<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997.
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
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. GREENEBAUM DOLL J. VAUGHAN CURTIS, ESQ. ALSTON & BIRD
& MCDONALD PLLC3300 NATIONAL CITY LLP ONE ATLANTIC CENTER 1201 WEST
TOWERLOUISVILLE, KENTUCKY 40202 (502) PEACHTREE STREET ATLANTA, GEORGIA
589-4200 30309 (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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE(2) PRICE (2) FEE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.10 par value.... 6,900,000 shares $13.06 $90,131,250 $27,313
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 900,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 475 promulgated under the Securities Act of 1933 and
based upon the average high and low prices per share as reported by the
Nasdaq National Market on June 2, 1997.
----------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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
JUNE 5, 1997
6,000,000 Shares
LOGO
Common Stock
--------
All of the 6,000,000 shares of Common Stock offered hereby are being sold by
Atria Communities, Inc. (the "Company" or "Atria"). The Common Stock is traded
on the Nasdaq Stock Market's National Market (the "Nasdaq National Market")
under the symbol "ATRC." On June 3, 1997, the last reported sale price of the
Company's Common Stock was $13.88 per share.
--------
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.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total(2)......................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Before deducting expenses of the offering estimated at $500,000 payable by
the Company.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 900,000 additional shares of Common Stock solely 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 Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are 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
July , 1997.
Alex. Brown & Sons
INCORPORATED
J.C. Bradford & Co.
Donaldson, Lufkin & Jenrette
securities corporation
THE DATE OF THIS PROSPECTUS IS JULY , 1997.
<PAGE>
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.
[Photograph of an Atria community [Photograph of an
in Atlanta, GA] Atria community
in Sandy, Utah.]
Atria Johnson Ferry Atria Crosslands
Atlanta, Georgia Sandy, Utah
[UNITED STATES MAP SHOWING EXISTING COMMUNITIES AND LOCATIONS UNDER
DEVELOPMENT]
[Photograph of entry hall [Photograph showing
at Atria community] dining room of Atria
community]
Entry hall--Atria Crosslands Dining room--Atria Redding
Sandy, Utah Redding, California
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
Atria is a leading national provider of assisted and independent living
services for the elderly. At May 31, 1997, the Company operated 40 communities
in 17 states with a total of 3,977 units. The Company also had 35 assisted
living communities under development, including 14 communities under
construction. The Company's communities included 1,718 assisted living units
and 2,259 independent living units. The Company owns 27 of its communities,
holds a majority interest in two communities, leases two communities and
manages nine communities. The Company is in the process of terminating
management contracts for four communities.
Assisted living is a rapidly emerging component of the non-acute health care
system for the elderly. The assisted and independent living industries serve
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 or more activities of daily living ("ADLs"), such
as eating, grooming and bathing, personal hygiene and toileting, dressing,
transportation, walking and medication management. The independent living
industry serves the long-term care needs of the elderly who require only
occasional assistance with ADLs.
According to industry estimates, the assisted living industry represented
approximately $12 billion in revenue in 1996. The Company believes that growth
in the demand for assisted and independent living services is being driven by:
the growing elderly population segment; changing societal patterns that make it
difficult for families to provide in-home care to the elderly; increasing
recognition among the elderly and their families that assisted and independent
living communities afford a cost-effective, independent, secure and attractive
lifestyle; and the limited supply of purpose-built assisted living communities
currently available.
Atria's objective is to expand its position as a leading national provider of
high-quality assisted living services. Key elements of the Company's strategy
are to continue to: (i) develop or acquire, in geographic clusters, 60 to 85
additional assisted living communities consisting of approximately 5,400 to
7,650 units by the year 2000 (including the 35 communities under development at
May 31, 1997 and the communities developed or acquired since the Company's IPO)
to achieve regional density; (ii) convert at least 750 of its existing
independent living units to assisted living units by the year 2000
(approximately 250 per year); (iii) focus on private pay, middle- and upper-
income residents; (iv) develop network relationships and strategic alliances
with leading national and regional health care providers; (v) offer a broad
range of high-quality services that meet the individual needs of residents to
enable them to "age in place"; and (vi) develop the Atria prototype model in
targeted markets to increase brand awareness and achieve construction and
operational efficiencies.
