-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JoPJc35UG4kghQ5szFBUNowGYM+R4Hd/tXirAxSHlv3yEjgK2ZKQ5zw9xjGo6Zzx iJ9S+64E+zvPl91rwCqJvA== 0000950131-96-003464.txt : 19960730 0000950131-96-003464.hdr.sgml : 19960730 ACCESSION NUMBER: 0000950131-96-003464 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19960729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATRIA COMMUNITIES INC CENTRAL INDEX KEY: 0001016168 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 611303738 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-06907 FILM NUMBER: 96599935 BUSINESS ADDRESS: STREET 1: 515 W MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025967540 MAIL ADDRESS: STREET 1: 515 W MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996. REGISTRATION NO. 333-06907 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ATRIA COMMUNITIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 8361 61-1303738 (PRIMARY STANDARD (I.R.S. EMPLOYER (STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.) JURISDICTION OF CLASSIFICATION CODE INCORPORATION OR NUMBER) ORGANIZATION) 515 WEST MARKET STREET LOUISVILLE, KENTUCKY 40202 (502) 596-7540 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) W. PATRICK MULLOY, II PRESIDENT AND CHIEF EXECUTIVE OFFICER ATRIA COMMUNITIES, INC. 515 WEST MARKET STREET LOUISVILLE KENTUCKY 40202 (502) 596-7540 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: IVAN M. DIAMOND, ESQ. J. VAUGHAN CURTIS, ESQ. GREENEBAUM DOLL & MCDONALD PLLC ALSTON & BIRD 3300 NATIONAL CITY TOWER ONE ATLANTIC CENTER LOUISVILLE, KENTUCKY 40202 1201 WEST PEACHTREE STREET (502) 589-4200 ATLANTA, GEORGIA 30309-3424 (404) 881-7000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ATRIA COMMUNITIES, INC. CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B), SHOWING THE LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
FORM S-1 LOCATION OR ITEM NO. 1 CAPTION CAPTION IN PROSPECTUS ---------- ------- --------------------- 1. Forepart of the Registration Statement and Outside Page of Prospectus......................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front and Outside Back Cover Pages; Additional Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Prospectus Summary; Risk Charges............................ Factors; Business 4. Use of Proceeds..................... Use of Proceeds 5. Determination of Offering Price..... Underwriting 6. Dilution............................ Dilution 7. Selling Security Holders............ Not Applicable 8. Plan of Distribution................ Outside Front Cover Page; Underwriting 9. Description of Securities to be Description of Capital Stock Registered......................... 10. Interests of Named Experts and Legal Matters; Experts Counsel............................ 11. Information with Respect to the Outside Front Cover Page; Registrant......................... Prospectus Summary; Risk Factors; The Company and its Predecessors; Use of Proceeds; Dividend Policy; Capitalization; Dilution; Selected Combined Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Description of Capital Stock; and Shares Eligible for Future Sale 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................ Not applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION JULY 29, 1996 5,000,000 Shares LOGO Common Stock -------- All of the 5,000,000 shares of Common Stock offered hereby are being sold by Atria Communities, Inc. (the "Company" or "Atria"), a wholly owned subsidiary of Vencor, Inc. ("Vencor"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $12.00 and $14.00 per share. See "Underwriting" for the factors to be considered in determining the initial offering price. Upon completion of this offering, Vencor will own 66.2% of the Common Stock (63.1% if the Underwriters' over-allotment option is exercised in full). Accordingly, Vencor will be able to control the management and operations of the Company. See "Risk Factors--Control by Principal Stockholder." -------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 6. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO DISCOUNTS AND TO PUBLIC COMMISSIONS COMPANY(1) - -------------------------------------------------------------------------------- Per Share................................. $ $ $ - -------------------------------------------------------------------------------- Total(2).................................. $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Before deducting expenses of the offering estimated at $850,000. (2) The Company has granted to the Underwriters a 30-day option to purchase up to 750,000 additional shares of Common Stock to cover over-allotments, if any. To the extent the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." -------- The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about August , 1996. Alex. Brown & Sons INCORPORATED Morgan Stanley & Co. INCORPORATED J.C. Bradford & Co. THE DATE OF THIS PROSPECTUS IS , 1996. [Photograph of an Atria community [Photograph of an with southwestern design and employee of Atria palm trees.] with a resident.] Atria communities feature unique Atria's higher-acuity model architecture designed to blend allows residents to "age in into the surrounding landscape place" by incorporating with common internal layouts that rehabilitation and home allow for construction efficiencies. health services. [ATRIA LOGO APPEARS HERE] [United States map indicating [Photograph of Atria Vencor hospitals and Vencor residents - 4 women and nursing facilities.] one man.] Wherever feasible, Atria will Atria focuses on private network with Vencor's long-term pay, middle- and care hospitals and skilled upper-income residents. nursing facilities to combine available resources. Our vision of assisted living is a residential community which recognizes, enhances and celebrates the value of individuals by promoting their independence and dignity while providing assistance with daily living. Our mission is to be the leading provider of senior living services by delivering consistent, high-quality, innovative services to our residents and their community. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and combined financial statements and the notes thereto appearing elsewhere in this Prospectus. THE COMPANY Atria Communities, Inc. is a national provider of assisted and independent living communities for the elderly. The Company currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. The Company owns 16 of these communities, holds a majority interest in two communities, leases two communities and manages two communities. The Company also has 13 assisted living communities under development with a total of approximately 850 units. For the year ended December 31, 1995, the Company had revenues and net income of $48.0 million and $3.4 million, respectively, and had an average occupancy rate of 94.5%. For the six-month period ended June 30, 1996, the Company had revenues and net income of $25.4 million and $1.7 million, respectively, and had an average occupancy rate of 95.6%. Substantially all of the Company's revenues are from private pay sources. The assisted and independent living industries are rapidly emerging components of the non-acute health care system for the elderly. The assisted living industry serves the long-term care needs of the elderly who do not require the more extensive medical services available in skilled nursing facilities, yet who are no longer capable of a totally independent lifestyle. Assisted living residents typically require assistance with two to three activities of daily living ("ADLs"), such as eating, grooming and bathing, personal hygiene and toileting, dressing, transportation, walking and medication reminders. The independent living industry serves the long-term care needs of elderly individuals who require only occasional assistance with ADLs and who no longer desire, or cannot maintain, a totally independent lifestyle. According to industry estimates, the assisted and independent living industries represented approximately $10 to $12 billion in revenue in 1995. The Company believes that growth in these industries is being driven by the continued aging of the population and the increase in demand for elder-care services; cost-containment efforts that limit access to acute care hospitals and skilled nursing facilities for the elderly with less intensive medical needs; changing societal patterns that make it difficult for families to provide in-home care to the elderly; and an increasing awareness among the elderly that assisted and independent living communities afford a cost- effective, secure and attractive lifestyle. Atria's objective is to expand its position as a national provider of high- quality assisted and independent living services. Key elements of the Company's strategy are to: (i) develop or acquire 60 to 85 additional assisted living communities by the year 2000 (including 13 communities currently being developed) and to convert at least 750 of its existing independent living units to assisted living units; (ii) network its operations with Vencor's health care delivery system where appropriate; (iii) pursue a higher acuity model of care enabling residents to "age in place;" and (iv) continue to focus on private pay, middle- and upper-income residents. Prior to completion of this offering, all of the Company's assisted and independent living communities have been operated by Vencor. Vencor and its predecessors have operated assisted and independent living communities for over a decade. Vencor operates an integrated network of health care services primarily focusing on the needs of the elderly. After completion of this offering, Vencor will own 66.2% of the outstanding Common Stock (63.1% if the Underwriters' over-allotment option is exercised in full). In order to facilitate an orderly transition of the Company from a division of Vencor to a separate publicly held entity, Vencor will initially provide certain administrative and support services to the Company. As a separate public company, management believes that it will be able to accelerate the development and acquisition of assisted living facilities. Furthermore, Atria will have independent access to capital, an enhanced ability to incentivize management and a management team focused solely on the Company's business. 3 THE OFFERING Common Stock offered hereby............. 5,000,000 shares Common Stock to be outstanding after 15,095,000 shares(1) this offering.......................... Use of proceeds......................... To finance the development and acquisition of additional assisted living communities, and for working capital and other general corporate purposes. Proposed Nasdaq National Market ATRC symbol................................. - -------- (1) Excludes options to purchase 639,500 shares of Common Stock at the initial public offering price per share and includes 95,000 restricted shares of Common Stock that vest over a two-year period following this offering. See "Management--Non-Employee Directors 1996 Stock Incentive Plan," "--Employee Awards Granted," "--Vencor Employee Option Grants" and "--1996 Stock Ownership Incentive Plan." 4 SUMMARY COMBINED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
YEARS ENDED YEARS ENDED SIX MONTHS ENDED MAY 31, DECEMBER 31, JUNE 30, ---------------- ----------------------------- ------------------ 1992(1) 1993(1) 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- -------- -------- STATEMENTS OF OPERATIONS DATA: Revenues............... $31,664 $36,479 $35,870 $39,758 $47,976 $ 23,264 25,448 Operating income (loss)................ (2,164) 2,843 4,156(2) 9,551(3) 10,100(4) 4,928 4,791(5) Income (loss) before income taxes and extraordinary loss.... (7,874) (1,770) 1,003(2) 6,343(3) 5,925(4) 2,696 2,867(5) Income (loss) before extraordinary loss.... (4,764) (1,071) 607(2) 3,837(3) 3,584(4) 1,631 1,734(5) Net income (loss)...... (4,764) (1,071) 504 3,837 3,438 1,631 1,734 Pro forma earnings per common share before extraordinary loss.... $ .24 $ .11 Shares used in computing earnings per common share.......... 15,095 15,095 STATISTICAL DATA: Number of communities(6): Owned and leased....... 21 20 19 19 20 20 20 Managed................ 2 2 2 2 2 2 2 ------- ------- ------- ------- ------- -------- ------- Total................. 23 22 21 21 22 22 22 ======= ======= ======= ======= ======= ======== ======= Number of units(6): Owned and leased....... 2,900 2,734 2,574 2,531 2,603 2,603 2,603 Managed................ 419 419 419 419 419 419 419 ------- ------- ------- ------- ------- -------- ------- Total................. 3,319 3,153 2,993 2,950 3,022 3,022 3,022 ======= ======= ======= ======= ======= ======== ======= Average occupancy(7)... 80.9% 87.1% 90.8% 93.8% 94.5% 93.2% 95.6%
JUNE 30, 1996 ----------------------- ACTUAL AS ADJUSTED(8) -------- -------------- BALANCE SHEET DATA: Cash and cash equivalents............ $ 4,149 $ 63,749 Assets.................. 141,616 201,216 Long-term debt, including amounts due within one year........ 104,411 104,411 Stockholder's equity.... 27,544 87,144
- -------- (1) For accounting purposes, the historical combined financial information of Atria for years 1991 and 1992 are based upon the previous fiscal reporting periods of such entities which most closely approximate the respective calendar year. Accordingly, operating results for the five months ended May 31, 1993 are included in both May 31, 1993 and December 31, 1993 disclosures. Revenues and net income for such period approximated $15.6 million and $61,000, respectively. (2) Includes $266,000 ($160,000 net of tax) of income related to settlement of certain litigation. (3) Includes $1.3 million of income ($750,000 net of tax) related to settlement of certain litigation and a $425,000 ($255,000 net of tax) gain on the sale of property. (4) Includes a charge of $600,000 ($360,000 net of tax or $.02 per common share on a pro forma basis) related to the writedown of undeveloped property to net realizable value. (5) Includes a charge of $1.1 million ($630,000 net of tax or $.04 per common share on a pro forma basis) related to the settlement of certain litigation. (6) At end of period. (7) Average occupancy is calculated by dividing the number of occupied units by the total number of available units during the respective period. (8) Adjusted to give effect for the sale by the Company of 5,000,000 shares of Common Stock (assuming an initial public offering price of $13.00) and the application of the net proceeds thereof. At or before completion of this offering, Vencor will contribute to the Company substantially all of its assisted and independent living communities in exchange for shares of Common Stock and the Company will assume certain liabilities related to such communities (the "Contribution Transaction"). Unless otherwise indicated, all share and financial information set forth herein assumes (i) completion of the Contribution Transaction and the issuance of 95,000 restricted shares of Common Stock upon completion of this offering and (ii) no exercise of the Underwriters' over-allotment option. All references in this Prospectus to the "Company" or "Atria" mean Atria Communities, Inc. and its subsidiaries, or the assisted and independent living communities held by Vencor prior to the Contribution Transaction. 5 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Common Stock offered hereby. FINANCIAL RISKS ASSOCIATED WITH EXPANSION PROGRAM Newly developed assisted living communities are expected to incur operating losses during the first twelve months of operations of between $150,000 and $250,000 for a 90-unit community. Once opened, the Company estimates that it will take an average of twelve months for its communities to achieve targeted occupancy levels. The Company may incur additional operating losses if it fails to achieve expected occupancy rates at newly developed communities or if expenses related to the development, acquisition or operation of new communities exceed expectations. The risks associated with the Company's development of additional assisted living communities and uncertainties regarding the profitability of such operations could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Development Program." DEVELOPMENT AND CONSTRUCTION RISKS The Company intends to develop or acquire 60 to 85 additional assisted living communities by the year 2000 (including 13 communities currently being developed). The Company's ability to expand at this pace will depend upon a number of factors, including, but not limited to, the Company's ability to acquire suitable properties or communities at reasonable prices; the Company's success in obtaining necessary zoning, land use, building, occupancy, licensing and other required governmental permits and authorizations; and the Company's ability to control construction and renovation costs and project completion schedules. In addition, the Company's development plan is subject to numerous factors outside its control, including competition for acquisitions, shortages of, or the inability to obtain, labor or materials, changes in applicable laws or regulations or in the method of applying such laws and regulations, the failure of general contractors or subcontractors to perform under their contracts, strikes and adverse weather. The Company's business, financial condition and results of operations could be materially and adversely affected if the Company is unable to achieve its development plan. See "Business--Development Program." In addition, the Company will rely initially on Vencor for certain services in connection with development projects pursuant to an Administrative Services Agreement. The Administrative Services Agreement has an initial term of one year and thereafter may be renewed on a month-to-month basis and terminated by either party on 60 days' prior written notice. The Company does not currently have a substantial internal development staff but it has retained third parties to locate suitable sites for new assisted living communities and to handle other aspects of the development process on a contract basis. Final approval of all development sites will be made by officers of the Company. If Vencor terminates the Administrative Services Agreement before the Company is able to expand its development staff or if the Company is unable to continue to retain third-party sources to assist in the development process, the Company's ability to execute its development and growth plans and the Company's business, financial condition and results of operations could be materially and adversely affected. See "Business--Business Strategy," "-- Development Program" and "Certain Transactions." ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION In addition to developing additional assisted living communities, the Company currently plans to acquire additional assisted living facilities or other properties that can be repositioned as Atria assisted living communities. The Company has not entered into any agreements with respect to any material acquisitions. There can be no assurance that the Company's acquisition of assisted living facilities will be completed at the rate currently expected, if at all. The success of the Company's acquisitions will be determined by numerous factors, including the Company's ability to identify suitable acquisition candidates, competition for such acquisitions, the purchase price, the financial performance of the 6 facilities after acquisition and the ability of the Company to integrate effectively the operations of acquired facilities. Any failure by the Company to identify suitable candidates for acquisition, or integrate or operate acquired facilities effectively may have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Business Strategy" and "--Development Program." ABSENCE OF HISTORY AS A STAND-ALONE COMPANY AND NEW MANAGEMENT Although the Company's predecessors have operated assisted and independent living communities for over a decade, the Company itself has never operated as a stand-alone company. Certain officers, including the President and Chief Executive Officer of the Company, do not have experience in the assisted and independent living industry. After this offering, the Company will continue to be a subsidiary of Vencor, but will operate as a separate public company. Vencor will have no obligation to provide assistance to the Company except as described in the Administrative Services Agreement and the Services Agreements. There can be no assurance that upon termination of such agreements the Company will have adequate staffing to perform the functions Vencor performed for the Company. The Administrative Services Agreement and the Services Agreements each have a one-year term and upon expiration may be renewed on a month-to-month basis or terminated by either party on 60 days' prior written notice. Termination of these agreements before the Company is able to provide such services could have a material adverse effect on the Company's business, financial condition and results of operations. See "Certain Transactions." CONTROL BY PRINCIPAL STOCKHOLDER Upon completion of this offering, Vencor will own 66.2% of the outstanding Common Stock (63.1% if the Underwriters' over-allotment option is exercised in full) and, accordingly, will be in a position to elect all of the directors of the Company and effectively control the management and operations of the Company. Initially, four of the seven directors will be officers or directors of Vencor and only two directors of the Company will be independent directors who are not Vencor affiliates or employees of the Company. Upon completion of this offering, Vencor will enter into a Voting Agreement pursuant to which it will agree to vote all of its shares of Common Stock at any meeting at which directors are elected in favor of the election of independent directors so that after such election, if such persons are elected, there will be at least two independent directors. The Voting Agreement will continue in effect for five years from the date of this offering so long as Vencor beneficially owns 30% or more of the Common Stock. The concentration of ownership in Vencor may have a limiting effect on the price and trading volume of the Common Stock and may inhibit changes in control of the Company. See "Certain Transactions," "Principal Stockholders" and "Description of Capital Stock." RELATIONSHIP WITH VENCOR; CONFLICTS OF INTEREST Certain directors and officers of Vencor, who are also directors of the Company, and Vencor, as the Company's controlling stockholder, have conflicts of interest with respect to certain transactions concerning the Company. When the interests of Vencor and the Company diverge, Vencor may exercise its influence in its own best interests. The Company anticipates resolving potential conflicts of interest on a case-by-case basis, which may include the use of committees comprised of disinterested directors and the retention of independent financial and other advisors. See "Management," "Certain Transactions," and "Principal Stockholders." The Company and Vencor have entered into certain agreements including an Administrative Services Agreement, an Incorporation Agreement, a Tax Sharing Agreement, a Registration Rights Agreement, a Guaranty Fee Agreement and Services Agreements (the "Vencor Agreements") to resolve certain issues in connection with the Contribution Transaction and to specify certain services to be provided to the Company by Vencor. For example, under the Administrative Services Agreement, Vencor will provide certain administrative services to the Company, including finance and accounting, human resources, risk management, legal support, market planning and information systems support. The annual fee payable to Vencor under the Administrative Services Agreement is $660,000. The Incorporation Agreement provides 7 for the Company to pay Vencor $150,000 for its assistance in connection with this offering. The maximum guaranty fee that the Company intends to pay Vencor in connection with the Guaranty Fee Agreement is $1,500,000 per year. The maximum amount that the Company expects to pay Vencor in connection with the Services Agreements is $150,000 per year. These agreements were negotiated by officers of Vencor and the Company while the Company was a wholly owned subsidiary of Vencor. Accordingly, there is no assurance that (i) the terms and conditions of these arrangements are as favorable to the Company as those the Company could have obtained from unaffiliated third parties; or (ii) such arrangements will not be terminated or modified in the future. Although Vencor has advised the Company that it does not intend to compete with the Company, the Vencor Agreements do not contain any covenant not to compete or similar restrictions prohibiting Vencor from developing or acquiring and operating its own assisted or independent living communities following completion of this offering. See "Certain Transactions." The Company intends to develop communities in close proximity to Vencor's facilities, which may facilitate participating with Vencor in providing services to HMOs and other managed care companies. The Company also expects that the geographic proximity to Vencor's nursing and hospital facilities will foster transfers between the Company's communities and Vencor's facilities. There can be no assurance that any such networking potential will be realized. NEED FOR ADDITIONAL FINANCING To achieve its growth objectives, the Company will need to obtain substantial additional financing to fund its development, construction and acquisition activities. The estimated cost to complete 60 to 85 assisted living communities targeted for development or acquisition by the year 2000 substantially exceeds the net proceeds from this offering. Accordingly, the Company's future growth will depend on its ability to obtain additional financing on acceptable terms. The Company currently estimates that the net proceeds from this offering together with anticipated financing commitments and financing expected to be available, will be sufficient to fund its development and acquisition program for approximately 18 months following completion of this offering. There can be no assurance, however, that the Company will not be required to obtain additional capital at an earlier date. The Company may from time to time seek additional financing through public or private financing sources, including equity or debt financing. If additional funds are raised by issuing equity securities, the Company's stockholders may experience dilution. There can be no assurance that adequate funding will be available as needed or on terms acceptable to the Company. Insufficient financial resources may require the Company to delay or eliminate all or some of its development projects and acquisition plans, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." RISKS OF INDEBTEDNESS Leverage. At June 30, 1996, the Company had long-term debt, including amounts due within one year, of $104.4 million. The amount of debt and debt- related payments is expected to increase substantially as the Company pursues its growth strategy. As a result, an increasing portion of the Company's cash flow will be devoted to debt service and related payments and the Company will be subject to risks normally associated with increased financial leverage. There can be no assurance that the Company will generate sufficient cash flows from operations to cover required interest, principal and any operating lease payments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Risk of Rising Interest Rates. At June 30, 1996, $71.3 million in principal amount of the Company's indebtedness bore interest at floating rates. In addition, indebtedness that the Company may incur in the future may also bear interest at a floating rate. Therefore, increases in prevailing interest rates could increase the Company's interest payment obligations and could have a material adverse effect on the Company's business, financial condition and results of operations. 8 Bond Financing and Income Qualified Residents. Eight of the Company's assisted living and independent living communities have been financed in whole or in part by industrial revenue bonds. Under the terms of such bonds, the Company is required to rent approximately 250 assisted and independent living units to individuals who have incomes which are 80% or less of the average income levels in a designated market. In certain cases, the Company's ability to increase prices in communities with such bond financing (in response to higher operating costs or other inflationary factors) could be limited if it affects the ability of the Company to attract and retain residents with qualifying incomes. Failure to satisfy these requirements constitutes an event of default under the bonds, thereby accelerating their maturity. At June 30, 1996, outstanding amounts under the bonds totaled $62.1 million. See "Business--Funding for Assisted and Independent Living Care" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity Capital Resources." Proposed Atria Credit Facility. At or shortly after consummation of this offering, the Company expects to enter into a bank credit facility (the "Atria Credit Facility") aggregating up to $200.0 million which will bear interest at floating rates and which will be secured by its properties, the capital stock of the Company's subsidiaries and intercompany indebtedness owed to the Company by its subsidiaries. Any borrowings under the Atria Credit Facility will increase the Company's leverage and will bear the risk of rising interest rates. The terms of the Atria Credit Facility have not been finalized and there can be no assurance that the Company will be successful in consummating such financing. It is also contemplated that the Atria Credit Facility will contain various affirmative, negative and financial covenants. The Atria Credit Facility will be conditioned upon, among other things, completion of this offering (the net proceeds from which must aggregate at least $50.0 million), the absence of a change in control of the Company, Vencor's ownership of a stipulated amount of Common Stock upon the completion of this offering and Vencor maintaining at least a 30% ownership interest thereafter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and Note 4 of Notes to Combined Financial Statements. Consequences of Default. There can be no assurance that the Company will generate sufficient cash flows from operations to cover required interest, principal and operating lease payments. Any payment or other default could cause the lender to foreclose upon the communities securing such indebtedness, with a consequent loss of income and asset value to the Company. In certain cases, indebtedness secured by a community is also secured by a pledge of the Company's interests in the community. In the event of a default with respect to any such indebtedness, the lender could avoid the judicial procedures required to foreclose on real property by foreclosing on the pledge instead, thus accelerating the lender's acquisition of the community. Further, because most of the Company's mortgages contain cross-default and cross- collateralization provisions, a default by the Company on one of its payment obligations could adversely affect a significant number of the Company's other properties. VARIATIONS IN OPERATING RESULTS Although the Company was profitable in 1993, 1994, 1995 and the first six months of 1996, there can be no assurance that revenue growth or profitability will not fluctuate on a quarterly or annual basis in the future. The Company may experience variations in quarterly and annual operating results. Quarterly or annual variations may result from the timing of opening new communities and the rate at which certain occupancy levels are achieved. The Company's operating results for any particular quarter or year may not be indicative of results for future periods. See "Risk Factors--Financial Risks Associated with Expansion Program" and "Business--Development Program." MANAGEMENT OF PLANNED RAPID GROWTH The Company's success will depend, in part, on its ability to manage its planned rapid growth. The Company does not presently have adequate staff to manage its planned growth and will rely on Vencor to provide many internal management functions. The Company will need to expand its operational, financial and management information systems and continue to attract, motivate and retain key employees. If the 9 Company does not manage its growth effectively, its business, financial condition and results of operations could be materially and adversely affected. See "Risk Factors--Absence of History as a Stand-Alone Company and New Management," "--Relationship with Vencor; Conflicts of Interest" and "Certain Transactions." DEPENDENCE ON PRIVATE PAY RESIDENTS The Company currently relies, and in the foreseeable future expects to rely, primarily on the ability of residents to pay for the Company's charges from their own financial resources. Inflation or other circumstances which adversely affect the ability of the elderly to pay for the Company's services could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Funding for Assisted and Independent Living Care." HIGHLY COMPETITIVE INDUSTRY The assisted living industry is highly competitive. The Company faces competition from numerous local, regional and national providers of assisted living and long-term care. The Company also competes with companies providing home-based health care. Some of the Company's competitors operate on a not- for-profit basis or as charitable organizations. Also, many of the Company's competitors are significantly larger and have greater financial resources than the Company. The Company believes that the assisted living industry will become even more competitive in the future. Regulatory barriers to entry into the assisted living industry are generally not substantial. If the development of new assisted living facilities surpasses the demand for such facilities in particular markets, such markets may become saturated. The Company also expects to compete for acquisitions of additional assisted living facilities and properties. There can be no assurance that competition will not limit the Company's ability to attract residents or expand its business or have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Competition." GOVERNMENT REGULATION The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically define or regulate assisted or independent living facilities. While a number of states have not yet enacted specific assisted living regulations, the Company's communities are subject to regulation, licensing, certificate of need requirements and permitting by state and local health and social service agencies and other regulatory authorities. Requirements vary from state to state. Changes in existing laws and regulations, adoption of new laws and regulations and new interpretations of existing laws and regulations could have a material impact on the Company's operations. The Company believes that such regulation will increase in the future. In addition, health care providers are receiving increased scrutiny under anti-trust laws as the integration and consolidation of health care delivery increases and affects competition. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new regulations and their effect on its business. There can be no assurance that the Company's operations will not be adversely affected by regulatory developments. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Government Regulation." Federal and state anti-remuneration laws, such as the Medicare/Medicaid anti-kickback law, govern certain financial arrangements among health care providers and others who may be in a position to refer or recommend patients to such providers. These laws prohibit, among other things, certain direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of health care items or services. Vencor provides certain services to residents of the Company's communities. The Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to certain contractual relationships between health care providers and 10 sources of patient referral. Similar state laws vary, are sometimes vague and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicare and Medicaid programs. There can be no assurance that such laws will be interpreted in a manner consistent with the practices of the Company. See "Business--Government Regulation." Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist which also may require modifications to existing and planned properties to create access to the properties by disabled persons. While the Company believes that its properties are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial. LABOR COSTS The Company competes with various health care providers and other employers for qualified and skilled personnel. The Company's labor costs will increase over time. The Company's business, financial condition and results of operations could be adversely affected if the Company is unable to control its labor costs. See "Business--Employees." ENVIRONMENTAL RISKS Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the cost of removal or remediation of certain hazardous or toxic substances that may be located on, in or under the property. These laws and regulations may impose liability regardless of whether the owner or operator was responsible for, or knew of, the presence of the hazardous or toxic substances. The liability of the owner or operator and the cost of any required remediation or removal of hazardous or toxic substances could exceed the property's value. In connection with the ownership or operation of its communities, the Company could be liable for these costs. As a result, the presence of hazardous or toxic substances at any property held or operated by the Company or acquired or operated by the Company in the future could have a material adverse effect on the Company's business, financial condition and results of operations. LIABILITY AND INSURANCE In recent years, the long-term care industry has experienced an increase in the number of lawsuits alleging negligence and other legal theories, many of which involve significant legal costs and substantial claims. Vencor maintains, and the Company intends to secure, by completion of this offering, insurance policies in amounts and with such coverage as it deems appropriate for its operations. There can be no assurance, however, that the Company will be able to continue to obtain sufficient liability insurance coverage in the future or that such coverage will be available on acceptable terms. A successful claim in excess of the Company's coverage or not covered by the Company's insurance could have a material adverse effect on the Company's business, financial condition and results of operations. Claims against the Company, regardless of their merit or outcome, may involve significant legal costs and require management to devote considerable time which would otherwise be utilized in the operation of the Company. ANTI-TAKEOVER PROVISIONS The Company's Restated Certificate of Incorporation and Amended and Restated By-laws, as well as Delaware corporate law, contain certain provisions that could have the effect of making it more difficult 11 for a third party to acquire, or of discouraging a third party from attempting to acquire or take control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. Certain of these provisions allow the Company to issue, without stockholder approval, preferred stock having voting rights senior to those of the Common Stock. Other provisions impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. In addition, commencing with the 1997 Annual Meeting of Stockholders, the Company's Board of Directors will be divided into three classes, each of which will serve for a staggered three-year term, which may make it more difficult for a third party to gain control of the Board of Directors. As a Delaware corporation, the Company is subject to Section 203 of the Delaware General Corporation Law which, in general, prevents an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" for three years following the date such person became an interested stockholder unless certain conditions are satisfied. As a result, third parties may be discouraged from attempting to acquire or take control of the Company. See "Risk Factors--Control by Principal Stockholder" and "Description of Capital Stock--Certain Corporate Governance Matters." SUBSTANTIAL AND IMMEDIATE DILUTION Purchasers of the Common Stock in this offering will experience substantial and immediate dilution in the net tangible book value per share of their investment of $7.33 per share of Common Stock (assuming an initial public offering price of $13.00 per share). See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 15,095,000 shares of Common Stock outstanding (15,845,000 shares if the Underwriters' over- allotment option is exercised in full). Of these shares, the 5,000,000 shares sold in this offering will be freely transferable without restriction or limitation under the Securities Act of 1933, as amended ("Securities Act"), except for any shares purchased by "affiliates" of the Company, as such term is defined in Rule 144 under the Securities Act. The remaining 10,095,000 shares constitute "restricted securities" within the meaning of Rule 144 such that the sale of such securities would be restricted for two years (one year if certain proposed amendments to Rule 144 are adopted). Vencor holds 10,000,000 of the restricted shares and nine officers and directors of the Company will hold the remaining 95,000 restricted shares. Commencing 180 days following completion of this offering, Vencor will be entitled to certain demand and incidental registration rights with respect to such shares. If Vencor, by exercising its demand registration rights, causes a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Common Stock. Further, the Company intends to register within 180 days of the date of this offering, 1,250,000 shares of Common Stock reserved for issuance pursuant to the Company's incentive compensation programs. At the date of this offering, the Company anticipates that it will have outstanding options to purchase 639,500 shares of Common Stock. The options become exercisable in four equal installments beginning one year from the date of grant. Sales of substantial amounts of shares of Common Stock in the public market after this offering or the perception that such sales could occur may materially and adversely affect the market price of the Common Stock and the Company's ability to obtain additional capital. See "Description of Capital Stock--Registration Rights Agreement" and "Shares Eligible for Future Sale." Subject to certain exceptions, Vencor, the Company and the Company's directors and executive officers have agreed with the Underwriters not to sell or otherwise dispose of any shares of Common Stock, any options to purchase Common Stock or any securities convertible or exchangeable for shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. See "Underwriting." 12 ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock. There can be no assurance that an active trading market will develop for the Common Stock after this offering. The trading volume of the Common Stock following this offering is expected to be limited because Vencor will hold 66.2% of the outstanding Common Stock (63.1% if the Underwriters' over- allotment option is exercised in full). The initial public offering price of the Common Stock will be based on negotiations between the Company and the Underwriters and may bear no relationship to the price at which the Common Stock will trade after completion of this offering. In addition, the stock market in recent years has experienced broad price and volume fluctuations that have frequently been unrelated to the performance of particular companies. Such market fluctuations may materially and adversely affect the market price of the Common Stock. 13 THE COMPANY AND ITS PREDECESSORS The Company was incorporated in Delaware on May 1, 1996, as a wholly owned subsidiary of Vencor. Vencor operates an integrated network of health care services primarily focusing on the needs of the elderly. At or prior to completion of this offering, Vencor will contribute to the Company substantially all of its assisted and independent living communities in exchange for shares of Common Stock and the Company will assume certain liabilities related to such communities. On September 28, 1995, Vencor consummated a merger (the "Hillhaven Merger") with The Hillhaven Corporation ("Hillhaven"). Prior to the Hillhaven Merger, Hillhaven and its subsidiaries operated the communities now operated by the Company. Also, prior to the Hillhaven Merger, Hillhaven consummated a share exchange (the "Nationwide Exchange") with Nationwide Care, Inc. ("Nationwide") on June 30, 1995. Four of the communities now operated by the Company were operated by Nationwide until the effective date of the Nationwide Exchange, and from that date until the consummation of the Hillhaven Merger, by Hillhaven. The Company's executive offices are located at 515 West Market Street, Louisville, Kentucky 40202, and its telephone number is (502) 596-7540. USE OF PROCEEDS The net proceeds to the Company of this offering are estimated to be approximately $59.6 million ($68.7 million if the Underwriters' over-allotment option is exercised in full), assuming an initial offering price of $13.00 per share and after deducting the estimated underwriting discounts and offering expenses payable by the Company. The Company expects to use substantially all of the net proceeds to finance the development and acquisition of additional assisted living communities, and for working capital and other general corporate purposes. Pending such uses, the Company intends to invest the net proceeds in short-term investment grade, interest-bearing securities or certificates of deposit. The Company does not have any current agreements or understandings to acquire any additional facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources" and "Business--Business Strategy." DIVIDEND POLICY The Company has never declared or paid any cash dividends on its Common Stock and currently plans to retain future earnings to finance the growth of the Company's business rather than to pay cash dividends. Payment of any cash dividends in the future will depend on the financial condition, results of operations and capital requirements of the Company as well as other factors deemed relevant by the Board of Directors. It is also anticipated that the proposed Atria Credit Facility will prohibit the Company from paying cash dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 14 CAPITALIZATION The following table sets forth as of June 30, 1996, the pro forma capitalization of the Company (i) after giving effect to the Contribution Transaction but without giving effect to this offering, and (ii) as adjusted to reflect the sale of the shares of Common Stock offered hereby (assuming an initial public offering price of $13.00 per share) and the application of the estimated net proceeds therefrom, all as if they occurred on June 30, 1996 (in thousands):
JUNE 30, 1996 --------------------- PRO FORMA PRO FORMA AS ADJUSTED --------- ----------- Long-term debt, including amounts due within one year.... $104,411 $104,411 -------- -------- Stockholders' equity: Preferred stock, $1.00 par value, 5,000,000 shares au- thorized; none issued and outstanding........................... $ - $ - Common stock, $.10 par value; 50,000,000 shares autho- rized; issued and outstanding, 10,095,000 shares (pro forma) and 15,095,000 shares (pro forma as adjusted)(1)...... 1,010 1,510 Additional paid-in capital............................. 26,534 85,634 -------- -------- Total stockholders' equity............................. 27,544 87,144 -------- -------- Total capitalization................................. $131,955 $191,555 ======== ========
- -------- (1) Excludes options to purchase 639,500 shares of Common Stock at the initial public offering price and includes 95,000 restricted shares of Common Stock that vest over a two-year period following this offering. In addition, 605,500 shares of Common Stock will be available under the Company's incentive compensation plans for future grants. See "Management--Non-Employee Directors 1996 Stock Incentive Plan," "-- Employee Awards Granted," "--Vencor Employee Option Grants" and "--1996 Stock Ownership Incentive Plan." 15 DILUTION The Company's pro forma net tangible book value at June 30, 1996 was approximately $26.0 million or $2.57 per share of Common Stock. Net tangible book value represents the Company's total tangible assets less total liabilities divided by 10,095,000 shares of Common Stock outstanding. After giving effect to the sale of 5,000,000 shares of Common Stock pursuant to this offering (assuming an initial public offering price of $13.00 per share) and the application by the Company of the estimated net proceeds therefrom, the Company will have 15,095,000 shares of Common Stock outstanding with a pro forma adjusted net tangible book value at June 30, 1996, of approximately $85.6 million or $5.67 per share. This represents an immediate increase in net tangible book value of $3.10 per share to existing investors and an immediate dilution of $7.33 per share in net tangible book value per share to new investors in this offering, as illustrated by the following: Assumed public offering price per share.......................... $13.00 Pro forma net tangible book value per share prior to this offer- ing(1).......................................................... $2.57 Increase per share attributable to new investors................. 3.10 ----- Pro forma adjusted net tangible book value per share after this offering........................................................ 5.67 ------ Net tangible book value dilution per share to new investors(2)... $ 7.33 ======
The following table summarizes on a pro forma basis at June 30, 1996, certain differences between existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the existing investors and by the new investors purchasing shares in this offering (based upon an assumed initial public offering price of $13.00 per share) (dollars in thousands, except per share amounts):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ---------- --------- Existing investors(1)...... 10,095,000 66.9% $ 27,544 29.8% $ 2.73 New investors.............. 5,000,000 33.1 65,000 70.2 13.00 ---------- ----- ----------- --------- Total.................... 15,095,000 100.0% $92,544 100.0% ========== ===== =========== =========
- -------- (1) Excludes options to purchase up to 639,500 shares of Common Stock at the initial public offering price per share and includes 95,000 restricted shares of Common Stock that vest over a two-year period following this offering. See "Management--Non-Employee Directors 1996 Stock Incentive Plan," "--Employee Awards Granted," "--Vencor Employee Option Grants" and "--1996 Stock Ownership Incentive Plan." (2) Dilution is determined, after giving effect to this offering, by subtracting pro forma net tangible book value per share from the assumed initial public offering price of $13.00 per share. Dilution to new investors will be $7.03 per share if the Underwriters' over-allotment option is exercised in full. 16 SELECTED COMBINED FINANCIAL DATA The following table sets forth selected combined financial and statistical data of the Company which have been derived from the consolidated financial statements of Vencor and is presented as if the Company had been operated as a separate entity. The financial statements of the Company for the years ended December 31, 1993, 1994 and 1995 have been audited by Ernst & Young LLP, independent auditors. The selected financial data for the years ended May 31, 1992 and 1993 and the six months ended June 30, 1995 and 1996 were derived from unaudited consolidated financial statements of Vencor and include all adjustments which management considers necessary for a fair presentation of financial position and results of operations for the respective periods. The following data should be read in conjunction with the combined financial statements of the Company included elsewhere in this Prospectus:
YEARS ENDED YEARS ENDED SIX MONTHS ENDED MAY 31, DECEMBER 31, JUNE 30, ------------------ ---------------------------- ------------------ 1992(1) 1993(1) 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA) STATEMENTS OF OPERATIONS DATA: Revenues............... $ 31,664 $ 36,479 $ 35,870 $ 39,758 $ 47,976 $ 23,264 $ 25,448 -------- -------- -------- -------- -------- -------- -------- Salaries, wages and benefits.............. 13,898 14,620 14,735 14,638 17,455 8,515 9,404 Supplies............... 3,289 4,199 4,360 4,023 4,860 2,359 2,450 Rent................... 1,832 563 351 333 383 196 199 Depreciation and amortization.......... 4,751 5,025 4,503 4,541 5,113 2,552 2,625 Non-recurring transactions.......... - - (266) (1,675) 600 - 1,050 Other operating expenses.............. 10,058 9,229 8,031 8,347 9,465 4,714 4,929 -------- -------- -------- -------- -------- -------- -------- 33,828 33,636 31,714 30,207 37,876 18,336 20,657 -------- -------- -------- -------- -------- -------- -------- Operating income (loss)................ (2,164) 2,843 4,156 9,551 10,100 4,928 4,791 Interest expense....... 5,718 5,058 3,499 3,538 4,322 2,286 2,033 Investment income...... (8) (445) (346) (330) (147) (54) (109) -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary loss.... (7,874) (1,770) 1,003 6,343 5,925 2,696 2,867 Provision for income taxes................. (3,110) (699) 396 2,506 2,341 1,065 1,133 -------- -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary loss.... (4,764) (1,071) 607 3,837 3,584 1,631 1,734 Extraordinary loss on extinguishment of debt, net of income taxes................. - - (103) - (146) - - -------- -------- -------- -------- -------- -------- -------- Net income (loss).... $ (4,764) $ (1,071) $ 504 $ 3,837 $ 3,438 $ 1,631 $ 1,734 ======== ======== ======== ======== ======== ======== ======== Pro forma data: Earnings per common share before extraordinary loss.... $ .24 $ .11 Shares used in computing earnings per common share...... 15,095 15,095 STATISTICAL DATA: Number of communities(2): Owned and leased....... 21 20 19 19 20 20 20 Managed................ 2 2 2 2 2 2 2 -------- -------- -------- -------- -------- -------- -------- Total................ 23 22 21 21 22 22 22 ======== ======== ======== ======== ======== ======== ======== Number of units(2): Owned and leased....... 2,900 2,734 2,574 2,531 2,603 2,603 2,603 Managed................ 419 419 419 419 419 419 419 -------- -------- -------- -------- -------- -------- -------- Total................ 3,319 3,153 2,993 2,950 3,022 3,022 3,022 ======== ======== ======== ======== ======== ======== ======== Average occupancy(3)... 80.9% 87.1% 90.8% 93.8% 94.5% 93.2% 95.6% BALANCE SHEET DATA: Cash and cash equivalents........... $ 2,251 $ 2,473 $ 1,695 $ 1,497 $ 2,819 $ 2,535 $ 4,149 Assets................. 135,674 141,151 137,308 133,016 140,917 142,656 141,616 Long-term debt, including amounts due within one year....... 98,705 108,003 91,744 91,193 105,350 106,074 104,411 Stockholder's equity... 24,045 30,049 34,959 31,835 28,447 30,135 27,544
- -------- (1) For accounting purposes, the combined financial information of Atria for years 1991 and 1992 are based upon the previous fiscal reporting periods of such entities which most closely approximate the respective calendar year. Accordingly, operating results for the five months ended May 31, 1993 are included in both May 31, 1993 and December 31, 1993 disclosures. Revenues and net income for such period approximated $15.6 million and $61,000, respectively. (2) At end of period. (3) Average occupancy is calculated by dividing the number of occupied units by the total number of available units during the respective period. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Selected Combined Financial Data and the Combined Financial Statements of Atria included elsewhere in this Prospectus set forth certain information with respect to Atria's financial position, results of operations and cash flows which should be read in conjunction with the following discussion and analysis. COMPANY INFORMATION Atria was incorporated in Delaware on May 1, 1996, as a wholly owned subsidiary of Vencor. Vencor operates an integrated network of health care services primarily focusing on the needs of the elderly. At or prior to completion of this offering, Vencor will contribute to Atria substantially all of its assisted and independent living communities in exchange for shares of Common Stock and Atria will assume certain liabilities related to such communities. On September 28, 1995, Vencor consummated the Hillhaven Merger. For over a decade prior to the Hillhaven Merger, Hillhaven and its subsidiaries operated the assisted and independent living communities now operated by Atria. Prior to the Hillhaven Merger, Hillhaven consummated the Nationwide Exchange on June 30, 1995. Four of the communities now operated by Atria were operated by Nationwide until the effective date of the Nationwide Exchange, and from that date until the consummation of the Hillhaven Merger, by Hillhaven. Atria is a national provider of assisted and independent living communities for the elderly and currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. Atria has 13 assisted living communities containing approximately 850 units under development, of which eleven communities with a capacity of 693 units have obtained zoning approval (including one community currently under construction). Substantially all revenues are derived from private pay sources and are earned from services provided to residents under both daily residence and ancillary service agreements. Fees related to management contracts are not significant. PLANNED DEVELOPMENT AND EXPANSION Atria intends to expand its business in the future through both construction of additional communities and acquisition of existing facilities. The Company plans to add 60 to 85 assisted and independent living communities by the year 2000 (including 13 communities currently being developed). The estimated cost to construct, equip or otherwise acquire such communities could approximate $350 to $500 million. The estimated cost of Atria's planned development and expansion is significantly in excess of: (i) estimated cash flows from operations; (ii) expected proceeds from this offering; and (iii) borrowings to be available under a planned bank credit facility. Management believes that substantial additional financing will be required in approximately eighteen months following completion of this offering to complete Atria's growth plans. Available sources of future capital may include, among other things, equity, public or private debt, and additional bank revolving credits. However, there can be no assurance that such financing will be available on terms which are acceptable to Atria, nor can there be any assurance that additional financing will not be required or sought by Atria prior to eighteen months after completion of this offering. Newly opened communities are expected to incur operating losses until sufficient occupancy levels and operating efficiencies are achieved. Based upon historical experience, management believes that a typical community will achieve its targeted occupancy levels one year from commencement of operations. Accordingly, Atria will require substantial amounts of liquidity to maintain the operation of 18 newly opened communities. In addition, if sufficient occupancy levels related to newly opened communities are not achieved within a reasonable period, the combined results of operations, financial position and liquidity of Atria could be materially and adversely impacted. Atria and Vencor have or will enter into certain agreements which will become effective on or before the completion of this offering. These agreements are intended to facilitate an orderly transition of Atria from a division of Vencor to a separate publicly held entity which will be minimally disruptive to both Atria and Vencor. See Note 6 of the Notes to Combined Financial Statements for a description of these agreements. RESULTS OF OPERATIONS A summary of operations follows:
PERCENTAGE OF REVENUES --------------------------------------- YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------- ------------------ 1993 1994 1995 1995 1996 ----- ----- ----- -------- -------- Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- -------- -------- Salaries, wages and benefits........... 41.1 36.8 36.4 36.6 37.0 Supplies............................... 12.1 10.1 10.1 10.1 9.6 Rent................................... 1.0 0.9 0.8 0.8 0.7 Depreciation and amortization.......... 12.5 11.4 10.7 11.0 10.3 Non-recurring transactions............. (0.8) (4.2) 1.2 - 4.2 Other operating expenses............... 22.5 21.0 19.7 20.3 19.4 ----- ----- ----- -------- -------- 88.4 76.0 78.9 78.8 81.2 ----- ----- ----- -------- -------- Operating income....................... 11.6 24.0 21.1 21.2 18.8 Interest expense....................... 9.8 8.9 9.0 9.8 7.9 Investment income...................... (1.0) (0.9) (0.2) (0.2) (0.4) ----- ----- ----- -------- -------- Income before income taxes and extraordinary loss.................. 2.8 16.0 12.3 11.6 11.3 Provision for income taxes............. 1.1 6.3 4.8 4.6 4.5 ----- ----- ----- -------- -------- Income before extraordinary loss..... 1.7% 9.7% 7.5% 7.0% 6.8% ===== ===== ===== ======== ========
Six Months Ended June 30, 1996 and 1995 Revenues increased 9.4% to $25.4 million in the first six months of 1996 compared to $23.3 million in the same period last year. Excluding the effect of a newly constructed community in February 1995, revenues increased 8.3% primarily as a result of price increases (which approximated 5.0%), growth in occupancy (95.6% in the first six months of 1996 compared to 93.2% a year ago) and growth in ancillary services. Compensation and supply costs as a percentage of revenues remained relatively unchanged in the first six months of 1996 compared to the same period a year ago, while other operating expenses declined to 19.4% of revenues from 20.3% last year due primarily to operating efficiencies associated with the growth in occupancy and the fixed nature of a significant portion of such costs. Operating income declined 2.8% to $4.8 million in the first six months of 1996 compared to $4.9 million in the same period of 1995, and operating income margins declined to 18.8% from 21.2%. Excluding the effect of non-recurring transactions, operating income increased 18.5% to $5.8 million and operating income margins improved to 23.0%. The improvement in operating income (excluding non-recurring transactions) was primarily attributable to growth in revenues, efficiencies associated with growth in occupancy levels and the expansion of higher margin ancillary services. 19 Net income increased 6.3% to $1.7 million in the first six months of 1996 compared to $1.6 million a year ago and net margins declined slightly to 6.8% in 1996 from 7.0% in 1995. Excluding the effect of non-recurring transactions, net income increased 44.9% to $2.4 million in the first six months of 1996. The improvement in net income was primarily attributable to growth in operating income and a decline in interest costs as a result of net reductions in long-term debt and certain refinancings. In anticipation of this offering, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $300,000 in the first six months of 1996 and 1995. In June 1996, Atria recorded a non-recurring pretax charge of $1.1 million ($630,000 net of tax) in connection with the settlement of certain litigation involving a minority partner at one of its communities. Years Ended December 31, 1995, 1994 and 1993 Revenues increased 20.7% to $48.0 million in 1995 and 10.8% to $39.8 million in 1994. Excluding the effect of newly constructed and sold communities, and the purchase of controlling interest in two entities previously accounted for under the equity method, revenues increased 5.9% in 1995 and 11.6% in 1994, primarily as a result of price increases (which approximated 4% in 1995 and 6% in 1994), growth in occupancy levels (94.5% in 1995 compared to 93.8% in 1994 and 90.8% in 1993) and growth in ancillary services. Subsequent to consolidation, revenues recorded for two facilities previously accounted for under the equity method totaled $6.0 million in 1995 and $1.6 million in 1994. Compensation and supply costs as a percentage of revenues improved slightly in 1995 compared to 1994, while other operating expenses declined to 19.7% of revenues from 21.0% in 1994 due primarily to operating efficiencies associated with growth in occupancy and the fixed nature of a significant portion of such costs. Compensation, supply costs and other operating expenses declined significantly as a percentage of revenues in 1994 compared to 1993 primarily as a result of accelerated growth in occupancy. Operating income increased 5.7% to $10.1 million in 1995 and 129.8% to $9.6 million in 1994, and operating income margins declined to 21.1% in 1995 from 24.0% in 1994 and improved from 11.6% in 1993. Excluding the effect of non- recurring transactions, operating income increased 35.9% in 1995 to $10.7 million and 102.5% to $7.9 million in 1994 and operating income margins improved to 22.3% in 1995 from 19.8% in 1994 and 10.8% in 1993. The improvement in operating income (excluding non-recurring transactions) was primarily attributable to growth in revenues, efficiencies associated with growth in occupancy levels and the expansion of higher margin ancillary services. Income before extraordinary loss totaled $3.6 million, $3.8 million and $607,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Excluding the effect of non-recurring transactions, income before extraordinary loss increased 39.3% to $3.9 million in 1995 and 533.6% to $2.8 million in 1994. The increases were primarily attributable to growth in operating income and, in 1994, to the sale of two unprofitable communities (the net operating losses from which totaled approximately $200,000 in 1993). In anticipation of this offering, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $600,000 in 1995, $570,000 in 1994 and $525,000 in 1993. Operating results during the past three years include certain non-recurring transactions. Pretax income in 1995 includes a charge of $600,000 ($360,000 net of tax) related to a writedown of undeveloped property to its estimated net realizable value. Pretax income in 1994 includes a gain on the sale of property aggregating $425,000 ($255,000 net of tax). In addition, settlements of certain litigation 20 increased pretax earnings by approximately $1.3 million ($750,000 net of tax) in 1994 and $266,000 ($160,000 net of tax) in 1993. QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited quarterly financial data for each of the most recent six quarters through the period ended June 30, 1996. Management believes that such unaudited data reflects all adjustments necessary to present fairly the results of operations for the periods presented (dollars in thousands):
THREE MONTHS ENDED --------------------------------------------------------------- JUNE MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 30, 1995 1995 1995 1995 1996 1996 --------- -------- ------------- ------------ --------- ------- Revenues................ $11,367 $11,897 $12,178 $12,534 $12,611 $12,837 Operating income........ 2,337 2,591 2,007(1) 3,165 2,861 1,930(2) Income before income taxes and extraordinary loss................... 1,203 1,493 1,011(1) 2,218 1,927 940(2) Income before extraordinary loss..... 728 903 612(1) 1,341 1,166 568(2) Net income.............. 728 903 466 1,341 1,166 568
