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
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
VENTAS, INC.
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(Name of Registrant as Specified In Its Charter)
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(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:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] 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:
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[LOGO] Ventas
4360 Brownsboro Road
Suite 115
Louisville, Kentucky 40207-1642
(502) 357-9000
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To the Stockholders of Ventas, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Ventas, Inc.
(the "Company") will be held at 11:00 a.m., local time on Tuesday, May 15,
2001, at The Olmsted, 3701 Frankfort Avenue, Louisville, Kentucky, to consider
and vote on:
1. The election of directors for the ensuing year;
2. The ratification of the selection of Ernst & Young LLP as the
independent auditors for fiscal year 2001; and
3. Such other business as may properly come before the Annual Meeting or
any adjournments thereof.
The close of business on March 20, 2001, 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/ T. Richard Riney
T. Richard Riney
Executive Vice President, General
Counsel, and Secretary
Louisville, Kentucky
April 23, 2001
[LOGO] VENTAS
4360 Brownsboro Road
Suite 115
Louisville, Kentucky 40207-1642
(502) 357-9000
April 23, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at 11:00 a.m., local time on Tuesday, May 15, 2001, at The Olmsted,
3701 Frankfort Avenue, Louisville, Kentucky.
The Board of Directors appreciates your interest in the Company. Regardless
of whether you plan to attend the meeting, it is important that your shares
are represented. Please sign, date and mail the enclosed proxy in the envelope
provided at your earliest convenience.
Sincerely,
/s/ W. Bruce Lunsford
W. Bruce Lunsford
Chairman of the Board
VENTAS, INC.
4360 Brownsboro Road
Suite 115
Louisville, Kentucky 40207-1642
(502) 357-9000
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PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
May 15, 2001
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GENERAL INFORMATION
The Annual Meeting of Stockholders (the "Annual Meeting") of Ventas, Inc.
(the "Company") will be held at 11:00 a.m., local time on Tuesday, May 15,
2001, at The Olmsted, 3701 Frankfort Avenue, Louisville, Kentucky. This Proxy
Statement is being furnished in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors" or the
"Board") to be used at the Annual Meeting and at any adjournments thereof.
Only stockholders of record at the close of business on March 20, 2001 are
entitled to vote at the Annual Meeting or any adjournments thereof. On the
record date, 68,698,786 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. However, certain shares designated as "Excess
Shares" pursuant to the Company's Certificate of Incorporation (which are
generally any shares owned in excess of 9% of the Company's outstanding common
stock) may not be voted by the record owner thereof, but will instead be voted
in accordance with Article XII of the Certificate of Incorporation.
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 all other proposals and matters 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 23, 2001. 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, (ii) in favor of the ratification
of the selection of Ernst & Young LLP as independent auditors for the fiscal
year 2001, and (iii) 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.
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.
BACKGROUND INFORMATION
The Company was incorporated in Kentucky in 1983 as Vencare, Inc. and
commenced operations in 1985. The Company changed its name to Vencor
Incorporated in 1989 and to Vencor, Inc. in 1993. From 1985 through April 30,
1998, the Company was engaged in the business of owning, operating and
acquiring health care facilities and companies engaged in providing health
care services.
On May 1, 1998, the Company effected a corporate reorganization (the "1998
Spin Off") pursuant to which the Company was separated into two publicly held
corporations. A new corporation, subsequently named Vencor, Inc. ("Vencor"),
was formed to operate the hospital, nursing facility and ancillary services
businesses. Pursuant to the terms of the 1998 Spin Off, 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 such time, the Company also changed its name to Ventas,
Inc. and refinanced substantially all of its long-term debt. For financial
reporting periods subsequent to the 1998 Spin Off, 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 (most notably the stock performance graph)
and other filings, the Securities and Exchange Commission (the "Commission")
treats the Company as having commenced operations on May 1, 1998.
The Company is a Delaware corporation that elected to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"), beginning with the tax year ended December 31, 1999.
Although the Company believes that it has satisfied the requirements to
continue to qualify as REIT for the tax year ended December 31, 2000 and
although the Company intends to continue to qualify as a REIT for the tax year
ending December 31, 2001 and subsequent tax years, it is possible that
economic, market, legal, tax or other considerations may cause the Company to
fail or elect not to qualify as a REIT in any such tax year. The Company
operates in one segment which consists of owning and leasing health care
facilities and leasing or subleasing such facilities to third parties.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of six positions.
The Board of Directors has nominated the six persons listed below to be
elected as directors at the Annual Meeting. Each director elected at the
Annual Meeting will serve, subject to the provisions of the Company's bylaws,
until his or her successor is
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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 74) 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 43) joined the Company as Chief Executive Officer and
President 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 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. From 1988 to 1992 Ms. Cafaro served as an Adjunct Professor of
Law at Northwestern University Law School. 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").(/3/)
DOUGLAS CROCKER, II (age 60) 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 ("EQR"), 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.(/1/)(/2/)(/3/)(/4/)
RONALD G. GEARY (age 53), 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. ("Res-Care"), 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. 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 53), a founder of the Company, certified public
accountant and attorney, has served as Chairman of the Board since the Company
commenced operation on May 1, 1998. From May 1, 1998 through December 1998, he
also served as President and 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 1998 Spin Off. 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 also a director of National City Bank,
Kentucky, Inc. and Res-Care.(/3/)
SHELI Z. ROSENBERG (age 59) has been a director of the Company since
January 26, 2001. Ms. Rosenberg has been vice chairman of Equity Group
Investments, LLC ("EGI LLC"), an investment company, since January 1, 2000 and
chief executive officer and president of EGI LLC from January 1, 1999 to
January 1, 2000. From November 1994 until 1999, Ms. Rosenberg served as chief
executive officer, president and a director of EGI. Ms. Rosenberg was a
principal of the law firm of Rosenberg & Liebentritt, P.C., from 1980 to 1997.
Ms. Rosenberg is a trustee of EQR and Equity Office Properties Trust, an
office building real estate investment trust. Ms. Rosenberg is also director
of Capital Trust, Inc. a specialized finance company,
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Manufactured Home Communities, Inc., a manufactured home community real estate
investment trust, CVS Corporation, a drug store chain, Dynergy Inc., a
supplier of electricity and natural gas, Cendant Corporation, a provider of
travel related, real estate related and direct marketing consumer and business
services and Transmedia Network, Inc., a marketer of card based savings plans.