Prior to completion of the Company's initial public offering in August 1996
(the "IPO"), certain of the Company's assisted and independent living
communities had been operated by Vencor, Inc. ("Vencor") and its predecessors
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 44.5% of the outstanding Common Stock (42.8% if
the Underwriters' over-allotment option is exercised in full).
RECENT DEVELOPMENTS
Atria has made significant progress in implementing its business plan since
the IPO. Through a combination of acquisitions and new development, Atria has
increased its total number of communities and units in operation from 22
communities with 3,022 units in August 1996 to 40 communities with 3,977 units
at May 31, 1997. The number of communities and units in operation increased as
a result of: (i) the acquisition in April 1997 of American Elderserve
Corporation ("American Elderserve"), an operator
3
<PAGE>
of 12 assisted living communities with 503 units; (ii) the opening in March
1997 of an assisted living community with 92 units in Memphis, Tennessee, one
of the five assisted living community development sites being acquired from The
Carra Company, LLC ("Carra"); (iii) the acquisition in February 1997 of two
communities in Knoxville, Tennessee with a total of 129 units; (iv) the
commencement of the management of one community in Stamford, Connecticut with
123 units; and (v) the opening of three communities with 188 units that have
been developed by the Company since the IPO. In addition, the Company
terminated the lease of one community (80 units) in October 1996 and is in the
process of terminating management contracts for four communities (156 units).
Atria has also significantly expanded its new community development efforts.
The number of communities under development has increased from 13 in August
1996 to 35 at May 31, 1997, including ongoing development projects assumed by
Atria through various acquisitions. In addition, the Company has entered into a
development agreement with Elder Healthcare Developers, LLC ("Elder
Healthcare") to develop at least 15 communities over the next three years.
The Company is continuing to execute its strategy to develop network
relationships and strategic alliances with leading national and regional health
care providers. These providers include Massachusetts General Hospital,
University of Louisville Medical School, Jewish Hospital HealthCare Services,
Inc. ("Jewish HealthCare") and Vencor. Specifically, in June 1997, the Company
and Jewish HealthCare, one of the largest operators of health care facilities
in Kentucky and southern Indiana, finalized a joint venture arrangement whereby
Atria will develop assisted living communities within the market areas of
existing Jewish HealthCare facilities. The Company is in discussions with other
major health care providers and leading academic institutions regarding
additional network relationships and strategic alliances. The Company's
residents will gain increased access to a broad array of health care services
from other providers as a result of these network relationships and strategic
alliances. See "Recent Developments" on page 13.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered............. 6,000,000 shares
Common Stock to be outstanding
after the offering.............. 22,466,487 shares (1)
Use of proceeds.................. To finance the development and acquisition of
assisted living communities and for general
corporate purposes.
Nasdaq National Market symbol.... ATRC
</TABLE>
- --------
(1) Excludes options outstanding at May 31, 1997 to purchase 1,059,000 shares
of Common Stock at a weighted average exercise price of $10.09 per share,
and includes 80,000 restricted shares of Common Stock that vest over the
two year period following August 20, 1996. See "Management--Non-Employee
Directors 1996 Stock Incentive Plan," "--Vencor Employee Option Grants" and
"--1996 Stock Ownership Incentive Plan."