- -------- (1) Includes a charge of $600,000 ($360,000 net of tax) related to the writedown of undeveloped property to net realizable value. (2) Includes a charge of $1.1 million ($630,000 net of tax) related to the settlement of certain litigation. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $6.4 million and $3.9 million for the six months ended June 30, 1996 and 1995, respectively, and $8.5 million, $7.6 million and $5.7 million for each of the three years ended December 31, 1995, 1994 and 1993, respectively. The improvement in cash flows from operations in all periods resulted primarily from growth in net income (excluding non- recurring transactions) and, in the first six months of 1996, growth in accounts payable and other accrued liabilities. Current liabilities exceeded current assets by $1.8 million at June 30, 1996 and $776,000, $1.6 million and $386,000 at December 31, 1995, 1994 and 1993, respectively, primarily as a result of the timing of cash settlements of advances from Vencor (which are included in stockholder's equity). Cash and cash equivalents totaled $4.1 million, $2.8 million, $1.5 million and $1.7 million at June 30, 1996 and December 31, 1995, 1994 and 1993, respectively. Atria is currently developing 13 sites for new assisted living communities (approximately 850 units) and has received zoning approvals for eleven of these communities. The estimated aggregate cost of these projects will approximate $55 to $60 million and such communities are expected to be in operation at various dates through June 1998. Management believes that cash flows from operations, the anticipated additional capitalization from this offering, and expected consummation of a separate bank credit facility and promissory note with Vencor on or about the completion of this offering will be sufficient to meet liquidity needs for approximately 18 months following completion of this offering. Atria plans to retain future earnings to finance the growth of its business rather than to pay cash dividends. Payment of cash dividends in the future will depend on the financial condition, results of operations and capital requirements of Atria as well as other factors deemed relevant by the Board of Directors. It is also anticipated that the proposed Atria Credit Facility will prohibit Atria from paying cash dividends. 21 Net cash used in investing activities totaled $1.7 million and $505,000 for the six months ended June 30, 1996 and 1995, respectively, and $2.9 million and $4.0 million for the years ended December 31, 1995 and 1994, respectively. Net cash provided by investing activities totaled $1.3 million for 1993, principally due to the sale of certain assets. Atria's investing activities included capital expenditures related to the development of new facilities and expansion of existing operations totaling $1.8 million and $1.3 million for the six months ended June 30, 1996 and 1995, respectively, and $4.0 million, $5.7 million and $1.7 million for the years ended December 31, 1995, 1994 and 1993, respectively. Net cash used in financing activities was $3.4 and $2.4 million for the six months ended June 30, 1996 and 1995, respectively, and $4.3 million, $3.8 million and $4.9 million for the years ended December 31, 1995, 1994 and 1993, respectively. In all periods, operating cash flows in excess of capital expenditures were used primarily to repay advances from Vencor and, in 1993 and the first six months of 1996, to reduce long-term debt. Excluding acquisitions and development of new facilities, management believes that capital expenditures related to the expansion and improvement of existing communities could approximate $3.0 million in 1996. Management believes that its capital expenditure program is adequate to expand, improve and equip existing communities, and expects to finance such expenditures primarily through cash flows from operations. At June 30, 1996, one project was under construction, the additional cost of which to complete and equip could approximate $3.4 million. The combined financial statements of Atria reflect the anticipated assumption of approximately $95.3 million of Vencor's long-term debt. In addition, Atria intends to refinance all outstanding borrowings under the Vencor bank revolving credit agreement (the balance of which approximated $9.1 million at June 30, 1996) upon completion of this offering from proceeds under a separate bank credit agreement currently being negotiated by Atria. Although the terms have not been finalized, the proposed Atria Credit Facility could aggregate up to $200.0 million in revolving credits, including a letter of credit option not to exceed $70.0 million. It is anticipated that loans under the proposed facility will bear interest, at Atria's option, at either (i) a base rate based on PNC Bank's prime rate of interest or the daily federal funds rate or (ii) a LIBOR rate, plus an additional percentage based on the Company's leverage. It is expected that the credit facility will be secured by all of Atria's property, the capital stock of Atria's subsidiaries and intercompany indebtedness of subsidiaries to Atria. It is also contemplated that the Atria Credit Facility will (i) contain financial covenants and other restrictions that require Atria to meet certain financial tests, (ii) require Vencor to maintain at least a 30% ownership of the Common Stock, (iii) require that there be no change in control of the Company, (iv) limit, among other things, the ability of Atria and certain of its subsidiaries to borrow additional funds, dispose of assets and engage in mergers or other business combinations and (v) prohibit distributions to Atria's stockholders. See "Risk Factors--Need for Additional Financing" and "--Risk of Indebtedness," "Certain Transactions" and Note 4 of Notes to Combined Financial Statements. Included in the Company's long-term debt, including amounts due within one year, of approximately $104.4 million at June 30, 1996 is $62.1 million of indebtedness under industrial revenue bonds which contain covenants requiring certain numbers of income qualified residents. The Company does not presently intend to enter into similar bond financing in the future. See "Risk Factors-- Risk of Indebtedness." The combined financial statements included in this Prospectus are presented as if Atria had been operated as a separate entity. Accordingly, stockholder's equity (which represents Vencor's pre-offering 100% interest) comprises both investments by and non-interest bearing advances from Vencor. Management expects that in connection with this offering, such amounts will be included as part of Atria's permanent equity capitalization. 22 EFFECTS OF INFLATION AND CHANGING PRICES Atria derives substantially all of its revenues from private pay sources within its assisted and independent living business. The terms of most rental agreements approximate one year, generally enabling Atria to increase prices to maintain operating margins. However, management believes that a significant number of competing assisted and independent living communities will be developed in markets in which Atria operates, the effect of which may limit Atria's ability to increase prices to maintain operating margins in the future. In addition, other market conditions, including the effect of unfavorable real estate zoning requirements and increased government regulation, could adversely impact Atria's ability to increase prices or control growth in operating expenses. OTHER INFORMATION In the event that all or part of the previously discussed assumption of approximately $95.3 million of Vencor's long-term debt does not occur prior to the offering, Vencor would remain primarily liable for such debt. Atria and Vencor have agreed that Atria would pay all amounts and otherwise satisfy all obligations related to such long-term debt. In the case of any Vencor long- term debt proposed to be assumed by Atria in the offering, to the extent that Atria and Vencor are unable to obtain consents from holders of such debt to the assumption by Atria of primary liability for such debt, the amount of such debt will be reflected as a liability of Vencor in its financial statements (although Vencor's financial statements will also reflect as an asset a receivable from Atria in an equal amount, which will accrue interest and will be payable on the same terms as such Vencor long-term debt). Furthermore, Vencor may be contingently liable as guarantor of certain long-term debt assumed by Atria in the offering. Certain long-term debt agreements contain customary covenants which include: (i) limitations on additional debt and capital expenditures; (ii) limitations on sales of assets, mergers and changes in ownership; and (iii) maintenance of certain financial ratios. Atria was in material compliance with all such covenants at June 30, 1996. 23 BUSINESS OVERVIEW Atria Communities, Inc. is a national provider of assisted and independent living communities for the elderly. The Company currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. The Company owns 16 of these communities, holds a majority interest in two communities, leases two communities and manages two communities. The Company also has 13 assisted living communities under development with a total of approximately 850 units. To date, the Company has obtained zoning approval for 11 of 13 properties under development. For the year ended December 31, 1995, the Company had revenues and net income of $48.0 million and $3.4 million, respectively, and had an average occupancy rate of 94.5%. For the six months ended June 30, 1996, the Company had revenues and net income of $25.4 million and $1.7 million, respectively, and had an average occupancy rate of 95.6%. Substantially all of the Company's revenues are from private pay sources. INDUSTRY BACKGROUND The assisted and independent living industries are rapidly emerging components of the non-acute health care system for the elderly. According to industry estimates, the assisted and independent living industries represented approximately $10 to $12 billion in revenue in 1995. The assisted living industry serves the long-term needs of the elderly who do not require the more extensive medical services available in skilled nursing facilities, yet who are no longer capable of a totally independent lifestyle. It is estimated that 35% of the people over the age of 85 require assistance with at least one activity of daily living ("ADL"), such as eating, grooming and bathing, personal hygiene and toileting, dressing, transportation, walking and medication reminders. The Company believes that assisted living residents typically desire the comfort and security of having their own "home" yet require help with two or more ADLs on a regular basis. The independent living industry serves the long-term care needs of the elderly who require or prefer only occasional assistance with ADLs and who no longer desire, or cannot maintain, a totally independent lifestyle. The Company believes that a number of significant trends will support the continued growth of the assisted and independent living industries. These trends include: Favorable Demographic Trends. The Bureau of the Census estimates that the 85 and over age group is the fastest growing segment of the population and is projected to increase approximately 42% from 1990 to 2000. The Company believes that with a growing elderly population, the number of people who will need or desire to reside in an assisted or independent living community will also increase. Cost-Containment Pressures. The Company believes its business will benefit from the continuing efforts of the government, private insurers and managed care organizations to contain health care costs by limiting lengths of stay, services and reimbursement amounts in acute care hospitals. As a result of these cost containment efforts, an increasing number of patients seek skilled nursing facility care. Accordingly, many skilled nursing facilities are devoting a greater portion of their capacity to residents with higher reimbursement profiles who require more intensive nursing care. The Company believes there will be opportunities for assisted and independent living facilities to provide accommodations and services to residents who require lower levels of care than may be generally provided to residents in skilled nursing facilities. Limited Supply of Long-Term Care Facilities. Most states have enacted certificate of need or similar legislation which restricts the supply of licensed nursing facility beds. These laws generally limit the construction of new nursing facilities and the addition of beds or services to existing nursing facilities. Construction costs, limitations on government reimbursement for full costs of construction and start-up expenses also constrain growth in the supply of nursing facility beds. According to a 1993 industry report, 24 the average occupancy rate for nursing facilities in the United States was approximately 95%. The Company believes that the limitations on the supply of skilled nursing facility beds will increase the need for assisted living communities, although the number of assisted living units has increased substantially in recent years. Price Advantages. A 1993 industry report indicated that the annual cost per patient for nursing facility care averaged approximately $35,000 in 1993, while the annual per resident cost for assisted living care averaged approximately $24,000. Because rates paid by private pay patients in skilled nursing facilities are higher than government reimbursement rates, the comparable cost advantage of assisted living over a private pay skilled nursing facility rate is even greater. The Company also believes that assisted living compares favorably with home health care, particularly when the prices associated with housing and meal preparation are added to the prices of home health care. Consumer Preference. The Company believes that assisted and independent living communities provide prospective residents and their families with an attractive alternative to skilled nursing facilities. Assisted and independent living facilities allow residents to "age in place" and preserve their independence in a more residential setting. Changing Family Dynamics. As a result of the growing number of two-income families, fewer children are able to care for elderly parents in their own homes. Other factors such as the increase in single-parent households and the increasing geographic dispersion of families also contribute to the inability of many children to care for elderly parents in the home. BUSINESS STRATEGY The Company's predecessors have operated assisted and independent living communities as part of a health care network for over a decade. The Company's objective is to expand its position as a national provider of high-quality assisted and independent living services. The Company is pursuing the following strategies to meet this objective: Rapid Development of Additional Assisted Living Communities and Units. The Company intends to develop or acquire 60 to 85 additional assisted living communities by the year 2000 (including 13 communities currently being developed). The Company plans to expand its base of assisted living communities on a national basis where Vencor has a presence and in other high population density areas. The Company has acquired 13 sites for new assisted living communities and has received zoning approvals for eleven of these sites. The Company also plans to develop additional units for the memory- impaired and convert at least 750 of its existing independent living units to assisted living units by the year 2000. The Company believes that it can accelerate its development efforts by outsourcing selected development functions to third parties, such as preliminary site selection, zoning, architecture and construction. Network with Vencor. The Company intends to develop communities in close proximity to Vencor's facilities, which may facilitate participating with Vencor in providing services to HMOs and other managed care companies. The Company believes that networking opportunities exist between assisted living facilities and long-term care hospitals and skilled nursing facilities. The Company also expects that the geographic proximity to Vencor's nursing and hospital facilities will foster transfers between the Company's communities and Vencor's facilities. Fifteen of the Company's communities are located on or adjacent to a Vencor's facility and certain of the Company's future development efforts will focus on sites near existing Vencor's facilities. It is possible that conflicts of interest may arise between the Company and Vencor. If such conflicts of interest do arise in its dealings with Vencor, the Company anticipates resolving such conflicts on a case-by-case basis, which may include the use of committees comprised of disinterested directors. See "Risk Factors--Relationship with Vencor; Conflicts of Interest." 25 Higher Acuity Service Model. The Company intends to pursue, as appropriate, a higher acuity model of assisted living to enable the Company's residents to "age in place." By making available such extended services as home health care and rehabilitation to its residents, the Company believes that it will be better able to meet the full range of its residents' needs and facilitate longer lengths of stay. Residents will be able to continue to live in the Company's communities unless they develop medical conditions requiring institutional care in a skilled nursing facility or admission to an acute care hospital. Residents currently obtain certain health care services from third parties, including Vencor. The Company may elect to make available certain health care services to its residents on a direct basis in the future. Private Pay Focus. The Company intends to focus its development and marketing efforts on private pay, middle- and upper-income residents. The Company believes that this market represents the largest market opportunity for assisted living services and that private pay residents are more profitable than residents covered by government reimbursement programs. Substantially all of the Company's revenues are derived from private pay sources. SERVICES PROVIDED The Company's mission is to be the leading provider of senior living services by delivering consistent, high-quality, innovative services to its residents and their community. Services provided are designed to respond to residents' individual needs, while promoting independence and dignity. Residents live in private studios or apartments with access to basic services, such as health screenings, blood pressure checks, security, utilities, meal service, housekeeping and laundry services, dietary, exercise and fitness classes, social and recreational programs, 24-hour emergency call systems and local transportation on a van or minibus to physician offices, stores and community events ("Basic Services"). In addition to Basic Services, assisted living residents are offered additional services including an increased level of housekeeping, meal services and assistance with one or more ADLs, such as eating, grooming and bathing, personal hygiene and toileting, dressing, additional transportation, walking and medication reminders ("Assisted Living Services"). Health-related services, which are made available and provided according to the resident's individual needs and in accordance with state regulatory requirements, may include assistance with taking medication and injections, as well as health care monitoring. The Company offers each of its residents a personalized assisted living service plan that may include any combination of ADLs. Residents pay a monthly fee for Basic Services and additional Assisted Living Services are purchased based on hourly rates or in some communities are purchased as part of an increased service package. Most residents rent units through a one-year lease. If the resident dies or transfers to another facility due to the need for a higher level of medical care the lease is no longer binding on the resident. The process of customizing services to meet the needs of residents begins with the resident admission process, where the facility's management staff, the resident and, if appropriate, the resident's family and physician, discuss the resident's needs and develop an appropriate service plan. If recommended by the resident's physician, additional health or medical services may be provided at the facility by a third-party home health care agency or other medical provider such as Vencor. In some states, the Company or one of its subsidiaries is a licensed home health care provider. The service plan is reviewed, monitored and modified on a regular basis. In addition to Basic Services and Assisted Living Services, specially trained staff provide other care and services specifically designed for memory-impaired residents at two communities. These programs provide the attention, care programs and services needed to help memory-impaired residents maintain a higher quality of life. The Company believes that quality care creates satisfied residents who, along with their families, are important referral sources for the Company. The Company has developed quality assurance programs to 26 ensure that service quality is maintained in its communities. The Company conducts periodic surveys of residents to monitor satisfaction with accommodations and services. The Company has established operational standards and performance goals for its communities addressing such matters as food service, housekeeping, maintenance and administration. THE COMPANY'S COMMUNITIES The Company's communities vary in size from 28 to 356 units. Communities are designed to maximize privacy in a home-like, non-institutional atmosphere. The Company adapts its facilities to regional architectural styles and tastes rather than replicate a "prototype" architectural design. Assisted living units are typically studio or one bedroom units ranging in size from 375 to 525 square feet. Independent living units may range from a studio (375 to 425 square feet) to a three bedroom unit (700 to 1,000 square feet). The units typically include a private bathroom, kitchenette, closet, living and sleeping areas, as well as a lockable door, emergency call system, individual temperature controls, fire alarm and sprinkler system, among other amenities. Approximately 40% of a typical community is devoted to common areas and amenities, including reading rooms, family or living rooms and other areas (such as beauty salons, cafes and ice cream parlors) designed to promote interaction among residents. The Company's communities are usually one, two or three stories. Interior layouts are designed to promote a home-like environment, efficient delivery of quality resident care and resident independence. 27 The table below sets forth certain information regarding communities operated by the Company. Except as otherwise noted, the Company owns, directly or indirectly, the following communities:
AVERAGE NUMBER OF UNITS OCCUPANCY FOR --------------------------- THE SIX MONTHS YEAR FIRST INDEPENDENT ASSISTED ENDED COMMUNITY LOCATION(1) OPERATED(2) LIVING LIVING TOTAL JUNE 30, 1996(3) - --------- ----------- ----------- ----------- -------- ----- ---------------- ARIZONA Valley Manor........... Tucson 1975 45 24 69 89.1% Villa Campana.......... Tucson 1984 141 -- 141 96.1 Campana Del Rio(4)..... Tucson 1988 190 24 214 98.8 Kachina Point(4)....... Sedona 1986 102 -- 102 96.2 CALIFORNIA Courtyard at San Mar- cos(4)(5)............. San Marcos 1987 178 34 212 94.3 COLORADO The Court at Castle Gardens(4)............ Northglenn 1986 -- 99(6) 99 100.0 FLORIDA Evergreen Woods........ Spring Hill 1979 161 55 216 91.4 The Heritage........... Brooksville 1992 -- 57(7) 57 84.5 Windsor Woods(4)....... Hudson 1988 127 53 180 99.2 Meridian House(4)(8)... Lantana 1986 140 33 173 95.0 IDAHO Hillcrest.............. Boise 1984 115 -- 115 91.9 INDIANA The Heritage at Wild- wood.................. Wildwood 1995 -- 72 72 89.1 Colonial Oaks(9)....... Marion 1978 63 -- 63 92.3 KANSAS The Hearthstone(4)..... Topeka 1987 115 40 155 98.7 MASSACHUSETTS Foxhill Village(9)..... Westwood 1990 329 27 356 99.8 New Pond Village(10)... Walpole 1990 167 32 199 MISSOURI Villa Ventura.......... Kansas City 1985 129 43 172 96.7 NEW HAMPSHIRE The Greens............. Hanover 1984 28 -- 28 98.8 OHIO McMillen(11)........... Newark 1986 80 -- 80 87.3 UTAH The Crosslands(4)...... Sandy 1986 120 -- 120 95.1 WASHINGTON The Narrows Glen....... Tacoma 1987 142 -- 142 98.4 Laurel House........... Tacoma 1994 -- 57 57 94.7 ----- --- ----- Total........... 2,372 650 3,022 95.6% ===== === =====
- -------- (1) All communities are within ten miles of a Vencor skilled nursing facility, except for Meridian House, The Hearthstone and Villa Ventura. (2) Represents the year in which the Company or a predecessor of the Company opened or commenced operations. (3) Average occupancy is calculated by dividing the number of occupied units by the total number of available units during the respective period. (4) The construction of these communities was financed through the issuance of industrial revenue bonds. See "Risk Factors--Risks of Indebtedness." (5) The Company owns a 65% interest in this community. (6) Includes 22 units for the memory impaired. (7) Includes 44 units for the memory impaired. (8) The Company owns a 99% interest in this community. (9) The Company manages these communities pursuant to management agreements which expire September 30, 1996 (Colonial Oaks) and July 31, 2000 (Foxhill Village). These communities are owned by unaffiliated entities. (10) The Company leases this community from a partnership pursuant to a 99- year lease agreement. The Company will acquire this community in exchange for assuming certain indebtedness upon the satisfaction of certain conditions. (11) The Company leases this community from an unaffiliated entity under a lease agreement expiring on October 31, 1996, at which time the Company expects to renew such agreement. 28 DEVELOPMENT PROGRAM The Company is developing 13 sites for new assisted living communities and has received zoning approvals for eleven of these communities. The table below sets forth certain information regarding the Company's development properties:
ESTIMATED NUMBER OF DEVELOPMENT COMPLETION ASSISTED LOCATION(1) PHASE DATE(2) LIVING UNITS ----------- ------------------ -------------- ------------ Sedona, Arizona................. Zoned May 1997 60(3) Tucson, Arizona................. Zoned(4) September 1997 40 Redding, California(5).......... Zoned April 1997 60 Northglenn, Colorado(6)......... Zoned October 1997 40(7) Lantana, Florida(6)............. Zoned July 1997 60 Atlanta, Georgia................ Zoned August 1997 90 Topeka, Kansas(6)............... Zoned August 1997 60 Kennebunk, Maine................ Zoned September 1997 90 Dennis, Massachusetts........... Land acquired June 1998 60(3) Charlotte, North Carolina....... Zoned December 1997 90 Sandy, Utah..................... Under construction February 1997 63 Virginia Beach, Virginia........ Land acquired November 1997 90 Tacoma, Washington.............. Zoned September 1997 40 --- Total......................... 843 ===
- -------- (1) All properties are located within ten miles of a Vencor skilled nursing facility, except Lantana, Florida, Topeka, Kansas and Charlotte, North Carolina. (2) There can be no assurance that zoning or construction delays will not be experienced. See "Risk Factors--Development and Construction Risks." (3) Includes 20 units for the memory impaired. (4) A special use permit is also required. (5) This property is leased from Vencor pursuant to a 99-year lease, under which the Company will acquire the property upon obtaining certain approvals. All other properties in this table are owned by the Company. (6) These communities are being developed adjacent to existing Company communities. (7) All units will be for the memory impaired. The Company plans to focus on expanding its base of assisted living communities where Vencor has a presence and in other high-density population areas. The Company currently expects to develop or acquire 60 to 85 communities by the year 2000, including communities set forth in the table above. In addition, the Company plans to convert at least 750 of its existing independent living units to assisted living units by the year 2000. The Company believes that it can accelerate its development efforts by outsourcing selected development functions to third parties, including Vencor. While it is expected that most of its expansion will be as a result of development, the Company also intends to acquire existing assisted living facilities or facilities it can reposition as assisted living communities on a selective basis. See "Risk Factors--Development and Construction Risks." The Company is following a disciplined development strategy that begins with site selection. When selecting new development sites, the Company considers the local and regional economic environment, demographics, competition, the labor market, the legislative and regulatory environment and other factors. After targeting a market, the Company engages independent contractors to identify suitable real estate. After the land is acquired, the Company typically initiates the zoning, architectural and construction aspects of development. The Company estimates that zoning and other site approvals may take approximately six months after a site is acquired. Once such approvals are obtained, the Company estimates that construction time will be six to ten months and the cost of each unit will range from $65,000 to $70,000. 29 Existing communities range in size from 28 to 356 units. The Company plans in the future to develop communities typically with approximately 90 units. The Company believes that this size offers marketing and operating advantages, including economies of scale. However, the number of units in a community will depend, among other things, on local market conditions, site availability and site size. Although certain interior layouts will be relatively standard, the Company intends to customize the exterior appearance of each community to reflect local architectural styles and tastes. Prior to the completion of construction, the Company initiates a marketing campaign, emphasizing contacts with potential referral sources. Once opened, the Company estimates that it will take an average of twelve months for communities to achieve targeted occupancy levels. See "Risk Factors-- Development and Construction Risks." The Company also plans to acquire additional assisted living facilities or other properties that can be repositioned as Atria assisted living communities. In evaluating possible acquisitions, the Company considers, among other factors: (i) location, construction quality, condition and design of the facility; (ii) current and projected cash flows; (iii) the ability to increase revenues, occupancy and cash flows by providing a full range of assisted living services; (iv) costs of repositioning (including renovations, if any); and (v) the extent to which the acquisition will complement the Company's development program. See "Risk Factors--Acquisition Risks; Difficulties of Integration." MANAGEMENT OF THE COMMUNITIES An executive director typically manages the day-to-day operations at each community, including oversight of the quality of care, marketing, coordination of services and monitoring financial performance. The executive director is responsible for all personnel, including management, security, staff and independent contractors. Executive directors are compensated based on service quality, as well as financial results. Service quality is assessed, in part, through customer and employee satisfaction surveys. In most cases, each community also has managers for environmental services, care services, the business office, dietary services, activities, security, transportation and sales and marketing. All assisted living communities employ a licensed practical nurse. Some residents contract with third parties such as home health agencies to provide additional services. The Company actively recruits personnel to maintain adequate staffing levels at its existing communities, as well as new staff for new or acquired communities prior to opening. The Company maintains training sites in Tacoma, Washington, and Hudson, Florida, for its executive directors and other key personnel. The Company expects to open two new training sites by the end of 1996. Participants receive intensive training in all facets of community management in three- to four-day sessions. Moreover, the Company offers two different levels of training, such that participants who successfully complete one level return subsequently for the next level of training. Executive directors report to area executive directors. The Company has three area executive directors, each with regional responsibility. Area executive directors report to the Chief Operating Officer or to the Vice President of Operations. MARKETING Each community employs a sales and marketing director. Before opening new communities, the Company typically uses telemarketing, direct mail and newspaper ads for developing awareness of such communities. Once communities are open, the Company's marketing strategy focuses on enhancing the reputation of the communities and creating an awareness of the Company's services among potential referral sources, such as hospitals, rehabilitation hospitals, home health care agencies and other health care providers located near the Company's communities. The Company believes that satisfied residents 30 and their families are the most important referral sources for its established communities. Accordingly, the Company believes that its emphasis on high- quality services and resident satisfaction will result in a strong referral base for its existing communities. The Company also seeks to maintain occupancy levels by retaining residents for longer periods of time by expanding the services available to residents, thereby allowing residents to "age in place." A typical assisted living resident is a female over the age of 80 whose residence was generally within five to ten miles of the community. The decision to relocate to one of the Company's communities is usually made by the resident and their family. COMPETITION The assisted living industry is highly competitive. The Company faces competition from numerous local, regional and national providers of assisted living and long-term care. The Company also competes with companies providing home-based health care. Some of the Company's competitors operate on a not- for-profit basis or as charitable organizations. Many of the Company's competitors are significantly larger and have greater financial resources than the Company. The Company believes that the assisted living industry will become even more competitive in the future. Regulatory barriers to entry into this industry are generally not substantial. If the development of new assisted living communities surpasses the demand for such communities in particular markets, such markets may become saturated. The Company expects to face competition with respect to its acquisition of additional assisted living communities and properties. There can be no assurance that competition will not limit the Company's ability to attract residents and expand its business and will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that assisted and independent living communities compete primarily on the basis of quality of service, services offered, reputation, a facility's location and appearance and prices. The Company believes its communities are distinguishable from assisted and independent living facilities that do not cater primarily to private pay residents because of the quality of services, amenities and physical facilities that the Company is able to offer. In addition, a number of the Company's communities maintain both assisted and independent living units. The Company believes that the ability of these communities to continue to serve residents as their needs increase may be attractive to potential residents. See "Risk Factors--Highly Competitive Industry." FUNDING FOR ASSISTED AND INDEPENDENT LIVING CARE The Company currently, and for the foreseeable future, expects to rely primarily on its residents' ability to pay the Company's charges from their own resources. Inflation or other circumstances that adversely affect the elderly's ability to pay for services could have an adverse effect on the Company's business, financial condition and results of operations. Depending on the nature of an individual's health insurance program or any long-term care insurance policy, the resident may receive reimbursement for certain costs under an "alternate care benefit." Eight of the Company's communities were financed in part through the issuance of tax-free industrial revenue bonds (the "Bonds"). At June 30, 1996, there was $62.1 million principal amount of such Bonds outstanding with an average interest rate of approximately 5.1%. Under the terms of the Bonds, the Company is required to rent approximately 250 assisted and independent living units to individuals who have incomes which are 80% or less of average income levels in a designated market. In certain cases, the Company's ability to increase prices in communities with such Bond financing (in response to higher operating costs or other inflationary factors) could be limited if it affects the ability of the Company to attract and retain residents with qualifying incomes. Government payments for assisted and independent living have been limited. Some state or local governments offer subsidies for rent or services for low- income elderly persons. Others may provide 31 subsidies in the form of additional payments for those who receive Supplemental Security Income. Medicaid provides insurance for certain financially or medically needy persons, regardless of age, and is funded jointly by federal, state and local governments. Payments for the services provided by the Company are not permitted under the Medicaid program absent a waiver. While there are various federal and state initiatives to provide reimbursement for assisted and independent living programs, at this time the Company believes that the level of reimbursement under such federal and state programs would be insufficient to cover the cost of delivering the level of service provided by the Company. GOVERNMENT REGULATION Changes in existing laws and regulations, adoption of new laws and regulations and new interpretations of existing laws and regulations could have a material impact on the Company's operations. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Government Regulation." The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically regulate assisted or independent living facilities. While a number of states have not yet enacted specific assisted living regulations, the Company's communities are subject to regulation, licensing, certificate of need requirements and permitting by state and local health and social service agencies and other regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, physical design, required services and resident characteristics. The Company believes that such regulation will increase in the future. In addition, health care providers are receiving increased scrutiny under anti-trust laws as integration and consolidation of health care delivery increases and affects competition. The Company's communities are also subject to various zoning restrictions, local building codes and other ordinances, such as fire safety codes. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new regulations and their effect on its business. There can be no assurance that the Company's operations will not be adversely affected by regulatory developments. Federal and state anti-remuneration laws, such as the Medicare/Medicaid anti-kickback law, govern certain financial arrangements among health care providers and others who may be in a position to refer or recommend patients to such providers. These laws prohibit, among other things, certain direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of health care items or services. Vencor provides certain services to residents of the Company's communities. The Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to certain contractual relationships between health care providers and sources of patient referral. Similar state laws, which vary from state to state, are sometimes vague and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicare and Medicaid program. There can be no assurance that such laws will be interpreted in a manner consistent with the practices of the Company. The Company believes that its communities are in substantial compliance with applicable regulatory requirements. However, in the ordinary course of business, one or more of the Company's communities could be cited for deficiencies. In such cases, the appropriate corrective action would be taken. To the Company's knowledge, no material regulatory actions are currently pending with respect to any of the Company's communities. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional 32 federal, state and local laws exist which also may require modifications to existing and planned properties to create access to the properties by disabled persons. While the Company believes that its properties are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial. EMPLOYEES The Company has approximately 1,150 employees of which 820 are full time and 330 are part time. Eight full-time employees are employed at the Company's principal executive offices. None of the Company's employees are currently represented by a labor union and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is satisfactory. LITIGATION The Company is involved in various lawsuits and claims arising in the normal course of business. In the opinion of management of the Company, although the outcomes of these suits and claims are uncertain, in the aggregate they should not have a material adverse effect on the Company's business, financial condition and results of operations. 33 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each of the Company's directors and executive officers:
NAME AGE POSITION(S) WITH THE COMPANY ---- --- ---------------------------- W. Bruce Lunsford(1)(2)............ 48 Chairman of the Board W. Patrick Mulloy, II(1)........... 43 Chief Executive Officer, President and Director Ralph H. Bellande.................. 50 Chief Operating Officer J. Timothy Wesley.................. 36 Chief Financial Officer, Vice President of Development and Secretary Sandra Harden Austin(3)(4)......... 48 Director William C. Ballard Jr.(2)(4)....... 55 Director Peter J. Grua(4)(5)................ 42 Director designee Thomas T. Ladt(2)(3)(4)............ 45 Director R. Gene Smith(1)(2)(3)............. 61 Director
- -------- (1) Member of the Executive Committee of which Mr. Lunsford is Chairman. (2) This person also serves as a Vencor director or officer. (3) Member of the Executive Compensation Committee of which Mr. Smith is Chairman. (4) Member of the Audit Committee of which Mr. Ballard is Chairman. Mr. Grua will become a member of the Audit Committee upon his appointment to the Board of Directors. (5) Prior to completion of this offering, Mr. Grua, who has agreed to serve as a director, will be appointed as a director of the Company. W. Bruce Lunsford has served as a director of the Company since May 1996. He is a certified public accountant and an attorney. Mr. Lunsford is a founder of Vencor and has served as Vencor's Chairman of the Board, President and Chief Executive Officer since Vencor commenced operations in 1985. He is a director of National City Corporation, a bank holding company; Churchill Downs Incorporated; and Res-Care, Inc., a provider of residential training and support services for persons with developmental disabilities and certain vocational training services. W. Patrick Mulloy, II has served as the Chief Executive Officer, President and a director of the Company since May 1996. From 1994 to 1996, Mr. Mulloy was a member and of counsel to the law firm of Greenebaum Doll & McDonald PLLC. From 1992 to 1994, Mr. Mulloy served as the Secretary of the Finance and Administration Cabinet for the Commonwealth of Kentucky. For over ten years prior to 1992, Mr. Mulloy engaged in the private practice of law in Louisville, Kentucky. Mr. Mulloy has also been actively involved in commercial and multi-family real estate acquisitions and developments through a family partnership. Ralph H. Bellande has been the Chief Operating Officer of the Company since May 1996. From November 1995 to May 1996, Mr. Bellande served as a Vice President of Vencor and was responsible for managing the assisted living operations of Vencor which are now owned by the Company. From 1987 to 1995, Mr. Bellande was a Vice President of The Hillhaven Corporation and was responsible for managing the assisted living operations which are now owned by the Company. J. Timothy Wesley has been the Chief Financial Officer, Vice President of Development and Secretary of the Company since May 1996. From 1994 to May 1996, Mr. Wesley was Director and Manager of Development at Vencor. From 1992 to 1994, Mr. Wesley was Vice President of Strategic Planning for Home Care Affiliates, Inc., and from 1986 to 1992, he was employed by Humana Inc., most recently as Director of Acquisitions. 34 Sandra Harden Austin has served as a director of the Company since May 1996. Since 1994, Ms. Austin has been President of Physician Services for Caremark International, a provider of health care products and services. Ms. Austin served as President and Chief Operating Officer of University of Chicago Hospitals from 1990 to 1993. Ms. Austin is a director of National City Corporation and Ferro Corporation, a multi-specialty chemical manufacturer. William C. Ballard Jr. has been a director of the Company since May 1996. Mr. Ballard has been a director of Vencor since 1988. Since 1992, Mr. Ballard has been of counsel to the law firm of Greenebaum Doll & McDonald PLLC. From 1981 to 1992, he served as Executive Vice President--Finance and Administration of Humana Inc. Mr. Ballard is also a director of Mid-America Bancorp, United Healthcare Corp., LG&E Energy Corp., Health Care REIT, Inc. and American Safety Razor Inc. Peter J. Grua has agreed to serve as a director and will be appointed as a director prior to the completion of this offering. Since 1992, Mr. Grua has been a principal of HLM Management, an investment management company specializing in entrepreneurial and growth companies. Prior to joining HLM Management, Mr. Grua was a Managing Director of Alex. Brown & Sons Incorporated where he was a research analyst from 1986 to 1992. Thomas T. Ladt has been a director of the Company since May 1996. Mr. Ladt has served as Executive Vice President, Operations of Vencor since February 1996. From November 1995 to February 1996, he served as President of Vencor's Hospital Division. Mr. Ladt was Vice President of Vencor's Hospital Division from 1993 to November 1995. From 1989 to 1993, Mr. Ladt was a Regional Director of Operations for Vencor. R. Gene Smith has served as a director of the Company since May 1996. Mr. Smith has been a director of Vencor since 1985 and Vice Chairman of the Board of Vencor since 1987. 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. Since 1993, Mr. Smith has been Managing General Partner of Direct Programming Services, a marketer of direct broadcast satellite television services. COMMITTEES OF THE BOARD OF DIRECTORS Executive Committee. The members of the Executive Committee are Messrs. Mulloy, Smith and Lunsford. The Executive Committee has been delegated all of the powers of the Board of Directors to the extent permitted under the Delaware General Corporation Law. Executive Compensation Committee. The members of the Executive Compensation Committee are Messrs. Smith and Ladt, and Ms. Austin, all of whom are non- employee directors. The Compensation Committee makes recommendations to the full Board of Directors concerning compensation and benefits for executive officers of the Company. Audit Committee. The members of the Audit Committee are Messrs. Ballard and Ladt, and Ms. Austin, all of whom are non-employee directors. Mr. Grua will become a member of the Audit Committee upon his appointment to the Board of Directors. The Audit Committee, among other things, makes recommendations concerning the engagement of independent auditors, reviews the results and scope of the annual audit and other services provided by the Company's independent auditors, and reviews the adequacy of the Company's internal accounting controls. COMPENSATION OF DIRECTORS Directors not employed by the Company receive $500 for each board meeting they attend. Non-employee directors also receive $250 for each committee meeting they personally attend. In addition, non- 35 employee directors receive a $750 retainer for each calendar quarter they serve as a director. Directors will be reimbursed for reasonable out-of-pocket expenses incurred in attending Board meetings. NON-EMPLOYEE DIRECTORS 1996 STOCK INCENTIVE PLAN Directors not employed by the Company will receive restricted shares of the Common Stock and options to purchase shares of the Common Stock pursuant to the Non-Employee Directors 1996 Stock Incentive Plan (the "Directors Plan"). The Directors Plan provides for an initial, one-time grant of 5,000 restricted shares of Common Stock as of the date of this offering (the "Initial Grant Date"). However, the Chairman of the Board of Directors, Mr. Lunsford, will receive 20,000 restricted shares of Common Stock. The restrictions on all such shares of Common Stock lapse in two equal annual installments, beginning on the first anniversary of the Initial Grant Date. The Directors Plan also provides for an initial grant of options to purchase shares of Common Stock on the Initial Grant Date at the initial public offering price. Each non-employee director will receive an option to purchase 10,000 shares on the Initial Grant Date at the initial public offering price, except the Chairman of the Board of Directors, Mr. Lunsford, who will receive an option to purchase 80,000 shares at the initial public offering price. Each new non-employee director will be granted an option to purchase 10,000 shares of Common Stock on the date of his or her election. The Company will thereafter annually issue, beginning on the first anniversary of the Initial Grant Date, to each of the Company's non- employee directors, an option to purchase 1,000 shares of Common Stock. Subsequent to this offering, all options for directors will be granted at the fair market value of the Common Stock on the date of grant. A total of 250,000 shares are reserved for issuance under the Directors Plan. All options granted under the Directors Plan will become exercisable in four equal annual installments, beginning on the first anniversary of such option's date of grant. COMPENSATION OF EXECUTIVE OFFICERS The Company was organized in May 1996 and its operations since that time have related primarily to its formation and to the Contribution Transaction. During 1996, Messrs. Mulloy, Bellande and Wesley will earn annual salaries of $180,000, $157,500 and $90,000, respectively, exclusive of performance bonuses which will not exceed one-third of base salary for Mr. Mulloy and one-quarter of base salary for Mr. Bellande and Mr. Wesley. EMPLOYEE AWARDS GRANTED Pursuant to the Company's 1996 Stock Ownership Incentive Plan (the "1996 Plan"), certain executive officers of the Company will receive restricted shares and options upon completion of this offering. W. Patrick Mulloy, II, Chief Executive Officer, President and Director, will be granted 30,000 restricted shares of Common Stock and an option to purchase 200,000 shares of Common Stock at the initial public offering price. Ralph H. Bellande, Chief Operating Officer, will receive 15,000 restricted shares of Common Stock and an option to purchase 75,000 shares of Common Stock at the initial public offering price. J. Timothy Wesley, Chief Financial Officer, Vice President of Development and Secretary, will receive 5,000 restricted shares of Common Stock and an option to purchase 35,000 shares of Common Stock at the initial public offering price. Restrictions on all of these restricted shares of Common Stock granted pursuant to the 1996 Plan lapse in two equal annual installments, beginning on the first anniversary of the grant date. All options to purchase Common Stock will be granted at an exercise price equal to the fair market value of the Common Stock on the date the option is granted. These initial option grants will become exercisable in four equal annual installments, beginning on the first anniversary of the grant date. VENCOR EMPLOYEE OPTION GRANTS The Company expects to issue options for 90,000 shares of Common Stock to certain Vencor employees with an exercise price equal to the initial offering price. These options are being granted to 36 incentivize and reward Vencor employees who have provided, and will provide, support services to the Company. These options will become exercisable in four equal annual installments, beginning on the first anniversary of the grant date. See "Certain Transactions." 1996 STOCK OWNERSHIP INCENTIVE PLAN The 1996 Plan provides for the granting of any of the following awards ("Employee Awards") to eligible employees of the Company and its subsidiaries: (i) stock options which do not constitute "incentive stock options" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended ("non- qualified stock options"); (ii) incentive stock options; (iii) restricted shares; and (iv) performance units. The 1996 Plan is intended to provide incentives and rewards for employees to support the execution of the Company's business plan and to associate the interests of employees with those of the Company's stockholders. The 1996 Plan will be administered by a committee composed of two or more directors or by the entire board of directors (the "Committee"). In administering the 1996 Plan, the Committee will determine, among other things: (i) individuals to whom grants of Employee Awards will be made; (ii) the type and size of Employee Awards; (iii) the terms of an Employee Award including, but not limited to, a vesting schedule, exercise price, restriction or performance criteria, and the length of any relevant performance, restriction or option period. The Committee may also construe, interpret and correct defects, omissions and inconsistencies in the 1996 Plan. The Common Stock subject to the 1996 Plan will be authorized but unissued shares or previously acquired shares. The 1996 Plan provides that 1,000,000 shares of Common Stock will be available for grant of Employee Awards and the total number of shares of Common Stock with respect to which stock options may be granted to any individual over the term of the Plan may not exceed 40% of the total shares authorized for the 1996 Plan. The total number of shares of Common Stock available for awards of restricted stock is 20% of the total shares authorized under the 1996 Plan. Pursuant to the 1996 Plan, the number and kind of shares to which Employee Awards are subject may be appropriately adjusted in the event of certain changes in capitalization of the Company, including stock dividends and splits, reclassification, recapitalization, reorganizations, mergers, consolidations, spin-offs, split-ups, combinations or exchange of shares, and certain distributions, and repurchases, of shares. Stock Options. The Committee may grant stock options to eligible individuals in the form of an incentive stock option or a non-qualified stock option. The exercise period for any stock option will be determined by the Committee at the time of grant but may not exceed ten years from the date of grant (five years in the case of an Incentive Stock Option granted to a "Ten-Percent Stockholder" as defined in the 1996 Plan). The exercise price per share of Common Stock covered by a stock option may not be less than 100% of the fair market value of a share of Common Stock on the date of grant (110% in the case of an incentive stock option granted to a Ten-Percent Stockholder). The exercise price is payable, at the Committee's discretion, in cash, in shares of already owned Common Stock or in any combination of cash and shares. Stock options will become exercisable in installments as determined by the Committee and as set forth in the optionee's option agreement. Each option grant may be exercised in whole, at any time, or in part, from time to time, after the grant becomes exercisable. If a participant's employment terminates by reason of death or disability, any outstanding stock options will vest fully and be exercisable at any time within two years following the date of death or disability (but in no event beyond the stated term of the option). Upon an optionee's retirement, stock options will be exercisable at any time prior to the end of the stated term of the stock option or two years following the retirement date in the case of non-qualified stock options and 90 days in the case of incentive stock options, whichever is the shorter period, but only to the extent the stock options are exercisable at retirement. Upon termination for any other reason other than for cause, any previously vested stock options will be exercisable for the lesser of 90 days or the balance of the stock option's stated term. In the event of termination for cause, all options, whether or not exercisable, will terminate. 37 Restricted Stock. Subject to the limitations of the 1996 Plan, the Committee may grant restricted stock to eligible individuals. Restricted stock awards are shares of Common Stock that are subject to restrictions on transfer or other incidents of ownership where the restrictions lapse based solely on continued employment with the Company for specified periods or based on the attainment of specified performance standards in either case, as the Committee may determine. The Committee will determine all terms and conditions pursuant to which restrictions upon restricted stock will lapse. At the discretion of the Committee, certificates representing shares of restricted stock will be deposited with the Company until the restriction period ends. Grantees of restricted stock will have all the rights of a stockholder with respect to the restricted stock and may receive dividends, unless the Committee determines otherwise. Dividends may, at the discretion of the Committee, be deferred until the restriction period ends and may bear interest if the Committee so determines. If a grantee's employment terminates by reason of death or disability prior to the expiration of the restriction period applicable to any restricted shares then held by the grantee, all restrictions pertaining to such shares immediately lapse. Upon termination for any other reason, all restricted shares are forfeited. Performance Units. The Committee may grant performance units to eligible individuals. Each performance unit will specify the performance goals, the performance period and the number of performance units granted. The performance period will be not less than one year, nor more than five years, as determined by the Committee. Performance goals are those objectives established by the Committee which may be expressed in terms of earnings per share, price of the Common Stock, pre-tax profit, net earnings, return on equity or assets, revenues or any combination of the above. Performance goals may relate to the performance of the Company, a subsidiary, a division or other operating unit of the Company. Performance goals may be established as a range of goals if the Committee so desires. If the Committee determines that the performance goals have been met, the grantee will be entitled to the appropriate payment with respect thereto. At the option of the Committee, payment may be made solely in shares of Common Stock, solely in cash, or a combination of cash and shares of Common Stock. Change in Control. Generally, in the event of a "change in control" (as defined in the 1996 Plan) of the Company, all outstanding stock options become fully vested and immediately exercisable in their entirety. In addition, if provided in an optionee's agreement, the optionee will be permitted to sell the option to the Company generally for an amount equal to the excess of (x) the fair market value over (y) the per share exercise price for such shares under the stock option. In addition, all restrictions on restricted stock lapse upon a change in control and outstanding performance units become fully vested and payable in an amount equal to the greater of: (i) the maximum amount payable under the performance unit multiplied by a percentage equal to the percentage that would have been earned assuming the rate at which the performance goals have been achieved as of the date of the change in control would have continued until the end of the performance cycle; or (ii) the maximum amount payable multiplied by the percentage of the performance cycle completed at the time of the change in control. Amendments and Termination. The Board may at any time terminate and, from time to time, may amend or modify the 1996 Plan; provided, however, that no amendment may impair the rights of a participant with respect to outstanding Employee Awards without the participant's consent. Any such action of the Board may be taken without the approval of the Company's stockholders, but only to the extent that such stockholder approval is not required by applicable law or regulation. The 1996 Plan will terminate ten years from its effective date. 38 CERTAIN TRANSACTIONS The following agreements were entered into between the Company and Vencor: Incorporation Agreement. To effect the Contribution Transaction and pursuant to the Incorporation Agreement, Vencor has transferred or agreed to transfer to the Company, or to cause its respective subsidiaries or affiliates to transfer to the Company, their respective interests in the communities. The Company has assumed or agreed to assume all the communities' liabilities in accordance with the Incorporation Agreement. Except as expressly set forth in the Incorporation Agreement, no party is making any representation or warranty as to the assets, businesses or liabilities transferred or assumed as part of the separation, as to any consents or approvals required in connection therewith, as to the value or freedom from counterclaim with respect to any claim of any party, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset transferred. Except as expressly set forth in the Incorporation Agreement, all assets are being transferred on an "as is," "where is" basis, and the Company has agreed to bear the economic and legal risks that the conveyance is insufficient to vest in the Company good and marketable title, free and clear of any security interest or adverse claim. The Company will indemnify Vencor and its subsidiaries against certain losses, claims, damages or liabilities including those arising out of: (i) any inaccurate representation or breach of warranty under the Incorporation Agreement; and (ii) any indebtedness, lease, contract or other obligation referred to in the Incorporation Agreement. The Company will also indemnify Vencor, as a controlling person, against any loss, claim, damage or liability arising out of this offering, except for losses, claims, damages or liabilities arising from information supplied in writing by Vencor for inclusion in this Prospectus. Vencor will similarly indemnify the Company and its subsidiaries with respect to any inaccurate representation or breach of warranty under the Incorporation Agreement. The Incorporation Agreement contains provisions governing the resolution of disputes, controversies or claims (collectively, "Disputes") that may arise between or among the parties. These provisions contemplate that efforts will first be made to resolve such Disputes by referring the matter to senior management or other mutually agreed representatives of the parties. If such efforts are not successful, any party may submit such Dispute to mediation. If such negotiations and mediation are not successful, any party may submit such Dispute to mandatory, binding arbitration, subject to the provisions of the Incorporation Agreement. The Incorporation Agreement contains procedures for the selection of a sole arbitrator of such Dispute and for the conduct of the arbitration hearing, including certain limitations on discovery rights of the parties. These procedures are intended to produce an expeditious resolution of any such Dispute. In the event that any such Dispute is, or is reasonably likely to be, in excess of $5.0 million, or in the event that an arbitration award in excess of $10.0 million is issued in any arbitration proceeding commenced under the Incorporation Agreement, subject to certain conditions, any party may submit such Dispute to a court of competent jurisdiction and the arbitration provisions contained in the Incorporation Agreement will not apply. In the event that the parties do not agree that the amount in controversy is in excess of $5.0 million, the Incorporation Agreement provides for arbitration of such disagreement. The Company will pay Vencor $150,000 for legal and accounting assistance provided to the Company in connection with this offering. Administrative Services Agreement. The Company and Vencor have entered into an Administrative Services Agreement pursuant to which Vencor provides certain administrative services to the Company. The Administrative Services Agreement is a one-year agreement which may be terminated by the Company at any time upon 30 days' written notice to Vencor. Some of the services which will be provided to the Company by Vencor will be finance and accounting, human resources, risk management, legal support, 39 market planning and information systems support. The purpose of the Administrative Services Agreement is to provide for the transition of the Company from being a wholly owned subsidiary of Vencor to being a separate company. The Company, however, may extend the Administrative Services Agreement after the first year on a month-to-month basis or for up to one additional year. In such case, Vencor or the Company may terminate the Administrative Services Agreement upon 60 days' written notice. The Company will pay Vencor approximately $660,000 per year for such services. The Company or Vencor may agree to increase or decrease the services to be provided in accordance with the Administrative Services Agreement, if needed. Services Agreements and Sublease Agreement. The Company and subsidiaries of Vencor have entered into Services Agreements relating to seven communities which are contiguous to Vencor facilities. The Services Agreements pertain to the sharing of costs relating to maintenance and lawn services, marketing, food services, general office, housekeeping and emergency call system. These Services Agreements may be cancelled by either party upon 90 days prior written notice. The maximum amount that the Company expects to pay Vencor in connection with The Services Agreements is $150,000 per year. The Company and Vencor have also entered into a two-year Sublease Agreement covering approximately 4,000 square feet of office space used for the Company's headquarters located in Louisville, Kentucky at an annual rental of $48,300. New Pond Lease. New Pond Village Associates, a partnership owned by subsidiaries of Vencor ("New Pond"), will lease the New Pond Village Retirement Center to Atria pursuant to the terms of a lease which is intended to be categorized as a finance lease for financial and tax accounting purposes. The lease has a term of 99 years, unless earlier terminated. Under the lease, the Company pays no rent as such, but is obligated to pay all ad valorem property taxes, insurance, utilities and all payments required to be made on the indebtedness secured by the leased property. New Pond is obligated to use its reasonable best efforts to obtain the requisite zoning and consent of the holder of the mortgage on the leased property to the conveyance of the leased property to the Company. At such time as such conveyance occurs, the Company will assume the indebtedness secured by the mortgage on the leased property. Guaranty Fee Agreement. Vencor and the Company will enter into a Guaranty Fee Agreement prior to completion of this offering. The Guaranty Fee Agreement provides that the Company will pay to Vencor a fee equal to 1.5% of the average outstanding sum of the principal balance of all debts, letters of credit or obligations of the Company which are guaranteed by Vencor. In connection with the proposed Atria Credit Facility, Vencor will guarantee up to $100.0 million in the first year following this offering, declining to $75.0 million, $50.0 million and $25.0 million in each respective year thereafter. Vencor currently guarantees $62.1 million of industrial revenue bonds and the Company intends to replace such Vencor guarantees with the Atria Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Redding Lease. The Company intends to lease certain real estate in Redding, California from Vencor pursuant to a lease to be categorized as a finance lease for financial and tax accounting purposes. This lease will have a term of 99 years, unless earlier terminated. Under the lease, the Company will pay $1.00 per year rent and will be obligated to pay all ad valorem property taxes, insurance and utilities relating to the leased property. The lease will also require Vencor to use its reasonable best efforts to obtain the requisite approval for the subdivision of a larger parcel of which the leased property is a part. If and when such approval is received, Vencor will convey the property to the Company for $1.00. Registration Rights Agreement. The Company has granted demand and incidental registration rights to Vencor for the registration of shares of Common Stock owned by Vencor under the Securities Act of 1933. See "Description of Capital Stock--Registration Rights Agreement." Voting Agreement. Upon completion of this offering, Vencor will enter into a Voting Agreement pursuant to which it will agree to vote all of its shares of Common Stock at any meeting at which directors are elected in favor of the election of independent directors so that after such election, if such persons 40 are elected, there will be at least two independent directors. The Voting Agreement will continue in effect for five years from the date of this offering so long as Vencor beneficially owns 30% or more of the Common Stock. Tax Sharing Agreement. Vencor and the Company have entered into a Tax Sharing Agreement which generally provides for the manner in which the parties will bear taxes for the short period ending upon the sale by the Company of the Common Stock pursuant to this offering, and income tax deficiencies/refunds resulting from future audit adjustments. The Company will be required to pay to Vencor an amount equal to the excess of the income tax liability which the Company would have for the short period over the amount which the Company has previously paid (or been charged with by Vencor) with respect to such taxes. If additional taxes must be paid by the Company or Vencor as a result of an adjustment made by a tax regulatory authority and as a result of that adjustment the other party would obtain an offsetting tax benefit, the party obtaining the tax benefit pays an amount equal to the additional tax to the party whose income tax liability was increased. Likewise, if income taxes are reduced as a result of an adjustment made by a tax regulatory authority and as a result of that adjustment the other party would suffer an offsetting tax detriment, the party whose taxes were reduced pays that amount to the other party. The Tax Sharing Agreement also contains provisions dealing with challenging adjustments made by tax regulatory authorities, who will bear the expenses of any such challenge and cooperation between the parties. Borrowing From Vencor. A subsidiary of the Company will be indebted to Vencor in the amount of $14.0 million. The indebtedness will be evidenced by a promissory note in favor of Vencor, will bear interest at a rate equal to the floating prime rate of National City Bank, Kentucky plus 1.0%, payable quarterly, and the principal amount will be due one year after this offering. The promissory note may be prepaid, without premium or penalty, at any time after six months. Other Transactions. SCM Partners, a Kentucky general partnership, leases a parking lot next to Company's headquarters in Louisville, Kentucky to Vencor pursuant to a two-year lease. Vencor pays SCM Partners approximately $50,000 per year in connection with such lease. Mr. Mulloy owns a 10.4% interest in SCM Partners. Vencor believes that the terms of such lease are no less favorable than terms which could be obtained from an unrelated third party. William C. Ballard Jr., a director of the Company, is Of Counsel to the law firm of Greenebaum Doll & McDonald PLLC, which is counsel to the Company. In the future, transactions between the Company and its officers, directors, principal stockholders and their affiliates will be on terms no less favorable to the Company than could be obtained from unrelated third parties and any such transactions will be approved by a majority of the disinterested members of the Board of Directors. Although the Company was a wholly owned subsidiary of Vencor at the time it entered into the above described transactions, the Company believes that the terms of such agreements are no less favorable than terms which could be obtained from an unrelated third party. 41 PRINCIPAL STOCKHOLDERS The following table sets forth at June 15, 1996 certain information with respect to beneficial ownership of the Common Stock (assuming completion of the Contribution Transaction and the issuance of the restricted shares of Common Stock), and the common stock of Vencor, by: (i) each person known by the Company to be the beneficial owner of more than five percent of the outstanding Common Stock; (ii) each director and executive officer of the Company; and (iii) all directors and executive officers of the Company as a group. Information is provided with respect to beneficial ownership of Vencor common stock because Vencor may be deemed to be a "parent" of the Company as such term is defined in the rules promulgated under the Securities Exchange Act of 1934 (the "Exchange Act").