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 March 1, 2001.
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(1) Member of the Audit and Compliance Committee (the "Audit Committee"), of
which Mr. Geary is Chairman.
(2) Member of the Executive Compensation Committee (the "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 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 2000, the Board of Directors of the Company held a total of six
meetings, including four regular meetings and two special meetings. The
Company has an Executive Committee, Compensation Committee, Audit and
Compliance Committee and Independent Committee. The Company does not have a
nominating or similar committee.
The Compensation Committee held one meeting in 2000. The functions of the
Compensation Committee are to establish annual salary levels, approve fringe
benefits and administer the 2000 Incentive Compensation Plan and other
compensation plans or programs for executive officers of the Company.
The Audit Committee held one meeting during 2000. The Audit Committee is
comprised of Messrs. Ronald G. Geary (Chairman), Douglas Crocker, II and
Walter F. Beran. The Audit Committee:
(i) Recommends to the Board the selection of the Company's independent
accountants for the ensuing year, subject to stockholder approval;
(ii) reviews with the independent accountants the scope and results of
the audit;
(iii) reviews management's evaluation of the Company's system of internal
controls; and
(iv) reviews non-audit professional services provided by the independent
accountants and the range of audit and non-audit fees.
The Executive Committee did not hold any meetings during 2000. 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 and the
Independent Committee).
The Independent Committee held two meetings during 2000. 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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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages (as of March 30, 2001) and present and
past positions of the persons who are the current executive officers of the
Company.
Name Age Position
---- --- --------
W. Bruce Lunsford....... 53 Chairman of the Board
Debra A. Cafaro......... 43 Chief Executive Officer, President and Director
T. Richard Riney........ 43 Executive Vice President, General Counsel and Secretary
John C. Thompson........ 33 Vice President
Mr. Lunsford's and Ms. Cafaro's biographies are set forth above under
"Election of Directors."
T. Richard Riney has served as Executive Vice President, General Counsel
and Secretary of the Company from May 1998 to the present. He served as
Transactions Counsel of Vencor from April 1996 to April 1998. From May 1992 to
March 1996, Mr. Riney was a partner of Hirn, Reed & Harper, a law firm based
in Louisville, Kentucky where his areas of concentration were real estate and
corporate finance. He is a member of NAREIT.
John C. Thompson has served as Vice President of the Company since January
1999. He served as Director of Acquisitions from May 1998 to January 1999. Mr.
Thompson served as Director of Development of Vencor from April 1996 to May
1998 and as Development Manager of Vencor from 1993 to April 1996. Mr.
Thompson is a member of NAREIT.
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 30, 2001
(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) all executive
officers of the Company listed in the Summary Compensation Table below (the
"Named Executive Officers"), and (d) all of the Company's directors and
executive officers, as a group.
Common Stock Percent
Beneficially of
Name of Beneficial Owner Owned(1)(2) Class
------------------------ ------------ -------
Walter F. Beran.................................... 155,298(3) *
Debra A. Cafaro.................................... 1,209,699(4) 1.74%
Douglas Crocker, II................................ 234,014(5) *
Ronald G. Geary.................................... 136,764(6) *
W. Bruce Lunsford.................................. 2,759,798(7) 3.96%
T. Richard Riney................................... 355,913(8) *
Sheli Z. Rosenberg................................. 11,000(9) *
John C. Thompson................................... 220,240(10) *
All executive officers and directors as a group (9
persons).......................................... 5,082,726 7.1%
Cohen & Steers Capital Management, Inc. ........... 7,013,700(11) 10.21%
Cramer Rosenthal McGlynn, LLC...................... 6,651,300(12) 9.7%
Franklin Mutual Advisors, LLC...................... 4,312,500(13) 6.28%
Tenet Healthcare Corporation....................... 8,301,067(14) 12.1%
The Baupost Group, L.L.C. ......................... 4,289,846(15) 6.30%
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(*) Less than 1%
(1) Beneficial Ownership of shares for purposes of this Proxy Statement, as
determined in accordance with applicable Commission rules, includes
shares as to which a person has or shares voting power and/or
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investment power. Each named person is deemed to be the beneficial owner
of securities which may be acquired within sixty days of March 30, 2001
through the exercise of options, warrants and rights, if any, and such
securities are deemed to be outstanding for the purpose of computing the
percentage of the class beneficially owned by such person; however, any
such shares are not deemed to be outstanding for the purpose of computing
the percentage of the class beneficially owned by any other person.
(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 1998 Spin Off.
(3) Excludes 1,834 Common Stock share equivalents held by the Company under
the Non-Employee Directors Deferred Compensation Plan (the "Directors
Plan"), which represents deferred directors' fees that were converted
into share equivalents. Includes 123,063 options which are exercisable as
of or within 60 days after March 30, 2001.
(4) Includes 712,830 options which are exercisable as of or within 60 days
after March 30, 2001.
(5) Includes 231,750 options which are exercisable as of or within 60 days
after March 30, 2001.
(6) Includes 115,000 options which are exercisable as of or within 60 days
after March 30, 2001.
(7) Includes 52,127 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 and
8,041.9389 shares held in 401(k) Plan. Includes 1,057,000 options which
are exercisable as of or within 60 days after March 30, 2001.
(8) Includes 1,300 shares held in Mr. Riney's IRA. Also includes 167,732
options which are exercisable as of or within 60 days after March 30,
2001.
(9) Includes 5,000 options which are exercisable as of or within 60 days
after March 30, 2001.
(10) Includes 1,010 shares held in Mr. Thompson's IRA and 250 shares held in
his spouse's IRA. Includes 110,501 options which are exercisable as of or
within 60 days after March 30, 2001.
(11) As of December 31, 2000, based solely on information contained in a
Schedule 13G/A filed by Cohen & Steers Capital Management, Inc. ("Cohen &
Steers") on February 13, 2001 with the Commission. Cohen & Steers has
sole voting power over 6,151,300 shares and sole dispositive power over
7,013,700 shares. The address of Cohen & Steers is 757 Third Avenue, New
York, NY 10017. Cohen & Steers has advised the Company that, as of March
30, 2001, Cohen & Steers beneficially owns less than 10% of the Common
Stock.