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Recent Developments," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business," and elsewhere
in this Prospectus, constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things: (i) the successful implementation of the Company's
acquisition and development strategy; (ii) the Company's ability to obtain
financing on acceptable terms to finance its growth strategy and to operate
within the limitations imposed by financing arrangements; and (iii) other
factors referenced in this Prospectus. See "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------------- ----------------
1993 (1) 1994 (2) 1995 (3) 1996 (4) 1996 1997
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $35,870 $39,758 $47,976 $51,846 $12,611 $14,217
Operating income........ 4,156 9,551 10,100 9,904 2,861 3,054
Income before income
taxes and extraordinary
loss................... 1,003 6,343 5,925 7,056 1,927 2,625
Income before
extraordinary loss..... 607 3,837 3,584 4,269 1,166 1,578
Net income.............. 504 3,837 3,438 4,269 1,166 1,578
Earnings per common
share before
extraordinary loss..... -- -- $ 0.36 $ 0.35 $ 0.11 $ 0.10
Shares used in computing
earnings per common and
common equivalent
share.................. -- -- 10,095 12,226 10,095 15,987
STATISTICAL DATA:
Number of communities
(at end of period):
Owned and leased....... 19 19 20 19 20 23
Managed................ 2 2 2 2 2 2
------- ------- ------- ------- ------- -------
Total (5)............. 21 21 22 21 22 25
Number of units (at end
of period):
Owned and leased....... 2,574 2,531 2,603 2,523 2,603 2,807
Managed................ 419 419 419 419 419 419
------- ------- ------- ------- ------- -------
Total (5)............. 2,993 2,950 3,022 2,942 3,022 3,226
Average occupancy (6)... 90.8% 93.8% 94.5% 96.1% 95.7% 94.6%
Same community average
occupancy (6)(7)....... -- -- -- -- 95.9% 95.7%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED (8)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 50,004 $128,383
Total assets......................................... 217,099 295,478
Total long-term debt, including amounts due within
one year............................................ 113,642 113,642
Stockholders' equity................................. 90,626 169,005
</TABLE>
- --------
(1) Income includes $266,000 ($160,000 net of tax) of income related to
settlement of certain litigation.
(2) Income includes $1.3 million ($750,000 net of tax) of income related to
settlement of certain litigation and a $425,000 ($255,000 net of tax) gain
on the sale of property.
(3) Income includes a charge of $600,000 ($360,000 net of tax or $0.03 per
common share on a pro forma basis) related to the writedown of undeveloped
property to net realizable value.
(4) Income includes a charge of $1.1 million ($630,000 net of tax or $0.05 per
common share on a pro forma basis) related to the settlement of certain
litigation.
(5) At May 31, 1997, the Company operated 40 communities with 3,977 units.
(6) Average occupancy is calculated on a daily basis by dividing the number of
occupied units by the number of available units.
(7) Includes only those communities operated by the Company for at least the
previous 12 months.
(8) Adjusted to give effect to the sale by the Company of 6,000,000 shares of
Common Stock (based on an assumed public offering price of $13.88) and the
application of the estimated net proceeds therefrom.
Concurrent with the completion of the IPO, Vencor contributed to the Company
substantially all of its assisted and independent living communities in
exchange for 10,000,000 shares of Common Stock and the Company assumed certain
liabilities related to such communities (the "Contribution Transaction").
Unless otherwise indicated, all share and financial information set forth
herein reflect 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
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
Financial Risks Associated with Expansion Program. Newly developed assisted
living communities are expected to incur operating losses during the first 12
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 12 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 consisting of
approximately 5,400 to 7,650 units by the year 2000 (including the 35
communities being developed at May 31, 1997 and the communities developed and
acquired since the IPO). 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 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 site
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."
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 contractual basis. Final approval of all development sites is
made by officers of the Company. If the Company is unable to expand its
development staff or 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 assisted living communities. The Company recently acquired (i)
American Elderserve, an operator of 12 assisted living communities with 503
units, and (ii) two assisted living communities with a total of 129 units in
Knoxville, Tennessee. There can be no assurance that the Company will be able
to integrate successfully the operations of these communities or institute
Company-wide systems and procedures to operate successfully the combined
enterprises. 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 facilities after acquisition and the ability
of the Company to integrate effectively the operations of acquired facilities.
Any failure by the Company
6
<PAGE>
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 "--Acquisition Program."