COMPANY VENCOR -------------------------------- --------------------- PERCENTAGE OF NUMBER OF COMMON STOCK NUMBER OF SHARES ----------------- SHARES BENEFICIALLY BEFORE AFTER BENEFICIALLY % OF NAME OWNED(1) OFFERING OFFERING OWNED(1) CLASS ---- -------------- -------- -------- ------------ ----- Sandra Harden Austin..... 5,000(2) * * - - William C. Ballard Jr.... 5,000(2) * * 28,907(3) * Ralph H. Bellande........ 15,000(2) * * 592(4) * Peter J. Grua(5)......... 5,000(2) * * - - Thomas T. Ladt........... 5,000(2) * * 83,715(6) * W. Bruce Lunsford........ 10,020,000(7) 99.3% 66.4% 2,251,882(8) 3.2% W. Patrick Mulloy, II.... 30,000(2) * * 1,445(9) * R. Gene Smith............ 5,000(2) * * 1,537,117(10) 2.2% J. Timothy Wesley........ 5,000(2) * * 938(11) * Vencor, Inc.............. 10,000,000(12) 99.1% 66.2% - - All executive officers and directors as a group (9 persons).. 10,095,000(13) 100.0% 66.9% 3,904,596 5.6%
- -------- * Less than one percent. (1) In accordance with Securities and Exchange Commission rules, a person is deemed to have beneficial ownership of any securities as to which such person, directly or indirectly, has or shares voting power or investment power and of any securities with respect to which such person has the right to acquire such voting or investment power within 60 days. Ownership information includes the restricted shares to be awarded upon completion of this offering. Except as otherwise noted in the accompanying footnotes, the named persons have sole voting and investment power. (2) Represents restricted shares of Common Stock. The restrictions lapse in two equal annual installments beginning on the first anniversary of the grant date. (3) Includes an aggregate of 3,000 shares held by charitable remainder trusts for the benefit of family members. Also includes 23,907 shares which may be acquired by Mr. Ballard through the exercise of options. (4) Includes 396 shares held jointly with his spouse. Mr. Bellande shares voting and investment power with his spouse. (5) Prior to completion of this offering, Mr. Grua, who has agreed to serve as a director, will be appointed as a director of the Company. (6) Includes 7,029 shares held by his spouse as custodian for his children and 20,058 shares held by his spouse. With respect to these 27,087 shares, Mr. Ladt shares voting and investment power with his spouse. Includes 24,188 shares which may be acquired by Mr. Ladt through the exercise of options. Excludes 738 shares held in the Vencor, Inc. Retirement Savings Plan for his benefit. 42 (7) Includes 10,000,000 shares held by Vencor. Mr. Lunsford is Chairman of the Board, President and Chief Executive Officer of Vencor. Because Mr. Lunsford has authority to direct the voting and disposition of such shares, he may be deemed to beneficially own these shares. Mr. Lunsford disclaims beneficial ownership of these shares. Includes 20,000 restricted shares of Common Stock. Restrictions on restricted shares lapse in two equal annual installments beginning on the first anniversary of the grant date. (8) Includes 71,412 shares held by a private foundation with respect to which Mr. Lunsford has sole voting power and shared investment power. Also includes 179,159 shares which may be acquired by Mr. Lunsford through the exercise of options. Excludes 15,465 shares held in trust for the benefit of his children and 6,908 shares held in the Vencor, Inc. Retirement Savings Plan for his benefit. (9) Includes 345 shares held by his spouse. Mr. Mulloy shares voting and investment power with his spouse. (10) Includes 36,250 shares held by a private foundation with respect to which Mr. Smith shares sole voting and investment power, and 140,625 shares held by a limited partnership with respect to which he has sole voting and investment power. Also includes 23,907 shares which may be acquired by Mr. Smith through the exercise of options. (11) Represents 938 shares which may be acquired by Mr. Wesley upon exercise of options exercisable as of the day on which he ceased employment with Vencor and became an executive officer of Atria. (12) The address of Vencor, Inc. is 3300 Providian Center, 400 W. Market Street, Louisville, Kentucky 40202. (13) Includes 95,000 restricted shares of Common Stock. The restrictions lapse in two equal annual installments beginning on the first anniversary of the grant date. 43 DESCRIPTION OF CAPITAL STOCK GENERAL The Company's Restated Certificate of Incorporation provides that the authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, par value $.10 per share, and 5,000,000 shares of Preferred Stock, par value $1.00 per share. Upon completion of this offering, 15,095,000 shares of Common Stock will be issued and outstanding (15,845,000 shares if the Underwriters' over-allotment option is exercised in full), and no shares of Preferred Stock will be issued or outstanding. COMMON STOCK The holders of Common Stock are entitled to one vote per share owned of record on all matters voted upon by stockholders. Subject to the requirements (including preferential rights) of any Preferred Stock outstanding, holders of Common Stock are entitled to receive dividends if, as and when declared by the Board out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any, remaining after the payment of all liabilities of the Company and the liquidation preferences of any outstanding Preferred Stock. Holders of the Common Stock have no preemptive rights, no cumulative voting rights and no rights to convert their Common Stock into any other securities, and there are no redemption or sinking fund provisions with respect to the Common Stock. National City Bank will act as the transfer agent and registrar for the Common Stock. PREFERRED STOCK The Board has the authority to issue the authorized shares of Preferred Stock in one or more series and to fix the designations, powers, preferences, rights, qualifications, limitations and restrictions of all shares of each such series, including, without limitation, dividend rates, conversion rights, voting rights, redemption and sinking fund provisions, liquidation preferences and the number of shares constituting each such series, without any further vote or action by the stockholders. The issuance of Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of Common Stock or adversely affect the rights and powers, including voting rights, of the holders of Common Stock. The issuance of Preferred Stock also could have the effect of delaying, deterring or preventing a change in control of the Company without further action by the stockholders. CERTAIN CORPORATE GOVERNANCE MATTERS The Company's Restated Certificate of Incorporation and the Amended and Restated By-laws provide that, commencing with the 1997 annual meeting of stockholders, the Board will be divided into three classes. Following completion of this offering, there will be seven directors. Unless the number of directors is increased prior to the 1997 annual meeting of stockholders, two classes of directors will consist of two directors each and one class will consist of three directors, with the term of office of the first class to expire at the 1998 annual meeting of stockholders, the term of office of the second class to expire at the 1999 annual meeting of stockholders, and the term of office of the third class to expire at the 2000 annual meeting of stockholders. At each succeeding annual meeting of stockholders, directors will be elected to a three-year term of office. The Company's Restated Certificate of Incorporation and the Amended and Restated By-laws provide that: (i) the number of directors of the Company will be fixed by resolution of the Board, but in no event will be less than three nor more than 15 directors; (ii) the directors of the Company in office from time to time will fill any vacancy or newly created directorship on the Board, with any new director to serve in the class of directors to which he or she is so elected; (iii) directors of the Company may be removed only for cause by the holders of at least a majority of the Company's voting stock, provided, however, 44 that prior to the date that Vencor and its affiliates cease owning at least a majority of the Company's Common Stock (the "Trigger Date"), cause is not required for removal of directors; (iv) after the Trigger Date, stockholder action can be taken only at an annual or special meeting of stockholders and not by written consent in lieu of a meeting; and (v) except as described below, special meetings of stockholders may be called only by the Chairman of the Board, the President of the Company or by a majority of the total number of directors of the Company and, prior to the Trigger Date, by Vencor, and the business permitted to be conducted at any such meeting is limited to that stated in the notice of the special meeting. The Amended and Restated By-laws also require that stockholders desiring to bring any business before an annual meeting of stockholders deliver written notice thereof to the Secretary of the Company not fewer than 60 days nor more than 90 days in advance of the annual meeting of stockholders; provided, however, if the date of the meeting is not furnished to stockholders in a notice, or is not publicly disclosed by the Company, more than 70 days prior to the meeting, notice by the stockholder, to be timely, must be delivered to the President or Secretary of the Company not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. The Amended and Restated By-laws also provide that stockholders desiring to nominate persons for election as directors must make their nominations in writing to the President of the Company not fewer than 60 days nor more than 90 days prior to the scheduled date for the annual meeting; provided, however, if fewer than 70 days notice or prior public disclosure of the scheduled date for the annual meeting is given or made, notice by the stockholders, to be timely, must be delivered to the President or Secretary of the Company not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Prior to the Trigger Date, Vencor may nominate persons for election as directors without following the notice pending nomination procedures required of all other stockholders. Under applicable provisions of the Delaware General Corporation Law, the approval of a Delaware corporation's board of directors, in addition to stockholder approval, is required to adopt any amendment to the corporation's certificate of incorporation, but a corporation's by-laws may be amended either by action of its stockholders or, if the corporation's certificate of incorporation so provides, its board of directors. The Restated Certificate of Incorporation and Amended and Restated By-laws provide that the provisions summarized above may not be amended by the stockholders, nor may any provision inconsistent therewith be adopted by the stockholders, without the affirmative vote of the holders of at least 80% of the Company's voting stock, voting together as a single class. The foregoing provisions of the Restated Certificate of Incorporation and Amended and Restated By-laws may discourage or make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase, proxy contest or otherwise. These provisions may have the effect of discouraging certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company first to negotiate with the Company. The Company's management believes that the foregoing measures provide benefits to the Company and its stockholders by enhancing the Company's ability to negotiate with the proponent of any unfriendly or unsolicited proposal to take over or restructure the Company and that such benefits outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. The Company is a Delaware corporation and is subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents an "interested stockholder" (defined generally as a person owning 15% or more of the corporation's outstanding voting stock) from engaging in a "business combination" (as defined in Section 203) with a Delaware corporation for three years following the date such person became an interested stockholder unless: (i) before such person became an interested stockholder, the board of directors of the corporation approved either the transaction in which the interested stockholder became an interested stockholder or the business combination; (ii) upon 45 consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time such transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. Under Section 203, the restrictions described above also do not apply to certain business combinations proposed by an interested stockholder following the public announcement or notification (as required by Section 203) of a transaction which is one of certain extraordinary transactions involving the corporation, is with or by a person who either has not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors, and is approved or not opposed by a majority of the board of directors then in office. As a result of its initial ownership of all of the outstanding Common Stock, Vencor is not subject to the restrictions imposed upon an interested stockholder under Section 203. REGISTRATION RIGHTS AGREEMENT The Company has granted demand and incidental registration rights to Vencor for the registration of shares of Common Stock owned by Vencor under the Securities Act of 1933. Four demand registrations are permitted. The Company will pay the fees and expenses of two demand registrations and the incidental registrations, while Vencor will pay all underwriting discounts and commissions. These registration rights expire five years from the completion of this offering and are subject to certain conditions and limitations, including the right of underwriters to limit the number of shares owned by Vencor included in such registration. 46 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 15,095,000 shares of Common Stock (15,845,000 shares if the Underwriters' over-allotment option is exercised in full). The 5,000,000 shares sold in this offering (or a maximum of 5,750,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction or further registration under the Securities Act, unless held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 10,095,000 shares outstanding are "restricted securities" as that term is defined under Rule 144 and were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act. Such restricted securities may be resold in a public distribution only if registered under the Securities Act (which registration is contemplated with respect to all of such restricted securities as described below) or pursuant to an exemption therefrom, including Rule 144. Vencor, the Company and executive officers and directors of the Company have agreed that they will not sell any shares of Common Stock prior to the expiration of 180 days from the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. In general, under Rule 144, a person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned restricted securities for at least two years is entitled to sell within any three-month period a number of shares that does not exceed the greater of the average weekly trading volume during the four calendar weeks preceding such sale or one percent of the then outstanding shares of the Common Stock, provided certain manner of sale and notice requirements and requirements as to the availability of current public information about the Company are satisfied. In addition, affiliates of the Company must comply with the restrictions and requirements of Rule 144, other than the holding period, to sell shares of Common Stock. A person who is deemed not to have been an "affiliate" of the Company at any time during the 90 days preceding a sale by such person, and who has beneficially owned such shares for at least three years, would be entitled to sell such shares without regard to the volume limitations described above. The Commission has proposed to amend the holding period required by Rule 144 to permit sales of "restricted securities" after one year rather than two years (and two years rather than three years for "non-affiliates" under Rule 144(k)). If such proposed amendment is adopted, restricted securities would become freely tradable (subject to any applicable contractual restrictions) at correspondingly earlier dates. Subject to certain exceptions, Vencor, the Company and the Company's executive officers and directors have agreed with the Underwriters not to sell or otherwise dispose of any shares of Common Stock, any Common Stock issuable upon exercise of options to purchase Common Stock or any securities convertible into or exchangeable for shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. After completion of this offering, Vencor will be entitled to certain rights with respect to the registration of 10,000,000 shares of Common Stock for sale under the Securities Act. See "Description of Capital Stock--Registration Rights Agreement." 47 UNDERWRITING Subject to the terms and conditions contained in the Underwriting Agreement, the underwriters named below (the "Underwriters") through their Representatives, Alex. Brown & Sons Incorporated, Morgan Stanley & Co. Incorporated and J.C. Bradford & Co. have severally agreed to purchase from the Company, the following respective numbers of shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES ----------- --------- Alex. Brown & Sons Incorporated...................................... Morgan Stanley & Co. Incorporated.................................... J.C. Bradford & Co................................................... --------- Total.............................................................. 5,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of the Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 750,000 additional shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to 5,000,000, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over- allotments made in connection with the sale of Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 5,000,000 shares are being offered. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. Stockholders of the Company, holding in the aggregate 10,095,000 shares of Common Stock and restricted shares, have agreed not to offer, sell or otherwise dispose of any of such Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. See "Shares Eligible for Future Sale." The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock will be determined by negotiation among the Company and the Representatives of the Underwriters. Among the factors considered in such 48 negotiations are prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development of other companies which the Company and the Representatives of the Underwriters believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. At the request of the Company, up to 500,000 shares of Common Stock offered hereby have been reserved for sale to certain individuals, including directors and employees of Vencor, the Company and other entities with whom directors of the Company are affiliated, and members of their families. The price of such shares to such persons will be the initial public offering price set forth on the cover of this Prospectus. The number of shares available to the general public will be reduced to the extent those persons purchase reserved shares. Any shares not so purchased will be offered hereby at the initial public offering price set forth on the cover of this Prospectus. LEGAL MATTERS The validity of the shares offered hereby will be passed upon for the Company by Greenebaum Doll & McDonald PLLC, Louisville, Kentucky. William C. Ballard Jr., a director of the Company, is Of Counsel to Greenebaum Doll & McDonald PLLC and as of the date of this Prospectus he beneficially owns 5,000 shares of Common Stock. Alston & Bird, Atlanta, Georgia, is acting as counsel for the Underwriters in connection with certain legal matters relating to the sale of the Common Stock offered hereby. EXPERTS The audited combined financial statements of Atria Communities, Inc. included in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed through the Electronic Data Gathering, Analysis and Retrieval system with the Securities and Exchange Commission (the "SEC") in Washington, D.C., a Registration Statement on Form S-1 (the "Registration Statement," which includes all amendments, exhibits and schedules thereto), pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules and regulations promulgated thereunder, with respect to this offering. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain parts of which are omitted from this Prospectus in accordance with the rules and regulations of the SEC, and to which reference is hereby made. As a result of this offering, the Company will become subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, will be required to file proxy statements, reports and other information with the SEC. The Registration Statement, as well as any such report, proxy statement and other information filed by the Company with the SEC, may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the SEC: Northeast Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such filings may also be obtained from the SEC through the Internet at http://www.sec.gov. 49 Statements made in this Prospectus concerning the provisions of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such statement concerning a contract, agreement or other document filed as an exhibit to the Registration Statement or otherwise filed with the SEC, reference is made to such exhibit or other filing for a more complete description of the matter involved and each such statement is qualified in its entirety by such reference. The Company intends to furnish to its stockholders annual reports containing financial statements audited by an independent accounting firm. The Company also intends to furnish such other reports as it may determine or as may be required by law. 50 ATRIA COMMUNITIES, INC. INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors............................................ F-2 Combined Financial Statements: Combined Statement of Income for the years ended December 31, 1993, 1994 and 1995............................................................... F-3 Combined Balance Sheet, December 31, 1994 and 1995...................... F-4 Combined Statement of Changes in Investments by and Advances from Vencor, Inc. for the years ended December 31, 1993, 1994 and 1995....................... F-5 Combined Statement of Cash Flows for the years ended December 31, 1993, 1994 and 1995............................................................... F-6 Notes to Combined Financial Statements.................................. F-7 Condensed Combined Financial Statements (unaudited): Condensed Combined Statement of Income for the six months ended June 30, 1995 and 1996............................................................... F-14 Condensed Combined Balance Sheet, December 31, 1995 and June 30, 1996... F-15 Condensed Combined Statement of Cash Flows for the six months ended June 30, 1995 and 1996................................................. F-16 Notes to Condensed Combined Financial Statements........................ F-17
F-1 REPORT OF INDEPENDENT AUDITORS The following report is in the form that will be signed upon the completion of the reorganization described in Note 1 to the accompanying combined financial statements. Ernst & Young LLP To the Board of Directors and Stockholders Atria Communities, Inc. We have audited the accompanying combined balance sheet of Atria Communities, Inc. (formerly the assisted and independent living businesses of Vencor, Inc.--see Note 1) as of December 31, 1994 and 1995, and the related combined statements of income, investments by and advances from Vencor, Inc. and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Atria Communities, Inc. at December 31, 1994 and 1995, and the combined results of their operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Louisville, Kentucky June 14, 1996, except for Notes 1 and 7 as to which the date is , 1996 F-2 ATRIA COMMUNITIES, INC. COMBINED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1993 1994 1995 ------- ------- ------- Revenues............................................ $35,870 $39,758 $47,976 ------- ------- ------- Salaries, wages and benefits........................ 14,735 14,638 17,455 Supplies............................................ 4,360 4,023 4,860 Rent................................................ 351 333 383 Depreciation and amortization....................... 4,503 4,541 5,113 Non-recurring transactions.......................... (266) (1,675) 600 Other operating expenses (including amounts paid to Vencor, Inc. of $525 in 1993, $570 in 1994 and $600 in 1995)........................................... 8,031 8,347 9,465 ------- ------- ------- 31,714 30,207 37,876 ------- ------- ------- Operating income.................................... 4,156 9,551 10,100 Interest expense.................................... 3,499 3,538 4,322 Investment income................................... (346) (330) (147) ------- ------- ------- Income before income taxes and extraordinary loss... 1,003 6,343 5,925 Provision for income taxes.......................... 396 2,506 2,341 ------- ------- ------- Income before extraordinary loss.................... 607 3,837 3,584 Extraordinary loss on extinguishment of debt, net of income tax benefit of $69 in 1993 and $93 in 1995.. (103) - (146) ------- ------- ------- Net income........................................ $ 504 $ 3,837 $ 3,438 ======= ======= ======= Unaudited pro forma data: Earnings per common share: Income before extraordinary loss................... $ .24 Extraordinary loss on extinguishment of debt....... (.01) ------- Net income........................................ $ .23 ======= Shares used in computing earnings per common share............................................. 15,095
The accompanying notes are an integral part of the combined financial statements. F-3 ATRIA COMMUNITIES, INC. COMBINED BALANCE SHEET DECEMBER 31, 1994 AND 1995 (IN THOUSANDS)
1994 1995 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,497 $ 2,819 Accounts receivable less allowance for loss of $46--1994 and $89--1995............................................ 522 561 Other..................................................... 510 366 -------- -------- 2,529 3,746 Property and equipment, at cost: Land...................................................... 19,679 20,668 Buildings................................................. 111,553 122,986 Equipment................................................. 8,820 10,510 Construction in progress.................................. 1,540 73 -------- -------- 141,592 154,237 Accumulated depreciation.................................. (18,637) (23,027) -------- -------- 122,955 131,210 Notes receivable........................................... 4,552 - Intangible assets less accumulated amortization of $2,641-- 1994 and $3,294--1995.............................................. 2,114 2,173 Other...................................................... 866 3,788 -------- -------- $133,016 $140,917 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 1,853 $ 1,875 Salaries, wages and other compensation.................... 970 1,019 Other accrued liabilities................................. 750 784 Long-term debt due within one year........................ 594 844 -------- -------- 4,167 4,522 Long-term debt............................................. 90,599 104,506 Deferred credits and other liabilities..................... 6,415 3,442 Contingencies Stockholder's equity: Investments by and advances from Vencor, Inc.............. 31,835 28,447 -------- -------- $133,016 $140,917 ======== ========
The accompanying notes are an integral part of the combined financial statements. F-4 ATRIA COMMUNITIES, INC. COMBINED STATEMENT OF CHANGES IN INVESTMENTS BY AND ADVANCES FROM VENCOR, INC. FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS)
1993 1994 1995 ------- ------- ------- Balance at beginning of period....................... $27,219 $34,959 $31,835 Net income.......................................... 504 3,837 3,438 Net cash advances by (payments to) Vencor, Inc...... 3,899 (6,811) (6,350) Non-cash transfers from (to) Vencor, Inc. (principally property and equipment, at cost)...... 3,337 (150) (476) ------- ------- ------- Balance at end of period............................. $34,959 $31,835 $28,447 ======= ======= =======
The accompanying notes are an integral part of the combined financial statements. F-5 ATRIA COMMUNITIES, INC. COMBINED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS)
1993 1994 1995 -------- ------- ------- Cash flows from operating activities: Net income........................................ $ 504 $ 3,837 $ 3,438 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 4,503 4,541 5,113 Provision for doubtful accounts................. 18 7 79 Deferred income taxes........................... 748 169 (63) Extraordinary loss on extinguishment of debt.... 172 - 239 Non-recurring transactions...................... - (425) 600 Other........................................... (104) (745) (261) Change in operating assets and liabilities: Accounts receivable............................ 913 (212) (240) Other assets................................... 111 18 234 Accounts payable............................... 436 572 53 Other accrued liabilities...................... (1,633) (179) (661) -------- ------- ------- Net cash provided by operating activities..... 5,668 7,583 8,531 Cash flows from investing activities: Purchase of property and equipment................ (1,716) (5,714) (4,025) Sale of assets.................................... 3,078 672 - Collection of notes receivable.................... 35 1,800 - Net change in partnership investments............. 107 (814) 716 Other............................................. (179) 54 437 -------- ------- ------- Net cash provided by (used in) investing activities................................... 1,325 (4,002) (2,872) Cash flows from financing activities: Issuance of long-term debt........................ 12,950 6,450 6,806 Repayment of long-term debt....................... (21,337) (3,348) (4,659) Net advances from (payments to) Vencor, Inc....... 3,899 (6,811) (6,350) Other............................................. (412) (70) (134) -------- ------- ------- Net cash used in financing activities......... (4,900) (3,779) (4,337) -------- ------- ------- Change in cash and cash equivalents................ 2,093 (198) 1,322 Cash and cash equivalents at beginning of period... (398) 1,695 1,497 -------- ------- ------- Cash and cash equivalents at end of period......... $ 1,695 $ 1,497 $ 2,819 ======== ======= ======= Supplemental information: Interest payments................................. $ 3,352 $ 3,667 $ 4,397 Income tax payments (refunds)..................... (366) 2,336 2,310 Non-cash transactions: Exchange of note receivable for additional partnership interest............................ - - 4,552 Exchange of long-term debt in lieu of cash in connection with sale of a facility......................... 6,471 - -
The accompanying notes are an integral part of the combined financial statements. F-6 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1--ACCOUNTING POLICIES Basis of Presentation In May 1996, the Board of Directors of Vencor, Inc. ("Vencor") authorized management to establish a wholly owned subsidiary, Atria Communities, Inc. ("Atria") to operate Vencor's assisted and independent living business. As part of that transaction, management intends to consummate an initial public offering (the "IPO") of 5,000,000 shares of Atria's common stock. Upon completion of the IPO, it is expected that Vencor will own 10,000,000 shares of Atria common stock. The accompanying combined historical financial statements reflect the operations of the assisted and independent living business of Vencor which are to be transferred to Atria at or prior to completion of the IPO. These financial statements have been derived from the consolidated financial statements of Vencor and are presented as if Atria had been operated as a separate entity. The combined financial statements have been prepared in accordance with generally accepted accounting principles and include amounts based upon the estimates and judgments of management. Actual amounts may differ from these estimates. Revenues Revenues are recognized when services are rendered and consist of daily resident fees and fees for other ancillary services. Agreements with residents are generally for a term of one year. Revenues from management contracts are recognized in the period earned in accordance with the terms of the management agreement. Substantially all revenues are derived from private pay sources. A summary of revenues follows (dollars in thousands):
1993 1994 1995 ------- ------- ------- Owned and leased facilities............................ $35,515 $39,340 $47,635 Managed facilities..................................... 355 418 341 ------- ------- ------- $35,870 $39,758 $47,976 ======= ======= =======
The terms of resident agreements at one community require the resident to forfeit a certain percentage of the face amount of a resident mortgage bond (purchased by the resident at the inception of the residency agreement) to Atria upon termination of the residency agreement. These amounts are recorded as deferred revenue at the inception of the residency agreement and recognized as income on a straight-line basis over the estimated stay of a resident. See Note 4. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments. Allowance for Doubtful Accounts A summary of the allowance for doubtful accounts follows (dollars in thousands):
1993 1994 1995 ---- ---- ---- Balance at beginning of period.............................. $29 $47 $ 46 Provision for doubtful accounts............................ 18 7 79 Accounts written off....................................... - (8) (36) --- --- ---- Balance at end of period.................................... $47 $46 $ 89 === === ====
F-7 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--ACCOUNTING POLICIES (CONTINUED) Property and Equipment Property and equipment are recorded at cost and include interest capitalized on significant construction projects during the construction period as well as other costs directly related to the development and construction of communities. Depreciation expense, computed by the straight-line method, was $3.7 million in 1993, $3.8 million in 1994 and $4.4 million in 1995. Depreciable lives for buildings range generally from 20 to 45 years. Estimated useful lives of equipment vary from 5 to 10 years. The Financial Accounting Standards Board (the "FASB") issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning after December 15, 1995. The provisions of this statement, which will be adopted in 1996, are not expected to have a material impact on the combined financial statements. Intangible Assets Intangible assets consist primarily of debt issuance costs and are amortized by the straight-line method based upon the lives of the respective loans. Income Taxes Vencor and its wholly owned subsidiaries (including such entities comprising the operations of Atria) file federal and certain state income tax returns on a consolidated basis. Accordingly, provision for income taxes recorded in the consolidated financial statements of Vencor have been apportioned to Atria on a divisional basis. However, for purposes of the accompanying combined financial statements, provision for income taxes has been recorded as if Atria were filing separate income tax returns. Upon completion of the IPO, Atria and its subsidiaries will file separate income tax returns and will not be eligible for inclusion in the consolidated income tax returns of Vencor. Minority Interest in Consolidated Entities The combined financial statements include all assets, liabilities, revenues and expenses of partnerships controlled by Atria. Minority interests in the earnings and equity of these entities are not significant. Earnings per Common Share The operations of Atria are included in the consolidated financial statements of Vencor on a divisional basis. Accordingly, historical stockholder's equity accounts and related earnings per common share data are not presented in the accompanying combined financial statements. Pro forma earnings per common share are based upon the expected number of common shares outstanding as a result of the IPO and include the issuance of 95,000 shares of restricted stock. See Note 7. NOTE 2--NON-RECURRING TRANSACTIONS Results of operations for 1995 include a charge of $600,000 related to the writedown of undeveloped property to its estimated net realizable value. Operating results in 1994 include a gain on the sale of property aggregating $425,000. Settlements of certain litigation increased income before income taxes by approximately $1.3 million in 1994 and $266,000 in 1993. F-8 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--INCOME TAXES A summary of provision for income taxes follows (dollars in thousands):
1993 1994 1995 ----- ------ ------ Current: Federal............................................ $(348) $1,965 $2,021 State.............................................. (4) 372 383 ----- ------ ------ (352) 2,337 2,404 Deferred............................................ 748 169 (63) ----- ------ ------ $ 396 $2,506 $2,341 ===== ====== ====== Reconciliation of federal statutory rate to effective income tax rate follows: 1993 1994 1995 ----- ------ ------ Federal statutory rate.............................. 35.0% 35.0% 35.0% State income taxes, net of federal income tax bene- fit................................................ 2.6 4.1 4.0 Other items, net.................................... 1.9 0.4 0.5 ----- ------ ------ Effective income tax rate.......................... 39.5% 39.5% 39.5% ===== ====== ======
Effective January 1, 1993, Atria adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires, among other things, recognition of deferred income taxes using the liability method rather than the deferred method. The effect of this change had no material effect on net income. A summary of deferred income taxes by source included in the combined balance sheet at December 31 follows (dollars in thousands):
1994 1995 ------------------ ------------------ ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- Depreciation........................... $ - $2,441 $ - $2,954 Partnerships........................... 1,645 - 1,908 - Compensation........................... 118 - 187 - Other.................................. - 92 152 - ------ ------ ------ ------ $1,763 $2,533 $2,247 $2,954 ====== ====== ====== ======
Deferred income taxes totaling $62,000 and $79,000 at December 31, 1994 and 1995, respectively, are included in other current assets. Non-current deferred income taxes, included principally in deferred credits and other liabilities, totaled $832,000 and $786,000 at December 31, 1994 and 1995, respectively. F-9 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--LONG-TERM DEBT A summary of long-term debt at December 31 follows (dollars in thousands):
1994 1995 ------- -------- Industrial revenue bonds, 3.2% to 9.9% (rates, generally floating, average 5.5%) payable in periodic installments through 2025............................................ $55,305 $ 66,456 Non-interest bearing residential mortgage bonds, payable in periodic installments through 2039................... 32,583 33,344 Collateralized borrowings under Vencor bank revolving credit agreement (floating rates averaging 6.9%)........ - 5,550 Subordinated debentures due 2008 (floating rates averag- ing 7%)................................................. 3,305 - ------- -------- Total debt, average life of 24 years (rates averaging 3.9%)................................................. 91,193 105,350 Amounts due within one year.............................. 594 844 ------- -------- Long-term debt......................................... $90,599 $104,506 ======= ========
Under the terms of a residency agreement at one community, residents are required to purchase a residential mortgage bond which entitles them to occupy a residential unit and to receive services and use the community as described in the agreement. The face amount of each bond is equal to the market value of the residential unit to be occupied by the resident. The bonds represent non- interest bearing loans to the Company and are non-transferrable. The first maturity date of each bond is January 1, 2040; however, the Company is required to redeem a bond within 180 days of the termination of a residency agreement, at which time Atria is required to repay the residential mortgage bond to the resident less a fee of up to 20% of the face amount of the bond. Maturities of long-term debt in years 1997 through 2000 are $849,000, $852,000, $854,000 and $857,000, respectively. Certain long-term debt agreements contain customary covenants which include (i) limitations on additional debt and capital expenditures, (ii) limitations on sales of assets, mergers and changes in ownership and (iii) maintenance of certain financial ratios. The estimated fair value of Atria's long-term debt was $78.0 million and $91.8 million at December 31, 1994 and 1995, respectively, compared to carrying amounts aggregating $91.2 million and $105.4 million. The estimate of fair value is based upon the quoted market prices for the same or similar issues of long-term debt, or on rates available to Atria for debt of the same remaining maturities. Concurrently with the consummation of the IPO, Atria expects to enter into a bank credit facility (the "Atria Credit Facility"), which will have a maturity of four years and may be extended at the option of the banks for an additional year. Although the terms of the Atria Credit Facility have not yet been finalized, it is presently expected to aggregate up to $200.0 million in revolving credits, including a letter of credit option not to exceed $70.0 million. It is anticipated that loans under the Atria Credit Facility will bear interest, at Atria's option, at either (i) a base rate based on PNC Bank's prime rate or the daily federal funds rate or (ii) a LIBOR rate, plus an additional percentage based on Atria's leverage. It is expected that obligations under the Atria Credit Facility will be secured by all of Atria's property, the capital stock of Atria's present and future principal subsidiaries and all intercompany indebtedness owed to Atria by its subsidiaries. It is also contemplated that the Atria Credit Facility will contain various affirmative, negative and financial covenants. The Atria Credit Facility will be conditioned upon, among other things, consummation of the IPO (the net proceeds from which must aggregate at least $50.0 million), the absence of a change in control of Atria, and Vencor's ownership of a stipulated percentage of the Common Stock upon consummation of the IPO and at least a 30% ownership interest thereafter. F-10 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--LONG-TERM DEBT (CONTINUED) Upon consummation of the IPO, Atria intends to refinance all outstanding borrowings under the Vencor bank revolving credit agreement in the table above through proceeds under the Atria Credit Facility. NOTE 5--CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as deductions that continue to be claimed on tax returns. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Atria's liquidity, financial position or results of operations. Principal contingencies are described below: Atria is a party to certain litigation involving a minority partner at one of its communities. In June 1996, Atria agreed to settle such litigation and acquire all remaining partnership interests in exchange for cash payments approximating $1.1 million ($630,000 net of tax) payable over three years. The amounts related to this settlement will be charged to earnings upon execution of final settlement agreements. The combined financial statements of Atria reflect the anticipated assumption of approximately $95.3 million of Vencor's long-term debt. In the event that all or part of the assumption does not occur prior to the IPO, Vencor would remain primarily liable for such debt. Atria and Vencor have agreed that Atria would pay all amounts and otherwise satisfy all obligations related to such long-term debt. In the case of any Vencor long-term debt proposed to be assumed by Atria in the IPO, to the extent that Atria and Vencor are unable to obtain consents from holders of such debt to the assumption by Atria of primary liability for such debt, the amount of such debt will be reflected as a liability of Vencor in its financial statements (although Vencor's financial statements will also reflect as an asset a receivable from Atria in an equal amount, which will accrue interest and will be payable on the same terms as such Vencor long-term debt). Furthermore, Vencor may be contingently liable as guarantor of certain long-term debt assumed by Atria in the IPO. NOTE 6--TRANSACTIONS WITH VENCOR Atria and Vencor or its subsidiaries have or will enter into certain arrangements which will become effective on or before the completion of the IPO. The agreements are intended to facilitate an orderly transition of Atria from a division of Vencor to a separate publicly held entity which will be minimally disruptive to both Atria and Vencor. A summary of such arrangements follows: Administrative Services--Vencor will provide to Atria for a period of one year various administrative services in such areas as finance and accounting, human resources, risk management, legal support, market planning and information systems support. Atria may extend the Administrative Services Agreement for up to one additional year, subject to termination by either party upon 60 days prior written notice. Atria will pay Vencor approximately $660,000 per year for such services. Shared Services--Atria and subsidiaries of Vencor will share certain costs at seven communities relating to marketing and certain administrative services. These agreements may be cancelled by either party upon 90 days prior written notice. Atria will pay a maximum of $150,000 per year for such services. F-11 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--TRANSACTIONS WITH VENCOR (CONTINUED) Guarantees--Vencor will guarantee for four years certain borrowings by Atria under the Atria Credit Facility in amounts up to $100.0 million in the first year following the IPO, declining to $75.0 million, $50.0 million and $25.0 million in each respective year thereafter. Atria will pay to Vencor a fee equal to 1.5% of any guaranteed amounts. Leases--Atria will lease certain properties from Vencor, including its headquarters office space. Borrowing From Vencor--A subsidiary of Atria is indebted to Vencor in the amount of $14.0 million. The indebtedness will be evidenced by a promissory note in favor of Vencor, will bear interest at a rate equal to the floating prime rate of National City Bank, Kentucky plus 1.0%, payable quarterly, and the principal amount will be due one year after the IPO. The promissory note may be prepaid, without premium or penalty, at any time after six months. Income Taxes--A tax sharing agreement will provide for risk-sharing arrangements in connection with various income tax related issues. Registration Rights--Atria has granted demand and piggyback registration rights to Vencor with respect to registration under the Securities Act of 1933 of Atria Common Stock owned by Vencor. Four demand registrations are permitted. Atria will pay the fees and expenses of two demand registrations and the piggyback registrations, while Vencor will pay all underwriting discounts and commissions. The registration rights expire five years from the completion of the IPO and are subject to certain conditions and limitations, including the right of underwriters of an offering to limit the number of shares owned by Vencor included in such registration. Registration Expenses--Atria will pay Vencor $150,000 for Vencor's assistance provided to Atria in connection with the IPO. Liabilities and Indemnifications--Atria will assume all contractual liabilities relating to the assets transferred by Vencor to Atria. In anticipation of the IPO, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $525,000 in 1993, $570,000 in 1994 and $600,000 in 1995. NOTE 7--CAPITAL STOCK Atria's Restated Certificate of Incorporation authorizes 50,000,000 shares of common stock (par value $.10 per share) and 5,000,000 shares of preferred stock (par value $1.00 per share). Upon consummation of the IPO, 15,095,000 shares of common stock are expected to be issued and outstanding. No shares of preferred stock will be issued in connection with the IPO. The accompanying combined financial statements are presented as if Atria had been operated as a separate entity. Accordingly, stockholder's equity (which represents Vencor's pre-IPO 100% interest) comprises both investments by and non-interest bearing advances from Vencor. Management expects that in connection with the IPO, such amounts will be included as part of Atria's permanent equity capitalization. Atria has established certain stock compensation plans under which options to purchase common stock may be granted to officers, key employees and directors who are not employees of Atria. Options may be granted at not less than market price on the date of grant, and the initial options to be granted will become exercisable as to one-fourth of the shares annually over a four- year period and are exercisable for a period ending ten years after grant. The plans also provide that awards of restricted stock may be F-12 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 7--CAPITAL STOCK (CONTINUED) distributed to officers, key employees and certain directors. The initial restricted stock to be granted will vest one-half annually over a two-year period. No options have been granted and no restricted shares have been awarded under the plans. Upon consummation of the IPO, the Board of Directors of Atria intends to grant approximately 639,500 stock options (to be granted at a value equal to the IPO price) and award approximately 95,000 restricted shares. Atria will account for stock option grants in accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". In October 1995, the FASB issued Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which provides an alternative to APB 25 and allows for a fair value-based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under APB 25, SFAS 123 requires disclosure of the pro forma effect on net income and earnings per share of the fair value-based accounting for these arrangements. These disclosure requirements are effective for Atria beginning in 1996. NOTE 8--EMPLOYEE BENEFIT PLANS Atria participates in Vencor's defined contribution retirement plans covering employees who meet certain minimum eligibility requirements. Benefits are determined as a percentage of a participant's contributions and are generally vested based upon length of service. Retirement plan expense was $58,000 for 1993, $66,000 for 1994 and $77,000 for 1995. Amounts equal to retirement plan expense are funded annually. Upon consummation of the IPO, Atria will continue to participate in a substantial number of Vencor employee benefit plans. NOTE 9--ACCRUED LIABILITIES A summary of other accrued liabilities at December 31 follows (dollars in thousands):
1994 1995 ---- ---- Taxes other than income........................................... $579 $697 Interest.......................................................... 145 70 Other............................................................. 26 17 ---- ---- $750 $784 ==== ====
NOTE 10--FAIR VALUE DATA A summary of fair value data at December 31 follows (dollars in thousands):
1994 1995 ---------------- ---------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- ------- -------- ------- Cash and cash equivalents (Note 1)......... $ 1,497 $ 1,497 $ 2,819 $ 2,819 Notes receivable........................... 4,552 4,249 - - Long-term debt, including amounts due within one year (Note 4).................. 91,193 78,028 105,350 91,822
F-13 ATRIA COMMUNITIES, INC. CONDENSED COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1995 1996 ------- ------- Revenues..................................................... $23,264 $25,448 ------- ------- Salaries, wages and benefits................................. 8,515 9,404 Supplies..................................................... 2,359 2,450 Rent......................................................... 196 199 Depreciation and amortization................................ 2,552 2,625 Non-recurring transactions................................... - 1,050 Other operating expenses (including amounts paid to Vencor, Inc. of $300 in 1996 and 1995)...................................... 4,714 4,929 ------- ------- 18,336 20,657 ------- ------- Operating income............................................. 4,928 4,791 Interest expense............................................. 2,286 2,033 Investment income............................................ (54) (109) ------- ------- Income before income taxes................................... 2,696 2,867 Provision for income taxes................................... 1,065 1,133 ------- ------- Net income................................................. $ 1,631 $ 1,734 ======= ======= Pro forma data: Earnings per common share................................... $ .11 Shares used in computing earnings per common share.......... 15,095
The accompanying notes are an integral part of the condensed combined financial statements. F-14 ATRIA COMMUNITIES, INC. CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED) (IN THOUSANDS)
DECEMBER 31, JUNE 30, 1995 1996 ------------ -------- ASSETS Current assets: Cash and cash equivalents.............................. $ 2,819 $ 4,149 Accounts receivable less allowance for loss of $89-- 1995 and $99--1996......................................... 561 794 Other.................................................. 366 323 -------- -------- 3,746 5,266 Property and equipment, at cost: Land................................................... 20,668 20,672 Buildings.............................................. 122,986 123,227 Equipment.............................................. 10,510 10,950 Construction in progress............................... 73 1,195 -------- -------- 154,237 156,044 Accumulated depreciation............................... (23,027) (25,319) -------- -------- 131,210 130,725 Intangible assets less accumulated amortization of $3,294--1995 and $3,456--1996........................................... 2,173 1,586 Other................................................... 3,788 4,039 -------- -------- $140,917 $141,616 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable....................................... $ 1,875 $ 3,553 Salaries, wages and other compensation................. 1,019 1,212 Other accrued liabilities.............................. 784 1,440 Long-term debt due within one year..................... 844 825 -------- -------- 4,522 7,030 Long-term debt.......................................... 104,506 103,586 Deferred credits and other liabilities.................. 3,442 3,456 Contingencies Stockholder's equity: Investments by and advances from Vencor, Inc........... 28,447 27,544 -------- -------- $140,917 $141,616 ======== ========
The accompanying notes are an integral part of the condensed combined financial statements. F-15 ATRIA COMMUNITIES, INC. CONDENSED COMBINED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) (IN THOUSANDS)
1995 1996 ------- ------- Cash flows from operating activities: Net income.................................................. $ 1,631 $ 1,734 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 2,552 2,625 Deferred income taxes...................................... (29) 35 Non-recurring transactions................................. - 1,050 Other...................................................... 127 (13) Change in operating assets and liabilities: Accounts receivable....................................... (494) (246) Other assets.............................................. 256 (151) Accounts payable.......................................... (627) 896 Other accrued liabilities................................. 494 506 ------- ------- Net cash provided by operating activities................ 3,910 6,436 Cash flows from investing activities: Purchase of property and equipment.......................... (1,252) (1,753) Net change in partnership investments....................... 722 18 Other....................................................... 25 (10) ------- ------- Net cash used in investing activities.................... (505) (1,745) Cash flows from financing activities: Issuance of long-term debt.................................. 2,904 5,178 Repayment of long-term debt................................. (2,623) (6,020) Net payments to Vencor, Inc................................. (2,560) (2,422) Other....................................................... (88) (97) ------- ------- Net cash used in financing activities.................... (2,367) (3,361) ------- ------- Change in cash and cash equivalents.......................... 1,038 1,330 Cash and cash equivalents at beginning of period............. 1,497 2,819 ------- ------- Cash and cash equivalents at end of period................... $ 2,535 $ 4,149 ======= ======= Supplemental information: Interest payments........................................... $ 1,961 $ 1,278 Income tax payments......................................... 1,155 1,133 Non-cash transactions: Exchange of note receivable for additional partnership interest.................................................. 4,552 -
The accompanying notes are an integral part of the condensed combined financial statements. F-16 ATRIA COMMUNITIES, INC. NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The accompanying combined financial statements are presented in a condensed format and consequently do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in Atria's annual financial statements. Accordingly, the reader of these financial statements may wish to refer to Atria's audited combined financial statements for the year ended December 31, 1995 contained elsewhere in this Prospectus for further information. The financial information has been prepared in accordance with Atria's customary accounting practices and has not been audited. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. NOTE 2--EARNINGS PER COMMON SHARE The operations of Atria are included in the consolidated financial statements of Vencor on a divisional basis. Accordingly, historical stockholder's equity accounts and related earnings per common share data are not presented in the accompanying combined financial statements. Pro forma earnings per common share are based upon the expected number of common shares outstanding as a result of the IPO and include the issuance of 95,000 shares of restricted stock. NOTE 3--NON-RECURRING TRANSACTIONS In June 1996, Atria recorded a non-recurring pretax charge of $1.1 million in connection with the settlement of certain litigation involving a minority partner at one of its communities. NOTE 4--CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as deductions that continue to be claimed on tax returns. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Atria's liquidity, financial position or results of operations. The combined financial statements of Atria reflect the anticipated assumption of approximately $95.3 million of Vencor's long-term debt. In the event that all or part of the assumption does not occur prior to the IPO, Vencor would remain primarily liable for such debt. Atria and Vencor have agreed that Atria would pay all amounts and otherwise satisfy all obligations related to such long-term debt. In the case of any Vencor long-term debt proposed to be assumed by Atria in the IPO, to the extent that Atria and Vencor are unable to obtain consents from holders of such debt to the assumption by Atria of primary liability for such debt, the amount of such debt will be reflected as a liability of Vencor in its financial statements (although Vencor's financial statements will also reflect as an asset a receivable from Atria in an equal amount, which will accrue interest and will be payable on the same terms as such Vencor long-term debt). Furthermore, Vencor may be contingently liable as guarantor of certain long-term debt assumed by Atria in the IPO. F-17 ATRIA COMMUNITIES, INC. NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5--TRANSACTIONS WITH VENCOR In anticipation of the IPO, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $300,000 in the first six months of 1995 and 1996. F-18 Atria's Assisted and Independent Living Communities [PHOTOGRAPH OF AN ATRIA [PHOTOGRAPH OF AN ATRIA [PHOTOGRAPH OF AN ATRIA COMMUNITY IN SEDONA COMMUNITY IN TOPEKA, COMMUNITY IN WALPOLE, ARIZONA] KANSAS] MASSACHUSETTS] [PHOTOGRAPH OF UNITED STATES MAP INDICATING EXISTING AND DEVELOPMENT COMMUNITIES] [PHOTOGRAPH OF AN ATRIA [PHOTOGRAPH OF AN [PHOTOGRAPH OF COMMUNITY IN TACOMA, ATRIA COMMUNITY AN ATRIA WASHINGTON] IN SPRING HILL, COMMUNITY IN FLORIDA] TUCSON, ARIZONA] - -------------------------------------------------------------------------------- Atria currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. The Company plans to develop 60 to 85 assisted living communities over the next three to four years. Currently, there are 13 assisted living communities under development with a total of approximately 850 units. - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURIS- DICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 The Company and its Predecessors......................................... 14 Use of Proceeds.......................................................... 14 Dividend Policy.......................................................... 14 Capitalization........................................................... 15 Dilution................................................................. 16 Selected Combined Financial Data......................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 18 Business................................................................. 24 Management............................................................... 34 Certain Transactions..................................................... 39 Principal Stockholders................................................... 42 Description of Capital Stock............................................. 44 Shares Eligible for Future Sale.......................................... 47 Underwriting............................................................. 48 Legal Matters............................................................ 49 Experts.................................................................. 49 Available Information.................................................... 49 Index to Combined Financial Statements................................... F-1