(12) As of December 31, 2000, based solely on information contained in a
Schedule 13G filed by Cramer Rosenthal McGlynn, LLC ("Cramer") on
February 12, 2001 with the Commission. Cramer has shared voting power and
dispositive power with respect to these shares. The address of Cramer is
707 Westchester Avenue, White Plains, NY 10604.
(13) As of December 31, 2000, based solely on information contained in a
Schedule 13G/A filed by Franklin Mutual Advisers, LLC ("FMA") on February
13, 2000 with the Commission. According to the Schedule 13G/A, FMA has
sole voting and dispositive power with respect to these shares. The
address of FMA is 51 John F. Kennedy Parkway, Short Hills, NJ 07078.
(14) As of May 1, 1998, based solely on information contained in a Schedule
13D dated May 8, 1998, filed by Tenet Healthcare Corporation ("Tenet"),
NME Properties Corp. ("PropCorp"), NME Property Holding Co., Inc.
("PropHold"), and NME Properties, Inc. ("PropInc") with the Commission.
PropCorp is a direct subsidiary of Tenet, and PropInc and PropHold are
direct subsidiaries of PropCorp. PropInc may be deemed to be the
beneficial owner with sole voting and dispositive power of 2,690,880
shares of Common Stock owned by it (the "PropInc Shares"). PropHold may
be deemed to be the beneficial owner with sole voting and dispositive
power of 5,610,187 shares of Common Stock owned by it (the "PropHold
Shares"). Each of PropCorp and Tenet may be deemed to be the indirect
beneficial owner with sole voting and dispositive power of the PropInc
Shares and PropHold Shares, for an aggregate of 8,301,067 shares of
Common Stock. Tenet has issued its 6% exchangeable subordinated notes due
2005 (the "Notes") in January 1996. Each $1,000 principal amount of Notes
is exchangeable into 25.9403 shares of Common Stock and an amount in cash
determined according to a formula set forth in the Schedule 13D, which,
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according to Tenet's 1998 Annual Report on Form 10-K, equals $239.36,
subject to Tenet's right to pay an amount in cash equal to the market
price of the Common Stock in lieu of such shares. All of the PropInc
Shares and PropHold Shares have been placed in escrow to secure such
exchange right. The address of each of Tenet, PropCorp, PropHold and
PropInc is 3820 State Street, Santa Barbara, California 93105.
(15) As of March 30, 2001, based solely on information contained in a
Schedule 13G/A filed jointly by Baupost, SAK Corporation ("SAK"), and
Seth A. Klarman on April 10, 2001 with the Commission. According to the
Schedule 13G/A, Baupost has sole voting and dispositive power with
respect to these shares and the other reporting persons claim sole
voting and dispositive power with respect to none of the shares. The
address of Baupost, SAK, and Seth A. Klarman is 44 Brattle Street, 5th
Floor, Cambridge, Massachusetts 02138.
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 2000 all officers, directors and persons who own
more than 10% of the Common Stock complied with all applicable Section 16(a)
filing requirements, except that R. Gene Smith, a former director of the
Company, did not report indirect beneficial ownership of 36,250 shares of the
Common Stock owned by R. Gene Smith Charitable Foundation in previous Section
16(a) filings, although such shares have been referred to in the Company's
previous Proxy Statements.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by the Company during
each of the Company's last three fiscal years to all individuals serving as
Chief Executive Officer during the last completed fiscal year and each of the
other four most highly compensated officers of the Company who were serving as
executive officers at the end of the last completed fiscal year:
Summary Compensation Table
Annual Compensation(1) Long-Term Compensation
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Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Salary Bonus Compensation Award(s) Options/SARs Compensation
Position Year ($) ($)(2) ($) ($)(3) (#) ($)
- ------------------------ ---- -------- -------- ------------ ---------- ------------ ------------
Debra A. Cafaro (4)..... 2000 $353,103(5) $703,500 $23,267(6) $765,000 171,095 $ 2,483(7)
Chief Executive 1999 287,757(8) 400,000 16,301(6) 812,500 500,000 1,954(7)
Officer and President 1998 N/A N/A N/A N/A N/A N/A
T. Richard Riney........ 2000 197,308(9) 285,000 191(6) 300,000 65,419 323(7)
Executive Vice
President, 1999 182,308(10) 212,500 607(6) 130,625 50,000 840(7)
General Counsel and
Secretary 1998 94,846 45,667 -- 121,875 60,000 267(7)
John C. Thompson (11)... 2000 125,083(12) 165,000 96(6) 158,500 35,225 162(7)
Vice President 1999 110,481(13) 93,500 346(6) 97,968 25,000 552(7)
1998 55,351 24,000 -- 121,875 35,000 163(7)
W. Bruce Lunsford....... 2000 150,000 -- 31,000(14) 80,500 10,000 181,094(15)
Chairman of the Board 1999 150,000 -- -- 261,250 -- 208,381(15)
1998 230,192 116,667 -- 812,500 200,000 109,124(16)
- --------
(1) The amounts for 2000 represent the total compensation earned by the Named
Executive Officers during fiscal year 2000. The amounts for 1999
represent the total compensation earned by the Named Executive Officers
during fiscal year 1999. The amounts for 1998 represent the total
compensation earned by the Named Executive Officers from May 1, 1998
through the end of the fiscal year 1998.
7
(2) The bonus amounts reflect compensation earned for 1999 and 2000 and paid
in 2000 and 2001, respectively.
(3) The amounts shown in the table represent the fair market value on the
date of the grant of shares of restricted stock granted by the Company.
The amounts reflect shares granted in 2000 for performance in 1999. The
shares granted in 2000 vest in three equal annual installments beginning
on the date of the grant. Except for the shares granted to Ms. Cafaro
pursuant to the Cafaro Employment Agreement (as defined below), the
shares granted in 1999 for 1998 performance vest in four equal annual
installments commencing on April 1, 1999. Based on the closing price of
$5.625 of the Common Stock on December 31, 2000, the aggregate value of
all restricted securities held on that date by the Named Executive
Officers is as follows: Ms. Cafaro--$1,861,554 (330,943 shares); Mr.