Limited History as a Stand-alone Company. Although the Company's
predecessors have operated assisted and independent living communities for
over a decade, the Company itself has only operated as a stand-alone company
since August 1996. Vencor has no obligation to provide assistance to the
Company except as described in the Administrative Services Agreement and the
Services Agreements. The Administrative Services Agreement and the Services
Agreements each have a one-year term (ending in August 1997) and upon
expiration may be renewed for an additional one-year period, subject to
termination by either party on 60 days' prior written notice. Although 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 Company is currently evaluating plans to insource most of these
services and intends to terminate substantially the Administrative Services
Agreement and the Services Agreements during 1997. The costs associated with
insourcing these services may exceed the costs associated with the provision
of these services by Vencor. See "Certain Transactions."
Principal Stockholder. Vencor currently holds 60.7% of the outstanding
Common Stock. Upon completion of this offering, Vencor will own 44.5% of the
outstanding Common Stock (42.8% if the Underwriters' over-allotment option is
exercised in full) and, accordingly, is and will remain in a position to
influence significantly the management and operations of the Company. Three of
the eight directors are officers or directors of Vencor and only three
directors of the Company are independent directors who are not Vencor
affiliates or employees of the Company. Vencor has entered into a Voting
Agreement pursuant to which it has agreed 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 continues in effect until August 2001 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 principal 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 members of the Board of Directors and the retention of
independent financial and other advisors. 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 subject to approval
by a majority of the disinterested members of the Board of Directors. 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"), in connection with the
Contribution Transaction. These agreements specify certain services to be
provided to the Company by Vencor. For example, under the Administrative
Services Agreement, Vencor provides certain administrative services to the
Company, including finance and accounting, human resources, risk management,
legal and information systems. The current annual fee to Vencor under the
Administrative Services Agreement is approximately $458,000. Pursuant to the
Incorporation Agreement, the Company paid Vencor $150,000 for its assistance
in connection with the IPO. The maximum guaranty fee that the
7
<PAGE>
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. See "Certain Transactions."
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 Company currently estimates that
the net proceeds from this offering, together with existing capital resources
and financing commitments, will be sufficient to fund its development and
acquisition program through mid-1998. 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" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Risks of Indebtedness. At March 31, 1997, the Company had long-term debt,
including amounts due within one year, of $113.6 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."
In August 1996, Atria entered into a $200 million bank credit facility (the
"Credit Facility") which has a maturity of four years and may be extended at
the option of the banks for one additional year. The obligations under the
Credit Facility are secured by substantially all of Atria's property, the
capital stock of its present and future principal subsidiaries and all
intercompany indebtedness owed to Atria by its subsidiaries. The Credit
Facility contains certain customary financial covenants and other
restrictions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 4 of
Notes to Consolidated Financial Statements.
The Company has agreed to fund all construction costs and working capital
needs of communities developed by Elder Healthcare through the use of the
Credit Facility. Such communities will be additional security for the
borrowings under the Credit Facility. The Company will manage these
communities from the day they commence operations. The Company may exercise
its option to purchase a community only after the community's operations
become profitable. If the Company fails to exercise its option, Elder
Healthcare will not be obligated to obtain new financing to replace the
financing provided by Atria.
Risk of Rising Interest Rates. At March 31, 1997, $76.1 million in principal
amount of the Company's indebtedness bore interest at floating rates. In
addition, other indebtedness that the Company may incur in the future may also
bear interest at a floating rate. Therefore, increases in prevailing interest
rates could
8
<PAGE>
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.
Restrictions Associated with Bond and HUD Financing. Nine of the Company's
assisted living and independent living communities (containing 1,357 units)
have been financed in whole or in part by industrial revenue bonds or HUD
financing. Under the terms of the HUD financing the Company is required to
obtain HUD approval prior to taking certain actions, including raising prices.