------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR- TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT- ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 5,000,000 Shares LOGO Common Stock ------------- PROSPECTUS ------------- Alex. Brown & Sons INCORPORATED Morgan Stanley & Co. INCORPORATED J.C. Bradford & Co. , 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II--INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated costs and expenses to be borne by the Company in connection with the offering described in the Registration Statement: Registration Fee.................................................. $ 29,742 Legal Fees and Expenses........................................... 300,000* Accounting Fees and Expenses...................................... 250,000* Printing and Engraving Expenses................................... 150,000* Blue Sky Registration Fees and Expenses........................... 35,000* Transfer Agent's Fees............................................. 10,000* NASD Listing Fees................................................. 9,125 Miscellaneous Expenses............................................ 66,133* -------- Total........................................................... $850,000* ========
*Estimated ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS A. Elimination of Certain Liability. Pursuant to Article IX of the registrant's Restated Certificate of Incorporation ("Article IX"), a director of the registrant shall not be personally liable to the registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General registrant Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the registrant shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of Section A of Article IX shall not adversely effect any right or protection of a director of the registrant existing at the time of such repeal or modification. B. Right to Indemnification. Subject to Section C of Article XI of the registrant's Restated Certificate of Incorporation, each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the registrant or is or was serving at the request of the registrant as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the registrant to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the registrant to provide broader indemnification rights than said law permitted the registrant to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974, as in effect from time to time ("ERISA"), penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. The registrant may, by action of its Board of Directors, provide indemnification to other employees or agents of the registrant with the same scope and effect as the indemnification of directors and officers pursuant to Article IX. C. Procedure for Indemnification. Any indemnification under Article IX (unless ordered by a court) shall be made by the registrant only as authorized in the specific case upon a determination that II-1 indemnification is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the registrant to provide broader indemnification rights then said law permitted the registrant to provide prior to such amendment). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such action, suit or proceeding (the "Disinterested Directors"), or (ii) if such a quorum of Disinterested Directors is not obtainable, or, even if obtainable, a quorum of Disinterested Directors so directs, by independent legal counsel and a written opinion, or (iii) by the stockholders. The majority of Disinterested Directors may, as they deem appropriate, elect to have the registrant indemnify any other employee, agent or other person acting for or on behalf of the registrant. D. Advances for Expenses. Costs, charges and expenses (including attorneys' fees) incurred by a director or officer of the registrant, or such other person acting on behalf of the registrant as determined in accordance with Section C of Article IX, in defending a civil or criminal action, suit or proceeding shall be paid by the registrant in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or other person to repay all amounts so advanced in the event that it shall ultimately be determined that such director, officer or other person is not entitled to be indemnified by the registrant as authorized in Article IX or otherwise. E. Right of Claimant to Bring Suit. If a claim under Sections of Article IX is not paid in full by the registrant within 30 days after a written claim has been received by the registrant, the claimant may at any time thereafter bring suit against the registrant to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the registrant) that the claimant has not met the standard of conduct which make it permissible under the General Corporation Law of the State of Delaware for the registrant to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the registrant. Neither the failure of the registrant (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the registrant (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. F. Other Rights; Continuation of Right to Indemnification. The indemnification and advancement of expenses provided by Article IX shall not be deemed exclusive of any other rights to which a claimant may be entitled under any law (common or statutory) by-law, agreement, vote of stockholders or Disinterested Directors or otherwise, both as to action in his or her official capacity and as to any action in another capacity while holding office or while employed by or acting as agent for the registrant, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under Article IX shall be deemed to be a contract between the registrant and each director and officer of the registrant who serves or served in such capacity at any time while Article IX is in effect. Any repeal or modification of Article IX or any repeal or modification of relevant provisions of the General Corporation Law of the State of Delaware or any other applicable law shall not in any way diminish any rights to indemnification of such director, officer or the obligations of the registrant arising hereunder with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For the purposes of Article IX, references to "the registrant" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article IX of the registrant's II-2 Restated Certificate of Incorporation, with respect to the resulting or surviving corporation, as such person would if such person had served the resulting or surviving corporation in the same capacity. G. Insurance. The registrant may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the registrant or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the registrant would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. H. Severability. If any provision or provisions of Article IX shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of Article IX (including, without limitation, each portion of any paragraph of Article IX containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of Article IX of the registrant's Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of Article IX containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES None. ITEMS 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Index to and Description of Exhibits
NUMBER DESCRIPTION PAGE NO. - ------ ----------- -------- 1 Form of Underwriting Agreement............................................ 3.1+ Restated Certificate of Incorporation..................................... 3.2 Amended and Restated By-laws.............................................. 4 Specimen Common Stock Certificate......................................... 5.1 Opinion of Greenebaum Doll & McDonald PLLC as to legality of the securities being registered.............................................. 10.1 Form of Registration Rights Agreement..................................... 10.2 Form of Incorporation Agreement........................................... 10.3 Form of Administrative Services Agreement................................. 10.4+ Form of Tax Sharing Agreement............................................. 10.5 Form of 1996 Stock Ownership Incentive Plan............................... 10.6 Form of Non-Employee Directors 1996 Stock Incentive Plan.................. 10.7+ Mortgage and Trust Indenture dated as of November 1, 1990, by and between New Pond Village Associates and The First National Bank of Boston, as Trustee.................................................................. 10.8+ Indenture of Trust and Agreement dated as of December 1, 1985, by and among The Redevelopment Agency of the City of San Marcos, San Marcos Retirement Village, The First National Bank of Boston, as Trustee, and Security Pacific National Bank........................................... 10.9 Form of Services Agreements relating to Kachina Point, San Marcos, McMillen, Valley Manor, The Greens, Heritage at Wildwood and Villa Campana.................................................................. 10.10 Form of Sublease Agreement................................................ 10.11 Form of Voting Agreement.................................................. 10.12 Form of Redding Lease..................................................... 10.13+ Form of New Pond Village Associates Lease................................. 10.14 Form of Term Promissory Note to Vencor.................................... 10.15 Foxhill Village Management Agreement...................................... 10.16 Form of Guaranty Fee Agreement............................................ 21+ Subsidiaries of the Registrant............................................ 23.1 Consent of Greenebaum Doll & McDonald PLLC (included in Exhibit 5.1)...... 23.2 Consent of Ernst & Young LLP.............................................. 23.3 Consent of Peter J. Grua.................................................. 24+ Power of Attorney (included on Signature Page of the Registration Statement)................................................................ 27* Financial Data Schedule...................................................
- -------- +Previously filed. *Included only in the EDGAR version. II-3 ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. The undersigned registrant hereby undertakes: (1) For the purposes of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as a part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(b) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, in the City of Louisville, Commonwealth of Kentucky, on July 29, 1996. Atria Communities, Inc. /s/ J. Timothy Wesley By: _________________________________ J. TIMOTHY WESLEY CHIEF FINANCIAL OFFICER, VICE PRESIDENT OF DEVELOPMENT AND SECRETARY In accordance with the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE * Chairman of the Board _________________________________ July 29, W. BRUCE LUNSFORD 1996 * Chief Executive Officer, _________________________________ President and Director July 29, W. PATRICK MULLOY, II 1996 * Chief Financial Officer, _________________________________ Vice President of July 29, J. TIMOTHY WESLEY Development and 1996 Secretary (Chief Financial and Accounting Officer) * Director _________________________________ July 29, SANDRA HARDEN AUSTIN 1996 * Director _________________________________ July 29, WILLIAM C. BALLARD JR. 1996 * Director _________________________________ July 29, THOMAS T. LADT 1996 * Director _________________________________ July 29, R. GENE SMITH 1996 /s/ June N. King *By: ____________________________ JUNE N. KING July 29, ATTORNEY-IN-FACT 1996 II-5 EX-1 2 UNDERWRITING AGREEMENT Exhibit 1 5,750,000 Shares ATRIA COMMUNITIES, INC. Common Stock ($.10 Par Value) UNDERWRITING AGREEMENT ---------------------- __________, 1996 Alex. Brown & Sons Incorporated Morgan Stanley & Co. Incorporated J.C. Bradford & Co. As Representatives of the Several Underwriters c/o Alex. Brown & Sons Incorporated 135 East Baltimore Street Baltimore, Maryland 21202 Gentlemen: Atria Communities, Inc., a Delaware corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of 5,000,000 shares of the Company's Common Stock, $.10 par value (the "Firm Shares"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. The Company also proposes to sell at the Underwriters' option an aggregate of up to 750,000 additional shares of the Company's Common Stock (the "Option Shares") as set forth below. As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company. --------------------------------------------- The Company represents and warrants to each of the Underwriters as follows: (a) A registration statement on Form S-1 (File No. 333-06907) with respect to the Shares has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462 (b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (a) the form of prospectus first filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with the term sheet, if any, or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." (b) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the corporate subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the "Corporate Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with the corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. The Corporate Subsidiaries are the only corporate subsidiaries, direct or indirect, of the Company. The Company and each of the Corporate Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification except for jurisdictions where failure to so qualify, together with all other such failures, would not have a material adverse effect upon the business, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The outstanding shares 2 of capital stock of each of the Corporate Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company or another Corporate Subsidiary free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Corporate Subsidiaries are outstanding. (c) Each general partnership and each limited partnership of which a Corporate Subsidiary is general partner, as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the "Partnerships," and together with the Corporate Subsidiaries, the "Subsidiaries") has been duly organized and is an existing general partnership or limited partnership, as the case may be, in good standing under the laws of the jurisdiction of its organization, with the power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the Partnerships is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification; except for jurisdictions in which the failure to so qualify, together with all such other failures, would not have a material adverse effect upon the business, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The capital contributions with respect to the outstanding units of each of the Partnerships have been made to the Partnerships. To the knowledge of the Company, all outstanding limited partnership interests in the Partnerships were issued and sold in compliance with all applicable Federal and state securities laws. The general and limited partnership interests therein held directly or indirectly by the Company are owned free and clear of all liens, encumbrances and equities and claims, except (i) for encumbrances disclosed in the Prospectus, and (ii) for encumbrances relating to any indebtedness disclosed in the Prospectus. To the knowledge of the Company, each partnership agreement pursuant to which the Company or a Subsidiary holds an interest in a Partnership is in full force and effect and constitutes the legal, valid and binding agreement of the parties thereto, enforceable against such parties in accordance with the terms thereof. There has been no material breach of or default under, and no event which with notice or lapse of time would constitute a material breach of or default under, such agreements by the Company or any Subsidiary or, to the Company's knowledge, any other party to such agreements. Except to the extent disclosed in the Prospectus, each of the assisted and independent living facilities, and each of the properties held for development, described in the Prospectus as owned by the Company is owned and operated either by a Corporate Subsidiary or by a Partnership in which a Corporate Subsidiary owns at least 50% of the outstanding partnership interests. (d) The outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of 3 the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (e) Except as disclosed in the Prospectus, and with respect to any Limited Partnership, as contained in the applicable partnership agreement, there are no outstanding warrants, options, convertible securities or other commitments of sale related to or entitling any person to purchase or otherwise acquire any securities or interest in any Subsidiary. Except as disclosed in the Prospectus and, with respect to any Limited Partnership, as contained in the applicable partnership agreement, there are no consensual encumbrances or restrictions on the ability of any Subsidiary (i) to pay any dividends or make any distributions on such Corporate Subsidiary's capital stock or such Partnership's partnership interests or to pay any indebtedness owed to the Company or any other Subsidiary, (ii) to make any loans or advances to, or investments in, the Company or any other Subsidiary, or (iii) except as contained in certain long-term agreements, to transfer any of its properties or assets to the Company or any other Subsidiary. (f) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company's incorporation. (g) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform, to the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of material fact; and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. (h) The combined financial statements of the Company and the Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and the results of operations and cash flows of the Company and the consolidated Subsidiaries, at the indicated dates and for the indicated 4 periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data included in the Registration Statement presents fairly the information shown therein and such data has been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. (i) Ernst & Young LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act and the Rules and Regulations. (j) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which if determined adversely to the Company or any of its Subsidiaries might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (k) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement. (l) The Company and the Subsidiaries have filed all Federal, State, local and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith. All tax liabilities have been adequately provided for in the financial statements of the Company. (m) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company and its Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, 5 other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the Company's financial statements which are included in the Registration Statement. (n) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, in violation of or in default under its Charter or By-Laws, partnership agreement or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the condition, financial or otherwise of the Company and its Subsidiaries taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party, or of the Charter or By-Laws of the Company or any order, rule or regulation applicable to the Company or any Subsidiary of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. (o) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (p) The Company and each of the Subsidiaries holds all material licenses, certificates, permits and other approvals from governmental authorities (collectively, "Permits") which are necessary to own their properties and to conduct their businesses, including, without limitation, such Permits as are required (i) under such federal and state health care laws as are applicable to the Company and the Subsidiaries and (ii) with respect to those facilities operated by the Company or any Subsidiary that participate in Medicare and/or Medicaid, to receive reimbursement thereunder, except where such failure to have or hold such Permits, together with all other such failures, would not have a material adverse effect upon the business, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole; the Company and each of the Subsidiaries have fulfilled and performed all of their material obligations with respect to such Permits, and no event or change in condition has occurred which allows, or after notice or lapse of time would allow, 6 revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualifications as may be set forth in the Prospectus. During the period for which financial statements are included in the Prospectus, denials by third-party payers of claims for reimbursement for services rendered by the Company have not had a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole, and any such denials are either under appeal or the Company has ceased seeking reimbursement for the services or supplies to which they relate. (q) Neither the Company nor any of the Subsidiaries has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company and the Subsidiaries taken as a whole. The Company knows of no material infringement by others of patents, patent rights, trade names, trademarks or copyrights owned by or licensed to the Company. (r) Neither the Company, nor to the Company's best knowledge, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (s) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (t) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (v) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) (including, but not limited to, the filing of Form 5500s for prior periods, if required) has occurred with respect to any "pension plan" 7 (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (w) The property, assets and operations of the Company and the Subsidiaries comply in all material respects with all applicable federal, state or local law, common law, doctrine, rule, order, decree, judgment, injunction, license, permit or regulation relating to environmental matters (the "Environmental Laws"), except to the extent that failure to comply with such Environmental Laws would not have a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole. None of the property, assets or operations of the Company and the Subsidiaries is the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release into the environment of any substance regulated by, or form the basis of liability under, any Environmental Laws (a "Hazardous Material"), or is in contravention of any Environmental Law that would have a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and Subsidiaries taken as a whole. Neither the Company nor any Subsidiary has received any notice or claim, nor are there pending, reasonably anticipated or, or to the Company's knowledge, threatened lawsuits against them with respect to violations of an Environmental Law or in connection with the release of any Hazardous Material into the environment, in each case which, individually or in the aggregate, would have a material adverse effect on the condition (financial or other), business, properties, prospects, net worth or results of operations of the Company and the Subsidiaries taken as a whole. Neither the Company nor any Subsidiary has any material contingent liability in connection with any release of Hazardous Material into the environment. (x) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92- 198, An Act Relating to Disclosure of doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. 8 (y) The Company has filed a registration statement pursuant to Section 12(g) of the Exchange Act, to register the Common Stock, has filed an application to list the Shares on the Nasdaq National Market System, and has received notification that the listing has been approved, subject to official notice of issuance. (z) To the best of the Company's knowledge, no officer, director or security holder of the Company has an "association" or "affiliation" with any member of the NASD, within the meaning of Article III, Section 44 of the Rules of Fair Practice of the NASD. The Company does not have an "association" or "affiliation" with any member of the NASD, within the meaning of Article III, Section 44 of the Rules of Fair Practice of the NASD. 2. Purchase, Sale and Delivery of the Firm Shares. ---------------------------------------------- (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees and the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_____ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. (b) Payment for the Firm Shares to be sold hereunder is to be made by wire transfer of immediately available funds to the order of the Company against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day after the date of this Agreement or at such other time, date, and location not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. (c) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) only once thereafter within 30 days after the date of this Agreement, by you, 9 as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in New York Clearing House funds by certified or bank cashier's check drawn to the order of the Company against delivery of certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland. 3. Offering by the Underwriters. ---------------------------- It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. Covenants of the Company. ------------------------ The Company covenants and agrees with the several Underwriters that: (a) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing 10 information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations. (b) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. In addition, the Company agrees to comply with (i) the undertakings set forth in its "Application for Exemption Under Sections 352-g(2) and 359-f(2) of the New York general Business Law for a Real Estate Syndication Offering Registered with the Securities and Exchange Commission Under the Federal Securities Act of 1933," dated March ___, 1996, as amended to date and as may be amended hereafter, and (ii) any applicable provisions of Section 352-e of the New York General Business Law or the rules and regulations promulgated thereunder. (d) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration 11 Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representatives may reasonably request. (e) The Company will comply with the Act and the Rules and Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (f) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. (g) The Company will, for a period of five years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Securities Exchange Act of 1934, as amended. The Company will deliver to the Representatives similar reports with respect to significant subsidiaries, as that term is defined in the Rules and Regulations, which are not consolidated or combined in the Company's financial statements. (h) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 180 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder, pursuant to employee benefit plans, in connection with the acquisition of property or assets [for up to ______ shares], or with the prior written consent of Alex. Brown & Sons Incorporated. 12 (i) The Company will use its best efforts to list, subject to notice of issuance, the Shares on The Nasdaq National Market System. (j) The Company has caused each officer and director of the Company and Vencor, Inc. to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company or other capital stock of the Company, or any other securities convertible, exchangeable or exercisable for Common Shares or derivative of Common Shares owned by such person or request the registration for the offer or sale of any of the foregoing (or as to which such person has the right to direct the disposition of) for a period of 180 days after the date of this Agreement, directly or indirectly, except with the prior written consent of Alex. Brown & Sons Incorporated (the "Lockup Agreements"). (k) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (l) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). (m) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (n) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. Costs and Expenses. ------------------ The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses (including legal fees and disbursements) incident to securing any required review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq Stock Market; and the 13 expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws or in connection with the qualification or exemption of the Shares under the laws of any Canadian province. The Company agrees to pay all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, incident to the offer and sale of directed shares of the Common Stock by the Underwriters to employees and persons having business relationships with the Company and its Subsidiaries. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under NASD regulations and State securities or Blue Sky laws), except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on its part to be performed, unless such failure to satisfy said condition or to comply with said terms is due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of- pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. Conditions of Obligations of the Underwriters. --------------------------------------------- The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company contained herein, and to the performance by the Company of its covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares. 14 (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinions of Greenebaum Doll & McDonald, PLLC, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; each of the Subsidiaries is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or in which the failure to qualify would have a material adverse effect upon the business of the Company and the Subsidiaries taken as a whole; and the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company or a Subsidiary; and, to the best of such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries is owned free and clear of all liens, encumbrances and equities and claims, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding. (ii) Each of the Partnerships is a validly existing partnership under the laws of the jurisdiction of its organization, with the power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus, and is duly qualified to conduct its business and is in good standing in each jurisdiction in which the nature of its properties or the conduct of its business requires such qualification, except where the failure so to qualify does not have a material adverse effect upon the business of the Company and the Subsidiaries taken as a whole; the partnership interests in the Partnerships held directly or indirectly by the Company are, to such counsel's knowledge, free and clear of all liens, encumbrances and equities and claims, except (a) for those encumbrances disclosed in the Prospectus, (b) for encumbrances relating to indebtedness disclosed in the Registration Statement or Prospectus and (c) to the extent provided in the applicable partnership agreement; each partnership agreement pursuant to which the Company or a Subsidiary holds a general partnership interest in a limited partnership is in full force and effect and constitutes the legal, valid and binding agreement of the parties thereto, enforceable against such parties in accordance with the terms thereof, except as enforcement thereof may be limited by equitable principles or by bankruptcy, 15 insolvency or other similar laws affecting creditors' rights generally. To such counsel's knowledge, there has been no material breach of or default under, and no event which with notice or lapse of time would constitute a material breach of or default under, such agreements by the Company or any Subsidiary or any other party to such agreements. (iii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock have been duly authorized and validly issued and are fully paid and non- assessable; all of the Shares conform to the description thereof contained in the Prospectus; the certificates for the Shares, assuming they are in the form filed with the Commission, are in due and proper form; the shares of Common Stock, including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue or sale thereof. (iv) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Shares or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (v) Except (a) as described in or contemplated by the Prospectus, and (b) with respect to any Partnership, as contained in the applicable partnership agreement, to such counsel's knowledge, there are no outstanding subscriptions, rights, warrants, options, calls, convertible securities or commitments of sale related to or entitling any person to purchase or otherwise acquire any shares of capital stock, or partnership or other ownership interest in, any Subsidiary. (vi) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order proceedings 16 with respect thereto have been instituted or are pending or threatened under the Act. (vii) The Registration Statement (including any Registration Statement filed under Rule 462(b) of the Act, if any), the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the combined financial statements and related schedules). (viii) The statements under the captions "Risk Factors -- Relationship with Vencor; Conflicts of Interest," "--risks of Indebtedness -- Bond Financing," "The Company and its Predecessors," "Business -- Funding for Assisted and Independent Care," "--Government Regulation," "Management," "Certain Transactions," and "Description of Capital Stock" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, fairly summarize in all material respects the information called for with respect to such documents and matters. (ix) Such counsel does not know of any contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects. (x) Neither the Company nor any of the Subsidiaries is in violation of its certificate or articles of incorporation or bylaws, or other organizational documents or, to the knowledge of such counsel, (a) is in default in the performance of any material obligation, agreement or condition contained in any evidence of indebtedness, except as may be contained in the Prospectus, or (b) in material breach of any applicable statute, rule or regulation or any order, writ or decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries or their respective property. (xi) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, except as set forth in the Prospectus. (xii) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not (a) conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Charter or articles or by-laws of the Company or any of the Subsidiaries, (b) or any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the 17 Company or any of the Subsidiaries may be bound, or (c) violate or conflict with any applicable law, rule or regulation or any order, writ or decree of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary or their respective properties. (xiii) This Agreement has been duly authorized, executed and delivered by the Company. (xiv) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by State securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. (xv) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act. (xvi) Except as disclosed in the Prospectus, such counsel is not aware of any holder of any security of the Company or any other person who has the right, contractual or otherwise, to have any securities of the Company included in the Registration Statement, except for any such rights as shall have been waived. (xvii) To such counsel's knowledge, the Company and each of the Subsidiaries will, upon consummation of the Contribution Transaction, have all necessary Permits (except where the failure to have such Permits, individually or in the aggregate, would not have a material adverse effect on the business, operations or financial condition of the Company and the Subsidiaries taken as a whole), to own their respective properties and to conduct their respective businesses as now being conducted, and as described in the Registration Statement and Prospectus, including, without limitation, such Permits as are required (a) under such federal and state health care laws as are applicable to the Company and the Subsidiaries and (y) with respect to those facilities owned or operated by the Company or any Subsidiary that participate in Medicare and/or Medicaid, to receive reimbursement thereunder, and no event has occurred (or will occur as a result of the Contribution Transaction, as such term is defined in the Prospectus) which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the 18 Prospectus, such permits contain no restrictions that are materially burdensome to the Company or any of the Subsidiaries. (xviii) The Contribution Transaction (as such term is defined in the Prospectus) and each of the documents and agreements executed and delivered by the Company, the Subsidiaries and Vencor, Inc. have been duly authorized, executed and delivered by the parties thereto; no approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of the documents and agreements executed and delivered in connection with the Contribution Transaction, except such as have been obtained or made, specifying the same. In rendering such opinion Greenebaum Doll & McDonald, PLLC may rely as to matters governed by the laws of states other than Kentucky and Delaware or Federal laws on local counsel licensed to practice in such jurisdictions, provided that in each case Greenebaum Doll & McDonald, PLLC shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In rendering such opinion, such counsel may also rely, as to matters of fact, on certificates of officers of the Company and of governmental officials, in which case their opinion shall state that they are so doing. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Greenebaum Doll & McDonald, PLLC may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Jill L. Force, Esq., Vice President and General Counsel of Vencor, Inc., dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: to such counsel's knowledge, the Company and each of the Subsidiaries will, upon consummation of the Contribution Transaction, have all necessary Permits (except where the failure to have such Permits, individually or in the aggregate, would not have a material adverse effect on the business, operations or financial condition of the Company and the Subsidiaries taken as a whole), to own their 19 respective properties and to conduct their respective businesses as now being conducted, and as described in the Registration Statement and Prospectus, including, without limitation, such Permits as are required (a) under such federal and state health care laws as are applicable to the Company and the Subsidiaries and (y) with respect to those facilities owned or operated by the Company or any Subsidiary that participate in Medicare and/or Medicaid, to receive reimbursement thereunder, and no event has occurred (or will occur as a result of the Contribution Transaction, as such term is defined in the Prospectus) which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company or any of the Subsidiaries. (d) The Representatives shall have received from Alston & Bird, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (iii), (iv), (v), (xii) and (xiv) of Paragraph (b) of this Section 6, and that the Company is a duly organized and validly existing corporation under the laws of the State of Delaware. In rendering such opinion may rely as to all matters governed other than by the laws of the States of Georgia or Federal laws on the opinion of Greenebaum Doll & McDonald PLLC or the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Alston & Bird may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (e) The Representatives shall have received at or prior to the Closing Date a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (f) You shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing 20 Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of Ernst & Young, LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus. (g) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be; (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; (iv) He or she has carefully examined the Registration Statement and the Prospectus and, in his or her opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or 21 prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business. (h) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. (i) The Firm Shares and Option Shares, if any, have been approved for designation upon notice of issuance on the Nasdaq National Market System. (j) The Lockup Agreements described in Section 4(j) are in full force and effect. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Alston & Bird, counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. Conditions of the Obligations of the Company. -------------------------------------------- The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated 22 therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No 23 indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is 24 appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may 25 join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. Default by Underwriters. ----------------------- If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company, you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that 26 the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. Notices. ------- All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention: Mr. Steven Schuh; with a copy to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202. Attention: General Counsel; if to the Company, to Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attn: W. Patrick Mulloy, II 11. Termination. ----------- This Agreement may be terminated by you by notice to the Company as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make it impracticable to market the Shares or to enforce contracts for the sale of the Shares, or (iii) suspension of trading in securities generally on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental 27 authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by United States or New York State authorities, (vi) any downgrading in the rating of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the Company's common stock by the Commission on the Nasdaq Stock Market or (viii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 9 of this Agreement. 12. Successors. ---------- This Agreement has been and is made solely for the benefit of the Underwriters and the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 13. Information Provided by Underwriters. ------------------------------------ The Company and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. Miscellaneous. ------------- The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers, and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. 28 If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms. Very truly yours, ATRIA COMMUNITIES, INC. By: ------------------------ Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ALEX. BROWN & SONS INCORPORATED MORGAN STANLEY & CO. INCORPORATED J.C. BRADFORD & CO. As Representatives of the several Underwriters listed on Schedule I By: Alex. Brown & Sons Incorporated By: ---------------------------------- Authorized Officer 29 SCHEDULE I Schedule of Underwriters Number of Firm Shares Underwriter to be Purchased - ----------- ---------------------- Alex. Brown & Sons Incorporated Morgan Stanley & Co. Incorporated J.C. Bradford & Co. __________ Total __________ 30 EX-3.2 3 AMENDED AND RESTATED BY-LAWS Exhibit 3.2 AMENDED AND RESTATED BY-LAWS OF ATRIA COMMUNITIES, INC. ARTICLE 1 OFFICES ------- 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 STOCKHOLDERS ------------ 2.1 ANNUAL MEETING. The annual meeting of the stockholders of the Corporation, for the election of directors, the consideration of financial statements and other reports, and the transaction of such other business as may properly be brought before such meeting, shall be held no later than six months following the end of the Corporation's fiscal year. The meeting shall be held at such time and on such date as may be designated by the Board of Directors of the Corporation. In the event the annual meeting is not held or if directors are not elected at the annual meeting, a special meeting may be called and held for that purpose. 2.2 SPECIAL MEETINGS. Except as otherwise required by law and subject to the rights of the holders of any class or series of Preferred Stock, special meetings of stockholders of the Corporation for any purpose or purposes may be called only by (i) the Board of Directors pursuant to a resolution stating the purpose or purposes thereof approved by a majority of the total number of Directors which the Corporation would have if there were no vacancies (the "Whole Board"), (ii) by the Chairman of the Board of Directors of the Corporation, or (iii) by the President of the Corporation. In addition, prior to the Trigger Date (as defined in the Certificate of Incorporation), the Corporation will call a special meeting of stockholders promptly upon request by Vencor, Inc., a Delaware corporation ("Vencor"), or any of its affiliates, in each case, if such entity is a stockholder of the Corporation. No business other than that stated in the notice of the Special Meeting shall be transacted at any special meeting. 2.3 PLACE OF MEETING. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place either within or without the State of Delaware as shall be stated in the notice of such meeting. 2.4 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of the annual meeting or a special meeting stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at such person's address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Any previously scheduled meeting of the stockholders may be postponed, and any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. 2.5 STOCKHOLDERS LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.6 QUORUM; ADJOURNMENTS. At any meeting of stockholders, the holders of a majority of the issued and outstanding shares of stock entitled to vote at the meeting of stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Corporation's Restated Certificate of Incorporation as the same may be -2- amended from time to time ("Certificate of Incorporation"). If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or a majority of the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. 2.7 VOTING. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the shares of stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these By-laws a different vote is required, in which case such express provision shall govern and control the decision of such question. 2.8 PROXIES. At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy the shares of capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. 2.9 INTRODUCTION OF BUSINESS AT A MEETING OF STOCKHOLDERS. At an annual or special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before an annual or special meeting of stockholders. To be properly brought before a special meeting of stockholders and acted upon at the meeting, business must be specified in the notice of the special meeting (or any supplement thereto) given by or at the direction of the Board of Directors, the Chairman of the Board or the President , or if prior to the Trigger Date given at the direction of Vencor, pursuant to Section 2.2 of these By-laws. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (a) by, or at the direction of, the Board of Directors, (b) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice of the annual meeting, who is entitled to vote at the annual meeting and who otherwise complies with all procedures and requirements set forth in this By-law, or (c) prior to the Trigger Date only, by Vencor or any of its affiliates that is a stockholder of the Corporation. For business to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the President or Secretary of the Corporation. To be timely, a stockholder's notice must be received at the principal executive offices of the Corporation not fewer than 60 days nor more than 90 days prior to the scheduled date of the annual meeting regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if fewer than 70 days notice or prior public disclosure of the date of the annual meeting is made or given to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the earlier of (1) the day on which such notice of the date of the meeting was mailed or (2) the day on which such public disclosure was made. -3- A stockholder's notice shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (1) a brief description of the business desired to be brought before the annual meeting, (2) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (3) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder's notice, and (4) any material interest of the stockholder in such proposal. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedure set forth in this Section 2.9. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures described by the By-laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be considered. 2.10 NOMINATION OF DIRECTORS. Only persons nominated in accordance with the procedures set forth in this section shall be eligible for election as directors. Nominations of persons for election to the board may be made at a meeting of stockholders (1) by or at the direction of the Board of Directors, (2) prior to the Trigger Date, by Vencor or any of its affiliates that is a stockholder of the Corporation, or (3) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the President or Secretary of the Corporation. To be timely, a stockholder's notice must be received at the principal executive offices of the Corporation not fewer than 60 days nor more than 90 days prior to the scheduled date of a meeting, regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if fewer than 70 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth day following the earlier of (1) the day on which such notice of the date of such meeting was mailed or (2) the day on which such public disclosure was made. A stockholder's notice shall set forth (1) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder's notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (2) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation's books, of such stockholder and any other stockholders known by such stockholder to be supporting such -4- nominees and (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder's notice. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with procedures set forth in this section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. This Section 2.10 shall not apply to the election of a director to a directorship which may be filled by the Board of Directors under the General Corporation Law of the State of Delaware. 2.11 PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to the rights of the holders of any series of Preferred Stock to elect directors under an applicable preferred stock designation, a plurality of the votes cast thereat shall elect directors. Except as otherwise provided by law, the Certificate of Incorporation, these By- Laws, or in the designation of rights of holders of any series of Preferred Stock in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. 2.12 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution shall appoint, or shall authorize an officer of the Corporation to appoint, one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspector(s) to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging such person's duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such person's ability. The inspector(s) shall have the duties prescribed by law. The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. 2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of the Trigger Date, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. -5- ARTICLE 3 BOARD OF DIRECTORS ------------------ 3.1 GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, by the Certificate of Incorporation or by these By-Laws required or directed to be exercised or done by the stockholders. 3.2 NUMBER, CLASSIFICATION AND TERM OF OFFICE. Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of the Directors of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board (as defined in the Certificate of Incorporation), but in no event shall be less than three nor more than fifteen. Commencing with the 1997 annual meeting of stockholders, the directors shall be divided into three classes, which shall be as nearly equal in number as possible with the term of office of the first class elected to expire at the annual meeting of stockholders to be held in 1998, the term of office of the second class to expire at the annual meeting of stockholders to be held in 1999, and the term of office of the third class to expire at the annual meeting of stockholders to be held in 2000, with each class to hold office until its successor is duly elected and qualified. At each succeeding annual meeting of stockholders after the 1997 annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a full term of office to expire at the third succeeding annual meeting of stockholders after their election or thereafter when their respective successors in each case are duly elected and qualified. Any director elected to a particular class by the stockholders or directors shall be eligible, upon resignation or expiration of their term, to be elected to a different class. 3.3 PLACE OF MEETING. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. 3.4 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held, within or without the State of Delaware, without other notice than this By-Law immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may, by resolution, provide the time and place, within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution. 3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board, the President or a majority of the Board of Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings. Notice of each special meeting shall be given to each director, at least three days before the day on which the meeting is to be held, in accordance with Article IV of these By-laws. Each such notice -6- shall state the time and place either within or without the State of Delaware of the meeting but need not state the purpose thereof, except as otherwise provided by the General Corporation Law of the State of Delaware or by these By-laws. Notice of any meeting of the Board need not be given to any director who is present at such meetings; and any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all of the directors then in office are present at the meeting unless a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meetings is not lawfully called or convened. 3.6 ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee . 3.7 CONFERENCE TELEPHONE MEETINGS. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. 3.8 QUORUM. At all meetings of the Board of Directors, a majority of directors then in office shall constitute a quorum for the transaction of business, and the act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by the General Corporation Law of the State of Delaware or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting until a quorum shall be present. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. 3.9 VACANCIES. Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been duly elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. -7- 3.10 COMMITTEES. ---------- a. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of the member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers over business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation under Sections 251 and 252 of the General Corporation Law of the State of Delaware, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders the dissolution of the Corporation or revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the Resolution so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership or merger pursuant to Section 253 of the General Corporation Law of the State of Delaware. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. b. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.5 of these By-Laws. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. 3.11 REMOVAL. Subject to the rights of any series of Preferred Stock to elect Directors under specified circumstances, any Director may be removed from office only for cause by the affirmative vote of the holders of at least a majority of the voting power of all shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") then outstanding, voting together as a single class; provided, however, that prior to the Trigger Date, any director or directors may be removed from office, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of all Voting Stock then outstanding, voting as a single class. 3.12 RECORDS. The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation. -8- 3.13 COMPENSATION. The Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE 4 NOTICES ------- 4.1. NOTICES. Whenever, under the provisions of the General Corporation Law of the State of Delaware or of the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, such notice shall be in writing, and shall be hand-delivered or sent by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given orally, in person or by telephone, or by telegram or telex, and such notice shall be deemed to be given upon transmission, in the case of a notice by telegram, or upon receipt of the answer back of the telex machine of the receiving party, in the case of a notice by telex. 4.2. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting. ARTICLE 5 OFFICERS -------- 5.1. OFFICERS. The Corporation may have such officers as the Board of Directors may determine from time to time, including a Chairman of the Board, Vice-Chairman, Chief Executive Officer, President, one or more Vice Presidents, a Secretary, a Treasurer, and, if the Board shall so determine, an Assistant Secretary and an Assistant Treasurer. Any two or more offices may be held by the same person. Such other officers and agents shall be appointed in such manner, have such duties and hold their offices for such terms, as may be determined by resolution of the Board of Directors. -9- 5.2. ELECTION OF OFFICERS. The officers shall be elected by the Board of Directors at the first meeting of the Board of Directors after each annual meeting of stockholders. Each officer shall hold office at the pleasure of the Board of Directors until his or her successor shall have been duly elected and qualified, or until his or her death, or until he or she shall have resigned or shall have been removed or disqualified in the manner hereinafter provided. 