Riney--$607,815 (108,056 shares); Mr. Thompson--$353,526 (62,849 shares);
and Mr. Lunsford--$530,443 (94,301 shares). Dividends, to the extent
paid, will be paid on vested and unvested restricted shares.
(4) Ms. Cafaro joined the Company on March 5, 1999.
(5) Represents base salary payments of $351,750 and a payment of $1,353 for
unused vacation days.
(6) Represents reimbursement for the payment of taxes on behalf of the
executive for the respective fiscal year.
(7) Represents life insurance premiums paid on behalf of the executive for
the respective fiscal year.
(8) Represents base salary payments of $274,228 and a payment of $13,529 for
unused vacation days.
(9) Represents base salary payments of $190,000 and a payment of $7,308 for
unused vacation days.
(10) Represents base salary payments of $175,000 and a payment of $7,308 for
unused vacation days.
(11) Mr. Thompson was appointed Vice President, Corporate Development of the
Company on January 13, 1999.
(12) Represents base salary payments of $119,583 and a payment of $5,500 for
unused vacation days.
(13) Represents base salary payments of $106,250 and a payment of $4,231 for
unused vacation days.
(14) Represents payment for Board of Director's fees to Mr. Lunsford.
(15) Represents interest forgiveness on Mr. Lunsford's Tax Loan (as defined in
"Certain Relationships and Related Transactions") between December 16,
1998 and December 15, 2000.
(16) Represents $108,188 of interest on Mr. Lunsford's Tax Loan which was
forgiven by the Company in 1998 and life insurance premiums paid on Mr.
Lunsford's behalf of $936.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of Common Stock granted to the Named Executive Officers during 2000:
Potential
Realizable
Value at Assumed
Annual Rates of
Number of % of Stock
Securities Total Options Price
Underlying Granted to Appreciation for
Options Employees in Exercise Price Expiration Option Term (3)
Name Granted (1) 2000 Per Share (2) Date 5% ($) 10% ($)
---- ----------- ------------- -------------- ---------- -------- --------
Debra A. Cafaro......... 171,095(1)(5) 53.5% $3.3125 2/17/10 $355,878 $903,382
T. Richard Riney........ 65,419(1)(5) 20.5% $3.3125 2/17/10 $136,072 $345,412
John C. Thompson........ 35,225(1)(5) 11.0% $3.3125 2/17/10 $ 73,268 $185,988
W. Bruce Lunsford....... 10,000(4) 3.1% $3.3125 2/24/10 $ 20,800 $ 52,800
- --------
(1) Options become exercisable in three equal annual installments (with slight
modifications for rounding) beginning on the date of grant. All options
become fully exercisable upon a change in control of the Company.
Additionally, there is an acceleration of rights to exercise options upon
certain instances of termination of employment.
(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.
8
(3) Potential Realizable Values are reported net of the option exercise price,
but before taxes associated with exercise. These amounts are predicated on
5% and 10% assumed annual rates of appreciation from the common stock
price on the date of the grant for ten years (the option terms) in order
to comply with the requirements of the Commission, and do not represent
the Company's expectations as to the annual rate 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.
(4) Options were granted in connection with service as member of the Board of
Directors and not as an executive officer of the Company. Options become
exercisable in two equal annual installments beginning on the date of
grant.
(5) Options were granted in 2000 for performance in 1999.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning options held as of December 31, 2000. No options
were exercised during 2000.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Option at Fiscal Year End Fiscal Year End(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Debra A. Cafaro.......... 390,366 280,729 $324,954 $360,304
T. Richard Riney......... 82,474 111,445 66,054 132,102
John C. Thompson......... 57,826 61,149 34,967 69,929
W. Bruce Lunsford........ 932,000 225,000 11,563 11,563
- --------
(1) Assumes, for all unexercised in-the-money options, the difference between
fair market value as of December 31, 2000 and the exercise price. The
market value of the Common Stock was $5.625 per share as of December 31,
2000, based on the closing price per share on the NYSE.
EMPLOYMENT AND OTHER AGREEMENTS
Employment and Severance Agreements: Lunsford, Riney and Thompson
The Company entered into employment agreements with W. Bruce Lunsford and
T. Richard Riney on July 30, 1998. The Company entered into an employment
agreement with John C. Thompson on January 13, 1999. These employment
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 Named Executive Officers may receive increases in
their base salaries from time to time as approved by the Compensation
Committee or 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
9
employment agreement for Mr. Lunsford provides for a cash payment equal to the
prorated portion of his maximum bonus, if any bonus targets had previously
been set, in the year of termination and two times his base salary and maximum
bonus, if any bonus targets had previously been set, in the year of
termination. In addition, Mr. Lunsford 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 either of Mr.
Riney or Mr. Thompson, the terminated executive would be entitled to a cash
payment equal to the prorated portion of their maximum bonus, if any bonus
targets had previously been set, in the year of termination and one times
their base salary and maximum bonus, if any bonus targets had previously been
set, in the year of termination. In addition, the terminated executive 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.
The employment agreement for Mr. Lunsford also provides for a restructuring
of his Tax Loan (as defined) if he is subject to an Involuntary Termination.
See "Certain Relationships and Related Transactions" for a description of the
Tax Loan. The Tax Loan 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. 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.
The employment agreements of Mr. Riney and Mr. Thompson were amended on
September 30, 1999 to provide for the gross up of any payment or benefits to
which they may be entitled under their employment agreement or any other
agreement, for any tax imposed upon them by Section 4999 of the Code or any
similar state or local tax.
The Company entered into Change-in-Control Severance Agreements with each
of Mr. Lunsford, Mr. Riney and Mr. Thompson. 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 Mr.
Lunsford include: (i) a cash payment equal to three times base salary, maximum
bonus and performance share award target as of 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. Riney and Thompson include: (i) a cash payment equal two times base
salary, maximum bonus and performance share award target as of 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.
Employment Agreement: Cafaro
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 Code ("ISOs") to the maximum extent
permissible. The per share exercise price for the ISOs (36,639 options) is
$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
(463,361 options) is the lesser of $8.1875 and the closing price of the Common
Stock 120 days after the Effective Date ($5.00). In addition,
10
Ms. Cafaro will receive a loan sufficient to cover income taxes payable on the
shares of restricted stock, and she is eligible to participate in the
Company's incentive and other benefit plans.