In addition, 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 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 and could accelerate
the maturity dates of these financings. At March 31, 1997, outstanding amounts
under these financings totaled $65.9 million. The Company does not presently
expect to seek additional industrial revenue bond or HUD financing. However,
the Company may assume financings of these types pursuant to acquisitions of
additional facilities. See "Business--Sources of Revenue for Assisted and
Independent Living Care" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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 has been profitable,
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 relies 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 Company does not manage its
growth effectively, its business, financial condition and results of operations
could be materially and adversely affected. See "Risk Factors--Limited History
as a Stand-alone Company," "--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 services from their own financial resources. In the event
that managed care becomes a significant factor in the assisted living industry,
the amount the Company receives for its services could be adversely affected.
In addition, 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--Sources of Revenue for Assisted and Independent
Living Care."
9
<PAGE>
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 services. 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 or 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 an adverse 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 and other health care providers offer
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 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.
10
<PAGE>
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 costs and substantial
claims. The Company maintains 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 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 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, the Company's Board of Directors is
divided into three classes, each of which serves 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--Principal Stockholder" and
"Description of Capital Stock--Certain Corporate Governance Matters."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have 22,466,487 shares of Common Stock outstanding (23,366,487
shares if the Underwriters' over-allotment option is exercised in full). Of
these shares, the 6,000,000 shares sold in this offering, as well as the
5,750,000 shares sold in the IPO, will be freely transferable without
restriction or limitation under the Securities Act of 1933, as amended (the
"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 10,716,487 shares constitute "restricted securities" within the
meaning of Rule 144 such that the sale of such securities
11
<PAGE>
would be restricted for one year from the date they were acquired. Vencor
holds 10,000,000 of the restricted shares and nine officers and directors of
the Company hold the remaining 716,487 restricted shares. Vencor and one such
officer are entitled to certain demand and incidental registration rights with
respect to their shares. If Vencor or such officer, by exercising the 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 has registered
1,250,000 shares of Common Stock reserved for issuance pursuant to the
Company's incentive compensation programs. At May 31, 1997, there were
outstanding options to purchase 1,059,000 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 Agreements" 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 90 days after the date of this Prospectus without
the prior written consent of Alex. Brown & Sons Incorporated. See
"Underwriting."
Possible Volatility of Stock Price. The Company's Common Stock has been
quoted on the Nasdaq National Market since August 1996. 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.
12
<PAGE>
RECENT DEVELOPMENTS
In April 1997, the Company acquired American Elderserve, an Atlanta based
operator of assisted living communities, for $30.5 million in cash, stock and
assumption of debt. At the time of the acquisition, American Elderserve
operated 12 assisted living communities consisting of 503 units (six of the
communities were owned; one was leased; and five were managed under contract).
The Company is in the process of terminating the management contracts of four
of the five managed communities. At the time of the acquisition, American
Elderserve had six additional communities under construction, one of which
opened in April 1997, and the remainder of which are scheduled to open by the
end of 1997. In connection with the acquisition, Andy L. Schoepf, the former
President and Chief Executive Officer and principal shareholder of American
Elderserve, joined the Company as its Chief Operating Officer, received
636,487 shares of Common Stock (including certain demand registration rights
with respect thereto), and was subsequently elected a director of the Company.
In connection with the American Elderserve acquisition, the Company entered
into a development agreement with Elder Healthcare, a limited liability
company owned 10% by Atria and 90% by Assisted Care Developers, LLC ("Assisted
Care Developers"). Assisted Care Developers is wholly-owned by George A.
Schoepf, former Executive Vice President of American Elderserve and the
brother of Andy L. Schoepf. Elder Healthcare has the exclusive right to
develop assisted living communities for the Company in an 11 state region in
the southeastern United States. The Company has agreed that Elder Healthcare
will develop at least 15 communities in this southeast region over the next
three years. The Company will have the first option to purchase any such
development community at the lesser of its fair market value or the cost to
develop and operate such community up to the time of purchase plus the sum of
$666,666. The Company may exercise its option to purchase a community only
after the community's operations become profitable as defined in the
development agreement. In connection with the development of such communities,
the Company has agreed to fund all construction costs and working capital
needs of the communities through the use of its Credit Facility. Such
communities will serve as additional security for the borrowings under the
Credit Facility. The Company will manage these communities from the day they
commence operations. See "Risk Factors--Risks of Indebtedness."