5.3. RESIGNATION. Any officer may resign at any time by giving written notice of his resignation to the Board of Directors or to the Chairman of the Board of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt by the Board of Directors or Chairman of the Board. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5.4. REMOVAL. Any officer may be removed, either with or without cause, at any time, by action of the Board of Directors or the Chairman of the Board. 5.5. CHAIRMAN OF THE BOARD. If the Board of Directors designates a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors. Unless the Board of Directors designates otherwise, the Chairman shall be the Chief Executive Officer of the Corporation. He may sign certificates for shares of stock of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By- laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The Chairman of the Board shall, in general, perform all duties incident to the office of chairman of the board and such other duties as may be set forth in the By-laws or may be prescribed by the Board of Directors from time to time. 5.6. PRESIDENT. The President shall perform all duties instant to the office of President and such other duties as may from time to time be assigned to him or her by the Board of Directors or the Chairman of the Board. At the request of the Chairman of the Board or in his or her absence, or in the event of the Chairman of the Board's inability or refusal to act, the President shall perform the duties of the Chairman of the Board, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the Chairman of the Board in respect of the performance of such duties, unless the Board of Directors otherwise designates. 5.7. CHIEF EXECUTIVE OFFICER. If the Board appoints a Chief Executive Officer, he or she shall have direct charge of the business of the Corporation, subject to the general control of the Board of Directors, and shall be the chief executive officer of the Corporation unless otherwise determined by the Board of Directors. The Chief Executive Officer shall have direct charge of the daily operational aspects of the Corporation's business, unless otherwise determined by the Board of Directors, and shall have such other duties as may be assigned to him or her from time to time by the Board of Directors or its Chairman. -10- 5.8. VICE-PRESIDENT. Each Vice President shall perform all such duties as from time to time may be assigned to him or her by the Board of Directors, the Chairman of the Board, the President or the Chief Executive Officer. At the request of the President, or in the absence of the President, or in the event of his or her inability or refusal to act, the Vice-President (or, in the event there be more than one Vice-President, the Vice-Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election), shall perform all the duties of the President and, when so acting, shall have the power of and be subject to the restrictions placed on the President in respect of the performance of such duties. 5.9. TREASURER. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such banks, trust companies and other depositories as shall be designated by the Board of Directors or pursuant to its direction; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Chief Executive Officer or the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall supervise the investments of the Corporation's funds. The Treasurer shall render to the President and to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. 5.10. SECRETARY. The Secretary shall (a) attend all meetings of the stockholders and all meetings of the Board of Directors and shall record and keep, or cause to be recorded and kept, the minutes of the corporate meetings in one or more books provided for that purpose, and shall perform like duties for the standing committees when required; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by law; (c) be custodian of the corporate records and of the seal, if any, of the Corporation; (d) keep a register of the mailing address of each stockholder; (e) sign with the Chairman of the Board, President or Vice-President certificates for shares of stock of the Corporation; (f) have general charge of the stock transfer books of the Corporation; and (g) in general, perform all duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Chief Executive Officer or the Board of Directors. 5.11 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there shall be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. -11- 5.12 ASSISTANT SECRETARY. The Assistant Secretary, or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there shall be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. 5.13. POWERS AND DUTIES. In the absence of any officer of the Corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate for the time being, the powers or duties of such officer, or any of them, to any other officer or to any director. The Board of Directors may from time to time delegate to any officer authority to appoint and remove subordinate officers and to prescribe their authority and duties. 5.14 OFFICERS' BOND OR OTHER SECURITY. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of such officer's duties, in such amount and with such surety as the Board of Directors may require. 5.15. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors. Nothing contained herein shall preclude any officer from serving the Corporation in any other capacity, including that of director, or from serving any of its stockholders, subsidiaries or affiliated corporations in any capacity, and receiving proper compensation therefor. ARTICLE 6 CERTIFICATES OF STOCK --------------------- 6.1. STOCK CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the President or a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares of stock owned by the holder in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, -12- participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 6.2 FACSIMILE SIGNATURES. Where a certificate of stock is countersigned (a) by a transfer agent other than the Corporation or its employee, (b) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 6.4 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. 6.5 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. 6.6 REGULATIONS. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. 6.7 FIXING THE RECORD DATE. In order that the Corporation may determine the holders of stock of the Corporation entitled to notice of or to vote at any meeting of stockholders or any adjournments thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, -13- the Board of Directors may fix a record date which shall not precede the date upon which the resolution fixing the record date is adopted, and which record date, as applicable, shall not be more than sixty nor less than ten days before the date of the meeting of stockholders, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders, or entitled to the benefit of any such other action, shall be determined pursuant to Section 213 of the General Corporation Law of the State of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 6.8 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of stock to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE 7 GENERAL PROVISIONS ------------------ 7.1 AUDITS. The accounts, books and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, and it shall be the duty of the Board of Directors to cause such audit to be done annually. 7.2 BOOKS AND RECORDS. The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors. 7.3 CHECKS, NOTES, DRAFTS, ETC.. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. 7.4 DIVIDENDS. Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. -14- 7.5 EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all contracts, deeds, bonds, mortgages and other obligations or instruments, and such authority may be general or confined to specific instances. 7.6 FISCAL YEAR. The Board of Directors of the Corporation shall have the power to fix, and from time to time change, the fiscal year of the Corporation. 7.7 RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, determine to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may deem to be conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. 7.8 SEAL. The seal of the Corporation shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 7.9 VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares of securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation or under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. ARTICLE 8 AMENDMENTS ---------- These By-laws may be amended or repealed or new by-laws adopted as provided by the Certificate of Incorporation. -15- The foregoing By-laws are a true and correct copy of the By-laws, as amended, as of June 13, 1996. -------------------------------------------- J. Timothy Wesley, Secretary -16- EX-4 4 SPECIMEN COMMON STOCK CERTIFICATE EXHIBIT 4 [LOGO] SHARES Atria Communities, Inc. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE COMMON STOCK CUSIP 049905 10 2 THIS CERTIFICATE IS SEE REVERSE FOR TRANSFERABLE IN CLEVELAND, CERTAIN DEFINITIONS OHIO AND NEW YORK, NY ATRIA COMMUNITIES, INC. This Certifies that is the owner of fully paid and non-assessable shares of the par value of $.10 each of the common stock of Atria Communities, Inc. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. Dated COUNTERSIGNED AND REGISTERED: NATIONAL CITY BANK (CLEVELAND) TRANSFER AGENT AND REGISTRAR. PRESIDENT BY AUTHORIZED SIGNATURE SECRETARY [SEAL]
ATRIA COMMUNITIES, INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE CORPORATION. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian TEN ENT -- as tenants by the entireties ---------------------------- JT TEN -- as joint tenants with right of (Cust) (Minor) survivorship and not as tenants under Uniform Gifts to Minors in common Act _______________________________ (State) Additional abbreviations may also be used though not in the above list. For Value Received, ___________________________________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OR ASSIGNEE - ------------------------------------------ - ------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint __________________________________________________________________________________________________________________________ Attorney to transfer the said stock on the books of the within named Partnership with full power of substitution in the premises. Dated ------------------------ -------------------------------------------------------------------------------------- THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN NOTICE: UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
EX-5.1 5 OPINION OF GREENBAUM DOLL & MCDONALD PLLC LOGO EXHIBIT 5.1 July 29, 1996 ATRIA COMMUNITIES, INC. Providian Center 515 West Market Street Louisville, KY 40202 Ladies and Gentlemen: We have acted as legal counsel in connection with the preparation of a Registration Statement on Form S-1 under the Securities Act of 1933, as amended (the "Registration Statement"), covering an aggregate of 5,750,000 shares (including 750,000 shares subject to an over-allotment option granted to the Underwriters) of Common Stock, par value $.10 per share (the "Common Stock"), of Atria Communities, Inc., a Delaware corporation (the "Company"), which are being offered by the Company. We have examined and are familiar with the Restated Certificate of Incorporation and Restated By-Laws of the Company, and the various corporate records and proceedings relating to the organization of the Company and the proposed issuance of the Common Stock. We have also examined such other documents and proceedings as we have considered necessary for the purpose of this opinion. Based on the foregoing, it is our opinion that the Common Stock has been duly authorized and, when issued and paid for in accordance with the terms of the Registration Statement, will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this Opinion as an exhibit to the Registration Statement, and with such state securities administrators as may require such opinion of counsel for the registration of the Common Stock, and to the reference to this firm under the heading "Legal Matters" in the Prospectus. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the Rules and Regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Greenebaum Doll & McDonald PLLC EX-10.1 6 REGISTRATION RIGHTS AGREEMENT Exhibit 10.1 ATRIA COMMUNITIES, INC. REGISTRATION RIGHTS AGREEMENT ___________, 1996 TABLE OF CONTENTS -----------------
PAGE ---- 1. Certain Definitions.................................................... 1 1.1 Affiliates..................................................... 1 1.2 Common Shares.................................................. 1 1.3 Person......................................................... 1 1.4 Register; Registered; Registration............................. 2 1.5 Registrable Shares............................................. 2 1.6 Registration Expenses.......................................... 2 1.7 Rule 144....................................................... 2 1.8 Securities Act................................................. 2 1.9 Selling Expenses............................................... 2 2. Transferability........................................................ 2 2.1 Restrictions on Transferability................................ 2 2.2 Restrictive Legend............................................. 2 2.3 Notice of Proposed Transfers................................... 3 3. Registration Rights.................................................... 3 3.1 Requested Registration......................................... 3 3.2 Atria Registration............................................. 6 3.3 Holdback Agreement............................................. 7 3.4 Expenses of Registration....................................... 7 3.5 Registration Procedures........................................ 8 3.6 Indemnification................................................ 9 3.7 Information by Vencor.......................................... 11 3.8 Rule 144 Reporting............................................. 11 3.9 Termination of Atria's Obligations............................. 12 4. No Transfer of Registration Rights..................................... 12 5. Dispute Resolution..................................................... 12 6. Miscellaneous.......................................................... 12 6.1 Governing Law.................................................. 12 6.2 Counsel........................................................ 12 6.3 Delays or Omissions............................................ 12 6.4 Entire Agreement............................................... 12 6.5 Binding Effect................................................. 13 6.6 Notices........................................................ 13 6.7 Headings....................................................... 13 6.8 Counterparts................................................... 14
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6.9 Severability of Provisions..................................... 14 6.10 Exhibits....................................................... 14 6.11 Number; Gender................................................. 14 6.12 Amendment...................................................... 14
-ii- REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into this ____ day of ____, 1996, by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria"), and VENCOR, INC., a Delaware corporation ("Vencor"). RECITALS: -------- A. Pursuant to the terms of that certain Incorporation Agreement dated June __, 1996, Atria issued ______________ shares of its Common Stock, $.10 par value per share, to Vencor and certain Affiliates (defined in Section 1.1) of Vencor. B. Atria has filed a Registration Statement of Form S-1 with the Securities and Exchange Commission (the "Commission") in connection with the initial public offering of its Common Shares (the "IPO"). C. Atria and Vencor desire to set forth in a single agreement the registration rights to be granted to Vencor incident to Vencor's and its Affiliates acquiring the Common Shares. AGREEMENT: --------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 AFFILIATES. "Affiliates" shall mean, with respect to Vencor, any other person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, Vencor, including, without limitation, any subsidiary of Vencor. With respect to any other specified person herein, Affiliate shall mean any other person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or under common control with, such specified person. 1.2 COMMON SHARES. "Common Shares" shall mean the shares of Atria's Common Stock issued to Vencor and its Affiliates pursuant to the Incorporation Agreement. 1.3 PERSON. "Person" shall mean any individual, partnership, corporation, trust or other entity. 1.4 REGISTER; REGISTERED; REGISTRATION. "Register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement by the Commission. 1.5 REGISTRABLE SHARES. "Registrable Shares" shall mean (i) the Common Shares, and (ii) all shares of Atria's Common Stock issued as a dividend on, or other distribution with respect to, or in exchange or in replacement of, the Common Shares, excluding in all cases, however (including exclusion from the calculation of the number of outstanding Registrable Shares), any Registrable Shares sold or otherwise disposed of by Vencor or any of its Affiliates (except any sale, distribution or other distribution by such Affiliates to Vencor), including, without limitation, any sale or other disposition in a registration pursuant to this Agreement or in any transaction pursuant to Rule 144 (as defined herein). 1.6 REGISTRATION EXPENSES. "Registration Expenses" shall mean all expenses incurred by Atria in complying with Sections 3.1 and 3.2, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for Atria, blue sky fees and expenses, and the expense of any special consents, advice or similar audit services of independent auditors incident to or required by any such registration (but excluding the compensation of regular employees of Atria which shall be paid in any event by Atria). 1.7 RULE 144. "Rule 144" shall mean 17 CFR (S) 230.144 as promulgated by the Commission pursuant to the Securities Act. 1.8 SECURITIES ACT. The "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.9 SELLING EXPENSES. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of shares of Atria's Common Stock, including Registrable Shares, in any sale pursuant to a Registration by Atria pursuant to this Agreement. 2. TRANSFERABILITY. 2.1 RESTRICTIONS ON TRANSFERABILITY. The Common Shares shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act, or, in the case of Section 3.8 hereof, to assist in an orderly distribution. 2.2 RESTRICTIVE LEGEND. Each certificate representing the Common Shares or securities issued in respect of the Common Shares, shall (unless otherwise permitted by the provisions of Section 2.3 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, -2- AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE "RESTRICTED SECURITIES" AS DEFINED IN THE RULE 144 PROMULGATED UNDER THE ACT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, (ii) IN COMPLIANCE WITH RULE 144 AND AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS, OR (iii) PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION. 2.3 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed transfer of any Common Shares, unless there is an effective registration statement under the Securities Act covering the proposed transfer, Vencor shall give written notice to Atria of its intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except that the requirements set forth in the balance of this sentence need not be complied with where the proposed transaction complies with Rule 144 so long as Atria is furnished with evidence of compliance with such rule) by either (i) an unqualified written opinion of legal counsel which shall be reasonably satisfactory to Atria addressed to Atria's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration of the Securities Act, (ii) a "no action" letter from the Commission to the effect that the distribution of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, or (iii) such other showing that may be reasonably satisfactory to legal counsel to Atria, whereupon Vencor shall be entitled to transfer such Restricted Securities in accordance with the terms of a notice delivered to Atria. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the appropriate restrictive legend set forth in Section 2.2., except that such certificate shall not bear such restrictive legend if in the opinion of counsel for Atria such legend is not required in order to establish compliance with any provisions of the Securities Act or applicable state securities laws. 3. REGISTRATION RIGHTS. 3.1 REQUESTED REGISTRATION. a. GRANT OF REGISTRATION RIGHTS. If Vencor shall, at any time and from time to time, request Atria in writing to register under the Securities Act any Registrable Shares, Atria shall use its reasonable best efforts to cause the prompt registration of all Registrable Shares specified in such request, and in connection therewith shall prepare and file on such appropriate form as Atria, in its reasonable discretion, shall determine, a registration statement under the Securities Act to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, -3- appropriate qualification under applicable Blue Sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act). b. Condition to Exercise of Requested Registration Rights Notwithstanding anything in Section 3.1 to the contrary, Atria shall not be obligated to effect any such registration, or take other specified actions with respect to, or cooperate in any offering of, Registrable Shares upon the request of Vencor pursuant to Section 3.1: i. in any particular jurisdiction in which Atria would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless Atria is already subject to service in such jurisdiction and except as may be required by the Securities Act; ii. within 180 days immediately following the effective date of the registration statement pertaining to the IPO of Atria; iii. after Atria has effected four registrations pursuant to this Section 3.1 that have been declared or ordered effective; or iv. unless the number of Registrable Shares included in Vencor's request shall be at least 1,000,000 Registrable Shares or the aggregate value (as defined herein) of the Registrable Shares included in Vencor's request shall be at least $15,000,000. For purposes hereof, the term "value" shall mean, as applicable, (a) the average of the closing bid prices for the Common Stock of Atria as listed on the NASDAQ system or such other system on which the Common Stock of Atria is traded for the five trading days immediately preceding the date of Vencor's request, or (b) the average of the closing prices listed for the Common Stock of Atria on the exchange on which the Common Stock of Atria is listed for the five trading days immediately preceding the date of Vencor's request. c. Written Notice. Any requests by Vencor for registration of Registrable Shares pursuant to Section 3.1 shall (i) specify the number of Registrable Shares which it intends to offer and sell, (ii) express the intention of Vencor to offer or cause the offering of such Registrable Shares, (iii) describe the nature or method of the proposed offer and sale thereof, (iv) contain the undertaking of Vencor to provide all such information regarding its holdings and the proposed manner of distribution thereof as may be required (A) to permit Atria to comply with all applicable laws and regulations, all requirements of the Commission and any other regulatory or self-regulatory body, any other body having jurisdiction, and any securities exchange on which the Registrable Shares are to be listed, and (B) to obtain acceleration of the effective date of any registration statement filed in connection therewith, and (v) in the case of an underwritten public offering, specify the managing underwriter or underwriters of such Registrable Shares, which shall be selected by Atria. -4- d. Delay of Registration. If at the time of the request to register the Registrable Shares Atria notifies Vencor, within five days of Vencor's request, that Atria is engaged or has fixed plans to engage within 30 days of the time of the request in an underwritten public offering of securities for Atria's own account and Atria determines in good faith that such offering would be materially adversely affected by the registration so requested, Atria may delay filing a registration statement and may withhold efforts to cause the registration statement to become effective; provided, however, that Atria shall only be entitled to postpone for a reasonable period of time, not to exceed 90 days, the filing of any registration statement otherwise required to be prepared and filed by Atria pursuant to Section 3.1. In addition, notwithstanding anything herein to the contrary, Atria may delay filing a registration statement and may withhold efforts to cause the registration statement to become effective, if Atria determines in good faith that such registration might (i) interfere with or affect the negotiation or completion of any transaction that is being contemplated by Atria at the time the right to delay is exercised, or (ii) involve initial or continuing disclosure obligations that might not be in the best interests of Atria stockholders. If, after a registration statement becomes effective, Atria advises Vencor that Atria considers it appropriate for the registration statement to be amended, Vencor shall suspend any further sales of its registered shares until Atria advises it that the registration statement has been amended. The 270 day time period referred to in Section 3.5, during which the registration statement must be kept current after its effective date, shall be extended for an additional number of days equal to the number of days during which the right to sell registered shares was suspended pursuant to the preceding sentence, but in no event will Atria be required to update the registration statement subsequent to 545 days after the effective date of the registration statement. e. Underwriting. If Vencor intends to distribute the Registrable Shares, which are covered by its request for registration pursuant to Section 3.1, by means of an underwriting, Vencor shall so advise Atria as a part of its request. Atria shall, together with Vencor, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Atria. Notwithstanding any other provision of this Section 3.1., if the managing underwriter or underwriters determine that the underwriting would be materially adversely affected by inclusion in such underwriting of all of the Registrable Shares requested by Vencor and so advises Vencor in writing, then Vencor shall reduce accordingly the number of Registrable Shares that will be included in the registration and underwriting. No Registrable Shares excluded from the underwriting by reason of the managing underwriter's or underwriters' marketing or other limitations shall be included in such registration. Should Vencor disapprove of the terms of the underwriting, Vencor may elect to withdraw therefrom by written notice to Atria and the managing underwriter or underwriters. If the managing underwriter or underwriters have not limited the number of Registrable Shares to be underwritten, Atria may include securities for its own account in such registration if the managing underwriter or underwriters so agree and if the number of Registrable Shares which would otherwise have been included in such registration and underwriting will not thereby be limited. -5- 3.2 ATRIA REGISTRATION. ------------------ a. Grant of Piggyback Registration Right. If Atria shall, at any time and from time to time, propose to register any of its Common Shares for its own account, in connection with an underwritten public offering of Common Shares solely for cash (other than a registration statement filed on Form S-4 or any other form filed in connection with any acquisition, merger, consolidation or stock exchange, a registration statement filed solely in connection with director or employee benefit plans of Atria, or Atria's IPO) Atria shall: i. give 10 days advance written notice of the proposed registration (which shall include a list of the jurisdictions in which Atria intends to attempt to qualify such Common Shares under the applicable Blue Sky or other state securities laws); and ii. include in such registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting involved therein, all of the Registrable Shares specified in a written request or requests by Vencor, made within 10 days after receipt of such written notice from Atria. Notwithstanding anything herein to the contrary, Atria may at any time prior to the effectiveness of any such registration statement, in its sole discretion and without the consent of Vencor, abandon the proposed registration in which Vencor had requested to participate. b. Underwriting. If the registration of which Atria gives notices is for a registered public offering involving an underwriting, Atria shall so advise Vencor as a part of the written notice given pursuant to section 3.2.a.i.). In such event the right of Vencor to register its Registrable Shares pursuant to Section 3.2 shall be conditioned upon Vencor's participation in such underwriting and the inclusion of Vencor's Registrable Shares in the underwriting to the extent provided herein. Vencor shall (together with Atria and any other stockholders (hereinafter, the "Additional Selling Stockholders") proposing to offer and sell their shares of Atria Common Stock through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Atria. Notwithstanding any other provision of this Section 3.2, if the managing underwriter or underwriters determine that such offering would be materially adversely affected by inclusion in such underwriting of all of the Registrable Shares requested by Vencor, the managing underwriter or underwriters may exclude a portion of such Registrable Shares from such registration and underwriting. Atria shall so advise Vencor of the managing underwriter's or underwriters' determination to exclude a portion of the Registrable Shares from such registration and underwriting within five days after Vencor delivers its request pursuant to Section 3.2.b., and the number of shares of Common Stock of Atria that may be included in the registration and underwriting shall be allocated among Vencor and the Additional Selling Stockholders in proportion, as nearly as practicable, to the respective amounts of shares of Common Stock of Atria owned by Vencor and each of the Additional Selling Stockholders at the time of filing the registration statement. No Registrable Shares excluded from the underwriting by reason of the managing underwriter's or underwriters' determination shall be included in -6- such registration. If Vencor disapproves of the terms of any such underwriting, Vencor may elect to withdraw therefrom all or a portion of the Registrable Shares included in its request for registration by written notice to Atria and the managing underwriter or underwriters, and the Registrable Shares so withdrawn from such registration. If, however, one or more Additional Selling Stockholders withdraw shares of Common Stock from the underwriting and registration, and by virtue of such withdrawal of such shares and Vencor's withdrawal of Registrable Shares from such registration, a greater number of shares of Common Stock may be included in such registration (up to the maximum of any limitation imposed by the managing underwriter or underwriters), then Atria shall offer to Vencor and the Additional Selling Stockholders who have elected to include their shares of Common Stock in the registration the right to include additional shares of Common Stock, as applicable, in the registration in the same proportions as were used above in determining the underwriter limitation. 3.3 Holdback Agreement. Vencor agrees, that upon request of Atria or the managing underwriter or underwriters in any underwritten offering of any such Registrable Shares, not to make or cause any offering, sale or other disposition, directly or indirectly, of any Common Shares (or any other securities of Atria) without the prior approval of the underwriters for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by Atria or the managing underwriter or underwriters. In addition, Vencor agrees, that upon request of Atria or the managing underwriter or underwriters in any underwritten offering and registration of shares of Common Stock (or other securities of Atria) in which Vencor (having been given notice and the opportunity as required by Section 3.2) declines to participate, not to make or cause any offering, sale or other disposition, directly or indirectly, of any Common Shares (or other securities of Atria) held by it (other than any Such Common shares sold or otherwise disposed of pursuant to a previously registered and underwritten offering) without the prior approval of the managing underwriter or underwriters (but not to exceed a period of time from the effective date of such registration as the managing underwriter or underwriters shall have requested of all "affiliates" (as defined in Rule 144) of Atria). 3.4 Expenses of Registration. All Registration Expenses incurred in connection with two registrations under Section 3.1 and all registrations under Section 3.2 shall be borne by Atria. All Registration Expenses incurred in connection with registrations under Section 3.1 that are subsequent to the second such registration shall be borne by Vencor. All Selling Expenses incurred in connection with any underwritten registration under Sections 3.1 shall be borne exclusively by Vencor unless Atria, pursuant to Section 3.1.e, includes shares of Common Stock for its own account in such registration, in which event the selling expenses incurred in connection with such underwritten registration shall be borne by Vencor and Atria pro rata on the basis of the number of shares of Common Stock registered by each of Vencor and Atria. All Selling Expenses incurred in connection with any registration under Section 3.2 shall be borne by Vencor and each Additional Selling Stockholder that participates in the registration, pro rata on the basis of the number of shares of Common Stock registered by each of Vencor and the Additional Selling Stockholders. Vencor shall pay the fees and expenses of its legal counsel, but if and only to the extent that such legal counsel is in addition to counsel as may be retained to -7- represent both parties in connection with any registration or other matter relating to this Agreement. 3.5 Registration Procedures. In each registration effected by Atria pursuant to this Section 3, Atria will keep Vencor advised in writing as to the initiation of each such registration and as to the completion thereof. At its expense, Atria will: i. keep such registration effective for a period of 270 days or until Vencor has completed the distribution described in the Registration Statement relating thereto, whichever first occurs; provided, however, the 270 day time period shall be extended for an additional number of business days equal to the number of business days during which the right to sell registered shares was suspended or delayed by Atria pursuant to Section 3.1.d. or Section 3.3 of this Agreement, but in no event will Atria be required to update the registration statement subsequent to 545 days after the effective date of the registration statement; ii. prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; iii. furnish to Vencor such numbers of copies of a prospectus, including a preliminary prospectus, that conforms to the requirements of the Securities Act, the registration statement, and such other documents (including any exhibits thereto or documents referred to therein) as Vencor may reasonably request in order to facilitate the disposition of the Registrable Shares owned by it; iv. use its reasonable best efforts to register and qualify the Registrable Shares covered by such registration statement under such other securities or state securities laws of such jurisdictions as shall be reasonably requested by Vencor; provided, that Atria shall not be required in connection therewith or as a condition thereto to qualify to do business, subject itself to taxation, or to file a general consent to service of process in any such states or jurisdictions; v. in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter or underwriter of such offering; provided, that the form of underwriting agreement must be reasonably acceptable to Atria and Vencor with respect to secondary distributions. Vencor shall also enter into and perform its obligations under such an agreement; vi. at the closing, furnish unlegended certificates representing ownership of the Registrable Shares being sold in such denominations as Vencor or the managing underwriter or underwriters shall request; vii. instruct the transfer agent and registrar to release any stop transfer order with respect to the Registrable Shares being sold; -8- viii. promptly notify Vencor of the happening of any event as a result of which any registration statement or any preliminary prospectus or the prospectus included in such registration statement, as then in effect, or any other offering document, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and prepare and furnish to Vencor as many copies of a supplement to or an amendment of such offering document which shall correct such untrue statement or eliminate such omission, as Vencor shall request; and ix. take such actions and execute and deliver such other documents as may be necessary to give full effect to the rights of Vencor under this Agreement. 3.6 INDEMNIFICATION. --------------- A. Atria Indemnity. In the case of each registration contemplated by this Agreement, Atria will indemnify Vencor, each of its officers and directors, each underwriter and each person who controls any underwriter, and each person, if any, who controls Vencor or any such underwriter within the meaning of Section 15 of the Securities Act, and each person affiliated with or retained by Vencor and who may be subject to liability under any applicable securities laws, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to which they may become subject under the Securities Act or other federal or state law, arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document (including any related registration statement, notification or the like) incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, or (ii) any violation by Atria of any federal, state or common law made or regulation applicable to Atria in connection with any such registration, qualification or compliance, and will reimburse Vencor, each of its officers and directors, the underwriter, and each person controlling Vencor, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred; provided, that Atria will not be liable, and shall have no indemnification obligation hereunder, in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission, made in reliance on and in conformity with written information furnished to Atria by an instrument duly executed by Vencor, and stated to be specifically for use therein. b. Indemnity by Vencor. Vencor will, if Registrable Shares held by Vencor are included in the securities as to which such registration is being effected, indemnify Atria, each of its officers and directors, each underwriter and each person who controls any underwriter, and each person, if any, who controls Atria or any such underwriter within the meaning of Section 15 of the Securities Act, and each person affiliated with or retained by Atria and who may be subject to liability under any -9- applicable securities laws, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to which they may become subject under the Securities Act or other federal or state law, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse Atria, such directors, officers, persons, underwriters or control persons, for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to Atria by an instrument duly executed by Vencor and stated to be specifically for use therein. C. PROCEDURE FOR INDEMNIFICATION. ----------------------------- i. The party seeking indemnification ("Indemnitee") shall promptly (within 20 days if a third party has commenced actual litigation against the Indemnitee) give notice to the party from which indemnification is sought ("Indemnitor") after the Indemnitee has knowledge of any claim against the Indemnitor as to which recovery may be sought against the Indemnitee pursuant to this Section 3.6, or of the commencement of any legal proceedings against the Indemnitee as to such claim after the Indemnitee has knowledge of such proceedings, whichever shall first occur, and shall permit the Indemnitor, at the Indemnitor's cost, to assume the defense of any such claim or any litigation resulting from such claim; provided, Indemnitee shall have the right to consent to the counsel selected by Indemnitor to defend any such claim (which consent shall not be unreasonably withheld by Indemnitee). Such notice shall specify in reasonable detail the facts known to the Indemnitee giving rise to such indemnification rights and, if possible, an estimate of the amount of liability which could result therefrom. The right of the Indemnitee to indemnification hereunder shall be deemed agreed to unless, within ten days after the receipt of such notice, the Indemnitee is notified in writing by the Indemnitor that it disputes the right to indemnification as set forth in such notice. Failure by the Indemnitor to notify the Indemnitee of the Indemnitor's election to defend such action within ten days after notice thereof shall have been given to the Indemnitor, or notification to the Indemnitee by the Indemnitor that the Indemnitee's right to indemnification is being disputed, shall be deemed a waiver by the Indemnitor of its right to defend such action. If the Indemnitee shall be so notified of such dispute of such right to indemnification, the dispute resolution procedures of Section 8 of the Incorporation Agreement shall apply. The failure of the Indemnitee to give notice as provided herein shall relieve the Indemnitor of its obligations under this Section 3.6.c. only to the extent that such failure to give notice shall materially adversely prejudice the Indemnitor in the defense of any such claim or any such litigation, but in no event shall such failure relieve the Indemnitor from any other liability which the Indemnitor may then have or may subsequently have to the Indemnitee. The Indemnitor shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment (except with the consent of the Indemnitee) -10- or enter into any settlement (except with the consent of the Indemnitee) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnitee of a release from all liability in respect of such claim or litigation. ii. If the Indemnitor shall not assume the defense of any such claim or litigation resulting therefrom, the Indemnitee may defend against such claim or litigation in such manner as it may deem appropriate. The Indemnitee may settle such claim or litigation on such terms as it may deem appropriate and the Indemnitor shall promptly reimburse the Indemnitee for the amount of such settlement, and all expenses, legal or otherwise, incurred by the Indemnitee in connection with the defense against, or settlement of, such claim or litigation. If no settlement of such claim or litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for the amount of any judgment rendered with respect to such claim or in such litigation, and of all expenses, legal or otherwise, incurred by the Indemnitee in the defense against such claim or litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the Indemnitee's right to indemnification in accordance with the provisions of Section 3.6.c.i., the Indemnitor shall not be obligated to pay the Indemnitee the amounts provided for in this Section 3.6.c.ii. until such dispute has been resolved and it has been determined that the Indemnitor is required to make such indemnification. 3.7 INFORMATION BY VENCOR. VENCOR SHALL FURNISH TO ATRIA SUCH INFORMATION REGARDING VENCOR AND, AS NECESSARY, ITS AFFILIATES AND THE DISTRIBUTION PROPOSED BY VENCOR AS ATRIA MAY REQUEST IN WRITING AND AS SHALL BE REQUIRED IN CONNECTION WITH ANY REGISTRATION, QUALIFICATION OR COMPLIANCE REFERRED TO IN THIS SECTION 3.7. 3.8 RULE 144 REPORTING. WITH A VIEW TO MAKING AVAILABLE THE BENEFITS OF CERTAIN RULES AND REGULATIONS OF THE COMMISSION WHICH MAY AT ANY TIME PERMIT THE SALE OF THE RESTRICTED SECURITIES TO THE PUBLIC WITHOUT REGISTRATION, AFTER SUCH TIME AS A PUBLIC MARKET EXISTS FOR THE COMMON STOCK OF ATRIA, ATRIA AGREES TO: a. use its reasonable best efforts to facilitate the sale of the Restricted Securities to the public, without registration under the Securities Act, pursuant to Rule 144, provided that this shall not require Atria to file reports under the Securities Act and the Securities and Exchange Act of 1934, as amended ("Exchange Act") at anytime prior to Atria's being otherwise required to file such reports; b. make and keep public information available, as those terms are understood and defined in Rule 144 at all times after 90 days after the effective date of the first registration under the Securities Act filed by Atria for an offering of its securities to the general public; c. use its reasonable best efforts to then file with the Commission in a timely manner all reports and other documents required of Atria under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); d. so long as Vencor owns any Restricted Securities to furnish to Vencor forthwith upon request a written statement by Atria as to the compliance with the -11- reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by Atria for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of Atria, and such other reports and documents so filed by Atria as Vencor may reasonably request in availing itself of any rule or regulation of the Commission allowing Vencor to sell any such securities without registration. 3.9 Termination of Atria's Obligations. The obligation of Atria to register the Registrable Shares pursuant to Section 3.1 or 3.2 of this Agreement shall expire on the earlier of (i) the date when Vencor ceases beneficially to own any Registrable Shares, or (ii) the date which is the fifth anniversary of the date the registration statement for the IPO is declared effective by the Commission. 4. No Transfer of Registration Rights. The registration rights granted under Sections 3.1 and 3.2 of this Agreement may not be assigned or otherwise conveyed by Vencor. 5. Dispute Resolution. If any dispute arises between Vencor and Atria with respect to their rights or obligations under the terms of this Agreement, Vencor and Atria agree to follow the dispute resolution procedure set forth in Section 8 of the Incorporation Agreement. 6. Miscellaneous. ------------- 6.1 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Kentucky. 6.2 Counsel. Atria shall select and employ legal counsel to represent the parties in the registration of shares of Common Stock under this Agreement. If, in the judgment of Vencor, it would be appropriate to do so, Vencor may select counsel to represent it in connection with the registration. Vencor shall be solely responsible for the fees and expenses of any separate counsel so selected, and Atria shall have no responsibility or liability whatsoever with respect thereto. 6.3 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to Vencor, upon any breach or default by Atria under this Agreement, shall impair any such right, power or remedy of Vencor nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of Vencor or any breach or default under this Agreement, or any waiver on the part of Vencor of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, -12- either under this Agreement, or by law or otherwise afforded to Vencor, shall be cumulative and not alternative. 6.4 Entire Agreement. This Agreement constitutes the entire Agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements, correspondence, arrangements and understandings relating to the subject matter hereof. 6.5 Binding Effect. All of the terms, provisions and conditions hereof shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto, and their respective heirs, personal representatives, successors and assigns. Nothing in this Agreement shall entitle any person to any claim, cause of action, remedy or right of any kind. 6.6 Notices. All notices and other communications required or permitted hereunder shall be sufficiently given if in writing and personally delivered against a written receipt, if delivered to a reputable express messenger service (such as Federal Express, UPS or DHL Carrier) for overnight delivery, when transmitted by confirmed telephone facsimile (fax) or sent by registered, express or certified U.S. mail, postage prepaid, addressed as follows: To Atria: Atria Communities, Inc. 515 W. Market Street Louisville, Kentucky 40202 Attention: W. Patrick Mulloy, II, President and Chief Executive Officer If to Vencor: Vencor, Inc. 3300 Providian Center 500 W. Market Street Louisville, Kentucky 40202 Attention: Jill L. Force, Esq., Vice President and General Counsel or to such other address as either party hereto shall furnish to the other in writing. Notices shall be deemed given when personally delivered, when delivered to an express messenger service, when transmitted by confirmed fax or when deposited in the U.S. mail in accordance with the foregoing provisions. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. 6.7 Headings. The headings in this Agreement are included for purposes of convenience only and shall not be considered a part of the Agreement in construing or interpreting any provision hereof. -13- 6.8 Counterparts. This Agreement may be executed in counterparts and each such executed counterpart shall be deemed an original instrument. It shall not be necessary in making proof of this Agreement or the terms of this Agreement to produce or account for more than one of such counterparts. 6.9 Severability of Provisions. If any provision of this Agreement or the application thereof to any person or entity or circumstance shall to any extent be held in any proceeding to be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or entities or circumstances other than those to which it was held to be invalid or unenforceable, shall not be affected thereby, and shall be valid and enforceable to the fullest extent permitted by law, but only if and to the extent such enforcement would not materially and adversely frustrate the parties' essential objectives as expressed herein. 6.10 Exhibits. All Exhibits to this Agreement shall be deemed to be incorporated herein by reference and made a part hereof as if set out in full herein. 6.11 Number; Gender. Unless the context clearly states otherwise, the use of the singular or plural in this Agreement shall include the other and the use of any gender shall include all others. 6.12 Amendment. This Agreement may be amended, modified, superseded, or canceled only by a written instrument signed by all of the parties hereto and any of the terms, provisions and conditions hereof may be waived, only by a written instrument signed by the waiving party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATRIA COMMUNITIES, INC. By:_____________________________________ W. Patrick Mulloy, II, President and Chief Executive Officer VENCOR, INC. By:_____________________________________ Title:__________________________________ -14- EX-10.2 7 INCORPORATION AGREEMENT Exhibit 10.2 INCORPORATION AGREEMENT ----------------------- THIS INCORPORATION AGREEMENT ("AGREEMENT") is made and entered into as of the _____ day of June, 1996 by and among (i) ATRIA COMMUNITIES, INC., a Delaware corporation ("CORPORATION"), (ii) VENCOR, INC., a Delaware corporation ("VENCOR"), (iii) FIRST HEALTHCARE CORPORATION, a Delaware corporation ("FHC"), (iv) NATIONWIDE CARE, INC., an Indiana corporation ("NATIONWIDE"), and (v) NEW POND VILLAGE ASSOCIATES, a Massachusetts general partnership ("NEW POND"). RECITALS: - -------- A. The Corporation is a newly formed corporation formed for the purpose of acquiring substantially all of the assisted living and independent living communities of Vencor and its affiliates ("DIVISION"). B. The parties desire to convey the Division to the Corporation in connection with an initial public offering of shares of the Corporation's common stock, par value $.10 per share ("COMMON STOCK"). C. The parties desire to enter into this Agreement to set forth their understanding with respect to the manner in which the Corporation will acquire the Division in exchange for shares of Common Stock and the assumption of certain liabilities related thereto. AGREEMENT: - --------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. TRANSFER OF RETIREMENT HOUSING DIVISION. As part of a single plan, on the Closing Date (as hereinafter defined) Vencor, FHC, Nationwide and New Pond (collectively, the "TRANSFERORS") will convey the assets referred to below, which constitute substantially all of the assets of the Division, to the Corporation in connection with the Corporation's initial public offering, in consideration for the issuance by the Corporation of its Common Stock to the Transferors as provided in Section 3, and the assumption by the Corporation of the liabilities associated with the Division referred to in Section 4, all in a transaction designed to meet the requirements of section 351(a) of the Internal Revenue Code of 1986, as amended ("CODE"). Such transfers shall be as follows: (a) Vencor shall do the following: (i) Transfer to the Corporation a 98% limited partner interest in Lantana Partners Limited Partnership, a Florida limited partnership. (ii) Transfer to the Corporation 2,000 shares of Common Stock of Phillippe Enterprises, Inc., an Indiana corporation, being all of the issued and outstanding shares of Phillippe Enterprises, Inc. (iii) Cancel, and cause all of its affiliated entities to cancel, all intercompany receivables of such entities which relate to the Division, except for a $14 million receivable from HPL (as hereinafter defined). On the Closing Date, HPL shall execute a promissory note in favor of Vencor in such amount, such note to bear interest at the announced prime rate of National City Bank of Kentucky as the same shall exist from time to time, plus one percentage point and shall be payable one year from the Closing Date. (iv) Transfer to the Corporation all of Vencor's right, title and interest in that certain Lease Agreement dated November 1, 1991, by and among The Newark Company, Vencor and FHC relating to the McMillan Center (as hereinafter defined) ("MCMILLAN LEASE"). (b) FHC shall transfer to the Corporation the following: (i) 1,000 shares of Common Stock of Hillhaven Properties, Ltd., an Oregon corporation ("HPL"), being all of the issued and outstanding shares of HPL. (ii) A 98% general partner interest in Castle Gardens Retirement Center Partnership, a Colorado general partnership ("CASTLE GARDENS"). (iii) A 68.6% limited partner interest in Hillcrest Retirement Center, Ltd., an Oregon limited partnership ("HILLCREST RETIREMENT"). 2 (iv) A 98% limited partner interest in Sandy Retirement Center Limited Partnership, an Oregon limited partnership ("SANDY RETIREMENT"). (v) A 10% limited partner interest in Topeka Retirement Center, Ltd., a Missouri limited partnership ("TOPEKA RETIREMENT"). (vi) A 99% limited partner interest in Twenty-Nine Hundred Associates Limited Partnership, a Florida limited partnership ("TWENTY-NINE HUNDRED"). (vii) All of the real property and personal property which constitutes the Valley Manor Retirement Apartments in Tucson, Arizona ("VALLEY MANOR"). (viii) All of the real property and personal property which constitutes the Villa Ventura Retirement in Kansas City, Missouri ("VILLA VENTURA"). (ix) All of the real property and personal property owned by FHC which constitutes The Greens in Hanover, New Hampshire ("THE GREENS"). (x) All of the real property and personal property owned by FHC which constitutes a part of the McMillan Center in Newark, Ohio ("MCMILLAN CENTER"). (xi) All of FHC's right, title and interest in the McMillan Lease. (xii) All of the real property more particularly described in Exhibit A attached hereto and made a part hereof ("REAL PROPERTY"). (xiii) Enter into a Lease with the Corporation in the form of Exhibit B attached hereto and made a part hereof pursuant to which FHC leases to the Corporation certain real property located in Redding, California. (c) Nationwide shall transfer to the Corporation the following: (i) A 99% general partner interest in Evergreen Woods, Ltd., a Florida limited partnership ("EVERGREEN WOODS"). 3 (ii) All of the real property and personal property which constitutes the Heritage at Wildwood in Wildwood, Indiana. (iii) All of its right, title and interest in and to that certain Management Agreement dated September 1, 1989 between Nationwide Management, Inc. and Wesleyan Retirement Center, Inc. with respect to Colonial Oaks in Marion, Indiana ("MANAGEMENT AGREEMENT"). (iv) $4,500,000. (d) New Pond shall do the following: (i) Transfer to the Corporation $9,500,000. (ii) Transfer to the Corporation all of the assets constituting New Pond Retirement Center ("NEW POND CENTER") other than those assets which are secured by that certain Mortgage and Trust Indenture by and between New Pond and First National Bank of Boston, as Trustee, dated November 1, 1990, Securing Resident Mortgage Bonds (New Pond Village Project) Series A ("NEW POND MORTGAGE"). (iii) Enter into a Lease with the Corporation in the form of Exhibit C attached hereto and made a part hereof pursuant to which New Pond leases to the Corporation all of the assets secured by the New Pond Mortgage. 2. OTHER TRANSFERS. ---------------- (a) In addition to the transfers provided for in Section 1(b), on the Closing Date, FHC shall transfer to HPL the following: (i) A 1% limited partner interest in Evergreen Woods. (ii) All of the real property and personal property which constitutes Villa Campana Retirement in Tucson, Arizona ("VILLA CAMPANA"). (b) FHC shall cause the following to occur on the Closing Date: 4 (i) HPL to transfer to Nationwide the following: (A) A 2% general partner interest in St. George Nursing Home Limited Partnership, an Oregon limited partnership. (B) A 1% general partner interest in Stockton Healthcare Center Limited Partnership, an Oregon limited partnership. (C) A 1% general partner interest in Hillhaven Indiana Partnership, an Indiana general partnership. (D) A 1% general partner interest in Hillhaven/Westfield Partnership, a Washington general partnership, upon receipt of consent from the United States Department of Housing and Urban Development (which is not expected to be received prior to the Closing Date). (E) A 1% general partner interest in New Pond. (ii) HPL to transfer to FHC the real property located in Tulsa, Oklahoma more particularly described in Exhibit D attached hereto and made a part hereof. (iii) Evergreen Woods to transfer all of the assets and liabilities relating to the skilled nursing home facility owned by it to Nationwide. (c) On the Closing Date, the Corporation shall pay to Vencor $150,000 in consideration for the assistance provided to the Corporation by Vencor in connection with the Corporation's initial public offering. 3. ISSUANCE OF COMMON STOCK. In consideration of the transfer of the assets by the Transferors provided for in Section 1, on the Closing Date the Corporation shall issue an aggregate of 9,999,900 shares of its Common Stock to the Transferors, such shares to be allocated among them as they shall agree on or before the Closing Date. All such shares of Common Stock shall be fully paid and nonassessable. 