If Ms. Cafaro's employment is terminated (other than for cause), she will
be entitled to receive a cash payment equal to the sum of three times her base
salary and the highest bonus in the preceding three years or the maximum bonus
for the current year, whichever is higher (the "Maximum Bonus") as of the date
of termination, plus the prorated portion of the Maximum 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 Cafaro Tax
Loans (as defined below).
In the event of a change of control, Ms. Cafaro will be entitled to a cash
payment equal to 2.99 times the sum of her base salary and Maximum 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 Cafaro Tax Loans.
Pursuant to the Cafaro Employment Agreement, Ms. Cafaro and Mr. Crocker are
entitled to jointly designate a person to be appointed to serve as a director,
subject to the approval of Mr. Lunsford, which approval shall not be
unreasonably withheld (the "Designee"). Ms. Cafaro and Mr. Crocker have not
appointed a Designee to date. Once they have done so, the Board will act to
increase its size by one director and appoint the Designee as a Director.
COMPENSATION OF DIRECTORS
During 2000, directors not employed by the Company and the Chairman of the
Board received $1,500 for each board meeting they attended, $750 for each
telephonic meeting in which they participated, and $1,000 for each committee
meeting they attended. In addition, non-employee directors received a $6,250
retainer for each calendar quarter that they served as a director. Effective
January 1, 2001, directors not employed by the Company and the Chairman of the
Board of the Company will receive $1,500 for each board meeting they attend,
$1,000 for each committee meeting they attend, $1,500 for each telephonic
meeting in which they participate unless the telephonic meeting is fifteen
minutes or less in which case they shall receive $750 for such telephonic
meeting. In addition, non-employee directors and the Chairman of the Board
will receive a $7,500 retainer for each calendar quarter that they serve as a
director.
During 2000, directors not employed by the Company received options
pursuant to the Company's 1997 Stock Option Plan for Non-Employee Directors
(the "1997 Directors Stock Plan"). Under the 1997 Directors Stock Plan, each
non-employee director was granted an option to purchase 3,000 shares of Common
Stock on January 1 of each year, with an exercise price equal to the fair
market value of the Common Stock on the date the option was granted.
Accordingly, the Company issued options with respect to an aggregate of 12,000
shares to the four persons who were serving as non-employee directors on
January 1, 2000. All options become exercisable in four equal annual
installments, beginning on the first anniversary of the date of grant.
At the Company's Annual Meeting of Stockholders held May 23, 2000, the
Company's Stockholders approved the 2000 Stock Option Plan for Directors which
is an amended and restatement of the 1997 Stock Option Plan. Under the 2000
Stock Option Plan for Directors, each non-employee director of the Company and
the Chairman of the Board of the Company is granted an option to purchase
5,000 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. The options become exercisable in two equal installments, commencing
on the date of grant and on the first anniversary of the date of grant. The
2000 stock Option Plan for Directors also provides for the grant of an options
to purchase 10,000 shares of Common Stock upon the initial election or
appointment of directors, with an exercise price equal to the fair market
value of the Common Stock on the date of grant. Such options are exercisable
in two equal installments, the first on the date of grant and the second on
the first anniversary of the date of grant.
11
REPORT OF THE COMPENSATION COMMITTEE
The functions of the Compensation Committee include reviewing and approving
of the Company's executive compensation structure and overall benefits
program. The purpose of the executive compensation program is to establish and
maintain a performance and achievement oriented environment, which aligns the
interests of the Company's executives with the interests of its shareholders.
The key components of the Company's compensation philosophy are base salary,
an annual incentive award and long-term based incentives.
The Company's overall compensation structure is reviewed annually with the
assistance of an expert independent consultant and the use of executive
compensation surveys from the following sectors: (a) health care REITS; and
(b) REITS with comparable total capitalization as the Company, regardless of
asset class. The companies surveyed include some, but not all, of the
companies covered in the indices included on the Performance Graph.
The Compensation Committee's decisions relative to the 2000 executive
compensation package was influenced by the ongoing extraordinary business
environment the Company first encountered in 1999. These events included: (a)
the continuation of the bankruptcy proceedings involving the Company's primary
tenant, Vencor and the resulting complex and protracted reorganization
negotiations among the Company, Vencor and Vencor's creditors; (b) the ongoing
settlement discussions among the Department of Justice, the Company and Vencor
regarding the potential settlement of alleged claims arising out of
investigations into various aspects of claims for billing practices for
reimbursement from government payers, other billing practices and various
quality of care issues in the hospitals and nursing facilities formerly
operated by the Company and presently operated by Vencor (the "United States
Claims"); and (c) the deteriorating financial condition of many of the
Company's tenants, other than Vencor, and the resulting defaults under the
Company's leases with such tenants and/or the filing for bankruptcy protection
by such tenants. In light of these ongoing events, the Compensation Committee
felt that it was appropriate to also consider the compensation practices in
turnaround/restructuring situations in for-profit entities outside the REIT
industry.
Types of Compensation:
1. Base Salary
The Compensation Committee sets base salaries for executive officers. Base
salary increases are provided to executives based on an evaluation of each
executive's performance, the executive's level of responsibility, as well as
the performance of the Company as a whole. The Compensation 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 addition, the Compensation Committee evaluates the latest survey
information available to confirm appropriate compensation levels. The
Compensation Committee reviews individual base salaries at least annually with
the assistance of an expert independent consultant.
2. Bonus
The Compensation Committee, upon the advice and recommendations of an
expert independent consultant, established a bonus program for 2000 under
which the level of bonus to be paid to the executive officers was dependent
upon the attainment of certain performance objectives by the executive
officers. The maximum level performance objective of each of the executive
officers were attained for 2000 and annual cash bonuses were awarded to the
executives for 2000 ranging from 150% to 200% of base salary.
3. Share Options and Restricted Share Awards
The Compensation Committee recognizes that while the bonus program provides
rewards for positive short-term and mid-term performance, the interests of
stockholders are best served by giving key employees the
12
opportunity to participate in the appreciation of the Company's Common Stock
through the grants of share options and restricted share awards. 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. Share
options and shares of 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 also provides an effective incentive for management
to create stockholder value over the long term because the full benefit of the
compensation package cannot be realized unless an appreciation in price of the
Common Stock occurs over a number of years.