The Company is in the process of completing the acquisition from Carra of
five assisted living community development sites located in Tennessee, Texas
and Alabama. Carra will complete the development of these communities pursuant
to development agreements with the Company. The total cost to acquire and
complete the development of these communities will be approximately $24.4
million. The development of one of these communities, located in Memphis,
Tennessee, with 92 units was completed in March 1997. A second 84 unit
community located in Memphis is under construction and scheduled to open
during July 1997. Communities to be developed at the remaining three sites are
scheduled to open from late 1997 through early 1998.
In June 1997, the Company and MedGroup Management, Inc., a wholly owned for-
profit subsidiary of Jewish HealthCare, reached an agreement regarding the
development of assisted living communities within the market areas of Jewish
HealthCare facilities. MedGroup Management, Inc. has an exclusive right of
first refusal to be the sole participant with Atria in the development of
assisted living communities in southern Indiana and central Kentucky. Three
communities are currently under development in the greater Louisville area.
Jewish HealthCare is one of the largest operators of health care facilities in
Kentucky and southern Indiana, with a network of 36 health care facilities.
In February 1997, the Company acquired a 102 unit assisted living community
and a 48 bed, 27 unit memory impairment and dementia care community. Both of
these communities are located in Knoxville, Tennessee. In April 1997, the
Company entered into an agreement with Vencor to manage a 123 unit assisted
living community recently acquired by Vencor in Stamford, Connecticut. In
October 1996, the Company terminated its lease of an 80 unit assisted living
community in Newark, Ohio.
13
<PAGE>
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. Concurrent with the
completion of the IPO, Vencor contributed to the Company substantially all of
its assisted and independent living communities in exchange for 10,000,000
shares of Common Stock and the Company assumed 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 that were transferred
from Vencor to the Company in connection with the IPO. Also, prior to the
Hillhaven Merger, Hillhaven consummated a share exchange (the "Nationwide
Exchange") with Nationwide Care, Inc. ("Nationwide") on June 30, 1995, whereby
Hillhaven acquired four of these communities.
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 will be approximately $78.4
million ($90.2 million if the Underwriters' over-allotment option is exercised
in full), based on an assumed offering price of $13.88 per share and after
deducting the estimated underwriting discounts and offering expenses payable
by the Company. The Company expects to use the net proceeds to finance the
development and acquisition of assisted living communities and for 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. 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. The Credit Facility prohibits the
Company from paying cash dividends. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is listed and traded on the Nasdaq National Market under
the symbol "ATRC." The following table sets forth the high and low sales
prices for the Common Stock, as reported by the Nasdaq National Market, for
the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal year ended December 31, 1996:
Third Quarter (1)........................................ $13.50 $10.00
Fourth Quarter........................................... 14.50 9.25
Fiscal year ending December 31, 1997:
First Quarter............................................ $13.75 $ 9.88
Second Quarter (through June 3, 1997).................... 14.50 10.25
</TABLE>
- --------
(1) The Common Stock commenced trading on August 20, 1996.
On June 4, 1997, the closing price for the Common Stock as reported by the
Nasdaq National Market was $13.88 per share. As of such date, the Company had
approximately 251 holders of record of Common Stock.