4. ASSUMPTION OF LIABILITIES. In part consideration for the transfer of the assets by the Transferors to the Corporation as provided for in Section 1, on the Closing Date the Corporation 5 will enter into appropriate assumption agreements with each of the Transferors with respect to the following: (a) With respect to Vencor, any and all liabilities which Vencor may have had as a partner of Lantana. (b) With respect to FHC, all of FHC's liabilities with respect to the following: (i) All of its liability as a partner of Castle Gardens, Hillcrest Retirement, Sandy Retirement, Topeka Retirement, Twenty-Nine Hundred, San Marcos, Evergreen Woods and New Pond. (ii) All of its liabilities and obligations with respect to Valley Manor, Villa Ventura, The Greens, McMillan Center and Villa Campana. (iii) All of its liabilities and obligations with respect to the Real Property. (c) With respect to Nationwide, the following: (i) All of its liabilities as a partner of Evergreen Woods. (ii) All of its liabilities and obligations with respect to Heritage at Wildwood. (iii) All of its liabilities and obligations with respect to the Management Agreement. (d) With respect to New Pond, all of its liabilities and obligations with respect to New Pond Center. The liabilities and obligations to be assumed by the Corporation pursuant to the provisions of this Section 4 shall include all of the liabilities referred to therein, whether or not reflected on the books and records of the Transferor or the entity whose ownership is being transferred, and whether known or unknown, accrued or unaccrued, absolute, contingent or otherwise. 5. CLOSING DATE. The closing of the transactions contemplated by this Agreement shall occur on the day immediately following the day that all of the conditions precedent of the 6 Transferors and the Corporation have been met or waived by the party entitled to the benefit thereof, but in all events no later than the date the Registration Statement with respect to the Corporation's initial public offering becomes effective. 6. REPRESENTATIONS AND WARRANTIES. ------------------------------ (a) Each of the Transferors hereby represent to Atria with respect to themselves as follows: (i) It is a corporation or partnership, as applicable, duly organized and validly existing. (ii) It has the full corporate or partnership power and authority, as applicable, to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (iii) This Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms. (iv) It owns the stock and partnership interests to be transferred by it to the Corporation pursuant to the terms of this Agreement free and clear of all liens and encumbrances, other than restrictions contained in the partnership agreement with respect to a particular partnership. (v) All of the partnerships whose interests are to be transferred pursuant to terms of this Agreement are duly organized and validly existing. Except as specifically warranted in this Section 6(a), the Transferors make no representations and warranties to the Corporation whatsoever regarding the assets transferred, or the assets of the entities whose ownership is being transferred, including, but not limited to, the warranty of merchantability or fitness for a particular use, which is specifically disclaimed. The Corporation acknowledges that all of the assets to be conveyed by the Transferors to the Corporation will be conveyed "as is, where is." (b) The Corporation hereby represents, warrants and covenants with and to the Transferors as follows: (i) The Corporation is a corporation duly organized and validly existing. 7 (ii) The Corporation has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (iii) This Agreement constitutes the valid and legally binding obligation of the Corporation, enforceable in accordance with its terms. (iv) The Common Stock to be issued by the Corporation to the Transferors pursuant to the terms of this Agreement will be duly authorized, fully paid and nonassessable. (v) As of the Closing Date, the Corporation will have 100 shares of Common Stock issued and outstanding, all of which will be owned by Vencor. (vi) The Corporation will not take any action which would cause the transfers provided for in Section 1 not to qualify for tax-free treatment under section 351 of the Code. (vii) On the Closing Date, it will hire all of the employees of the Transferors associated with the Division transferred. (c) All of the representations and warranties provided for in this Section 6 shall survive the Closing Date and the delivery of the closing documents on the Closing Date. 7. CONDITIONS PRECEDENT. -------------------- (a) The obligation of the Transferors to consummate the transactions contemplated hereby is subject to the satisfaction of the following conditions (any of which may be waived by the Transferors in writing): (i) All the terms, covenants and conditions of this Agreement to be complied with and performed by the Corporation on or before the Closing Date shall have been fully complied with and performed in all respects. (ii) All the representations and warranties made by the Corporation herein shall be true and correct in all respects on and as of the Closing Date. (iii) All consents required for the valid and effective transfer of the assets to be transferred in accordance 8 with Sections 1 and 2 shall have been obtained and the consent to the assumption by the Corporation of the debts to be assumed by the Corporation pursuant to Section 4 shall have been obtained. (iv) There shall be no pending or threatened litigation against any of the parties hereto concerning or relating to the transactions contemplated hereby. (v) The approval of all administrative agencies, if any, whose approval of the transactions contemplated hereby is necessary or desirable shall have been obtained. (vi) The Corporation and Vencor shall have entered into a Registration Rights Agreement in the form of Exhibit E attached hereto and made a part hereof. (b) The obligation of the Corporation to consummate the transactions contemplated hereby is subject to the satisfaction of the following conditions (any of which may be waived by the Corporation in writing): (i) All the terms, covenants and conditions of this Agreement to be complied with and performed by the Transferors on or before the Closing Date shall have been fully complied with and performed in all respects. (ii) All the representations and warranties made by the Transferors herein shall be true and correct in all respects on and as of the Closing Date. (iii) All required consents necessary for the valid and effective transfer of the assets to be transferred to the Corporation in accordance with the provisions of Section 1 shall have been obtained. (iv) The Corporation shall have obtained title insurance (or endorsed commitment) insuring that all the real property to be transferred to the Corporation pursuant to the provisions of Section 1, and all real property owned by the entities interests in which are to be transferred to the Corporation in accordance with Section 1, are vested in the Corporation or such entities, respectively, free and clear of all mortgages, liens and encumbrances except those reasonably acceptable to the Corporation. 9 (v) The conditions referred to in Sections 7(a)(iv) and 7(a)(v) shall have been complied with. (vi) Vencor and the Corporation shall have entered into a Tax Sharing Agreement substantially in the form of Exhibit F attached hereto and made a part hereof. (vii) The Corporation and Vencor shall have entered into an Administrative Services Agreement substantially in the form of Exhibit G attached hereto and made a part hereof. (viii) The Corporation and Vencor shall have entered into a Guaranty Agreement substantially in the form of Exhibit H attached hereto and made a part hereof. 8. DISPUTE RESOLUTION. ------------------- (a) In the event that any dispute arises among the parties with respect to their rights and obligations under the terms of this Agreement or any agreement entered into as a result of this Agreement ("DISPUTE"), the parties agree that the provisions of this Section 8 shall be their sole and exclusive remedy. The parties shall first attempt to settle such Dispute by having senior management or other mutually agreed upon representatives of the parties address the issue. Such shall occur within 20 days of the giving of notice by a party that a Dispute exists and that such party desires the Dispute to be resolved by senior management in accordance with the provisions of this Section 8(a). (b) If the above referred to parties are unable to resolve the Dispute within 60 days of the giving of the notice referred to in Section 8(a), then either of the parties shall have the right to submit the Dispute to mediation. Such mediation shall be conducted in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. If mediation proves unsuccessful in resolving the Dispute within 60 days of the initiation of the mediation procedure, then either party may require that the Dispute be resolved by binding arbitration if the Dispute involves less than $5 million. If the parties disagree as to whether the Dispute involves less than $5 million, such issue may be resolved by binding arbitration. All arbitrations provided for herein shall be conducted under the commercial rules of the American Arbitration Association using a single arbitrator mutually agreed to by the parties or, if the parties cannot agree on the 10 arbitrator, then the arbitrator shall be selected by the American Arbitration Association. It is intended that the arbitrator actively manage the arbitration with a view to achieving a just, speedy and cost effective resolution of the Dispute. Except as provided in Section 8 (d), the decision of the arbitrator shall be final and binding upon the parties and the prevailing party in such arbitration shall be entitled to a judgment on such award in any court of competent jurisdiction. The parties hereby acknowledge that except as provided in Section 8(d), this provision constitutes a waiver of their right to commence a lawsuit with respect to any Dispute. (c) Any party involved in the arbitration may request limited document production from the other party or parties of specific and expressly relevant documents, with the reasonable expenses of the producing party incurred in such production paid by the requesting party. Any such discovery (which rights to documents shall be substantially less than document discovery rights prevailing under the Federal Rules of Civil Procedure) shall be conducted expeditiously and shall not cause the arbitration hearing to be adjourned except upon consent of all parties involved in the arbitration or upon an extraordinary showing of cause demonstrating that such adjournment is necessary to permit discovery essential to a party to the proceeding. Depositions, interrogatories or other forms of discovery (other than the document production set forth above) shall not occur except by consent of all of the parties to the arbitration. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written agreement of the parties involved or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the parties' rights to claim any applicable privilege. The arbitrator will adopt procedures to protect the proprietary rights of the parties and to maintain the confidential treatment of the arbitration proceedings (except as may be required by law). Subject to the foregoing, the arbitrator shall have the power to issue subpoenas to compel the production of documents relevant to the Dispute. (d) Notwithstanding the provisions of Section 8(b), if any arbitration award, exclusive of interest, exceeds $10 million, then such award shall not be final and binding upon the parties unless the party in whose favor the award was rendered agrees to accept $10 million in full settlement within 15 days after the rendering of the decision by the arbitrator. If the 11 party in whose favor the award was rendered does not so agree within such 15-day period, then the party against which such award was rendered shall have a period of 60 days following the end of the 15-day period referred to above in which to commence a legal proceeding in a court of competent jurisdiction with respect to the Dispute which was the subject of such arbitration award. If no legal proceedings are commenced within such 60 day period, then the arbitration award shall become final and binding upon the parties. (e) Each party shall bear its own attorneys' fees and other costs and expenses involved in resolving a Dispute. The costs of mediation and arbitration shall be borne equally by the parties to the mediation or arbitration. 9. INDEMNIFICATION --------------- (a) Each Transferor hereby agrees to indemnify the Corporation for, and to hold the Corporation harmless from the following: (i) Any and all damages or deficiencies resulting from any misrepresentation, breach of any warranty or nonfulfillment of any agreement or covenant on the part of that Transferor, whether contained in this Agreement or in any document furnished in connection with the transactions contemplated hereby; and (ii) Any and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to the foregoing, including attorney's fees. (b) The Corporation hereby agrees to indemnify each Transferor for, and to hold each Transferor harmless from, the following: (i) Any and all liabilities and obligations assumed, or to be assumed, by the Corporation in accordance with the terms hereof; (ii) Any and all damages or deficiencies resulting from any misrepresentations, breach of any warranty or nonfulfillment of any agreement or covenant on the part of the Corporation, whether contained in this Agreement or in any document furnished in connection with the transactions contemplated hereby; and 12 (iii) Any and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing, including attorneys' fees. (c) The party seeking indemnification ("INDEMNITEE") shall promptly (within 20 days if a third party has commenced actual litigation against the Indemnitee) give notice to the party from which indemnification is sought ("INDEMNITOR") after the Indemnitee has knowledge of any claim against the Indemnitor as to which recovery may be sought against the Indemnitee pursuant to this Section 9, or of the commencement of any legal proceedings against the Indemnitee as to such claim after the Indemnitee has knowledge of such proceedings, whichever shall first occur, and shall permit the Indemnitor to assume the defense of any such claim or any litigation resulting from such claim. Such notice shall specify in reasonable detail the facts known to the Indemnitee giving rise to such indemnification rights and, if possible, an estimate of the amount of liability which could result therefrom. The right of the Indemnitee to indemnification hereunder shall be deemed agreed to unless, within ten days after the receipt of such notice, the Indemnitee is notified in writing by the Indemnitor that it disputes the right to indemnification as set forth in such notice. Failure by the Indemnitor to notify the Indemnitee of the Indemnitor's election to defend such action within ten days after notice thereof shall have been given to the Indemnitor, or notification to the Indemnitee by the Indemnitor that the Indemnitee's right to indemnification is being disputed, shall be deemed a waiver by the Indemnitor of its right to defend such action. If the Indemnitee shall be so notified of such dispute of such right to indemnification, the dispute resolution procedures of Section 8 shall apply. The Indemnitor shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment (except with the consent of the Indemnitee) or enter into any settlement (except with the consent of the Indemnitee) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnitee of a release from all liability in respect of such claim or litigation. (d) If the Indemnitor shall not assume the defense of any such claim or litigation resulting therefrom, the Indemnitee may defend against such claim or litigation in such manner as it may deem appropriate. The Indemnitee may settle such claim or litigation on such terms as it may deem appropriate and the Indemnitor shall promptly reimburse the Indemnitee for the amount 13 of such settlement, and all expenses, legal or otherwise, incurred by the Indemnitee in connection with the defense against, or settlement of, such claim or litigation. If no settlement of such claim or litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for the amount of any judgment rendered with respect to such claim or in such litigation, and of all expenses, legal or otherwise, incurred by the Indemnitee in the defense against such claim or litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the Indemnitee's right to indemnification in accordance with the provisions of Section 9(c), the Indemnitor shall not be obligated to pay the Indemnitee the amount provided for in this Section 9(d) until such dispute has been resolved and it has been determined that the Indemnitor is required to make such indemnification. 10. MISCELLANEOUS. ------------- (a) Each of the Transferors hereby covenants and agrees that subsequent to the Closing Date they will, at any time, and from time to time, upon the request and at the expense of the Corporation, do, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may reasonably be required to fully effectuate the transfers contemplated in Section 1. Each of the Transferors hereby constitutes and appoints the Corporation as its true and lawful attorney-in-fact, with full power of substitution, to collect for the account of the Corporation any receivables and other items conveyed to the Corporation pursuant to the provisions of Section 1, to endorse in the name of the Transferor or the Corporation, or both, any check received on account of any receivable, claim or other item, to institute and prosecute in the name of a Transferor or otherwise, any and all proceedings which the Corporation may deem proper in order to collect, assert or enforce any claim, right or title of any kind in and to any of such transferred assets. (b) (i) Notwithstanding anything to the contrary in this Agreement, neither the Corporation nor Vencor shall have any obligation to refer any resident or patients, as the case may be, of either of them or any other person to the Corporation or Vencor for the provision of any service or item of any kind. The Corporation and Vencor hereby acknowledge that the compensation for services provided for in this Agreement are set in advance, are consistent with the fair market value in arm's-length commercial transactions and are not determined in a manner that takes into account in any way any volume or value of referrals or business generated between the parties. (ii) If Vencor or the Corporation shall determine upon advice of counsel that this Agreement will likely be deemed to be a violation of any applicable Federal or state law regarding fraus and abuse, referral prohibitions or any similar matter, either party, upon receiving such advice of counsel, may at any time give the other party written notice of such advice and if, after consultation the parties have not determined to their reasonable satisfaction that no such violation exists and the parties have not amended this Agreement to remove that risk to the other party's reasonable satisfaction, then either party may terminate this Agreement effective as of the date 60 days after its initial written notice to the other party. (c) All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and be personally delivered against a written receipt, delivered to a reputable messenger service (such as Federal Express, DHL Courier, United Parcel Service, etc.) for overnight delivery, transmitted by confirmed telephonic facsimile (fax) or transmitted by mail, registered, express or certified, return receipt requested, postage prepaid, addressed as follows: 14 If to Vencor: 3300 Providian Center 400 West Market Street Louisville, Kentucky 40202 Fax: (502) 596-1104 Attention: Chief Financial Officer If to Atria: 515 West Market Street Louisville, Kentucky 40202 Fax: (502) 596-4160 Attention: Chief Financial Officer All notices, demands and requests shall be effective upon being properly personally delivered, upon being delivered to a reputable messenger service, upon transmission of a confirmed fax, or upon being deposited in the United States mail in the manner provided in this Section ?. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. If any party refuses delivery, the notice, demand or request shall be deemed received two days after the notice, demand or request was delivered to a reputable messenger service or deposited in the United States mail. (c) This Agreement may be modified or amended from time to time only by a written instrument executed by all of the parties hereto. (d) Captions contained in this Agreement are inserted only as a matter of convenience and reference, and in no way define, limit, extend or describe the scope of this Agreement, or the intent of any provision hereof. All references to Sections herein shall refer to Sections of this Agreement unless the context clearly requires otherwise. (e) This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. (f) This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky without regard to its conflicts of laws rule. (g) This Agreement represents the entire agreement of the parties hereto with respect to the subject matter hereof. 15 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. CORPORATION: ATRIA COMMUNITIES, INC. By:___________________________ Title:________________________ TRANSFERORS: VENCOR, INC. By:___________________________ Title:________________________ FIRST HEALTHCARE CORPORATION By:___________________________ Title:________________________ NATIONWIDE CARE, INC. By:___________________________ Title:________________________ NEW POND VILLAGE ASSOCIATES By: First Healthcare Corporation, General Partner By:___________________________ 16 Title:________________________ 17 EX-10.3 8 ADMINISTRATIVE SERVICES AGREEMENT EXHIBIT 10.3 ADMINISTRATIVE SERVICES AGREEMENT --------------------------------- THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered into as of the _____ day of __________, 1996, by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria"), and VENCOR, INC., a Delaware corporation ("Vencor"). RECITALS: -------- A. Atria is a newly-formed corporation formed for the purpose of acquiring substantially all of the assisted and independent living communities of Vencor (the "Communities"). B. The parties will convey the Communities to Atria in connection with an initial public offering of shares of Atria's common stock (the "Common Stock"). C. Atria desires to receive certain services from Vencor to smooth the transition of Atria from being a wholly-owned subsidiary of Vencor to being a separate company. D. The parties desire to enter into this Agreement to set forth their understanding with respect to such services which shall be provided by Vencor to Atria in exchange for cash based on the fair market value of the services provided by Vencor to Atria. AGREEMENT: --------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Services. Vencor shall provide those services set forth in Exhibit 1 to this Agreement to Atria. Atria and Vencor may agree to add additional services, if necessary; provided, that, such arrangement is made in writing and executed by both Atria and Vencor. The amount of time that Atria will receive for each such services from Vencor is set forth in Exhibit 1 as full-time equivalents ("FTEs"). If Atria needs more than the amount of FTE's set forth in Exhibit 1, Atria and Vencor will negotiate in good faith a modification to this Agreement. Notwithstanding the provisions of this Section, Vencor shall not be required to make available any such services to the extent that doing so would unreasonably interfere with the performance by any employee of such employee's duties for such employee's employer or otherwise cause unreasonable burden to such employee's employer. The services to be provided in accordance with this Agreement are based on past utilization of such services and if such usage during the term of this Agreement materially change, the parties to this Agreement will make appropriate modifications to this Agreement. 2. Payments. Atria shall pay $54,577.08 to Vencor for each month of services to be rendered in the next month by Vencor to Atria on the first of each month. For any period for which such services would be provided to Atria on less than a full-month basis, Atria shall pay the appropriate pro rata amount to Vencor. 3. Representations and Warranties. a. Vencor hereby represents to Atria with respect to itself that: (1) it is a corporation duly organized and validly existing; (2) it has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; (3) this Agreement constitutes a valid and legally binding obligation, enforceable with its terms. b. Atria hereby represents and warrants to Vencor as follows: (1) Atria is a corporation duly organized and validly existing; (2) Atria has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; (3) this Agreement constitutes a valid and legally binding obligation of Atria, enforceable in accordance with its terms. 4. Term. The Term of this Agreement shall be for one year from the date of this Agreement; provided, however, that Atria shall have the right to terminate this Agreement upon thirty (30) days' written notice to Vencor at any time. Thirty (30) days prior to the expiration of this Agreement, Atria may give written notice to Vencor that this Agreement shall be extended for an additional one year period; provided, however, that, Atria or Vencor may give sixty (60) days' written notice to the other terminating this Agreement at any time after the first year of this Agreement. 5. Miscellaneous. a. This Agreement may be modified or amended from time to time only by a written instrument executed by the parties hereto. b. Neither Atria nor Vencor shall have any obligation to refer any resident or patients, as the case may be, of either of them or any other person to Atria or Vencor for the provision of any service or item of any kind. Atria and Vencor hereby acknowledge that the compensation for services provided for in this Agreement are set in advance, are consistent with the fair market value in arms-length commercial transactions and are not determined in a manner that takes into account in any way any volume or value of referrals or business generated between the parties. c. If Vencor or Atria shall determine upon advice of counsel that the continuation of this Agreement will likely be deemed to be a violation of any applicable federal or state law regarding fraud and abuse, referral prohibitions, or any similar matter, either party upon receiving such advice of counsel may at any time give the other party written notice of such advice and if, after consultation, the parties have not determined to their reasonable satisfaction that no such violation exists and the parties have not amended this Agreement to remove that risk to the other party's reasonable satisfaction, then either party may terminate this Agreement effective as of the date sixty (60) days after its initial written notice to the other party. d. Captions contained in this Agreement are inserted only as a matter of convenience and reference, and in no way define, limit, extend or describe the scope of this Agreement, or the intent of any provision hereof. All references to sections herein shall refer to sections of this Agreement unless the context clearly requires otherwise. e. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. f. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky, without regard to its conflicts of law rule. g. This Agreement embodies the entire understanding between the parties hereto with respect to subject matters covered hereby and supersedes any prior agreement or understanding between the parties with respect to such matters. h. This Agreement may be executed in multiple counterpart copies, each of which shall be considered an original and all of which shall constitute one and the same instrument. g. This Agreement is not assignable. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. ATRIA COMMUNITIES, INC. A Delaware Corporation By: ------------------------------------- Title: ---------------------------------- VENCOR, INC. A Delaware Corporation By: ------------------------------------- Title: ---------------------------------- EXHIBIT 1 Services To Be Provided By Vencor To Atria ------------------------------------------
Full Time Avg. Comp. Cost of Services Equivalents and Benefits Services - -------- ----------- ------------ -------- Staff Accounting 2.00 $48,000 $96,000 Accounts Payable 0.50 30,000 15,000 Payroll 0.25 30,000 7,500 H/R and Benefits 0.50 60,000 30,000 Risk Management/Insurance 0.25 84,000 21,000 Tax 1.00 78,000 78,000 Legal 0.50 96,000 48,000 SEC Reporting 0.25 84,000 21,000 Treasury Support 0.50 84,000 42,000 Market Planning 1.25 60,000 75,000 MIS Personnel 0.50 72,000 36,000 MIS System 100,000 ---- ---- ---- Total before overhead and Profit $569,500 Overhead and Profit (@15%) 85,425 -------- Total Cost $654,925 ========
EX-10.5 9 1996 STOCK OWNERSHIP INCENTIVE PLAN Exhibit 10.5 ATRIA COMMUNITIES, INC. 1996 STOCK OWNERSHIP INCENTIVE PLAN ARTICLE 1. PURPOSE The purpose of this 1996 Stock Ownership Incentive Plan ("Plan") is to advance the interest of Atria Communities, Inc., a Delaware corporation ("Company"), and its subsidiaries by encouraging employees who will largely be responsible for the long-term success and development of the Company to acquire and retain an ownership interest in the Company. The Plan is also intended to provide flexibility to the Company in attracting and retaining such employees and stimulating their efforts on behalf of the Company. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. As used in the Plan, terms defined parenthetically immediately after their use shall have the respective meanings provided by such definitions, and the terms set forth below shall have the following meanings (in either case, such terms shall apply equally to both the singular and plural forms of the terms defined): (a) "Award" shall mean, individually or collectively, a grant under the Plan of Options, Restricted Stock or Performance Units. (b) "Board" shall mean the Board of Directors of the Company. (c) "Cause" shall mean, unless otherwise defined in an agreement evidencing an Award, a felony conviction of a Participant or the failure of a Participant to contest prosecution for a felony, or a Participant's willful misconduct or dishonesty, any of which is determined by the Committee to be directly and materially harmful to the business or reputation of the Company or its Subsidiaries. (d) A "Change in Control" shall mean any of the following events: (1) An acquisition (other than directly from the Company) of any voting securities of the Company ("Voting Securities") by any Person immediately after which such Person has Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 25% of the combined voting power of the Company's then outstanding Voting Securities if Vencor, Inc. then beneficially owns less than 25% of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A Non-Control Acquisition shall mean an acquisition by (i) the Company or any Subsidiary, (ii) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary, (iii) Vencor, Inc. or any Subsidiary or (iv) any Person in connection with a Non-Control Transaction (as hereinafter defined). (2) The individuals who, as of December 31, 1996, are members of the Board ("Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened Election Contest (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board ("Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) Approval by stockholders of the Company of: (A) A merger, consolidation or reorganization involving the Company, unless such is a Non-Control Transaction. For purposes of the Plan, the term "Non-Control Transaction" shall mean a merger consolidation or reorganization of the Corporation in which: (i) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization ("Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation; and (iii) no Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of 20% or more of the then outstanding Voting Securities) has Beneficial Ownership of 20% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; (B) A complete liquidation or dissolution of the Company; or (C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person ("Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided, however, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then -2- outstanding Voting Securities Beneficially Owner by the Subject Person, then a Change in Control shall occur. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (f) "Committee" shall mean the committee described in Section 3.1. (g) "Disability" shall mean the total disability as determined by the Committee in accordance with standards and procedures similar to those under the Company's long-term disability plan, or, if none, a physical or mental infirmity which the Committee determines impairs the Participant's ability to perform substantially his or her duties for a period of 180 consecutive days. (h) "Employee" shall mean an individual who is a full-time employee of the Company or a Subsidiary. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (j) "Fair Market Value" of the Shares shall mean, as of any applicable date, the closing sale price of the Shares on the Nasdaq National Market System or any national or regional stock exchange in which the Shares are traded, or if no such reported sale of the Shares shall have occurred on such date, on the next preceding date on which there was such a reported sale. If there shall be any material alteration in the present system of reporting sale prices of the Shares, or if the Shares shall no longer be listed on the Nasdaq National Market System or a national or regional stock exchange, the fair market value of the Shares as of a particular date shall be determined by such method as shall be determined by the Committee. (k) "ISOs" shall have the meaning given such term in Section 6.1. (l) "NQSOs" shall have the meaning given such term in Section 6.1. (m) "Option" shall mean an option to purchase Shares granted pursuant to Article 6. (n) "Option Agreement" shall mean an agreement evidencing the grant of an Option as described in Section 6.2. (o) "Option Exercise Price" shall mean the purchase price per Share subject to an Option, which shall not be less than the Fair Market Value of the Share on the date of grant (110% of Fair Market Value in the case of an ISO granted to a Ten Percent Shareholder). (p) "Participant" shall mean any Employee selected by the Committee to receive an Award under the Plan. (q) "Performance Goals" shall have the meaning given such term in Section 8.4. -3- (r) "Performance Period" shall have the meaning given such term in Section 8.3. (s) "Performance Unit" shall mean the right to receive a payment from the Company upon the achievement of specified Performance Goals as set forth in a Performance Unit Agreement. (t) "Performance Unit Agreement" shall mean an agreement evidencing a Performance Unit Award, as described in Section 8.2. (u) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (v) "Plan" shall mean this Atria Communities, Inc. 1996 Stock Ownership Incentive Plan as the same may be amended from time to time. (w) "Restriction Period" shall mean the period determined by the Committee during which the transfer of Shares is limited in some way or Shares are otherwise restricted or subject to forfeiture as provided in Article 7. (x) "Restricted Stock" shall mean Shares granted pursuant to Article 7 as to which the restrictions have not expired. (y) "Restricted Stock Agreement" shall mean an agreement evidencing a Restricted Stock Award, as described in Section 7.2. (z) "Retirement" shall mean retirement by a Participant in accordance with the terms of the Company's retirement or pension plans. (aa) "Shares" shall mean the shares of the Company's common stock, par value $.10 per share. (bb) "Subsidiary" shall mean, with respect to any company, any corporation or other Person of which a majority of its voting power, equity securities, or equity interest is owned directly or indirectly by such company. (cc) "Ten Percent Shareholder" shall mean an Employee who, at the time an ISO is granted, owns (within the meaning of section 422(b)(6) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company. 2.2 Gender and Number. Except where otherwise indicated by the context, reference to the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural. 2.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. -4- ARTICLE 3. ADMINISTRATION 3.1 The Committee. The Plan shall be administered by a Committee appointed by the Board consisting of two or more directors of the Company or the entire Board of the Company. The Committee shall meet at such times and places as it determines and may meet through a telephone conference call. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board. 3.2 Authority of the Committee. Subject to the provisions of the Plan, the Committee shall have full authority to: (a) select Participants to whom Awards are granted; (b) determine the size, types and frequency of Awards granted under the Plan; (c) determine the terms and conditions of Awards, including any restrictions or conditions to the Award, which need not be identical; (d) cancel or modify, with the consent of the Participant, outstanding Awards and to grant new Awards in substitution therefor; (e) accelerate the exercisability of any Award, for any reason; (f) construe and interpret the Plan and any agreement or instrument entered into under the Plan; (g) establish, amend and rescind rules and regulations for the Plan's administration; and (h) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. The Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. To the extent permitted by law and Rule 16b-3 promulgated under the Exchange Act, the Committee may delegate its authority as identified hereunder. 3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, and all related orders or resolutions of the Board, shall be final, conclusive and binding upon all persons, including the Company, its stockholders, Employees, Participants and their estates and beneficiaries. 3.4 Section 16 Compliance; Bifurcation of Plan. It is the intention of the Company that the Plan and the administration of the Plan comply in all respects with Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder. If any Plan provision, or any aspect of the administration of the Plan, is found not to be in compliance with Section 16(b) of the Exchange Act, the provision or administration shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding anything in the Plan to the contrary, the Board or the Committee, in its -5- discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Participants who are subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants. ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN 4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the number of Shares reserved for issuance upon the exercise of Awards and the payment of benefits in connection with Awards is 1,000,000 Shares. Any Shares issued under the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. If and to the extent an Award shall expire or terminate for any reason without having been exercised in full (including a cancellation and regrant of an Option), or shall be forfeited, without, in either case, the Participant having realized any of the economic benefits of a shareholder (such as the receipt of dividends or other distributions paid on shares of Restricted Stock), the Shares (including Restricted Stock) associated with such Awards shall again become available for Awards under the Plan. 4.2 Shares of Restricted Stock Available Under the Plan. Subject to adjustment as provided in Section 4.3, the number of Shares which may be the subject of Awards granted in the form of Restricted Stock is limited to 20% of the Shares subject to the Plan. 4.3 Adjustments in Authorized Shares and Outstanding Awards. In the event of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, cash dividend, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures, or other change in the corporate structure of the Company affecting the Shares, the Committee may substitute or adjust the total number and class of Shares or other stock or securities which may be issued under the Plan, and the number, class and/or price of Shares subject to outstanding Awards, as it determines to be appropriate and equitable to prevent dilution or enlargement of the rights of Participants and to preserve, without exceeding, the value of any outstanding Awards; and further provided, that the number of Shares subject to any Award shall always be a whole number. In the case of ISOs, such adjustments shall be made in such a manner so as not to constitute a "modification" within the meaning of section 424(h)(3) of the Code and only to the extent otherwise permitted by sections 422 and 424 of the Code. ARTICLE 5. ELIGIBILITY AND PARTICIPATION All Employees of the Company and its Subsidiaries are eligible to receive Awards under the Plan. In selecting Employees to receive Awards under the Plan, as well as in determining the number of Shares subject to, and the other terms and conditions applicable to, each Award, the Committee shall take into consideration such factors as it deems relevant in promoting the purposes of the Plan, including the duties of the Employees, their present and potential contribution to the success of the Company and their anticipated number of years of active service remaining with the Company or a Subsidiary. -6- ARTICLE 6. STOCK OPTIONS 6.1 Grant of Options. Subject to the terms and provisions of the Plan, the Committee may grant Options to Participants at any time and from time to time, in the form of options which are intended to qualify as incentive stock options within the meaning of section 422 of the Code ("ISOs"), Options which are not intended to so qualify ("NQSOs") or a combination thereof. The maximum number of Shares with respect to which Options may be granted to any Participant under the Plan shall not exceed 40% of the Shares subject to the Plan. 6.2 Option Agreement. Each Option shall be evidenced by an Option Agreement that shall specify the Option Exercise Price, the duration of the Option, the number of Shares to which the Option relates and such other provisions as the Committee may determine or which are required by the Plan. The Option Agreement shall also specify whether the Option is intended to be an ISO or a NQSO and shall include such provisions applicable to the particular type of Option granted. 6.3 Duration of Options. Each Option shall expire at such time as is determined by the Committee at the time of grant; provided, however, that no Option shall be exercised later than the tenth anniversary of its grant (fifth anniversary in the case of an ISO granted to a Ten Percent Shareholder). 6.4 Exercise of Options. Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall approve at the time of grant, which need not be the same for each grant or for each Participant. Except as provided in Section 6.6, however, in no event may any Option become exercisable within six months of the date of grant in the case of any Participant subject to Section 16(b) of the Exchange Act. Options shall be exercised by delivery to the Company of a written notice of exercise, setting forth the number of Shares with respect to which the Option is to be exercised and accompanied by full payment of the Option Exercise Price and all applicable withholding taxes. 6.5 Payment of Option Exercise Price. The Option Exercise Price for Shares as to which an Option is exercised shall be paid to the Company in full at the time of exercise either (a) in cash in the form of currency or other cash equivalent acceptable to the Company, (b) by tendering Shares having a Fair Market Value (determined as of the close of the business day immediately preceding the day on which the Option is exercised) equal to the Option Exercise Price (provided, however, that in the case of a Participant subject to Section 16(b) of the Exchange Act, such Shares have been held by the Participant for at least six months prior to their tender), (c) any other reasonable consideration that the Committee may deem appropriate or (d) by a combination of the forms of consideration described in (a), (b) and (c) of this Section 6.5. The Committee may permit the cashless exercise of Options as described in Regulation T promulgated by the Federal Reserve Board, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. 6.6 Vesting Upon Change in Control. Upon a Change in Control, any then outstanding Options held by Participants shall become fully vested and immediately exercisable. Furthermore, if provided in an Option Agreement, the Participant shall have the right to sell the Option back to -7- the Company for an amount generally equal to the excess of the Fair Market Value of the Shares subject to the Option over the Option Price. 6.7 Termination of Employment. If the employment of a Participant is terminated for Cause, all then outstanding Options of such Participant, whether or not exercisable, shall terminate immediately. If the employment of a Participant is terminated for any reason other than for Cause, death, Disability or Retirement, to the extent then outstanding Options of such Participant are exercisable, such Options may be exercised by such Participant or such Participant's personal representative at any time prior to the expiration date of the Options or within 90 days after the date of such termination of employment, whichever is shorter. In the event of the Retirement of a Participant, to the extent then outstanding Options of such Participant are exercisable, such Options may be exercised by the Participant (a) in the case of NQSOs, within two years after the date of Retirement and (b) in the case of ISOs, within 90 days after Retirement; provided, however, that no such Options may be exercised on a date subsequent to their expiration. In the event of the death or Disability of a Participant while employed by the Company or a Subsidiary, all then outstanding Options of such Participant shall become fully vested and immediately exercisable, and may be exercised at any time (c) in the case of NQSOs, within two years after the date of death or determination of Disability and (d) in the case of ISOs, within one year after the date of death or determination of Disability; provided however that no such Options may be exercised on a date subsequent to their expiration. In the event of the death of a Participant, the Option may be exercised by the person or persons to whom rights pass by will or by the laws of descent and distribution, or if appropriate, the legal representative of the deceased Participant's estate. In the event of the Disability of a Participant, Options may be exercised by the Participant, or if such Participant is incapable of exercising the Options, by such Participant's legal representative. ARTICLE 7. RESTRICTED STOCK 7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee may grant shares of Restricted Stock to Participants at any time and from time to time and upon such terms and conditions as it may determine. 7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement which shall specify the Restriction Period, the number of shares of Restricted Stock granted and such other provisions as the Committee may determine and which are required by the Plan. 7.3 Non-Transferability of Restricted Stock. Except as provided in this Article 7, shares of Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Restriction Period as specified in the Restricted Stock Agreement, or upon earlier satisfaction of any other conditions determined at the time of grant specified in the Restricted Stock Agreement. Except as provided in Section 7.9, however, in no event may any Restricted Stock become vested in a Participant subject to Section 16(b) of the Exchange Act prior to six months following the date of its grant. 7.4 Other Restrictions. The Committee may impose such other restrictions on any shares of Restricted Stock as it may deem advisable, including, without limitation, restrictions based upon -8- the achievement of Performance Goals, years of service and/or restrictions under applicable Federal or state securities laws. The Committee may provide that any share of Restricted Stock shall be held (together with a stock power executed in blank by the Participant) in custody by the Company until any or all restrictions thereon shall have lapsed. 7.5 Forfeiture. The Committee shall determine and set forth in a Participant's Restricted Stock Agreement such events upon which a Participant's shares of Restricted Stock shall be forfeitable, which may include, without limitation, the termination of a Participant's employment during the Restriction Period or the nonachievement of Performance Goals. Any such forfeited shares of Restricted Stock shall be immediately returned to the Company by the Participant, and the Participant shall only receive the amount, if any, paid by the Participant for such Restricted Stock. 7.6 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 7.4, each certificate representing shares of Restricted Stock shall bear the following legend: "The sale or other transfer of the shares represented by this Certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer as set forth in the 1996 Atria Communities, Inc. Stock Ownership Incentive Plan, and in the related Restricted Stock Agreement. A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of Atria Communities, Inc." 7.7 Lapse of Restrictions Generally. Except as otherwise provided in this Article 7, shares of Restricted Stock shall become freely transferable by the Participant and no longer subject to forfeiture after the last day of the Restriction Period; provided however, that if the restriction relates to the achievement of a Performance Goal, the Restriction Period shall not end until the Committee has certified in writing that the Performance Goal has been met. Once the shares of Restricted Stock are released from their restrictions, the Participant shall be entitled to have the legend required by Section 7.6 removed from the Participant's share certificate, which certificate shall thereafter represent freely transferable and nonforfeitable Shares free from any and all restrictions under the Plan. 7.8 Lapse of Restrictions Upon Change in Control. Upon a Change in Control, any restrictions and other conditions pertaining to then outstanding shares of Restricted Stock held by Participants, including, but not limited to, vesting requirements, shall lapse and such Shares shall thereafter be immediately transferable and nonforfeitable. 7.9 Voting Rights; Dividends and Other Distributions. Unless the Committee exercises its discretion as provided in Section 7.10, during the Restriction Period, Participants holding shares of Restricted Stock may exercise full voting rights, and shall be entitled to receive all dividends and other distributions paid, with respect to such Restricted Stock. If any dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions as the shares of Restricted Stock with respect to which they were paid. -9- 7.10 Treatment of Dividends. At the time shares of Restricted Stock are granted to a Participant, the Committee may, in its discretion, determine that the payment of dividends, or a specified portion thereof, declared or paid on such shares shall be deferred until the lapse of the restrictions with respect to such shares, in which event such deferred dividends shall be held by the Company for the account of the Participant. In the event of such deferral, there may be credited at the end of each year (or portion thereof) interest on the amount of the account during the year at a rate per annum as the Committee, in its discretion, may determine. Deferred dividends, together with interest accrued thereon, if any, shall be (a) paid to the Participant upon the lapse of restrictions on the shares of Restricted Stock as to which the dividends related or (ii) forfeited to the Company upon the forfeiture of such shares by the Participant. 7.11 Termination of Employment. If the employment of a Participant is terminated for any reason other than death or Disability prior to the expiration of the Restriction Period applicable to any shares of Restricted Stock then held by the Participant, such shares shall thereupon be forfeited immediately by the Participant and returned to the Company, and the Participant shall only receive the amount, if any, paid by the Participant for such Restricted Stock. If the employment of a Participant is terminated as a result of death or Disability prior to the expiration of the Restriction Period applicable to any shares of Restricted Stock then held by the Participant, any restrictions and other conditions pertaining to such shares then held by the Participant, including, but not limited to, vesting requirements, shall immediately lapse and such Shares shall thereafter be immediately transferable and nonforfeitable. Notwithstanding anything in the Plan to the contrary, except in the case of Restricted Stock for which a Performance Goal must be achieved, the Committee may determine, in its sole discretion, in the case of any termination of a Participant's employment other than for Cause, that the restrictions on some or all of the shares of Restricted Stock awarded to a Participant shall immediately lapse and such Shares shall thereafter be immediately transferable and nonforfeitable. ARTICLE 8. PERFORMANCE UNITS 8.1 Grant of Performance Units. The Committee may, from time to time and upon such terms and conditions as it may determine, grant Performance Units which will become payable to a Participant upon certification in writing by the Committee that the Performance Goals related thereto have been achieved. 8.2 Performance Unit Agreement. Each Performance Unit grant shall be evidenced by a Performance Unit Agreement that shall specify the Performance Goals, the Performance Period and the number of Performance Units to which it pertains. 8.3 Performance Period. The period of performance ("Performance Period") with respect to each Performance Unit shall be such period of time, which shall not be less than one year, nor more than five years, as determined by the Committee, for the measurement of the extent to which Performance Goals are attained. 8.4 Performance Goals. The goals ("Performance Goals") that are to be achieved with respect to each Performance Unit, or Restricted Stock subject to a requirement that Performance Goals be achieved, shall be those objectives established by the Committee as it deems appropriate, -10- and which may be expressed in terms of (a) earnings per Share, (b) Share price, (c) pre-tax profit, (d) net earnings, (e) return on equity or assets, (f) revenues or (g) any combination of the foregoing. Performance Goals may be in respect of the performance of the Company and its Subsidiaries (which may be on a consolidated basis), a Subsidiary, a Division or other operating unit of the Company. Performance Goals may be absolute or relative and may be expressed in terms of a progression within a specified range. The Performance Goals with respect to a Performance Period shall be established by the Committee in order to comply with Rule 16b-3 under the Exchange Act and section 162(m) of the Code, as applicable. 8.5 Termination of Employment. If the employment of a Participant shall terminate prior to the expiration of the Performance Period for any reason other than for death, Disability or Retirement, the Performance Units then held by the Participant shall terminate. In the case of termination of employment by reason of death, Disability or Retirement of a Participant prior to the expiration of the Performance Period, any then outstanding Performance Units of such Participant shall be payable in an amount equal to the maximum amount payable under the Performance Unit multiplied by a percentage equal to the percentage that would have been earned under the terms of the Performance Unit Agreement assuming that the rate at which the Performance Goals have been achieved as of the date of such termination of employment would have continued until the end of the Performance Period; provided, however, that if no maximum amount payable is specified in the Performance Unit Agreement, the amount payable shall be such amount as the Committee shall determine is reasonable. 8.6 Payment Upon Change in Control. Upon a Change in Control, any then outstanding Performance Units shall become fully vested and immediately payable in an amount which is equal to the greater of (a) the maximum amount payable under the Performance Unit multiplied by a percentage equal to the percentage that would have been earned under the terms of the Performance Unit Agreement assuming that the rate at which the Performance Goals have been achieved as of the date of such Change in Control would have continued until the end of the Performance Period or (b) the maximum amount payable under the Performance Unit multiplied by the percentage of the Performance Period completed by the Participant at the time of the Change in Control; provided, however, that if no maximum amount payable is specified in the Performance Unit Agreement, the amount payable shall be such amount as the Committee shall determine is reasonable. 8.7 Payment of Performance Units. Subject to such terms and conditions as the Committee may impose, and unless otherwise provided in the Performance Unit Agreement, Performance Units shall be payable within 90 days following the end of the Performance Period during which the Participant attained at least the minimum acceptable level of achievement under the Performance Goals, or 90 days following a Change in Control, as applicable. The Committee, in its discretion, may determine at the time of payment required in connection with a Performance Unit whether such payment shall be made (a) solely in cash, (b) solely in Shares (valued at the Fair Market Value of the Shares on the date of payment) or (c) a combination of cash and Shares; provided, however, that if a Performance Unit becomes payable upon a Change in Control, the Performance Unit shall be paid solely in cash. 8.8 Designation of Beneficiary. Each Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom the right to -11- receive payments under a Performance Unit is to be paid in case of the Participant's death before receiving any or all such payments. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company and shall be effective only when filed by the Participant in writing with the Committee during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. ARTICLE 9. AMENDMENT, MODIFICATION AND TERMINATION 9.1 Effective Date. The Plan shall become effective upon adoption by the Board. The Plan shall be rescinded and all Options and shares of Restricted Stock granted hereunder shall be null and void unless within 12 months from the date of the adoption of the Plan by the Board it shall have been approved by the holders of a majority of the outstanding Shares present or represented and entitled to vote on the Plan at a stockholders' meeting. 9.2 Termination Date. The Plan shall terminate on the earliest to occur of (a) the tenth anniversary of the adoption of the Plan by the Board, (b) the date when all Shares available under the Plan shall have been acquired pursuant to the exercise of Awards and the payment of all benefits in connection with Performance Unit Awards has been made or (c) such other date as the Board may determine in accordance with Section 9.2. 