Chief Executive Officer's Compensation
Based upon the executive compensation surveys and the strategic
accomplishments of the Company, the Compensation Committee believes that the
salary, bonus, restricted share awards and option grants to Ms. Cafaro, the
Company's Chief Executive Officer and President since March 5, 1999, are fair
and competitive. The Company achieved a number of strategic objectives under
Ms. Cafaro's leadership during 2000, including: (a) the filing and
confirmation of an acceptable final plan of reorganization of Vencor's debt
and lease obligations as a result of several months of complex and protracted
negotiations with Vencor and its major creditors; (b) the settlement of the
United States Claims with the Department of Justice, (c) the closing of a long
term restructuring of the Company's approximately $973 million in debt owed to
its senior lenders and (d) achieving exceptional total stockholder return in
the year 2000. The total remuneration for 2000 for Ms. Cafaro is in the median
of total remuneration of chief executive officers for the health care REIT
surveyed. The Compensation Committee determined that compensation for Ms.
Cafaro for 2000 was appropriate and desirable in light of her actual and
potential contributions to the Company and her leadership in the Vencor
reorganization negotiations and the Company's debt restructuring. The
assessment of actual and potential contribution was based on the Compensation
Committee's subjective evaluation of Ms. Cafaro's abilities, skills, efforts
and leadership.
Tax Policy
The Omnibus Budget Reconciliation Act of 1993 amended 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 Compensation
Committee's policy to maximize the effectiveness of the Company's executive
compensation plans. In that regard, the Compensation Committee intends to
maintain flexibility to take actions that 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 also believes that substantially all
of the compensation paid in 2000 is deductible for federal income tax
purposes.
The foregoing report of the Compensation 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.
COMPENSATION COMMITTEE
Ronald G. Geary, Chair
Douglas Crocker, II, Member
13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 2000, the following persons served on the Compensation
Committee: Douglas Crocker, II and Ronald G. Geary. Until his resignation from
the Board of Directors on October 31, 2000, R. Gene Smith served as a member
of the Compensation Committee. Neither of the current members of the
Compensation Committee are, or have been, employees of the Company. The
Company currently leases various properties to Tangram Rehabilitation Network,
Inc. ("Tangram"), a wholly owned subsidiary of Res-Care, Inc. ("Res-Care") of
which Mr. Geary is Chairman, President and Chief Executive Officer. See
"Certain Relationships and Related Transactions." W. Bruce Lunsford, who
served as Chairman of the Board of Directors of the Company in 2000 and is an
executive officer of the Company, was a member of the compensation committee
of Res-Care and Mr. Geary, who served as Chief Executive Officer of Res-Care
during 2000, was a member of the Board of Directors and the Compensation
Committee of the Company. Mr. Lunsford resigned from the compensation
committee of Res-Care in September 2000, but maintained his position as a
director of Res-Care.
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.
Tax Loan
In connection with the 1998 Spin Off, the Company agreed to loan Mr.
Lunsford (former Chief Executive Officer and present Chairman of the Board of
Directors) an amount sufficient to cover his estimated, income taxes payable
as a result of the distribution of Vencor common stock (the "Tax Loan"). The
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
Mr. Lunsford 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 Loan was based on estimated tax payments required to be made by Mr.
Lunsford as a result of the distribution of Vencor common stock. The principal
amounts of the Tax Loan to Mr. Lunsford was $3,750,000. In connection with the
amendment of his employment agreement at the time of his resignation as
President and Chief Executive Officer in December, 1998, the terms of the Tax
Loan were amended. The Tax Loan will be restructured if he is subject to an
Involuntary Termination, such 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. 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. As of December 31, 2000 the outstanding
principal balance of the Tax Loan was $3,000,000. See "Employment and Other
Agreements."
Transactions with Res-Care
On October 15, 1998, the Company acquired eight personal care facilities
and related facilities for approximately $7.1 million from Tangram. Tangram is
a wholly owned subsidiary of Res-Care, of which Mr. Geary is Chairman,
President and Chief Executive Officer and Mr. Lunsford is a director. --See
"Compensation Committee Interlocks and Insider Participation". 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. During
2000, Tangram paid the Company $754,000 in rent payments. The Company believes
that the terms of the Master Lease Agreement represent market rates.
14
Office Lease
Effective March 15, 1999, the Company relocated its principal executive
offices and entered into a lease agreement with Summit II Partners, Limited
(the "Landlord"). On November 29, 2000, the Landlord and the Company amended
the lease agreement (as amended, "the "Office Lease") to add additional office
space under the Office Lease. The Office Lease requires the Company to pay
annual rent of $110,161 to the Landlord. Mr. Lunsford owns an indirect equity
interest in the Landlord of approximately 22%. The Company believes that the
terms of the Office Lease represent market rates.
Hospital Sublease
On March 6, 2000, the Company consented to the sublease by Vencor and
Vencor Operating, Inc. to Xodiax, LLC ("Xodiax") of approximately 8,352 square
feet in a data center building located on the hospital campus known as Vencor
Hospital Louisville. The Vencor Hospital Louisville campus is owned by the
Company and is leased to Vencor pursuant to the terms of a Master Lease
between the Company and Vencor. The sublease is subject and subordinate to the
terms of the Master Lease. Total annual rent under the sublease is $330,279.
Upon the occurrence of certain events, at the Company's option, Xodiax will
pay rent under the sublease directly to the Company and/or attorn to the
Company under the sublease. Mr. Lunsford is the Chairman of Xodiax and owns an
equity interest in Xodiax of approximately 13.5%.
