Company, the entire balance of the Tax Loan
will be forgiven. The Tax Loans were based on estimated tax payments required
to be made by the officer as a result of the distribution of Vencor common
stock. The principal amounts of the Tax Loans to Mr. Lunsford and Mr. Ladt were
$3,750,000 and $140,400, respectively. In connection with the amendment of his
employment agreement, the terms of the Tax Loan for Mr. Lunsford has been
amended. See "Employment and Other Agreements." Pursuant to the Separation
Agreement, the Company agreed to amend Mr. Ladt's Tax Loan such that no
principal or interest payments thereunder will be due prior to March 5, 2004.
In connection with an election to pay taxes on an award of restricted stock
of the Company, the Company agreed to loan Mr. Downey, Vice President and Chief
Financial Officer, $136,856. The loan is evidence by a promissory note (the
"Note") which has a maturity date of February 15, 2003. Principal on the
promissory note is due in four equal annual installments beginning on February
15, 2000. Principal on the Note does not bear interest except in the event of
default. Any unpaid principal on the Note will be forgiven (a) upon a
16
<PAGE>
change in control of the Company, (b) upon Mr. Downey's death or disability,
(c) if his employment is terminated for other than "cause" or (d) if he
terminates his employment for "good reason." The terms "cause" and "good
reason" shall have the same meanings as in Mr. Downey's employment agreement.
In connection with any extinguishment of the Note, the Company is required to
pay Mr. Downey an amount equal to any taxes he may incur as a result of the
extinguishment including any taxes imposed on the tax payment.
On October 15, 1998, the Company acquired eight personal care facilities and
related facilities for approximately $7.0 million from Tangram Rehabilitation
Network, Inc. ("Tangram"). Tangram is a wholly owned subsidiary of Res-Care,
Inc. ("Res-Care") of which Ronald G. Geary is Chairman, President and Chief
Executive Officer. Mr. Geary is also a director of the Company. Res-Care
acquired Tangram in a cash merger on October 15, 1998. The purchase price for
the Tangram facilities was determined by an appraisal conducted by Graham &
Associates, Inc., San Marcos, Texas, a certified General Real Estate Appraiser
for the State of Texas. The Company leases the Tangram facilities to Tangram
pursuant to a Master Lease Agreement which is guaranteed by Res-Care. Through
December 31, 1998, Tangram has paid the Company $155,163.73 in rent payments.
Effective March 15, 1999, the Company relocated its principal executive
offices and entered into a lease agreement with Summit II Partners, Limited
(the "Landlord"). The lease agreement requires the Company to pay annual rent
of $51,275 to the Landlord. Mr. Lunsford owns an indirect equity interest in
the Landlord of approximately 22%. The Company believes that the terms of the
lease agreement represent market rates.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 , as amended, requires
the Company's directors and executive officers and persons who own more than
10% of the Common Stock to file reports of beneficial ownership and changes in
such ownership with the Commission. Based solely on a review of the copies of
such reports furnished to the Company and on written representations from
certain reporting persons that no Form 5 was required for such person, the
Company believes that during 1998 all officers, directors and persons who own
more than 10% of the Common Stock complied with all applicable Section 16(a)
filing requirements.
INDEPENDENT AUDITORS
The Board currently intends to select the firm of Ernst & Young LLP,
Louisville, Kentucky to serve as independent auditors of the Company for the
fiscal year 1999. Ernst & Young LLP has served as independent auditors of the
Company since May 1998. Representatives of Ernst & Young LLP will be present at
the Annual Meeting and will be afforded the opportunity to make a statement if
they desire to do so and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2000 Annual Meeting
of Stockholders must be received by the Company by December 9, 1999 in order to
be considered for inclusion in the Company's proxy materials for such meeting.
According to the Company's bylaws, a stockholder proposal may only be acted
upon at an annual meeting of stockholders if the stockholder gives notice to
the Company of such proposal in conformity with the requirements of the bylaws
(at least 60 but no more than 90 days before such annual meeting); provided,
however, that if the Company gives less than 70 days notice or prior public
disclosure of the date of the annual meeting, notice by the stockholder must be
given to the Company not later than the tenth day following the earlier of the
date on which such notice of the meeting was mailed or the date on which such
public disclosure was made. The persons appointed as proxies for the 2000
Annual Meeting will have discretionary voting authority with respect to any
stockholder proposal which is submitted to the Company otherwise than in
conformity with such requirements of the Company's bylaws.
17
<PAGE>
OTHER MATTERS
The only matters to be considered at the Annual Meeting or any adjournment
thereof, so far as known to the Board of Directors, are those set forth in the
Notice of Meeting and routine matters incident to the conduct of the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, it is the intention of the persons named in
the accompanying form of proxy, or their substitutes, to vote the proxy in
accordance with their judgment in such matters.
By Order of the Board of Directors,
/s/ W. Bruce Lunsford
W. Bruce Lunsford
Chairman of the Board
Louisville, Kentucky
April 13, 1999
18
<PAGE>
DETACH CARD
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-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- --
VENTAS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON
MAY 18, 1999
The undersigned hereby appoints Debra A. Cafaro and Steven T. Downey and each
of them, proxies, with full power of substitution and resubstitution, for and
in the name of the undersigned, to vote all shares of common stock of Ventas,
Inc. (the "Company"), which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held at 10:00
a.m., local time, on Tuesday, May 18, 1999 in the North Room of the Hyatt
Regency Hotel, 320 West Jefferson Street, Louisville, Kentucky, and at any
adjournment thereof, upon the matter described in the accompanying Notice of
Annual Meeting of Stockholders and Proxy Statement, receipt of which is hereby
acknowledged, and upon any other business that may properly come before the
meeting or any adjournment thereof. Said proxies are directed to vote on
matters described in the Notice of Annual Meeting and Proxy Statement as
follows, and otherwise in their discretion upon such other business as may
properly come before the meeting or any adjournment thereof.
This Proxy will be voted as directed, but if no direction is indicated, the
Proxy will be voted FOR the Proposal.
Please mark your votes as [X]
indicated in this
example
To elect seven (6) directors to terms expiring at the 2000 Annual Meeting of
stockholders:
Walter F. Beran W. Bruce Lunsford
Ronald G. Geary Douglas Crocker II
Debra A. Cafaro R. Gene Smith
[_] FOR all nominees [_] WITHHOLD AUTHORITY to vote for all
listed (except as nominees listed
marked to the
contrary)
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list above.)
P
R
O
X
Y
<PAGE>
DETACH CARD
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- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Date: _________________ , 1999
______________________________
______________________________
Please sign exactly as your
name or names appear hereon.
Where more than one owner is
shown above, each should
sign. When signing in a
fiduciary or representative
capacity, please give full
title. If this proxy is
submitted by a corporation,
it should be executed in the
full corporate name by a duly
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU
ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