9.3 Amendment, Modification and Termination. The Board may, at any time, amend, modify or terminate the Plan. Without the approval of the stockholders of the Company (as may be required by the Code, Section 16 of the Exchange Act and the rules promulgated thereunder, any national securities exchange or system on which the Shares are then listed or reported or a regulatory body having jurisdiction with respect hereto), however, no such amendment, modification or termination may: (a) materially increase the benefits accruing to Participants under the Plan; (b) increase the total amount of Shares which may be issued under the Plan, except as provided in Section 4.3; or (c) materially modify the class of Employees eligible to participate in the Plan. 9.4 Awards Previously Granted. No amendment, modification or termination of the Plan shall in any manner adversely affect any outstanding Award without the written consent of the Participant holding such Award. ARTICLE 10. NON-TRANSFERABILITY A Participant's rights under the Plan may not be assigned, pledged or otherwise transferred other than by will or the laws of descent and distribution, except that upon a Participant's death, the Participant's rights to payment pursuant to a Performance Unit may be transferred to a beneficiary designated in accordance with Section 8.8; provided, however, that in the case of NQSOs, the Participant may, subject to any restrictions under Section 16(b) of the Exchange Act, if applicable, -12- transfer the Options to the Participant's spouse, lineal descendants, trusts for their benefit or a charitable remainder trust of which Participant or such family members referred to above are a beneficiary. ARTICLE 11. NO GRANTING OF EMPLOYMENT RIGHTS Neither the Plan, nor any action taken under the Plan, shall be construed as giving any Employee the right to become a Participant, nor shall an Award under the Plan be construed as giving a Participant any right with respect to continuance of employment by the Company. The Company expressly reserves the right to terminate, whether by dismissal, discharge or otherwise, a Participant's employment at any time, with or without Cause, except as may otherwise be provided by any written agreement between the Company and the Participant. -13- ARTICLE 12. WITHHOLDING 12.1 Tax Withholding. A Participant shall remit to the Company an amount sufficient to satisfy Federal, state and local taxes (including the Participant's FICA and Medicare obligation) required by law to be withheld with respect to any grant, exercise or payment made under or as a result of the Plan. 12.2 Share Withholding. If the Company has a withholding obligation upon the issuance of Shares under the Plan, a Participant may, subject to the discretion of the Committee, elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the withholding tax is to be determined equal to the amount required to be withheld under applicable law. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, modify the provisions of this Section 12.2 or impose such other restrictions or limitations on such elections as may be necessary to ensure that such elections will be exempt transactions under Section 16(b) of the Exchange Act. ARTICLE 13. INDEMNIFICATION No member of the Board or the Committee, nor any officer or Employee acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board, the Committee and each officer or Employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation. ARTICLE 14. SUCCESSORS All obligations of the Company with respect to Awards granted under the Plan shall be binding on any successor to the Company, whether the existence of such successor is a result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company. ARTICLE 15. GOVERNING LAW To the extent not preempted by Federal law, the Plan, and all agreements under the Plan, shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to its conflict of laws rules. Furthermore, all the Plan and all Option Agreements relating to ISOs shall be interpreted so as to qualify as incentive stock options under the Code. IN WITNESS WHEREOF, this 1996 Stock Ownership Incentive Plan has been executed by the Company as of the ______ day of _____________, 1996, being the date the -14- Plan was adopted by the Board. ATRIA COMMUNITIES, INC. By: ________________________________ ________________________________ ATTEST: _______________________________ Secretary -15- EX-10.6 10 NON-EMPLOYMENT DIRECTORS 1996 STOCK INCENTIVE PLAN Exhibit 10.6 ATRIA COMMUNITIES, INC. NON-EMPLOYEE DIRECTORS 1996 STOCK INCENTIVE PLAN ------------------------- ARTICLE 1. PURPOSE The purpose of this 1996 Non-Employee Directors Stock Incentive Plan is to promote the interests of Atria Communities, Inc., its subsidiaries and stockholders, by having non-employee directors of the Company acquire a proprietary interest in the Company. Such investments should increase the personal interest and the special effort of such persons in providing for the continued success and progress of the business of the Company and should enhance the Company's efforts to attract and retain competent non-employee directors. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. As used in the Plan, terms defined parenthetically immediately after their use shall have the respective meanings provided by such definitions, and the terms set forth below shall have the following meanings (in either case, such terms shall apply equally to both the singular and plural forms of the terms defined): (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall mean, unless otherwise defined in an Option Agreement or Restricted Stock Agreement, a felony conviction of a Non-Employee Director or the failure of a Non-Employee Director to contest prosecution for a felony, or a Non-Employee Director's willful misconduct or dishonesty, any of which is determined by the Committee to be directly and materially harmful to the business or reputation of the Company or its Subsidiaries. (c) "Change in Control" shall mean any of the following events: (1) An acquisition (other than directly from the Company) of any voting securities of the Company ("Voting Securities") by any Person immediately after which such Person has Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 25% of the combined voting power of the Company's then outstanding Voting Securities if Vencor, Inc. then beneficially owns less than 25% of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A Non-Control Acquisition shall mean an acquisition by (i) the Company or any Subsidiary, (ii) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary, (iii) Vencor, Inc. or any Subsidiary or (iv) any Person in connection with a Non-Control Transaction (as hereinafter defined). (2) The individuals who, as of December 31, 1996, are members of the Board ("Incumbent Board"), cease for any reason to constitute at least a majority of the -1- Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened Election Contest (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board ("Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) Approval by stockholders of the Company of: (A) A merger, consolidation or reorganization involving the Company, unless such is a Non-Control Transaction. For purposes of the Plan, the term "Non-Control Transaction" shall mean a merger consolidation or reorganization of the Corporation in which: (i) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization ("Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation; and (iii) no Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of 20% or more of the then outstanding Voting Securities) has Beneficial Ownership of 20% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; (B) A complete liquidation or dissolution of the Company; or (C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person ("Subject Person") acquired Beneficial Ownership of more than the -2- permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided, however, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. (e) "Committee" shall mean the Committee provided for in Section 7.1. (f) "Company" shall mean Atria Communities, Inc., a Delaware corporation. (g) "Disability" shall mean the total disability as determined by the Committee in accordance with standards and procedures similar to those under the Company's long-term disability plan, or, if none, a physical or mental infirmity which the Committee determines impairs the Participant's ability to perform substantially his or her duties for a period of 180 consecutive days. (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (i) "Fair Market Value" of the Shares shall mean, as of any applicable date, the closing sale price of the Shares on the Nasdaq National Market System or any national or regional stock exchange in which the Shares are traded, or if no such reported sale of the Shares shall have occurred on such date, on the next preceding date on which there was such a reported sale. If there shall be any material alteration in the present system of reporting sale prices of the Shares, or if the Shares shall no longer be listed on the Nasdaq National Market System or a national or regional stock exchange, the fair market value of the Shares as of a particular date shall be determined by such method as shall be determined by the Committee. (j) "Initial Grant Date" shall mean the date the Registration Statement with respect to the Company's initial public offering becomes effective. (k) "Non-Employee Director" shall mean a member of the Board who is not an employee of the Company or any of its subsidiaries. (l) "Option" shall mean an option granted to an Optionee pursuant to the Plan. -3- (m) "Option Agreement" shall mean a written agreement between the Company and an Optionee evidencing the grant of an Option and containing terms and conditions concerning the exercise of the Option. (n) "Option Price" shall mean the price to be paid for Shares to be purchased pursuant to the exercise of an Option. (o) "Optionee" shall mean a Non-Employee Director who has been granted an Option or the personal representative, heir or legatee of an Optionee who has the right to exercise the Option upon the death of the Optionee. (p) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (q) "Plan" shall mean this 1996 Non-Employee Directors Stock Incentive Plan, as the same may be amended from time to time. (r) "Restriction Period" shall mean the period during which the transfer of Shares is limited in some way or Shares are otherwise restricted or subject to forfeiture as provided in Article 6. (s) "Restricted Stock" shall mean Shares granted pursuant to Article 6 as to which the restrictions have not expired. (t) "Restricted Stock Agreement" shall mean an agreement evidencing a Restricted Stock award, as described in Section 6.2. (u) "Shares" shall mean the shares of the Company's common stock, par value $.10 per share. (v) "Subsidiary" shall mean, with respect to any company, any corporation or other Person of which a majority of its voting power, equity securities or equity interest is owned directly or indirectly by such company. 2.2 Gender and Number. Except where otherwise indicated by the context, reference to the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural. 2.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. -4- ARTICLE 3. GRANTING OF OPTIONS 3.1 Initial Grants. Each Non-Employee Director on the Initial Grant Date, other than the Chairman of the Board of the Company, shall be granted on the Initial Grant Date an Option to purchase 10,000 Shares. On the Initial Grant Date, the Chairman of the Board of the Company shall be granted an Option to purchase 80,000 Shares. 3.2 New Non-Employee Directors Grants. Each new Non-Employee Director who is elected subsequent to the Initial Grant Date shall automatically be granted an Option to purchase 10,000 Shares upon the initial date of election to the Board, provided that the number of Shares available for grant under the Plan is sufficient to permit such automatic grant. 3.3 Additional Option Grants. On each anniversary of the date of the grant of an Option to a Non-Employee Director pursuant to the terms of the Plan, such Non-Employee Director shall automatically be granted an Option to purchase 1,000 Shares provided that (i) such Non-Employee Director shall have continually served as a director of the Company since the date of such prior Option grant and (ii) the number of Shares available for grant under the Plan is sufficient to permit such automatic grant. 3.4 Proportionate Reduction. If as of any date on which there is to be a grant of Options hereunder there are an insufficient number of Shares available pursuant to Section 4 to make all of the grants then to be made, each Non- Employee Director then entitled to be granted an Option shall receive an Option to purchase a proportionately lesser number of Shares. ARTICLE 4. SHARES SUBJECT TO THE PLAN The stock to be offered under the Plan shall be the Shares, which Shares may be unissued Shares or treasury Shares. Subject to the adjustments provided for in Section 8, the aggregate number of Shares to be delivered upon exercise of all Options granted under the Plan plus shares of Restricted Stock issued under the Plan shall not exceed 250,000 Shares. Shares subject to, but not delivered under, an Option terminating or expiring for any reason prior to its exercise in full, and shares of Restricted Stock which are forfeited pursuant to the terms of the Plan, shall be deemed available for Options to be granted thereafter during the term of the Plan. ARTICLE 5. TERMS AND CONDITIONS OF OPTIONS All Options granted hereunder shall be subject to the following terms and conditions which shall be set forth in the Option Agreement for all Options to the extent applicable: 5.1. To Whom Options May Be Granted. Options shall be granted only to Non- Employee Directors. -5- 5.2 Non-Transferability of Option. The Option shall not be transferable by the Optionee otherwise than by bequest or the laws of descent and distribution, and shall be exercisable during the Optionee's lifetime only by the Optionee; provided, however, that the Optionee may, subject to any restrictions under Section 16(b) of the Exchange Act, transfer the Options to the Optionee's spouse, lineal descendants, trusts for their benefit or a charitable remainder trust of which Optionee or such family members are a beneficiary. 5.3 Termination of Option. (a) If the Optionee ceases to be a director of the Company for any reason other than death, Disability or removal for Cause, the Option shall terminate three months after the Optionee ceases to be director of the Company (unless the Optionee dies during such period), or on the Option's expiration date, if earlier, and shall be exercisable during such period after the Optionee ceases to be a director of the Company only with respect to the number of Shares which the Optionee was entitled to purchase on the day preceding the day on which the Optionee ceased to be a director. (b) If the Optionee ceases to be a director of the Company because of removal for Cause, the Option shall terminate on the date of the Optionee's removal. (c) In the event of the Optionee's death or Disability while a director of the Company, or the Optionee's death within three months after the Optionee ceases to be a director (other than by reason of removal for Cause), the Option shall terminate upon the earlier to occur of (A) 12 months after the date of the Optionee's death or Disability, or (B) the Option's expiration date. The Option shall be exercisable during such period after the Optionee's death or Disability with respect to the number of Shares as to which the Option shall have been exercisable on the date preceding the Optionee's death or Disability, as the case may be. 5.4 Number of Shares of Common Stock. The number of Shares to which the Option pertains. 5.5 Exercise Price. The exercise price of the Option, which shall be equal to 100% of the Fair Market Value of the Shares at the time of the grant of the Option. 5.6 The Term of Option. The term of the Option, which shall be 10 years. 5.7 Exercisability. The time at which the Option becomes exercisable. The Option shall be exercisable as follows: (a) From the date the Option is granted until the first anniversary thereof, the Option may not be exercised. (b) Beginning on the day following the first anniversary of the date the Option is granted, the Option may be exercised with respect to one-fourth of the Shares subject to the Option. -6- (c) Beginning on the day following the second anniversary of the date the Option is granted, the Option may be exercised with respect to an additional one-fourth of the Shares subject to the Option. (d) Beginning on the day following the third anniversary of the date the Option is granted, the Option may be exercised with respect to an additional one-fourth of the Shares subject to the Option. (e) Beginning on the day following the fourth anniversary of the date the Option is granted, the Option may be exercised with respect to all of the Shares subject to the Option. Notwithstanding the provisions of this Section 5.7, upon a Change in Control, the Optionee shall have the right to exercise the Option in full as to all Shares subject to the Option. 5.8 Payment of Exercise Price. The Option Price shall be paid in cash at the time of exercise, except that in lieu of all or part of the cash, the Optionee may tender to the Company Shares owned by the Optionee having a Fair Market Value equal to the exercise price, less any cash paid. The Fair Market Value of such tendered Shares shall be determined as of the close of the business day immediately preceding the day on which the Option is exercised. ARTICLE 6. RESTRICTED STOCK 6.1 Grant of Restricted Stock. Each Non-Employee Director on the Initial Grant Date, other than the Chairman of the Board of the Company, shall be granted on the Initial Grant Date 5,000 shares of Restricted Stock. On the Initial Grant Date, the Chairman of the Board of the Company shall be granted 20,000 shares of Restricted Stock. 6.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement which shall specify the Restriction Period, the number of shares of Restricted Stock granted and such other provisions as the Committee may determine and which are required by the Plan. 6.3 Restriction Period. Shares of Restricted Stock shall vest one-half on the first anniversary of the Initial Grant Date, and the remaining one-half on the second anniversary of the Initial Grant Date. 6.4 Non-Transferability of Restricted Stock. Except as provided in this Article 6, shares of Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Restriction Period with respect to such shares. 6.5 Forfeiture. Shares of Restricted Stock which do not vest prior to the date the Non-Employee Director ceases to be a director of the Company shall be forfeited. Any such forfeited shares of Restricted Stock shall be immediately returned to the Company by -7- the Non-Employee Director, and the Non-Employee Director shall not receive any amount with respect to such Restricted Stock upon such forfeiture. 6.6 Certificate Legend. Each certificate representing shares of Restricted Stock shall bear the following legend: "The sale or other transfer of the shares represented by this Certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer as set forth in the Atria Communities, Inc. Non-Employee Directors 1996 Stock Incentive Plan, and in the related Restricted Stock Agreement. A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of Atria Communities, Inc." 6.7 Lapse of Restrictions Generally. Except as otherwise provided in this Article 6, shares of Restricted Stock shall become freely transferable by the Participant and no longer subject to forfeiture after the last day of the Restriction Period. Once the shares of Restricted Stock are released from their restrictions, the Non-Employee Director shall be entitled to have the legend required by Section 6.6 removed from the Non-Employee Director's Share certificate, which certificate shall thereafter represent freely transferable and nonforfeitable Shares free from any and all restrictions under the Plan. 6.8 Lapse of Restrictions Upon Change in Control. Upon a Change in Control, any restrictions and other conditions pertaining to then outstanding shares of Restricted Stock held by Non-Employee Directors shall lapse and such Shares shall thereafter be immediately transferable and nonforfeitable. 6.9 Voting Rights; Dividends and Other Distributions. During the Restriction Period, Non-Employee Directors holding shares of Restricted Stock may exercise full voting rights, and shall be entitled to receive all dividends and other distributions paid, with respect to such Restricted Stock. If any dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions as the shares of Restricted Stock with respect to which they were paid. 6.10 Termination as Director. If a Non-Employee Director ceases to be a director of the Company for any reason other than death or Disability prior to the expiration of the Restriction Period applicable to any shares of Restricted Stock then held by the Non-Employee Director, such shares shall thereupon be forfeited immediately by the Non-Employee Director and returned to the Company, and the Non-Employee Director shall not receive any amount with respect to such Restricted Stock. If a Non-Employee Director ceases to be a director of the Company as a result of death or Disability prior to the expiration of the Restriction Period applicable to any shares of Restricted Stock then held by the Non-Employee Director, all restrictions and other conditions pertaining to such shares of Restricted Stock shall immediately lapse and such shares of Restricted Stock shall thereafter be immediately transferable and nonforfeitable. -8- ARTICLE 7. ADMINISTRATION 7.1. The Committee. The Plan is designed to operate automatically and not require any significant administration. To the extent administration is required, the Plan shall be administered by a Committee appointed by the Board which shall include two or more directors of the Company or the entire Board of the Company. The Committee shall meet at such times and places as it determines and may meet through a telephone conference call. A majority of its members shall constitute a quorum, and the decision of the majority of those present at any meeting at which a quorum is present shall constitute the decision of the Committee. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made by a majority at a meeting duly held. No discretion concerning decisions under the Plan shall be afforded to a person who is not a "disinterested person." All decisions, determinations and selections made by the Committee pursuant to the provisions of the Plan shall be final. To the extent required by law and Rule 16b-3 promulgated under the Exchange Act, the Committee may delegate its authority hereunder. 7.2 Section 16 Compliance. It is the intention of the Company that the Plan and the administration of the Plan comply in all respects with Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder. If any Plan provision, or any aspect of the administration of the Plan, is found not to be in compliance with Section 16(b) of the Exchange Act, the provision or administration shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3 promulgated under the Exchange Act. ARTICLE 8. ADJUSTMENTS UPON CHANGE IN CAPITALIZATION Notwithstanding the limitations set forth in Section 4, in the event of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property divided, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Company affecting the Shares, the Committee shall make an appropriate and equitable adjustment in the maximum number of Shares available under the Plan or to any one individual and in the number, kind and Option Price of Shares subject to Options granted under the Plan to prevent dilution or enlargement of the rights of Non-Employee Directors under the Plan and outstanding Options. ARTICLE 9. AMENDMENTS AND DISCONTINUANCE 9.1 In General. Except as provided in Section 9.2, the Board may discontinue, amend, modify or terminate the Plan at any time. 9.2 Section 16(b) Compliance. To the extent required to meet the conditions for exemption from Section 16(b) of the Exchange Act or the requirements of any national securities exchange or system on which the Shares are then listed or reported or a regulatory -9- body having jurisdiction with respect thereto, without the approval of the stockholders of the Company, no amendment, modification or termination may: (a) materially increase the benefits accruing to Non-Employee Directors under the Plan; (b) materially increase the total number of Shares which may be issued under the Plan, except as provided in Section 8; or (c) materially modify the eligibility requirements to receive an Option or Restricted Stock under the Plan. Furthermore, to the extent required to meet the conditions for exemption from Section 16(b) of the Exchange Act, no amendment which would change the amount, price or timing of Option grants, other than to comply with changes in the Code or the Employee Retirement Income Security Act of 1974, as amended (to which the Plan is not currently subject), or the rules and regulations promulgated thereunder, shall be made more than once every six months. 9.3 No Effect on Outstanding Options. Any Option which is outstanding under the Plan at the time of its amendment or termination shall remain in effect in accordance with its terms and conditions and those of the Plan as in effect when the Option was granted. ARTICLE 10. MERGER, CONSOLIDATION, ETC. 10.1 Conversion on Certain Mergers. In the event the Company merges or consolidates with another corporation, or all or substantially all of the Company's capital stock or assets are acquired by another corporation, and the surviving or acquiring corporation issues shares of its stock to the Company's shareholders in connection with the merger, consolidation or acquisition, the surviving or acquiring corporation shall adopt the Plan and the following shall apply: (a) Upon the exercise of an Option, the Optionee shall, at no additional cost (other than the Option Price), be entitled to receive, in lieu of the number of Shares to which such Option is then exercisable, the number and class of stock or other securities to which the Optionee would have been entitled pursuant to the terms of the merger, consolidation or acquisition if immediately prior thereto the Optionee had been the holder of record of a number of Shares equal to the number of Shares as to which the Option shall then be exercisable; and (b) The shares of the surviving or acquiring corporation received in exchange for shares of Restricted Stock shall be subject to the same restriction as applied to such Restricted Stock. 10.2 No Conversion on Other Mergers. In the event that the Company merges or consolidates with another corporation, or all or substantially all of the Company's capital -10- stock or assets are acquired by another corporation, and the surviving or acquiring corporation does not issue shares of its stock to the Company's shareholders in connection with the merger, consolidation or acquisition, then, notwithstanding any other provision of the Plan to the contrary, no Option may be exercised after the effective date of the merger, consolidation or acquisition. ARTICLE 11. EFFECTIVENESS AND TERMINATION OF THE PLAN 11.1 Effective Date. The Plan shall become effective upon adoption by the Board. The Plan shall be rescinded and all Options and shares of Restricted Stock granted hereunder shall be null and void unless within 12 months from the date of the adoption of the Plan by the Board it shall have been approved by the holders of a majority of the outstanding Shares present or represented and entitled to vote on the Plan at a stockholders' meeting. 11.2 Termination Date. The Plan shall terminate on the earliest to occur of (i) the date when all of the Shares available under the Plan shall have been acquired through the exercise of Options granted under the Plan and the issuance of Restricted Stock; (ii) 10 years after the date of adoption of the Plan by the Board; or (iii) such other date as the Board may determine. ARTICLE 12. NO RIGHT OF REELECTION Neither the Plan, nor any action taken under the Plan, shall be construed as conferring upon a Non-Employee Director any right to continue as a director of the Company, to be renominated by the Board or reelected by the stockholders of the Company. ARTICLE 13. INDEMNIFICATION No member of the Board or the Committee, nor any officer or employee acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board, the Committee and each officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation. ARTICLE 14. GOVERNING LAW The provisions of the Plan shall be construed, administered and enforced according to the laws of the State of Delaware without regard to its conflict of laws rules. IN WITNESS WHEREOF, this Non-Employee Directors 1996 Stock Incentive Plan has been executed by the Company as of the ______ day of ______________, 1996, being the -11- date the Plan was adopted by the Board. ATRIA COMMUNITIES, INC. By: ____________________________________ Title: ________________________________ -12- EX-10.9 11 SERVICES AGREEMENTS KACHINA POINT Exhibit 10.9 #7105 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between HILLHAVEN PROPERTIES, LTD., an Oregon corporation ("HPL") and FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "FHC"). RECITALS: A. HPL is the owner and operator of the retirement community known as Kachina Point located in Sedona, Arizona (the "Community"). B. FHC is the owner and operator of the skilled nursing home facility known as Kachina Point Health Care Center located in Sedona, Arizona. C. FHC provides certain services to HPL in connection with the operation of the Community. D. HPL and FHC now desire to set forth their agreement with respect to the services provided by FHC to HPL and the Community. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. SERVICES. FHC agrees to provide to HPL the services of a maintenance supervisor. HPL. HPL agrees to pay an amount equal to the salary, wages and/or benefits, based on a 20 hour work week, of such maintenance supervisor. FHC shall send an invoice to HPL each month for the services of the maintenance supervisor for the prior month. HPL agrees to pay any such invoice within 10 days of its receipt of such invoice. 2. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall have no further obligations or duties hereunder except for HPL's obligation to pay for all services provided by FHC through and including the date of termination of this Agreement. 3. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to FHC: First Healthcare Corporation 3300 Providian Center Louisville, Kentucky 40202 Attention: ------------------- If to HPL: Hillhaven Properties, Ltd. 515 West Market Street Louisville, Kentucky 40202 Attention: ------------------- KACHINA POINT #7105 Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 4. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 5. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. FIRST HEALTHCARE CORPORATION By: -------------------------- Title: ----------------------- ("FHC") HILLHAVEN PROPERTIES, LTD. By: -------------------------- Title: ----------------------- ("HPL") 2 SAN MARCOS #7112 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between HILLHAVEN PROPERTIES, LTD., an Oregon corporation ("HPL") and FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "FHC"). RECITALS: A. HPL is the operator of the assisted living\retirement community known as Courtyard at San Marcos located in San Marcos, California (the "ALF"). B. FHC is the operator of the skilled nursing home facility known as Village Square Nursing and Rehabilitation Center located in San Marcos, California (the "SNF"). C. HPL provides certain services to FHC in connection with the operation of the SNF. D. HPL and FHC now desire to set forth their agreement with respect to the services provided by HPL to FHC. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. SERVICES. HPL agrees to provide to FHC lawn services consistent with the lawn services provided by HPL in the past. FHC agrees to pay a proportionate part of the salary, wages and/or benefits of each employee of HPL that provides lawn services to FHC. HPL shall send an invoice to FHC each month for the services for the prior month. FHC agrees to pay any such invoice within 10 days of its receipt of such invoice. 2. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall have no further obligations or duties hereunder except for FHC's obligation to pay for all services provided by HPL through and including the date of termination of this Agreement. 3. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to FHC: First Healthcare Corporation 3300 Providian Center Louisville, Kentucky 40202 Attention: -------------------- If to HPL: Hillhaven Properties, Ltd. 515 West Market Street Louisville, Kentucky 40202 Attention: -------------------- 3 SAN MARCOS #7112 Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 4. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 5. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. FIRST HEALTHCARE CORPORATION By: -------------------------- Title: ----------------------- ("FHC") HILLHAVEN PROPERTIES, LTD. By: -------------------------- Title: ----------------------- ("HPL") 4 McMillen SENIOR VILLAGE #238 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria") and FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "FHC"). RECITALS: A. Atria is the operator of the retirement community known as McMillen Senior Village located at 85 McMillen Drive, Newark, Ohio (the "Community"). B. FHC is the operator of the skilled nursing home facility known as Newark Healthcare Centre located at 75 McMillen Drive, Newark, Ohio (the "SNF"). C. FHC provides certain services to Atria in connection with the operation of the Community. D. Atria and FHC now desire to set forth their agreement with respect to the services provided by FHC to Atria and the Community. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. MEALS. FHC agrees to prepare and provide all meals to be served by Atria at the Community. The menu and the schedule for the preparation and delivery of such meals shall be mutually agreed to from time to time by FHC and Atria. Atria shall be responsible for notifying FHC on timely basis before each meal of the number of residents to be served at the next meal to be served. Atria agrees to pay to FHC for all costs and expenses for the preparation of such meals, including, without limitation, the costs and expense of all products consumed in the preparation of such meals and the labor costs for the preparation of each such meal. FHC shall send an invoice to Atria each month for the meal costs for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 2. MISCELLANEOUS SERVICES. FHC agrees to provide to Atria, as required and requested from time to time by Atria (the "Miscellaneous Services") (a) services and support to maintain and repair the Community, (b) general administration services and support, (c) general office services and support, (d) dietary consultation services, and (e) and housekeeping services and support. Atria shall pay for or supply all materials consumed or used in the rendition of the Miscellaneous Services. Atria agrees to pay a proportionate share of the salary, wages and/or benefits of each employee of FHC that provides Miscellaneous Services to Atria. All Miscellaneous Services shall be provided at times and upon such schedules as mutually agreed to from time to time by Atria and FHC. FHC shall send an invoice to Atria each month for the Miscellaneous Services for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 3. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall have no further obligations or duties hereunder except for Atria's obligation to pay for all services provided by FHC through and including the date of termination of this Agreement. 5 4. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to FHC: First Healthcare Corporation 3300 Providian Center Louisville, Kentucky 40202 Attention: ---------------------- If to Atria: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attention: ---------------------- Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 5. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 6. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. FIRST HEALTHCARE CORPORATION By: --------------------------- Title: ----------------------- ("FHC") ATRIA COMMUNITIES, INC. By: -------------------------- Title: ----------------------- ("Atria") 6 VALLEY MANOR APARTMENTS #437 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria") and FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "FHC"). RECITALS: A. Atria is the owner and operator of the assisted living\retirement community known as Valley Manor Apartments located at 5545 East Lee Street, Tucson, Arizona (the "ALF"). B. FHC is the owner and operator of the skilled nursing home facility known as Valley House Care and Rehabilitation Center located at 5545 East Lee Street, Tucson, Arizona (the "SNF"). C. FHC provides certain services to Atria in connection with the operation of the ALF. D. Atria and FHC now desire to set forth their agreement with respect to the services provided by FHC to Atria and the ALF. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. EMERGENCY CALL SYSTEM. FHC agrees to permit Atria to use the emergency call system maintained by FHC with respect to the SNF. Atria agrees to pay to FHC $200.00 per month in consideration for Atria's use of FHC's emergency call system. 2. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall have no further obligations or duties hereunder except for Atria's obligation to pay for all services provided by FHC through and including the date of termination of this Agreement. 3. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to FHC: First Healthcare Corporation 3300 Providian Center Louisville, Kentucky 40202 Attention: -------------------- If to Atria: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attention: ------------------- Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 7 VALLEY MANOR APARTMENTS #437 4. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 5. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. FIRST HEALTHCARE CORPORATION By: -------------------------- Title: ----------------------- ("FHC") ATRIA COMMUNITIES, INC. By: -------------------------- Title: ----------------------- ("Atria") 8 THE GREENS #589 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria") and FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "FHC"). RECITALS: A. Atria is the owner and operator of the retirement community known as The Greens located at Route 10 Lyme Road, Hanover, New Hampshire (the "Community"). B. FHC is the owner and operator of the skilled nursing home facility known as Hanover Terrace Healthcare located at Lyme Road, Hanover, New Hampshire (the "SNF"). C. FHC provides certain services to Atria in connection with the operation of the Community. D. Atria and FHC now desire to set forth their agreement with respect to the services provided by FHC to Atria and the Community. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. MEALS. FHC agrees to prepare and provide all meals to be served by Atria at the Community. The menu and the schedule for the preparation and delivery of such meals shall be mutually agreed to from time to time by FHC and Atria. Atria shall be responsible for notifying FHC on timely basis before each meal of the number of residents to be served at the next meal to be served. Atria agrees to pay to FHC for all costs and expenses for the preparation of such meals, including, without limitation, the costs and expense of all products consumed in the preparation of such meals and the labor costs for the preparation of each such meal. FHC shall send an invoice to Atria each month for the meal costs for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 2. MISCELLANEOUS SERVICES. FHC agrees to provide to Atria, as required and requested from time to time by Atria (the "Miscellaneous Services") (a) services and support to maintain and repair the Community, (b) marketing services and support, (c) general offices services and support, and (d) and housekeeping services and support. Atria shall pay for or supply all materials consumed or used in the rendition of the Miscellaneous Services. Atria agrees to pay a proportionate part of the salary, wages and/or benefits of each employee of FHC that provides Miscellaneous Services to Atria. All Miscellaneous Services shall be provided at times and upon such schedules as mutually agreed to from time to time by Atria and FHC. FHC shall send an invoice to Atria each month for the Miscellaneous Services for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 3. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall have no further obligations or duties hereunder except for Atria's obligation to pay for all services provided by FHC through and including the date of termination of this Agreement. THE GREENS #589 4. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to FHC: First Healthcare Corporation 3300 Providian Center Louisville, Kentucky 40202 Attention: ____________________ If to Atria: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attention: ______________ Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 5. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 6. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. FIRST HEALTHCARE CORPORATION By:__________________________ Title:____________________ ("FHC") ATRIA COMMUNITIES, INC. By:__________________________ Title:____________________ ("Atria") HERITAGE AT WILDWOOD #616 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria") and NATIONWIDE CARE, INC., an Indiana corporation (the "Nationwide"). RECITALS: A. Atria is the owner and operator of the assisted living\retirement facility known as Heritage at Wildwood located at 7301 East 16th Street, Indianapolis, Indiana (the "ALF"). B. Nationwide is the owner and operator of the skilled nursing home facility known as Wildwood Health Care Center located at 7301 East 16th Street, Indianapolis, Indiana (the "SNF"). C. Nationwide provides certain services to Atria in connection with the operation of the ALF. D. Atria and Nationwide now desire to set forth their agreement with respect to the services provided by Nationwide to Atria and the ALF. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. MEALS. Nationwide agrees to prepare and provide all meals to be served by Atria at the ALF. The menu and the schedule for the preparation and delivery of such meals shall be mutually agreed to from time to time by Nationwide and Atria. Atria shall be responsible for notifying Nationwide on timely basis before each meal of the number of residents to be served at the next meal to be served. Atria agrees to pay to Nationwide for all costs and expenses for the preparation of such meals, including, without limitation, the costs and expense of all products consumed in the preparation of such meals and the labor costs for the preparation of each such meal. Nationwide shall send an invoice to Atria each month for the meal costs for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 2. MISCELLANEOUS SERVICES. Nationwide agrees to provide to Atria, as required and requested from time to time by Atria (the "Miscellaneous Services") (a) services and support to maintain and repair the ALF, and (b) general offices services and support. Atria shall pay for or supply all materials consumed or used in the rendition of the Miscellaneous Services. Atria agrees to pay a proportionate part of the salary, wages and/or benefits of each employee of Nationwide that provides Miscellaneous Services to Atria. All Miscellaneous Services shall be provided at times and upon such schedules as mutually agreed to from time to time by Atria and Nationwide. Nationwide shall send an invoice to Atria each month for the Miscellaneous Services for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 3. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall have no further obligations or duties hereunder except for Atria's obligation to pay for all services provided by Nationwide through and including the date of termination of this Agreement. 4. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a HERITAGE AT WILDWOOD #616 nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to Nationwide: Nationwide Care, Inc. 3300 Providian Center Louisville, Kentucky 40202 Attention: ____________________ If to Atria: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attention: ______________ Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 5. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 6. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. NATIONWIDE CARE, INC. By:__________________________ Title:____________________ ("Nationwide") ATRIA COMMUNITIES, INC. By:__________________________ Title:____________________ ("Atria") VILLA CAMPANA #852 SERVICES AGREEMENT ------------------ This Services Agreement (this "Agreement") is made and entered into this __ of ___________, 1996 by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria") and FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "FHC"). RECITALS: A. Atria is the owner and operator of the retirement communitey known as Villa Campana Retirement Apartments located in Tucson Arizona (the "Community"). B. FHC is the owner and operator of the skilled nursing home facility known as Villa Campana Health Care Center located in Tucson, Arizona (the "SNF"). C. FHC provides certain services to Atria in connection with the operation of the Community. D. Atria and FHC now desire to set forth their agreement with respect to the services provided by FHC to Atria and the Community. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. MEALS. FHC agrees to prepare and provide all meals to be served by Atria at the Community. The menu and the schedule for the preparation and delivery of such meals shall be mutually agreed to from time to time by FHC and Atria. Atria shall be responsible for notifying FHC on timely basis before each meal of the number of residents to be served at the next meal to be served. Atria agrees to pay to FHC for all costs and expenses for the preparation of such meals, including, without limitation, the costs and expense of all products consumed in the preparation of such meals and the labor costs for the preparation of each such meal. FHC shall send an invoice to Atria each month for the meal costs for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 2. MISCELLANEOUS SERVICES. FHC agrees to provide to Atria, as required and requested from time to time by Atria, dishwashing services and support. Atria agrees to pay a proportionate part of the salary, wages and/or benefits of each employee of FHC that provides dishwashing services to Atria. FHC shall send an invoice to Atria each month for the dishwashing services for the prior month. Atria agrees to pay any such invoice within 10 days of its receipt of such invoice. 3. TELEPHONE SYSTEM. FHC and Atria both acknowledge agree that the SNF and the Community both utilize the same telephone system. Both parties agree to continue to jointly use and enjoy the same telephone system. FHC agrees to pay 40% of the bills for such telephone system and Atria shall pay 60% of such bills. FHC shall pay its percentage of the telephone bills to Atria and Atria shall be responsible for paying the telephone provider. Both parties agree to pay their portion of the telephone bills on a timely basis. 4. TERM. This Agreement may be canceled by either party upon 90 days prior written notice to the other party. Upon such cancellation this Agreement shall terminate and the parties shall 13 VILLA CAMPANA #852 have no further obligations or duties hereunder except for Atria's obligation to pay for all services provided by FHC through and including the date of termination of this Agreement. 5. NOTICES. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: If to FHC: First Healthcare Corporation 3300 Providian Center Louisville, Kentucky 40202 Attention: ____________________ If to Atria: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attention: ______________ Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 6. BINDING EFFECT. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. 7. VIOLATION OF LAW. The parties hereto hereby agree that should it ever be determined that this Agreement violates any law, rule, regulation or order, this Agreement shall immediately be deemed null and void and neither party shall have any further obligations hereunder whatsoever. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. FIRST HEALTHCARE CORPORATION By:__________________________ Title:_______________________ ("FHC") ATRIA COMMUNITIES, INC. By:__________________________ Title:_______________________ ("Atria") EX-10.10 12 SUBLEASE AGREEMENT EXHIBIT 10.10 SUBLEASE AGREEMENT ------------------ THIS SUBLEASE AGREEMENT (this "Agreement") is made and entered into as of the ____ day of _______, 1996, by and between ATRIA COMMUNITIES, INC., a Delaware corporation with principal office and place of business in Louisville, Kentucky ("Atria") and VENCOR, INC., a Delaware corporation with principal office and place of business in Louisville, Kentucky ("Vencor"). PRELIMINARY STATEMENT: ---------------------- A. Pursuant to that certain Lease dated March 13, 1996, by and between Northwestern National Life Insurance Company, a Minnesota corporation, as Lessor (the "Lessor"), and Vencor, as lessor (the "Lease"), the Lessor leased to Vencor the second and third floors of the building commonly known as the 515 Building located at 515 West Market Street, Louisville, Kentucky. B. Vencor has agreed to sublease to Atria 4,000 square feet of the Premises. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein and for other good and valuable consideration, the parties hereto agree as follows: 1. DEMISE. Vencor hereby sublets to Atria, and Atria hereby sublets from Vencor, 4,000 square feet on the second floor of the Premises (the "Subleased Premises"). Except for such terms and conditions as are specifically set forth in this agreement, the subletting of the Premises by Vencor to Atria shall be on the same terms and conditions as are contained in the Lease, all of which terms and conditions are hereby incorporated by reference herein and made a part hereof. All capitalized terms used herein which are not defined herein shall have the meaning assigned thereto in the Lease. 2. Term; Renewals. The term of this Agreement shall be coterminous with the term of the Lease; provided that Atria or Vencor may terminate this Agreement at any time upon 60 days prior written notice to the other party hereunder. In the event Vencor shall exercise its option to terminate the Lease under Section 33 thereof, this Sublease shall terminate and Atria shall pay its prorata share of the Termination Fee payable to the Landlord under Section 33. 3. RENT. During the term of this Agreement, Atria shall pay to Vencor as monthly rent for the Subleased Premises 1/12th of the product of (i) the rental rate per square foot of Rentable Area of the Subleased premises per year as set forth in the Lease, times (ii) the number of square feet of Rentable area of the Subleased Premises (4,000). The Rent shall be paid in advance on the first (1st) day of each month during the term of this Agreement. If this Agreement commences or terminates on a day other than the first (1st) day of the calendar month, Rent shall be prorated on a daily basis. Atria further agrees to pay its pro rata share of Operating Costs Increases and all other amounts payable to Lessor by Vencor under the Lease. Atria's pro rata share of such Operating Costs Increases and other amounts shall be paid by Atria to Vencor as and when due under the terms of the Lease. Atria's pro rata share shall be determined by dividing the square footage of the Sublease Premises by the total square footage of the Premises. 4. ASSUMPTION OF OBLIGATIONS BY ATRIA. (a) ASSUMPTION. Atria hereby assumes and agrees to perform when due, all of the duties, obligations, liabilities and covenants with respect to the Subleased Premises binding upon Vencor under the Lease from and after the date of this Agreement, including, but not limited to, the payment of Base Rent (b) INCORPORATION OF LEASE. Insofar as the provisions of the Lease do not conflict with specific provisions herein contained, they and each of them are incorporated into this Agreement as fully as if completely rewritten herein, and Atria agrees to be bound by all of the terms of the Lease (to the extent of this Agreement) and to assume and perform all of the obligations and responsibilities that Vencor is to perform under the Lease with respect to the Subleased Premises, and to indemnify and hold harmless Vencor from any claim or liability under the Lease with respect to Atria's use, occupancy and enjoyment of the Subleased Premises. 2 5. LIABILITY AND INDEMNITY. Atria agrees that it will indemnify and hold harmless Vencor from and against all suits, claims, and actions of every kind by reason of any breach, violation, or nonperformance of any term or condition on the part of Atria. Additionally, Atria agrees to indemnify and hold Vencor harmless from and against all claims, actions, damages, liabilities and expenses asserted against Vencor on account of injuries to persons (including death) or damage to property when and to the extent that any such damage or injury is not attributable to the negligence of Vencor or Lessor, and which may be caused by an act or omission of Atria or any of its agents, employees, contractors, invitees (while such invitees are on the Premises or the Subleased Premises), or of any other persons entering upon the Premises or the Subleased Premises under or with the express or implied invitation of Atria, or if any such injury or damage may in any other way arise from or out of the occupancy or use by Atria, its agents, employees and invitees of the Subleased Premises. 6. NO RELEASE OF VENCOR. Notwithstanding the subletting to Atria or the assumption described in this Agreement, nothing contained herein shall be construed to release or discharge Vencor in any way from the performance of any of its duties, obligations, liabilities and covenants to Lessor under the Lease. 7. REPRESENTATIONS AND WARRANTIES OF VENCOR. Vencor hereby represents and warrants to Atria as follows: (a) To its knowledge, the copy of the Lease attached hereto and made a part hereof by this reference as EXHIBIT A constitutes the entire written agreement between Lessor and Vencor with respect to the Premises, and there are no other written riders, amendments, modifications or supplements thereto presently in effect; (b) The Lease is in full force and effect in accordance with its terms; and (c) The execution and delivery of this Agreement by Vencor has been duly authorized and approved by all requisite corporate action. 3 8. Assignment and Subletting. No assignment of this Agreement or subletting of the Subleased Premises or any part thereof shall be made by Atria without the prior written consent of Vencor and Lessor. In the event of any such assignment or sublease, Atria shall always remain primarily liable as a principal and not as a guarantor for the payment of all obligations and liabilities due Vencor, under the Lease and for compliance with and performance of all of the covenants and conditions of this Agreement and the Lease, on the part of Atria to be performed. 9. Representations and Warranties of Atria. Atria hereby represents and warrants to Vencor that the execution and delivery of this Agreement by Atria has been duly authorized and approved by all requisite corporate action. 10. Defaults; Remedies. (a) Defaults by Atria. Each of the following shall constitute an "Event of Default" hereunder. (i) if Atria fails to pay any rental payment within five (5) days of its due date; or (ii) if Atria shall fail to observe or perform any other liability or obligation to be performed by Atria hereunder or under the Lease; or (iii) if Atria performs or fails to perform any event which constitutes a "default" by Vencor under the Lease. (b) Remedies. Upon the occurrence of an Event of Default hereunder, Vencor shall have the same rights and remedies under this Agreement as Lessor has under the Lease in the event of a default by Vencor under the Lease. 11. Notices. All notices, mailings and communications relative to this Agreement shall be in writing and shall be personally delivered and receipted, telecopied or sent by facsimile, sent by a nationally recognized overnight courier service, or delivered by registered U.S. mail, proper postage prepaid, return receipt requested, and in any such event delivered and addressed to the parties as follows: 4 If to Vencor: Vencor, Inc. 3300 Providian Center Suite 200 Louisville, Kentucky 40202 Attention: Director of Finance If to Atria: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attention: Timothy Wesley Any notice which is personally delivered shall be effective when delivered and any notice which is delivered by any other means shall be effective when received. Any party may change its address for receiving notices and communications by giving the other appropriate written notice thereof. 12. Binding Effect. All of the terms, conditions, covenants, stipulations and agreements to be performed by any of the parties hereto shall be binding upon their respective successors, legal representatives and assigns. IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of the day, month and year first above written. VENCOR, INC. By: ------------------------------- Title: ---------------------------- ("Vencor") ATRIA COMMUNITIES, INC. By: ------------------------------- Title: ---------------------------- 5 ("Atria") 6 EX-10.11 13 VOTING AGREEMENT Exhibit 10.11 VOTING AGREEMENT ---------------- This Voting Agreement ("Agreement") is made and entered into as of this __ day of _____, 1996, by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria"), and VENCOR, INC., a Delaware corporation ("Vencor"). RECITALS: -------- WHEREAS, Atria has filed with the Securities Exchange Commission a Form S-1 Registration Statement (the "Offering"); WHEREAS, following the completion of the Offering, Vencor will own 66.2% of the outstanding Common Stock, par value $.10 per share of Vencor (63.1% if the Underwriters' over-allotment option is exercised in full); and WHEREAS, in connection with the Offering, Vencor and Atria have agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: 1. After the completion of the Offering, Vencor agrees that it will vote all of its shares of Common Stock at any meeting at which directors are elected in favor of that number of independent directors who are not affiliates of Vencor or employees of Vencor ("Independent Directors") so that if such directors were elected there would be at least two Independent Directors who are members of the Board of Directors of Atria. 2. This Agreement will automatically terminate upon the earlier of (i) that date upon which Vencor beneficially owns less than 30% of the Common Stock of Atria or (ii) five years from the date of this Agreement. 3. Miscellaneous: a. This Agreement may be modified or amended from time to time only by a written instrument executed by the parties hereto. b. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. c. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky, without regard to its conflicts of law rule. d. This Agreement embodies the entire understanding between the parties hereto with respect to subject matters covered hereby and supersedes any prior agreement or understanding between the parties with respect to such matters. e. This Agreement may be executed in multiple counterpart copies, each of which shall be considered an original and all of which shall constitute one and the same instrument. f. This Agreement is not assignable. * * * * * * IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. ATRIA COMMUNITIES, INC. A Delaware Corporation By:__________________________________ Title:_______________________________ VENCOR, INC. A Delaware Corporation By:___________________________________ Title:________________________________ Re: Voting Agreement EX-10.12 14 REDDING LEASE Exhibit 10.12 LEASE ----- THIS LEASE ("LEASE") is made and entered into as of the ____ day of __________, 1996, by and between (i) FIRST HEALTHCARE CORPORATION, a Delaware corporation ("LESSOR"), and (ii) ATRIA COMMUNITIES, INC., a Delaware corporation ("LESSEE"). RECITALS: A. Lessor owns the real property located in Redding, California, more particularly described on EXHIBIT A attached hereto and made a part hereof ("REAL PROPERTY"). B. Lessor desires to lease and ultimately convey the Real Property to Lessee, and Lessee desires to lease and ultimately acquire the Real Property from Lessor. AGREEMENT: NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows: 1. LEASE OF REAL PROPERTY. For the term, at the rent and otherwise upon the terms, conditions and provisions hereinafter contained, Lessor hereby leases unto Lessee, and Lessee hereby leases from Lessor, the Real Property. 2. TERM. This Lease shall be for a term of 99 years commencing as of the date hereof and ending on the ninety-ninth anniversary of the date hereof, unless sooner terminated as hereinafter provided. 3. RENT. Lessee hereby covenants and agrees to pay to Lessor as rent for the Real Property during the Term hereof an amount equal to One Dollar ($1.00) per year. 4. DELIVERY AND ACCEPTANCE. Lessee hereby acknowledges that Lessor has delivered the Real Property to Lessee and that Lessee accepts the Real Property in its current condition. The Real Property leased hereby is being leased "AS IS" and Lessor specifically disclaims any warranties with respect to the Real Property including, but not by way of limitation, all express or implied warranties of quality, merchantability or fitness for a particular purpose. 