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the capitalization
of the Company and (ii) the capitalization of the Company as adjusted to
reflect the sale of the shares of Common Stock offered hereby (based on an
assumed offering price of $13.88 per share) and the application of the
estimated net proceeds therefrom, all as if they occurred on March 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................. $ 50,004 $128,383
======== ========
Total long-term debt, including amounts due
within one year...................................... $113,642 $113,642
Stockholders' equity:
Preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued........................ -- --
Common stock, $0.10 par value; 50,000,000 shares
authorized; issued and outstanding 15,830,000 shares
(actual) and 21,830,000 shares (as adjusted)(1)..... 1,583 2,183
Additional paid-in capital........................... 85,760 163,539
Retained earnings.................................... 3,283 3,283
-------- --------
Total stockholders' equity......................... 90,626 169,005
-------- --------
Total capitalization............................. $204,268 $282,647
======== ========
</TABLE>
- --------
(1) Excludes options outstanding at May 31, 1997 to purchase 1,059,000 shares
of Common Stock at a weighted average exercise price of $10.09 and
excludes 636,487 shares of Common Stock issued to Andy L. Schoepf in April
1997 in connection with the acquisition of American Elderserve. Includes
80,000 restricted shares of Common Stock that vest over the two-year
period following August 20, 1996.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated 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 prior to the IPO. The financial statements of
the Company for the years ended December 31, 1993, 1994, 1995 and 1996 have
been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data for the year ended May 31, 1993 and for the three
months ended March 31, 1996 and 1997 were derived from unaudited consolidated
financial statements of the Company 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 consolidated financial statements of
the Company and the related notes thereto included elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
YEAR
ENDED YEARS ENDED THREE MONTHS
MAY 31, DECEMBER 31, ENDED MARCH 31,
-------- -------------------------------------- ------------------
1993 (1) 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 36,479 $ 35,870 $ 39,758 $ 47,976 $ 51,846 $ 12,611 $ 14,217
-------- -------- -------- -------- -------- -------- --------
Salaries, wages and benefits............. 14,620 14,735 14,638 17,455 19,861 4,677 5,660
Supplies................................. 4,199 4,360 4,023 4,860 5,024 1,227 1,290
Rent..................................... 563 351 333 383 353 100 39
Depreciation and amortization............ 5,025 4,503 4,541 5,113 5,060 1,312 1,388
Non-recurring transactions............... -- (266) (1,675) 600 1,050 -- --
Other operating expenses................. 9,229 8,031 8,347 9,465 10,594 2,434 2,786
-------- -------- -------- -------- -------- -------- --------
33,636 31,714 30,207 37,876 41,942 9,750 11,163
-------- -------- -------- -------- -------- -------- --------
Operating income......................... 2,843 4,156 9,551 10,100 9,904 2,861 3,054
Interest expense......................... 5,058 3,499 3,538 4,322 4,287 982 1,182
Investment income........................ (445) (346) (330) (147) (1,439) (48) (753)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss...................... (1,770) 1,003 6,343 5,925 7,056 1,927 2,625
Provision for income taxes............... (699) 396 2,506 2,341 2,787 761 1,047
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary loss.. (1,071) 607 3,837 3,584 4,269 1,166 1,578
Extraordinary loss on extinguishment of
debt, net of income tax benefit......... -- (103) -- (146) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ (1,071) $ 504 $ 3,837 $ 3,438 $ 4,269 $ 1,166 $ 1,578
======== ======== ======== ======== ======== ======== ========
Earnings per common and common equivalent
share (2):
Income before extraordinary loss......... -- -- -- $ 0.36 $ 0.35 $ 0.11 $ 0.10
Extraordinary loss on extinguishment of
debt.................................... -- -- -- (0.02) -- -- --
-------- -------- -------- --------
Net income............................. -- -- -- $ 0.34 $ 0.35 $ 0.11 $ 0.10
======== ======== ======== ========
Shares used in computing earnings per
common and common equivalent share (2).. -- -- -- 10,095 12,226 10,095 15,987
STATISTICAL DATA:
Number of communities (at end of period):
Owned and leased......................... 20 19 19 20 19 20 23
Managed.................................. 2 2 2 2 2 2 2
-------- -------- -------- -------- -------- -------- --------
Total (3).............................. 22 21 21 22 21 22 25
Number of units (at end of period):
Owned and leased......................... 2,734 2,574 2,531 2,603 2,523 2,603 2,807
Managed.................................. 419 419 419 419 419 419 419
-------- -------- -------- -------- -------- -------- --------
Total (3).............................. 3,153 2,993 2,950 3,022 2,942 3,022 3,226
Average occupancy (4).................... 87.1% 90.8% 93.8% 94.5% 96.1% 95.7% 94.6%
Same community average occupancy (4)(5).. -- -- -- -- -- 95.9% 95.7%
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 2,473 $ 1,695 $ 1,497 $ 2,819 $ 65,238 $ 3,954 $ 50,004
Total assets............................. 141,151 137,308 133,016 140,917 209,782 141,577 217,099
Total long-term debt, including amounts
due within one year..................... 108,003 91,744 91,193 105,350 110,032 104,640 113,642
Stockholders' equity..................... 30,049 34,959 31,835 28,447 88,946 27,984 90,626
</TABLE>
- --------
(1) For accounting purposes, the consolidated financial information of Atria
for 1992 is based upon the previous fiscal reporting period 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) Share and per share amounts for 1995 and 1996 are presented on a pro forma
basis.