Cafaro Loans
Under the terms of Ms. Cafaro's employment agreement, the Company made
loans in the aggregate principal amount of $67,250 to Ms. Cafaro in 1999 and
$184,551 to Ms. Cafaro in 2000 to pay all federal, state, local and other
taxes payable upon the vesting of restricted stock awards previously granted
to her (the "Cafaro Tax Loans"). Principal of the Cafaro Tax Loans is payable
on March 5, 2009. The Cafaro Tax Loans bear interest at the lowest applicable
federal rate. Interest on the Cafaro Tax Loans is payable annually out of and
only to the extent of dividends from the vested restricted stock. Ms. Cafaro
has paid interest on such Cafaro Tax Loans through December 31, 2000. Each
Cafaro Tax Loan is secured by a pledge of all of the restricted shares to
which such Cafaro Tax Loan relates, and the Cafaro Tax Loans are otherwise
nonrecourse to Ms. Cafaro. The Cafaro Tax Loans are to be forgiven if there is
a change of control of the Company, Ms. Cafaro's employment with the Company
is terminated by the Company for other than "cause" or by Ms. Cafaro for "good
reason" or by death or disability of Ms. Cafaro. In the event either a loan or
its forgiveness results in taxable income to Ms. Cafaro, the Company is
required to pay to Ms. Cafaro an amount sufficient for the payment of all
taxes relative to the loan or its forgiveness.
15
AUDIT COMMITTEE REPORT TO STOCKHOLDERS
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems
of internal controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed the audited financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards. The
Company's independent auditors also provided to the Audit Committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). In addition, the Audit
Committee has discussed with the independent auditors the auditors'
independence from management and the Company including the matters in the
written disclosures required by the Independence Standards Board. The Audit
Committee has also considered the compatibility of non-audit services with the
auditors independence.
The Audit Committee discussed with the independent auditors the overall
scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examination, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting.
The directors who serve on the Audit Committee are all "independent" for
purposes of the New York Stock Exchange listing standards. That is, the Board
has determined that no member of the Audit Committee has a relationship to the
Company that may interfere with such member's independence from the Company
and its management.
The Board has adopted a written charter setting out the audit related
functions the Audit Committee is to perform. A copy of the charter is attached
to this proxy statement as Appendix A.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Commission. The Audit
Committee and the Board have also recommended, subject to shareholder
approval, the selection of the Company's independent auditors.
The foregoing report of the Audit 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.
AUDIT COMMITTEE
Ronald G. Geary, Chair
Douglas Crocker, II, Member
Walter F. Beran, Member
March 8, 2001
16
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, 2000, with the cumulative
total returns on the New York Stock Exchange Composite Index (the "NYSE
Index"), the NAREIT All REIT Index (the "All REIT Index"), the Healthcare REIT
Index, and the Long Term Care Index (the "LTC Index"). The comparison assumes
$100 was invested on May 1, 1998 in the Company's Common Stock and in each of
the foregoing indices and assumes reinvestment of dividends. The Company has
included the NYSE Index in the performance graph because the Common Stock is
listed on the New York Stock Exchange. Although the Company has previously
compared its performance against the Standard & Poor's 500 Stock Index and the
NAREIT Equity REIT Index, the Company has decided not to include these indices
this year because the Company believes that other indices provide a better
basis for comparison to the Company's performance. The Company has included
the following indices because it believes they are most representative of the
industry in which the Company competes and are therefore particularly relevant
to an assessment of the Company's performance: the All REIT Index, the
Healthcare REIT Index, and the LTC Index. The figures in the table below are
rounded to the nearest dollar.
May 1, December 31, December 31, December 31,
1998 1998 1999 2000
------ ------------ ------------ ------------
The Company............. $100 $ 70 $ 25 $ 39
NYSE Index.............. $100 $102 $112 $113
All REIT Index.......... $100 $ 84 $ 79 $ 99
Healthcare REIT Index
(1).................... $100 $ 90 $ 64 $ 73
LTC Index (2)........... $100 $ 48 $ 19 $ 24
[LINE GRAPH]
- --------
(1) The Healthcare REIT Index is based on the total return for investments in
the common stock of the following companies: ElderTrust, Health Care REIT,
Inc., Health Care Property Investors, Inc., Healthcare Realty, LTC
Properties, Inc., National Health Investors, Inc., Nationwide Health
Properties, Inc., National Health Realty, Inc., Omega Healthcare Investors
Inc., Senior Housing Properties Trust, and Universal Health Services, Inc.
Meditrust Companies was included in the index last year, but has been
excluded for all periods because it has divested or plans to divest
substantially all of its healthcare properties. The index is developed by
weighting the returns achieved by each company in the index in proportion
to each company's share of the market value of the entire group's common
equity capitalization.
(2) The LTC Index is based on the total return for investments in the common
stock of the following companies: Beverly Enterprises, Inc., Genesis
Health Ventures, Inc., Manor Care, Inc., Integrated Health Services, Inc.,
Mariner Post Acute Network, Inc., Sun Healthcare Group, and Vencor, Inc.
The index is developed by weighting the returns achieved by each company
in the index in proportion to each company's share of the market value of
the entire group's common equity capitalization.
17
PROPOSAL 2:
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Ernst & Young LLP ("Ernst & Young") audited the Company's financial
statements for the year ended December 31, 2000 and has been the Company's
auditors since May 1998. Fees as charged by Ernst & Young for the year ended
December 31, 2000 were as follows:
(i) Audit Fees. The aggregate fees billed for professional services
rendered by Ernst & Young for professional services rendered for the audit
of the Company's annual financial statements for the year ended December
31, 2000 and the reviews of the financial statements included in the
Company's Quarterly Reports on Form 10-Q for that tax year were $110,000.
(ii) Financial Information Systems Design and Implementation
Fees. Ernst & Young did not render any professional services to the Company
relating to (a) directly or indirectly operating, or supervising the
operation of, the Company's information system or managing the Company's
local area network and (b) designing and implementing hardware or software
systems that aggregate data underlying the Company's financial statements
or that generate information significant to the Company's financial
statements as a whole.
(iii) All Other Fees: The aggregate fees billed for services rendered
by Ernst & Young, other than fees for the services referenced under the
captions "Audit Fees" and "Financial Information Systems Design and
Implementation Fees," during the year ended December 31, 2000 were
$568,000. These services consisted primarily of tax consultation relating
to special issues and transactions.
The Board of Directors, upon recommendation of the Audit Committee, has
appointed Ernst & Young as the independent accountants of the Company for
fiscal year 2001. Ernst & Young will examine the financial statements of the
Company for the year 2001. If the stockholders do not ratify this appointment,
the Board will consider other independent accountants. One or more members of
Ernst & Young are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT ACCOUNTANTS. SHARES OF COMMON
STOCK COVERED BY PROXIES EXECUTED AND RECEIVED IN THE ACCOMPANYING FORM WILL
BE VOTED IN FAVOR OF RATIFICATION, UNLESS OTHERWISE SPECIFIED ON THE PROXY.