5. QUIET ENJOYMENT. Lessor hereby covenants and agrees to and with Lessee that if Lessee shall not be in default hereunder, Lessee shall have, at all times during the Term hereof, the peaceable and quiet enjoyment and possession of the Real Property without any manner of hinderance from Lessor or any person or persons lawfully claiming the Real Property. 6. IMPROVEMENTS. Lessee shall be entitled to construct such improvements on the Real Property as Lessee, in its sole discretion, shall deem appropriate. 7. INSURANCE (a) In addition to the rent specified herein, Lessee will also carry and maintain, at all times, at its sole cost and expense, public liability insurance with respect to the Real Property and the improvements thereon, in such reasonable amount as Lessor shall require. Lessor shall be named a party insured by such policy. (b) At the request of Lessor, Lessee shall deliver to Lessor a certificate of insurance by or on behalf of each insurer stating the coverage, named insurers and limits of each such policy. (c) If Lessee fails to maintain any of the insurance required to be maintained by it for the benefit of Lessor, Lessor shall have the right, in addition to all other rights available to it, but not the obligation, to purchase such insurance for its own benefit and the same shall be immediately due and owing as additional rental hereunder by Lessee to Lessor, together with interest thereon at the rate of 18% per annum. 8. RISK OF LOSS. All risk of loss or damage to the Real Property shall be borne by Lessee. 9. TAXES. In addition to the rent specified herein, Lessee agrees to pay when due, at its sole cost and expense, all taxes and assessments now or hereafter imposed by any Federal, state or local governmental authority or agency upon the Real Property, upon this Lease or upon the use or operation of the Real Property, regardless of whether assessed to Lessor or Lessee. If it is not possible to obtain a separate tax assessment with respect to the Real Property, Lessor and Lessee shall equitably determine the taxes attributable to the Real Property and Lessee shall pay such amount to Lessor which shall pay the tax to the appropriate taxing authority. Upon written demand of -2- Lessor, will deliver written receipt evidencing payment of such taxes to Lessor. If Lessee fails to pay any of said taxes when due, such failure shall be a default hereunder and Lessor shall have the right, in addition to all other rights and remedies available to it, to pay such taxes on behalf of Lessee and the same shall be immediately due and owing as additional rental hereunder by Lessee to Lessor, together with interest thereon at the rate of 18% per annum. 10. UTILITIES. In addition to the rent provided for herein, Lessee hereby agrees to pay for all heat, water, sewer service charges, gas, electricity and other public utilities used in or about the Real Property, and all such utilities shall be metered to the Real Property in Lessee's name. Lessee has inspected the Real Property with respect to the availability of all such utilities and is satisfied with the same. Lessee shall be solely responsible for running any additional utility lines, if necessary, to the Real Property and shall bear all costs related thereto without reimbursement from Lessor. 11. NO LIABILITY. Lessor shall not be liable to Lessee for loss of use of the Real Property or interruption of Lessee's business for any causes whatsoever, and any such loss of use shall not relieve Lessee from the obligation to pay the rental provided for herein at the time specified herein. 12. OPERATION IN CONFORMITY WITH LAWS. Lessee shall use and operate the Real Property in strict conformity with all of the laws, rules, orders, ordinances and regulations of the United States and all applicable Federal, state and local agencies and authorities, regarding the use, operation and possession of the Real Property. Lessee hereby agrees to indemnify Lessor for, and hold Lessor harmless from, any and all liabilities, claims, suits, actions, damages, demands, penalties, fines and forfeitures which may be asserted against Lessor or the Real Property arising out of, or resulting from, any violation of any of the aforesaid laws, rules, orders, ordinances and regulations, or out of Lessee's use or operation of the Real Property. 13. ASSIGNMENT OR SUBLETTING. Lessee may assign this Lease or sublet or rent out the Real Property, only with the prior written consent of Lessor, which consent will not be unreasonably withheld. -3- 14. LIENS. Lessee hereby agrees that it will not place, or permit the placement of, any liens or encumbrances on the Real Property except with the prior written consent of Lessor, which consent will not be unreasonably withheld. 15. ACQUISITION OF REAL PROPERTY. Lessor hereby agrees to convey to Lessee, and Lessee hereby agrees to acquire from Lessor, the Real Property at such time as Lessor is legally permitted to convey the Real Property to Lessee under all applicable zoning laws and ordinances. In exchange for the conveyance of the Real Property to Lessee, Lessee shall pay to Lessor the sum of One Dollar ($1.00). Lessor hereby agrees to use its best efforts to obtain the requisite zoning to permit the conveyance provided for above. 16. FINANCIAL REPORTING AND TAX CHARACTERIZATION. Lessor and Lessee intend that this Lease be treated for financial reporting and Federal income tax purposes as a transfer by Lessor to Lessee of the Real Property and agree that they will not take any position which is inconsistent with the foregoing. 17. DEFAULT. In the event: (i) Lessee defaults in the performance of any of the terms, conditions, covenants or agreements herein contained and such default is not cured within 30 days after the giving of notice by Lessor to Lessee of such default, (ii) of (a) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of Lessee in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Lessor or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days, or (b) the commencement by Lessee of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the consent by it to the appointment of, or taking possession by, a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Lessee or for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the failure of Lessee generally to pay its debts as such debts become due, or the taking of corporate action by Lessee in furtherance -4- of any of the foregoing, or (iii) any execution, attachment or other writ shall be levied upon the Real Property, then, in such event, all of which acts or events shall be considered as defaults hereunder, Lessor, in addition to all other rights available to it at law or in equity, shall have the following remedies: (a) Lessor may institute a suit to collect any and all sums due Lessor by virtue of the provisions of this Lease, or for any and all damages that may accrue by virtue of Lessee's breach of this Lease, or both. (b) Lessor may sue to restrain by injunction any violation or threatened violation of the terms, covenants, conditions or provisions of this Lease. (c) Lessor may, upon notice to Lessee, terminate this Lease and obtain possession of the Real Property with or without process of law. Lessee shall be responsible for and pay all costs of Lessor in connection with obtaining possession of the Real Property. Lessee hereby waives any claim for damages arising out of the taking of the Real Property by Lessor in such event. All remedies of Lessor provided for herein shall be cumulative and shall be in addition to those remedies provided by law or at equity. 18. COMPLIANCE WITH LAW. (a) Neither Lessee nor Lessor shall have any obligation to refer any resident or patients, as the case may be, of either of them or any other person to Lessee or Lessor for the provision of any service or item of any kind. (b) If Lessee or Lessor shall determine upon advice of counsel that the continuation of this Lease will likely be deemed to be a violation of any applicable Federal or state law regarding fraud and abuse, referral prohibitions or any similar matter, either party, upon receiving such advice of counsel, may at any time give the other party written notice of such advice and if, after consultation, the parties have not determined to their reasonable satisfaction that no such violation exists and the parties have not amended this Lease to remove that risk to the other party's reasonable satisfaction, then -5- either party may terminate this Lease effective as of the date 60 days after its initial written notice to the other party. 19. NOTICES. All notices and other communications required or permitted hereunder shall be sufficiently given if in writing and personally delivered against a written receipt, if delivered to a reputable express messenger service (such as Federal Express, UPS or DHL Carrier) for overnight delivered, when transmitted by confirmed telephone facsimile (fax) or sent by registered, express or certified U.S. mail, postage prepaid, addressed as follows: IF TO LESSOR: First Healthcare Corporation c/o Vencor, Inc. 3300 Capital Holding Center 400 West Market Street Louisville, Kentucky 40202 (Fax) 502-596-4075 Attention: General Counsel IF TO LESSEE: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 (Fax) 502-596-4160 Attention: General Counsel or to such other address as either party hereto shall furnish to the other in writing. Notices shall be deemed given when personally delivered, when delivered to an express messenger service, when transmitted by confirmed fax or when deposited in the U.S. mail in accordance with the foregoing provisions. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. 20. BINDING AGREEMENT. This Lease shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 21. CAPTIONS; SECTION REFERENCES. The captions and section headings used herein are for convenience only, shall not be deemed part of this Lease and shall not in any way restrict or modify the context or substance of any paragraph hereof. All -6- references herein to Sections shall refer to Sections of this Lease unless the context clearly requires otherwise. 22. ENTIRE AGREEMENT. This Lease contains the entire understanding between Lessor and Lessee with respect to the Real Property, and supersedes all prior and contemporaneous understandings, both oral and written, between and among them respecting the subject matter hereof. 23. WAIVER. The failure on the part of either party to insist in any instance upon the strict observance by the other of any provision of this Lease shall not be construed as a waiver of that or any other provision of this Lease. 24. APPLICABLE LAW. This Lease shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts without regard to its conflict of laws rules. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and year first above written. LESSOR: FIRST HEALTHCARE CORPORATION By:________________________________ Title:_____________________________ LESSEE: ATRIA COMMUNITIES, INC. By:________________________________ Title:_____________________________ -7- EXHIBIT 'A' All that portion of Parcel 1 of LS 58-84 as shown on the Map for Humboldt Financial Services filed in Book 24 of Parcel Maps at Page 129, Shasta County Records, in the City of Redding, Shasta County California, described as follows: Beginning at the southwest corner of Parcel 2 as shown on said map, thence, along the northerly right-of-way line of Quartz Hill Road, north 71(degrees) 18'29" West 19.67 feet; thence, northerly, along the arc of a tangent, 252.00 foot radius curve to the right, having a central angle of 90 (degrees) 44'25", an arc distance of 399.10 feet; thence, North 19(degrees) 25'26" East 308.44 feet; thence, leaving said right-of-way line, South 86(degrees) 23'25" East 179.42 feet; thence, South 3(degrees) 45'24" West 190.65 feet; thence South 78(degrees) 29'51" East 45.65 feet; thence, South 18(degrees) 41'31" West 67.85 feet, to the northwest corner of said Parcel 2; thence, along the line common to said Parcels 1 and 2, South 18(degrees) 41'31" West 364.00 feet, to the point of beginning. Containing 3.09 acres, more or less. -8- EX-10.14 15 PROMISSORY NOTE TO VENCOR Exhibit 10.14 TERM PROMISSORY NOTE -------------------- $14,000,000.00 AUGUST __, 1996 LOUISVILLE, KENTUCKY FOR VALUE RECEIVED, HILLHAVEN PROPERTIES, LTD., an Oregon corporation ("Maker"), promises to pay, on or before the final maturity date stated below, to the order of VENCOR, INC., a Delaware corporation ("Payee"), its successors and assigns, at 3300 Providian Center, Louisville, Kentucky 40202 or at such other place as the holder hereof may from time to time designate in writing, the principal sum of $14,000,000.00, in lawful money of the United States, together with interest on the outstanding principal balance thereof at the rate described below (from time to time the "Interest Rate"). If an "Event of Default" (as described below) shall exist, the rate of interest payable upon the outstanding principal balance of this Note shall, at the option of Payee, increase to a rate ("Default Rate") equal to two percent (2%) in excess of the Interest Rate and shall continue at such rate during the period that such Event of Default shall exist. 1. INTEREST RATE. The principal balance of this Note shall bear interest at a rate per annum equal to one percent (1%) over the Prime Rate from time to time in effect. The "Prime Rate" as used herein, on any day, shall mean the interest rate per annum most recently designated and announced by National City Bank of Kentucky ("Bank") from time to time as its Prime Rate in effect at its principal office. The Prime Rate is not necessarily the best or lowest rate offered by Bank. The interest rate which the principal balance of this Note bears shall be adjusted from time to time on the same day the Prime Rate is changed by Bank. All interest upon sums owing under this Note shall be computed over an assumed year of three hundred sixty (360) days and over the actual number of days elapsed. 2. PAYMENT OF INTEREST. Interest shall be payable in quarterly installments, the first of which being due and payable on the first day of the first of January, April, June or September following the date of this Note and subsequent installments being due and payable on the first day of each calendar quarter (based upon the months just named) thereafter until this Note is paid in full. 3. PAYMENT OF PRINCIPAL; APPLICATION OF PAYMENTS . The principal balance of this Note, if not sooner paid, shall be repaid to Payee in its entirety on the first anniversary of the date of this Note unless the maturity date of this Note shall be extended by Payee in its sole discretion. This Note may be not be prepaid in whole or in part at any time prior to the expiration of six months from the date of its execution. Thereafter, this Note may be prepaid in whole or in part without premium or penalty. Payments received by Payee in respect of this Note shall be applied first to expenses incurred by Payee in collecting this Note, then to accrued delinquency or other charges hereof, then to accrued interest due on the principal balance of this Note and then to the principal balance of this Note. 4. LATE PAYMENT CHARGE. In the event interest on this Note is not paid on or before the 10th of the month in which it is due, a late charge of 5% of the amount of such payment so overdue may be charged by the holder hereof. 5. EVENTS OF DEFAULT. Upon the occurrence of any of the events described below ("Event of Default"), Payee may elect to declare this Note and all other obligations of Maker to Payee hereunder to be in default and require the immediate payment of the entire unpaid principal balance of this Note and all other such obligations plus accrued interest and any delinquency or other charges. The Events of Default are: 1) The failure to pay any installment or payment due in respect of this Note when due and the expiration of ten days thereafter; or 2) A default by Maker under the terms of any loan or other financing arrangement to which Maker is a party pursuant to the terms of which Maker is directly, immediately or contingently liable for the payment of any sum in excess of $5,000,000.00; or 3) The dissolution or winding-up of the business of Maker; or 4) The failure of Maker at any time prior to the maturity date of this Note or any extension thereof to maintain a net worth (based upon generally accepted accounting principles consistently applied) of at least $50,000,000.00. 5) The failure to pay any other obligation to Payee under other indebtedness of Maker to Payee; or 6) The filing of any future petition by or against Maker under any bankruptcy, receivership, insolvency or similar laws relating to relief for debtors. Maker and all persons now or hereafter liable, whether primarily or secondarily, for the whole or any part of the indebtedness evidenced by this Note jointly and severally: (a) agree to remain and continue bound for the payment of the principal of, and interest on, this Note notwithstanding any extensions of the time of the payment of said principal or interest, or any changes in the amounts to be paid under and by virtue of the obligation to pay provided for in this Note, or any changes by way of release or surrender of any collateral, real or personal, held as security for the payment of this Note, and waive all and every kind of notice of such extensions or changes, and agree that same may be made without the joinder of any such persons; (b) waive presentment, notice of dishonor, protest, notice of protest and diligence in collection, and all exemptions, whether homestead or otherwise, to which they or any of them may now or hereafter be entitled under the laws of the Commonwealth of Kentucky or of any other state; (c) agree, upon default, to pay all costs of collecting, securing or attempting to collect or secure this Note, including a reasonable attorney's fee, whether same be collected or secured by suit or otherwise, providing the collection of such costs and fees are permitted by applicable law. 6. SAVINGS CLAUSE. None of the terms and provisions contained in this Note, or any other document or instrument now or hereafter securing the indebtedness evidenced hereby or related hereto shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by the laws of the Commonwealth of Kentucky. Neither the Maker nor any other party now or hereafter becoming liable for the payment of this Note shall be liable for the payment of interest at a rate in excess of the maximum interest rate that may be lawfully charged under the laws of the Commonwealth of Kentucky, and the provisions of this paragraph shall control over all other provisions hereof and of any other instrument executed in connection herewith or executed to secure the indebtedness evidenced hereby which may be in apparent conflict with this paragraph. In the event the holder shall collect monies which are deemed to constitute payments in the nature of interest which would otherwise increase the effective interest rate on this Note to a rate in excess of that permitted to be charged by the laws of the Commonwealth of Kentucky, all such sums deemed -2- to constitute interest in excess of the maximum rate shall be refunded to the undersigned in cash and the undersigned hereby agrees to accept such refund. 7. CERTAIN WAIVERS. Payee shall have the right, without notice, to deal in any way and at any time with Maker, and to grant Maker an extension of time for payment of this Note or any other indulgence or forbearance whatsoever, and may release any collateral for the payment of this Note and/or modify the terms of any agreement securing or relating hereto, and may release Maker, any guarantor or accommodation party from liability for payment of this Note, in every instance without the consent of Maker or any guarantor or accommodation party, and without in any way affecting the liability of Maker hereunder or of any guarantor or accommodation party, and without waiving any rights which Payee may have under this Note, any agreements securing or relating hereto, or by law. 8. MISCELLANEOUS. If any provision, or portion thereof, of this Note, or the application thereof to any persons or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Note, or the application of such provision, or portion thereof, to any other person or circumstances, shall not be affected thereby, and each provision of this Note shall be valid and enforceable to the fullest extent permitted by law. In the event of any inconsistency between the terms hereof and those of any instrument securing payment hereof, the holder hereof shall have the sole option to elect which of such provisions shall govern. 9. GOVERNING LAW. This Note shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky without regard to its conflict of laws rules. IN WITNESS WHEREOF, the undersigned has caused this instrument to be effective as of the date first above written. HILLHAVEN PROPERTIES, LTD., an Oregon corporation BY:_________________ ITS:________________ ("Maker") -3- EX-10.15 16 FOXHILL VILLAGE MANAGEMENT AGREEMENT Exhibit 10.15 MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT (the "Agreement") dated March 30, 1995, between Hillhaven Properties, Ltd., and Oregon corporation having a place of business in Tacoma, Washington ("Manager"), and Fox Hill Village Homeowners Corporation, a Massachusetts corporation having a place of business in Westwood, Massachusetts ("Owner") WITNESSETH: WHEREAS, Owner owns and operates a 356 unit retirement housing project known as FOX HILL VILLAGE (the "Facility"); and WHEREAS, Manager is a wholly-owned subsidiary of The Hillhaven Corporation, a Nevada corporation ("Hillhaven") and is an experienced and qualified manager in the field of retirement housing marketing and management; and WHEREAS, Owner desires to engage Manager, and Manager is willing, to manage the Facility, pursuant to the terms and conditions set forth herein. NOW THEREFORE, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. RETENTION OF MANAGER. Owner hereby retains Manager to provide management services in connection with the Facility under the terms and conditions set forth herein. 2. RESPONSIBILITIES OF MANAGER. During the Term, as defined below, Manager shall provide the following management, consulting and advisory services to Owner to connection with the operation of the Facility: A. PERSONNEL. 1. FACILITY DIRECTOR. Subject to Owner's right of approval over selection and retention, Manager shall select, employ and direct the performance of the Facility Director, who shall be responsible for the operation of the Facility and execution on a daily basis of policies established by Manager and Owner in accordance with this Agreement. The Facility Director shall be an employee of Manager but shall be paid out of the revenues of the Facility. Owner shall be entitled to require Manager to remove the Facility Director from his position at the Facility. 2. OTHER PERSONNEL. In accordance with the Facility's employee manual, which has been approved by Owner, Manager shall recruit, select, train, promote, direct and terminate the employment of all Facility personnel; establish the salary levels, personnel policies and employee benefits with respect thereto; and establish employee performance standards as needed during the Term to ensure the efficient operation of all departments within and services offered by the Facility. With the exception of the Facility Director, who shall be an employee of Manager, the facility personnel shall be the employees of Owner. Notwithstanding the foregoing, Manager shall be responsible for the payment of employee payroll and payroll taxes out of Facility funds and the distribution of employee income tax withholding forms at year end. Owner shall be entitled to require Manager to remove any or all Facility personnel from their position(s) at the Facility in accordance with applicable law. B. OPERATIONAL POLICIES. Operational policies and procedures for the Facility are in place and the Manager shall recommend changes therein from time to time to Owner for approval. C. REGULATORY COMPLIANCE. Manager shall obtain and maintain in the name of Owner or Manager, as appropriate under applicable state law, and at the expense of Owner, all operating licenses, permits, qualifications and approvals from any applicable governmental or regulatory authority necessary for the lawful operation of the Facility as a retirement housing project; provided, however, that Manager shall not be obligated to obtain any license, permit, qualification or approval to be obtained by The MGH Health Services Corporation, a Massachusetts corporation ("MGH Services"), pursuant to that certain Agreement dated as of January 1, 1995 between Owner and MGH Services, as amended from time to time. Manager shall manage the operations of the Facility in compliance with all applicable laws and regulations, and Manager shall notify Owner of any new laws or regulations applicable to the Facility promptly upon Manager learning of the same; provided, however, that Manager shall not be liable to Owner or any other person or entity for any damage, cost, loss or expense resulting from Owner's failure to comply with any law or regulation after notice thereof by Manager. D. QUALITY CONTROL. Manager shall evaluate all aspects of the Facility operation, and shall implement and maintain quality -2- control programs designed to meet standards imposed by the Owner and appropriate certifying, licensing and other regulatory agencies and to maintain a standard of living in accordance with Owner's policies and resources available to the Facility. E. COMPLIANCE WITH GROUND LEASE. Manager shall take all necessary steps to ensure that in the performance of its duties under this Agreement it complies with the provisions of that certain Ground Lease between Fox Hill Realty Trust, as Landlord, and Owner, as Tenant, as amended from time to time (the "Ground Lease"). F. COORDINATION WITH WELLNESS CENTER TEAM. Manager shall coordinate its services under this Agreement with those to be provided to the Facility and Owner by the Wellness Center Team pursuant to that certain Wellness Center Team Consulting Agreement dated as of January 1, 1995, by and between Owner and MGH Services, as amended from time to time. G. CAPITAL EQUIPMENT AND IMPROVEMENTS. Manager shall advise Owner as to capital equipment and Facility improvements which are needed to maintain or upgrade the quality of the Facility and said capital equipment, or to replace obsolete or run-down capital equipment. Owner shall review and respond to Manager's recommendations as expeditiously as possible. Manager shall not be liable for any cost or liability which Owner may incur in the event Owner disregards Manager's recommendations. Manager shall make all approved repairs, replacements and maintenance within the budgetary limits set forth in the annual capital budget prepared by the Facility Director and Owner's Finance Committee. Notwithstanding any contrary provisions in this Section 2(G). Manager shall be entitled, without Owner's consent, to make or commit Owner to make unbudgeted expenditures and/or expenditures in excess of the Budget Threshold for the purposes of emergency repairs involving manifest danger to persons or property or required to avoid suspension of any necessary service at the Facility. Manager shall notify Owner's President or any Board member of such emergency repairs within 24 hours thereof. H. MAINTENANCE AND REPAIR. Manager shall maintain the Facility in good repair in accordance with the annual operating budget and local codes, in a condition at all times acceptable to Owner, and shall arrange for such cleaning, painting, decorating, plumbing, carpentry, grounds care and such other maintenance and repair work as may be necessary to so maintain the Facility, -3- subject to any limitations imposed by Owner in addition to those contained herein. I. SUPPLIES AND EQUIPMENT. Manager shall purchase supplies and equipment needed to operate the Facility within the budgetary limits set forth in the annual operating budget prepared by the Facility Director and Owner's Finance Committee. J. FINANCIAL SERVICES. Manager shall perform, direct, or cause the performance of the following services subject to the review, approval and direction of the Owner: 1. BOOKKEEPING AND ACCOUNTING. Manager shall provide bookkeeping and accounting procedures necessary for the operation of the Facility and the preparation of proper financial records. Bookkeeping and accounting procedures and systems shall be in accordance with the operating capital and cash programs approved by Owner's Finance Committee, which programs shall conform to generally accepted accounting principles, consistently applied, and shall not materially distort income or loss. 2. REPORTS. Manager shall prepare and provide to Owner any reasonable operational information which may from time to time be specifically requested by Owner, including any information needed to assist Owner in completing its tax returns and in complying with any reporting obligations imposed by any parties who may have security interests in the Facility. In addition, (i) within twenty (20) days after the end of each calendar month, Manager shall provide Owner with an unaudited statement of income and expenses for such month relating to the operation of the Facility and (ii) Manager shall assist Owner's independent certified public accountants with the preparation of audited financial statements including a balance sheet, dated the last day of said fiscal year, and a statement of income and expense for the year then ended. All costs associated with the audit of the Facility's financial statements shall be Facility operating expenses, which shall be payable out to the Facility funds. 3. BANK ACCOUNTS; PAYABLE OF FACILITY EXPENSES; DISTRIBUTION OF FACILITY NET CASH FLOW. Manager shall open and maintain a checking account(s) in the name of Owner and/or the Facility, as appropriate, for the benefit and account of Owner in a federally insured bank selected by Manager and approved by Owner and shall promptly deposit therein all money received in the course of the operation of the Facility. Manager shall pay on a timely basis, so not past due, for the benefit of Owner all expenses incurred in the operation of the Facility, including, but not limited to, Facility debt service payments, payroll and -4- employee benefits, repayment of working capital loans and the interest thereon, and payment of Manager's fees and expenses hereunder, all of which shall be paid by check drawn on such accounts, in the following order: i. Payment of items which, if unpaid, would constitute automatic liens on the Facility, unless such liens are contested in good faith and do not create a substantial risk of forfeiture of the Facility. ii. Payment of Facility operating expenses (which shall include any and all costs, expenses or fees associated with the operation of the Facility but shall exclude Manager's basic management fee) other than lease payments, debt service and management fees. All payroll and employee benefit expenses incurred by Manager in connection with salary or benefits for the Facility Director shall be deemed to be Facility operating expenses. iii. Payment of Facility debt service expenses, including working capital loans, if any, and land lease payments, iv. Payment of Manager's fees and reimbursable expenses set forth in Section 4. v. The balance of the cash to Owner's reserve accounts subject to the limitations set forth in Section 7. 4. BUDGETS. The fiscal year for the facility shall be a calendar year. At least sixty (60) days prior to the start of each calendar year, the Facility Director and Owner's Finance Committee shall prepare and submit to Owner for its review and approval, annual operating, capital expenditure and cash flow budgets for the following year (collectively, the "Budgets"). Upon approval of the Budgets by Owner, Manager shall be entitled to make or commit Owner to make expenditures which are reflected in the Budgets, as well as expenditures which individually do not exceed 10% of the amounts set forth therein for the applicable expense item and which in the aggregate do not exceed 20% of the amount set aside in the most recent financial statements as the reserve for contingencies (the "Budget Threshold"). Except for emergency repairs referred to in Section 2 (G), any unbudgeted expenditures and/or expenditures in excess of the Budget Threshold shall be subject to Owner's approval. -5- 5. FEES AND CHARGES FOR ANCILLARY SERVICES. Schedules of recommended fees and charges for ancillary services rendered to the residents of the Facility are in place and Manager shall recommend changes therein from time to time to Owner for approval. Owner shall have and charges as it deems necessary. 6. COLLECTION OF ACCOUNTS. Manager shall issue bills and collect accounts and monies owed for services and materials furnished by the Facility, and shall be entitled to enforce the rights of Owner as creditor under any contract or in connection with the rendering of any services and shall do so upon Owner's request; provided, however, that any expenses incurred by Manager in so doing shall be treated as Facility operating expenses, which shall be payable out of Facility funds. K. INSURANCE. On a yearly basis, the Owner and Manager shall prepare a mutually acceptable list of insurance coverage necessary for the operation of the Facility. Thereafter, Manager, on behalf and at the expense of Owner, shall obtain and maintain all such insurance coverage, which shall include insurance coverage required by the Ground Lease, and if not so required shall nevertheless include property damage insurance covering the Facility and the furniture, fixtures and equipment situated therein, a fidelity bond or similar device insuring against employee theft, employee health and worker's compensation insurance, directors and officers liability insurance and comprehensive general liability and professional liability insurance, for the protection of Owner, Manager, Facility employees (including the Facility Director) and volunteers of the Facility. L. INFORMATION. Manager shall assist Owner in developing any necessary informational material, mass media releases and other related publicity materials. No such materials which contain the name of any of the general partners of Fox Hill Village Partnership, or their affiliates, or the Manager shall be published, disseminated or used in any way without the prior written consent of such general partner or the Manager. M. MARKETING. The Manager shall supervise all activities related to the remarketing of units for resales occurring after such units have been initially occupied. Such activities shall be conducted in compliance with applicable laws and shall include, but not be limited to, preparation of documentation necessary to effect such sales and maintaining a 'wait list' of individual -6- interested in purchasing units, all according to the Bylaws of Owner and procedures established by Owner's Board of Directors. N. ANCILLARY SERVICES. Manager shall negotiate for the provision of necessary ancillary services through qualified contractors and on an ongoing basis shall review and analyze the performance of said ancillary services contractors and, if necessary, shall negotiate additional or alternative contractual arrangements therefor. O. LEGAL PROCEEDINGS. With respect to actions brought against both Owner and Manager, the parties shall meet in an effort to select mutually acceptable counsel. If Owner and Manager are unable to agree on counsel, both parties are free at any time to select their own counsel. In the case of any action brought against Manager, either alone or together with any other person or entity, involving a matter as to which Manager is entitled to idemnification pursuant to Section 10(b), if Manager succeeds on the merits of such action, Owner shall pay Manager's legal fees in defending such action and if Manager loses on the merits of such action, Manager shall pay its own legal fees in defending such action. 3. TERM. The initial term of this Agreement (the "Term") shall commence on July 6, 1995 (the "Commencement Date") and shall continue until July 31, 2000, unless earlier terminated as provided in this Agreement. Manager shall notify Owner at least 180 days prior to expiration of the Term of its desire to renew this Agreement. In the event Manager desires to renew this Agreement and Owner concurs or does not notify Manager in writing of a contrary intention at least 90 days prior to expiration of the Term, the Term shall renew for an additional period of three years. Thereafter, the Term shall be extended for similar three-year periods according to the foregoing procedure. Notwithstanding anything to the contrary contained herein, either party shall be entitled to terminate this Agreement effective at any time after July 4, 1997 upon six months' prior written notice to the other; provided that in the event that Owner terminates this Agreement pursuant to this Section 3, then Owner shall pay to Manager as the same become due all payments which become due pursuant to this Agreement between the giving of such notice of termination and the effective date of termination. In the event that either party elects to terminate this Agreement, Manager shall assist Owner with an orderly transition of the Facility's operations to a new manager. -7- 4. MANAGEMENT FEES. For services performed hereunder, Owner shall pay to Manager the following: A. MANAGEMENT FEES. Commencing with the Commencement Date, Owner shall pay to Manager a basic monthly management fee as follows:
Period Annual Fee Monthly Fee ------ ---------- ----------- July 6, 1995 to $250,000.00 $20,833.33 June 30, 1996 July 1, 1996 to $259,375.00 $21,614.58 June 30, 1997 July 1, 1997 to $269,102.00 $22,425.17 June 30, 1998 July 1, 1998 to $279,193.00 $23,266.08 June 30, 1999 July 1, 1999 to $289,663.00 $24,138.58 July 31, 2000
With respect to the month of July, 1995 and upon any termination other than on the last day of a month, the compensation set forth in this Section 4(A) shall be prorated for the number of days for which services are actually rendered. B. EXPENSE REIMBURSEMENT. Owner shall reimburse Manager for the following items: (i) Salary and related benefits payable with respect to the Facility Director; and (ii) Reasonable out-of-pocket travel and other expenses incurred by the Facility Director and other Facility employees in connection with the performance of its obligations hereunder, in amounts set forth in the Budgets. Such amounts shall include reasonable amounts related to training and seminars including out-of-state training and seminars. C. METHOD OF PAYMENT. Owner shall pay the amounts set forth in Sections 4(A) and (B) monthly, in arrears, and Manager -8- shall be entitled to disburse such amounts to itself out of the accounts provided for in Section 2(J). 5. PROPRIETARY INTEREST. The systems, methods, procedures and controls employed by Manager and any written materials or brochures developed by Manager to document the same are to remain the property of Manager, but only to the extent that they were Manager's standard systems brought in at Commencement Date (or by Brim & Associates, Inc. prior to the Commencement Date) or developed thereafter at Manager's sole expense. Owner shall not, at any time, sell, distribute, copy or otherwise acquire same, except with Manager's prior written consent, which Manager may withhold in its sole discretion. Notwithstanding the foregoing, nothing herein shall preclude Owner from using any or all of such systems, methods, procedures and controls, and any written materials and brochures developed by Manager to document the same, only in connection with the operation of the Facility, both before and after termination of this Agreement. 6. BUSINESS PLAN. With each annual budget submission, Manager shall present to Owner for its approval, an annual Business Plan detailing Manager's strategic and operating goals and objectives for the next twelve-month period, along with a statement of the resources required for accomplishing each goal or objective, for the Facility. For each year, Manager agrees that, in carrying out the Business Plan, it shall use its best efforts to make available to the Facility such support, resources, programs, systems, staff consultants and materials as may be reasonably necessary to achieve the goals and objectives of the Business Plan. 7. MAINTENANCE OF MINIMUM BANK BALANCE. Owner shall maintain a minimum of cash balance in the account(s) referred to in Section 2(J) or in other investments or investments accounts held by Owner greater than or equal to the greater of: A. The sum of all current and unpaid invoices (both those received and those pending), note or installment payments, payrolls, rents, expenses, management fees and other charges incident to the operation of the Facility which will become due and payable within the next succeeding thirty (30) days; or B. Such amount as may be reflected in the most recent cash flow budget as a reserve item. 8. DEFAULT. Either party may terminate this Agreement in the event of any of the following events ("Event of Default") by the other party: -9- (A) BY MANAGER. With respect to Manager, the following shall constitute Events of Default hereunder: (i) Manager shall fail to keep, observe or perform any material agreement, term or provision of this Agreement, and such default shall continue for a period of 30 days after written notice thereof shall have been given to Manager by Owner, which notice shall specify the event or events constituting the default; (ii) Manager shall be dissolved or shall file an application for, or consent to, the appointment of a receiver, trustee or liquidator of Manager or of all or a substantial part of its assets, file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they become due, make a general assignment for the benefit of creditors, file a petition or an answer seeking reorganization or an arrangement with creditors or taking advantage of any insolvency law; or if such an application or petition filed against Manager is not dismissed within 90 days or an order, judgment, or decree shall be entered by a court of competent jurisdiction, on the application of a creditor, adjudicating Manager a bankrupt or insolvent or approving a petition seeking reorganization of Manager, or appointing a receiver, trustee or liquidator of Manager or of all or a substantial part of its assets; (iii) Manager shall consolidate with or merge into any other corporation or convey, transfer or leave substantially all of its assets to any person or entity without the prior written consent of Owner, which consent may be withheld for any reason, except: (a) in the case of a consolidation or a merger, Manager is the surviving corporation; (b) in the case that such other person or entity is a member of the same consolidated group for tax purposes as Manager ("Affiliates") and a sufficient number of trained personnel continue to be responsible or fulfilling the obligations of the Manager hereunder; or (c) in the event that the surviving corporation assumes all of the Manager's obligations under this Agreement and the surviving corporation has a net worth equal or greater than Hillhaven; or -10- (iv) without the prior written consent of the Owner, which consent may be withheld for any reason, in excess of 50% of Manager's capital stock outstanding as of the date hereof shall be transferred to person other than manager's shareholder as of the date hereof or to Affiliates of such shareholder. (B) BY OWNER. With respect to Owner, the following shall constitute Events of Default hereunder; (i) Owner shall fail to make or cause to be made any payment to Manager required to be made hereunder, and such failure shall continue for a period of 30 days after written notice thereof shall have been given to Owner; (ii) Owner shall fail to maintain sufficient cash in the account established pursuant to section 2 and/or to deposit therein additional funds as needed pursuant to Section 7; (iii) Owner shall breach the provisions of Section 10(E) or sell the Facility or all or substantially all of its other assets without the prior written consent of Manager, which consent may be withheld by Manager for any reason; (iv) Owner shall fail to keep, observe or perform any material agreement, term or provision of this Agreement and such default shall continue for a period of 30 days after written notice thereof shall have been given to Owner by Manager, which notice shall specify the event or events constituting the default; (v) Owner shall fail to make payments, or keep any covenants, owing to any third party which are beyond the control of Manager to make or keep, and the effect of which failure is to cause, or to permit such third party to cause, in Manager's reasonable opinion, a substantial risk that Owner will lose possession of the Facility building or major equipment or property essential to the overall operation of the Facility; (vi) Owner shall be dissolved or shall file an application for, or consent to, the appointment of -11- a receiver, trustee or liquidator of Owner or of all or a substantial part of its assets, file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they become due, make a general assignment for the benefit of creditors, file, or have filed against it, a petition or an answer seeking reorganization or an arrangement with creditors or taking advantage of any insolvency law; or if such an application or petition filed against Owner is not dismissed within 90 days or an order, judgment, or decree shall be entered by a court of competent jurisdiction, on the application of a creditor, adjudicating Owner a bankrupt or insolvent or approving a petition seeking reorganization of Owner, or appointing a receiver, trustee or liquidator of Owner or of all or a substantial part of its assets; or (vii) Owner shall cause the Facility to violate any law, the violation of which materially affects the operation of the Facility, and such violation continues beyond a period for correction allowed by law. 9. REMEDIES UPON DEFAULT. A. REMEDIES OF MANAGER. Upon the occurrence of an Event of Default by Owner and at any time thereafter, Manager may, in its discretion, do any one or more of the following: (i) Terminate this Agreement, remove the Facility Director from the Facility and declare all sums earned but unpaid to the date of termination to be immediately due and payable; or (ii) Exercise any other right or remedy available to it under applicable law, including without limitation the right to recover damages for the breach hereof. B. REMEDIES OF OWNER. Upon the occurrence of any Event of Default by Manager and at any time thereafter, Owner may, in its discretion do any one or more of the following: (i) terminate this Agreement, whereupon Manager shall remove the Facility Director from the Facility, and neither party shall have any further obligation whatsoever under this Agreement except for obligations to indemnify pursuant to Section 10(B); or (ii) exercise any other right or remedy available to it under -12- applicable law, including without limitation the right to recover damages for the breach hereof; provided, however, that Owner shall immediately pay to Manager all amounts due and owing to Manager through the date of termination (net of any damages suffered or incurred by Owner, if any, arising from the events giving rise to such termination, which Owner may offset in paying such fees). C. RIGHTS CUMULATIVE; NO WAIVER. No right or remedy herein conferred upon or reserved to either of the parties hereto is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder, or now or hereafter legally existing. The failure of either party hereto to insist at any time upon the strict observance or performance of any of the provisions of this Agreement or to exercise any right or remedy as provided in this Agreement shall not impair any such right or remedy or be construed as a waiver or relinquishment thereof with respect to subsequent defaults. Every right and remedy given by this Agreement to the parties hereof may be exercised from time to time and as often as may be deemed expedient by the parties hereto, as the case may be. 10. MISCELLANEOUS. A. DISCLAIMER OF EMPLOYMENT OF FACILITY EMPLOYEES. Except for the Facility Director, no person employed by the Owner will be an employee of Manager, and Manager shall have no liability for payment of their wages, payroll taxes and other expenses of employment, provided, however, that Manager shall have the obligation to exercise reasonable care in its management of the Facility and to apply available funds to the payment of such wage and payroll taxes, and in the event that Manager fails to apply such funds, Manager shall be liable to pay all interest, penalties and fines resulting from such failure. All such person other than the Facility Director will be employees of the Owner, independent contractors or the employees of independent contractors. B. RELATIONSHIP OF THE PARTIES; WAIVER, INDEMNITY. The relationship of Manager to Owner shall be that of an independent contractor, and all acts performed by Manager pursuant to this Agreement during the Term shall be deemed to be performed in its capacity as an independent contractor. To that end, neither Manager nor Owner will be liable in the performance of its duties for any loss incurred by or damage to the other, unless such loss or damage results from the negligence or willful misconduct of the first party. Owner shall indemnify and hold Manager harmless from and against any and all loss, expense, cost or liability incurred -13- by or asserted against Manager in connection with the Facility unless such loss, expense, cost or liability results from Manager's negligence or willful misconduct. Manager shall indemnify and hold Owner harmless from and against any and all loss, expense, cost or liability incurred by or asserted against Owner which results from (X) Manager's negligence or willful misconduct in the selection, training, supervision, employment or termination of any Facility employee, unless such loss, expense, cost of liability is otherwise indemnifiable by Owner pursuant to the immediately preceding sentence, or (Y) Manager's negligence or willful misconduct. The indemnity obligations set forth in this Section 10(B) shall survive the termination of the Agreement. C. EMPLOYEE NON-SOLICITATION. Recognizing the unique services provided by employees of Manager and the unique relationship of Owner and Manager, during the term of this Agreement and for a period of two (2) years after termination of this Agreement: (1) Owner shall not, without Manager's prior written consent, (a) directly solicit or employ the Facility Director or any regional corporate support staff member of Manager providing services with respect to the Facility, or (b) directly solicit any employees of Manager to become employees of Owner; and (2) Manager shall not, without Owner's prior written consent, (a) directly solicit or employ the Facility's employees (other than Facility Director, who is Manager's employee) or (b) directly solicit any Facility employees (other than Facility Director, who is Manager's employee) to become employees of Manager. D. WAIVER. The waiver of any of the terms hereof by either Owner or Manger, or the failure of Owner or Manager to require the strict performance of any of the terms hereof shall not be deemed to be a waiver or modification of any such term or terms and shall not affect the right of either party to enforce such term(s) or to demand strict performance thereof at any future time. E. ASSIGNMENT. This Agreement shall not be assigned by either party without the prior written consent of the other party. Notwithstanding the foregoing, Manager may assign its rights and obligations hereunder in accordance with the provisions of Section 8(A)(iii) of this Agreement. This Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties. F. NOTICES. All notices required or permitted hereunder shall be given in writing and shall be personally delivered or be sent by registered or certified mail, postage prepaid, to the following addresses or at such other places as either party shall designate in writing: -14- If to Manager: HILLHAVEN PROPERTIES, LTD. 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Vice President, Retirement Housing With Copies to: THE HILLHAVEN CORPORATION 1148 Broadway Plaza Tacoma, Washington 98401-2264 Attention: General Counsel If to Owner: FOX HILL VILLAGE HOMEOWNERS CORPORATION 10 Longwood Drive Westwood, Massachusetts 02090 Attention: The President Notices shall be deemed effective upon receipt. G. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and shall supersede all prior understandings, agreements or arrangements, oral or written, between the parties. H. AMENDMENT. This Agreement shall not be modified or amended except by written instrument signed by both of the parties. I. CAPTIONS. The captions and headings used herein are for convenience of reference only and shall not be construed in any manner to limit or modify any of the terms hereof. J. ATTORNEYS FEES. In the event either party brings an action to enforce this Agreement, the prevailing party in such action shall be entitled to recover from the other all costs incurred in connection therewith, including reasonable attorney's fees. K. SEVERABILITY. In the event one or more of the provisions of this Agreement is deemed to be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and enforceability of the remaining provision hereof shall not in any way be impaired thereby. L. AUTHORIZATION FOR AGREEMENT. Each of the parties hereby represents and warrants to the other that the execution, delivery and performance of this Agreement is within the corporate powers of the respective parties and have been duly authorized by all necessary corporate action, and do not and will not -15- (i) require any consent or approval by stockholders or partners or (ii) violate any provision of any law, rule, regulation, order, writ, judgment, decree or award presently in effect having applicability to the parties or the articles of incorporation, bylaws, or other agreements of the parties. This Agreement constitutes the valid and binding obligations of Owner and Manager, enforceable in accordance with its terms. M. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. N. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. O. APPROVALS. Each party agrees that it will act promptly whenever the other requests its review or approval of any matter pursuant to the terms of this Agreement. IN WITNESS WHEREOF, the parties have each caused this Agreement to be duly executed by its duly authorized officer or officers, as of the date first above written. OWNER: FOX HILL VILLAGE HOMEOWNERS CORPORATION By: /s/ ------------------------------------ ITS: Vice President ----------------------------------- and By: /s/ ------------------------------------ Its: Vice President ----------------------------------- MANAGER: HILLHAVEN PROPERTIES, LTD. By: /s/ ------------------------------------ Its: Vice President ----------------------------------- -16- EX-10.16 17 GUARANTY FEE AGREEMENT EXHIBIT 10.16 GUARANTY FEE AGREEMENT ---------------------- THIS GUARANTY FEE AGREEMENT (this "Agreement") is entered into as of the ____ day of ________, 1996, by and between VENCOR, INC. ("Vencor") and ATRIA COMMUNITIES, INC. ("Atria"). RECITALS: A. Atria intends to enter into loan and credit agreements to provide financing to Atria including, but not limited to, a certain Revolving Credit Facility between Atria and National City Bank of Kentucky and PNC Bank, National Association as agents for the lending banks (the "Banks") providing for revolving credit up to a maximum amount of $200,000.00 (the "Atria Facility"). B. As a condition to the making of loans under the Atria Facility, the Banks have required a partial guaranty of the Atria Facility by Vencor, which guaranty Vencor is willing to provide. C. Vencor and Atria anticipate that other lenders and lending institutions may likewise from time to time require guarantys of debt or obligations of Atria by Vencor. D. Vencor considers its partial guaranty of the Atria Facility to be in its best interest and to be of value to Vencor. E. Vencor shall make any determination of future or additional guarantees from time to time in its sole discretion. OPERATIVE PROVISIONS For and in consideration of the recitals and other good and valuable consideration, the receipt of which is acknowledged, Vencor and Atria agree as follows: 1. Guaranty Fee. Atria shall pay to Vencor a fee equal to one and one- half percent (1 1/2%) of the average outstanding sum of (i) the outstanding principal balance of all debts or obligations of Atria which are guaranteed by Vencor plus (ii) the aggregate outstanding principal amount of all issued and outstanding letters of credit issued pursuant to any portion of any loan or credit facility of Atria which has been guaranteed by Vencor (collectively, the "Guaranteed Obligations"). The term "average" as used herein shall mean the quotient derived by dividing (II) the total of all Guaranteed Obligations as of the first day of each calendar quarter plus (ii) the total of such Guaranteed Obligations on the last day of that calendar quarter by (iii) two. 2. Due Date Of Fee. The fee provided for herein shall be payable quarterly in arrears, the first of such payments being due on the first day of the first of January, April, July or October following the date of this Agreement and subsequent payments being due and payable on the first day of each calendar quarter (based upon the months just named) thereafter as long as there shall be any Guaranteed Obligations outstanding. 3. Binding Effect. This Agreement shall bind and inure to the benefit of Vencor and Atria and their respective successors and assigns. 4. Partial Invalidity. No invalidity, irregularity or unenforceability of any portion of the Guaranteed Obligations shall affect, impair or be a defense to the obligations of Atria under this Agreement until such time as such invalidity, irregularity or unenforceability shall have been finally and unappealably determined by a court of competent jurisdiction. 5. Representations and Warranties. Each party hereto represents and warrants to the other that it is duly organized and existing under the laws of the state of its incorporation, that the execution, delivery and performance of this Agreement are within its corporate powers, have been duly authorized, are not in contravention of law or the terms of its charter or bylaws or of any indenture agreement or undertaking to which it is a party or by which it is bound and that the execution of this Agreement is in furtherance of the business purposes of such party. 6. Governing Laws. This Agreement and all rights and obligations hereunder including matters of construction, validity and performance shall be governed by the internal laws of the Commonwealth of Kentucky. IN WITNESS WHEREOF, Vencor and Atria have executed this Agreement as of the ____ day of August, 1996. VENCOR, INC. By: ------------------------------- Title: ---------------------------- ATRIA COMMUNITIES, INC. By: ------------------------------- Title: ---------------------------- 2 EX-23.2 18 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.2 The following consent is in the form that will be signed upon the completion of the reorganization described in Note 1 to the combined financial statements of the Company. /s/ Ernst & Young LLP We consent to the reference to our firm under the caption "Experts" and "Selected Combined Financial Data" and to the use of our report dated June 14, 1996, except for Notes 1 and 7 as to which the date is , 1996, in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-06907) and related Prospectus of Atria Communities, Inc. for the registration of 5,000,000 shares of its Common Stock. Louisville, Kentucky July , 1996 EX-23.3 19 CONSENT OF PETER J. GRUA EXHIBIT 23.3 Atria Communities, Inc. 515 West Market Street Louisville, KY 40202 Ladies and Gentlemen: I hereby consent to the inclusion of my name as a person about to become a director of Atria Communities, Inc. (the "Company") in the Company's Registration Statement on Form S-1 to be filed with the Securities and Exchange Commission. Very truly yours, /s/ Peter J. Grua ----------------- Peter J. Grua EX-27 20 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Atria's combined financial statements for the six months ended June 30, 1996 and for the year ended December 31, 1995 and is qualified in its entirety by reference to such statements. 1,000 6-MOS 12-MOS DEC-31-1996 DEC-31-1995 JUN-30-1996 DEC-31-1995 4,149 2,819 0 0 893 650 (99) (89) 124 123 5,266 3,746 156,044 154,237 (25,319) (23,027) 141,616 140,917 7,030 4,522 103,586 104,506 0 0 0 0 0 0 27,544 28,447 141,616 140,917 0 0 25,448 47,976 0 0 12,053 22,698 4,915 9,386 14 79 2,033 4,322 2,867 5,925 1,133 2,341 1,734 3,584 0 0 0 (146) 0 0 1,734 3,438 0 0 0 0
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