Ratification of the appointment of Ernst & Young as independent accountants
requires the affirmative vote of the holders of the majority of the shares
represented at the Annual Meeting, in person or by proxy, and entitled to
vote.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2002 Annual
Meeting of Stockholders must be received by the Corporate Secretary of the
Company by December 4, 2001 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 2002
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.
18
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, the persons named in the accompanying form
of proxy, or their substitutes, will have discretionary voting authority with
respect to any stockholder proposal which is submitted to the Company
otherwise than in conformity with the requirements of the Company's bylaws.
ADDITIONAL INFORMATION
Copies of the exhibits to the Company's Annual Report on Form 10-K will be
provided to any requesting stockholder, provided that such stockholder agrees
to reimburse the Company for reasonable fees related to providing such
exhibits.
By Order of the Board of Directors,
/s/ W. Bruce Lunsford
W. Bruce Lunsford
Chairman of the Board
Louisville, Kentucky
April 23, 2001
19
APPENDIX A
AUDIT AND COMPLIANCE COMMITTEE CHARTER
ADOPTED BY THE BOARD OF DIRECTORS
ON
MAY 23, 2000
Organization
There shall be an Audit and Compliance Committee of the Board of Directors
composed of three or more directors, as the Board of Directors may determine
from time to time, each of whom shall be financially literate and shall
otherwise comply with the independence requirements of the New York Stock
Exchange, Inc. In addition, at least one member of the Audit and Compliance
Committee must have accounting or related financial management expertise and
one of the members of the Audit and Compliance Committee shall be elected
Committee Chairman by the Board of Directors.
Statement of Policy
The Audit and Compliance Committee shall assist the Board of Directors in
fulfilling its responsibility relating to the Company's accounting, reporting
practices, and the quality and integrity of its financial reports. The Audit
and Compliance Committee shall endeavor to maintain free and open
communication between the Board of Directors, the independent auditors, the
internal auditors, and the financial management.
The Audit and Compliance Committee and the Board of Directors have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors (or to nominate the independent
auditors to be proposed for shareholder approval in the Company's proxy
statement).
The Committee should have a clear understanding with the independent
auditors that the independent auditors must maintain an open and transparent
relationship with the Committee and that the independent auditors are
ultimately accountable to the Board of Directors and the Audit and Compliance
Committee.
Responsibilities
The Audit and Compliance Committee's policies and procedures should remain
flexible, in order to best react to changing conditions and to help ensure
that the Company's accounting and reporting practices accord with all
requirements and are of the highest quality.
In carrying out its responsibilities, the Audit and Compliance Committee
shall:
1. Review and approve the Corporation's annual financial statements,
annual reports, registration statements, and material amendments to any of
them, as filed with the U.S. Securities and Exchange Commission, and make
recommendations to the Board regarding the Board's execution of such
statements and reports;
2. Such review of the annual financial statements, annual reports and
registration statements of the Corporation's direct or indirect
subsidiaries as in the Audit and Compliance Committee's judgment is
appropriate in order to fulfill its responsibilities;
3. Review the Corporation's programs for compliance with applicable
financial disclosure requirements;
4. Review the auditing of the Corporation's financial statements with
the independent public accountants, including the plan, fees and the
results of their auditing engagements;
5. Review the non-audit professional services provided by the
Corporation's independent public accountants and related fees, considering
the possible effect they have on the independence of such accountants;
A-1
6. Recommend to the Board the engagement of independent public
accountants;
7. Review the Corporation's processes to maintain an adequate system of
internal controls;
8. Review the scope and results of the Corporation's internal audit
plans and procedures;
9. Direct and supervise investigations into matters within the scope of
the Audit and Compliance Committee's duties;
10. Provide sufficient opportunity at each meeting for the internal and
independent auditors to meet with the committee without management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the financial, accounting, and auditing personnel,
and their cooperation during the audit;
11. Review accounting and financial personnel and succession planning;
12. Submit the minutes of its meetings to, or discuss the matters
discussed at each Audit and Compliance Committee meeting with, the Board;
and
13. Such other duties and responsibilities as may be assigned to the
Audit and Compliance Committee by the Board.
A-2
VENTAS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON
MAY 15, 2001
The undersigned hereby appoints Debra A. Cafaro and John C. Thompson
and each of them, proxies, with full power of substitution and
P resubstitution, for and in the name of the undersigned, to vote all shares
of common stock of Ventas, Inc. (the "Company"), which the undersigned
R would be entitled to vote if personally present at the Annual Meeting of
Stockholders to be held at 11:00 a.m., local time, on Tuesday, May 15, 2001
O at The Olmsted, 3701 Frankfort Avenue, Louisville, Kentucky, and at any
adjournment thereof, upon the matters described in the accompanying Notice
X of Annual Meeting of Stockholders and Proxy Statement, receipt of which is
hereby acknowledged, and upon any other business that may properly come
Y 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
for a given Proposal, the Proxy will be voted FOR that Proposal.
Please mark your votes as [X]
indicated in this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 and 2.
1. ELECTION OF DIRECTORS: to elect six (6) directors to terms expiring at
the 2002 Annual Meeting of stockholders:
Walter F. Beran W. Bruce Lunsford
Ronald G. Geary Douglas Crocker, II
Debra A. Cafaro Sheli Z. Rosenberg
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote on all
(except as marked in the nominees listed
contrary)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
IF THIS PROXY IS EXECUTED BY THE UNDERSIGNED IN SUCH A MANNER SO AS TO NOT
WITHHOLD AUTHORITY TO VOTE FOR THE ELECTION OF ANY NOMINEE, IT SHALL BE
DEEMED TO GRANT SUCH AUTHORITY.
2. DIRECTORS' PROPOSAL: to ratify the selection of Ernst & Young LLP as the
Company's independent auditors for fiscal year 2001:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE INDICATE WHETHER YOU EXPECT TO ATTEND THE ANNUAL MEETING:
[ ] I expect to attend the [ ] I do not expect to attend the
Annual Meeting Annual Meeting
Date: ________________, 2001
____________________________
____________________________
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.