(3) At May 31, 1997, the Company operated 40 communities with 3,977 units.
(4) Average occupancy is calculated on a daily basis by dividing the number of
occupied units by the number of available units.
(5) Includes only those communities operated by the Company for at least the
previous 12 months.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Selected Consolidated Financial Data and the Consolidated Financial
Statements of Atria included elsewhere in this Prospectus set forth certain
information with respect to Atria's financial position, results of operation
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. Upon completion of the
IPO, Vencor contributed to Atria substantially all of its assisted and
independent living communities in exchange for 10,000,000 shares of Common
Stock and Atria assumed 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
most of the assisted and independent living communities transferred from Vencor
to Atria in connection with the IPO. 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 leading national provider of assisted and independent living
services for the elderly. At May 31, 1997, the Company operated 40 communities
in 17 states with a total of 3,977 units. The Company also had 35 assisted
living communities under development, including 14 communities under
construction. The Company's communities included 1,718 assisted living units
and 2,259 independent living units. The Company owns 27 of its communities,
holds a majority interest in two communities, leases two communities and
manages nine communities. The Company is in the process of terminating
management contracts for four communities.
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. Revenues related to management contracts are not
significant.
PLANNED EXPANSION AND DEVELOPMENT
Atria intends to expand its business in the future by developing or acquiring
60 to 85 additional assisted living communities consisting of approximately
5,400 to 7,650 units by the year 2000 (including the 35 communities being
developed at May 31, 1997 and the communities developed and acquired since the
IPO) and converting at least 750 of its existing independent living units to
assisted living units by the year 2000 (approximately 250 units per year). The
Company will pursue acquisitions in conjunction with its development efforts in
order to cluster assisted living communities in targeted markets. The estimated
cost to construct, equip or otherwise acquire such communities could
approximate $375 to $550 million, which substantially exceeds the Company's
presently existing capital resources.
The Company currently estimates that the net proceeds of this offering,
together with existing capital resources and existing financing commitments,
will be sufficient to fund its development and acquisition programs through
mid-1998. 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
acceptable to Atria.
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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 12 months from commencement of
operations. Accordingly, Atria will require substantial amounts of liquidity
to maintain the operations of newly opened communities. In addition, if
sufficient occupancy levels related to newly opened communities are not
achieved within a reasonable period, the results of operations, financial
position and liquidity of Atria could be materially and adversely impacted.
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Company's
Statement of Operations expressed as a percentage of revenues. The Company's
past operating results are not necessarily indicative of future operating
results.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
---------------------------------
THREE
MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31 31
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries, wages and benefits................ 36.8 36.4 38.3 37.1 39.8
Supplies.................................... 10.1 10.1 9.7 9.7 9.1
Rent........................................ 0.9 0.8 0.7 0.8 0.3
Depreciation and amortization............... 11.4 10.7 9.8 10.4 9.8
Non-recurring transactions.................. (4.2) 1.2 2.0 -- --
Other operating expenses.................... 21.0 19.7 20.4 19.3 19.5
----- ----- ----- ----- -----
76.0 78.9 80.9 77.3 78.5
----- ----- ----- ----- -----
Operating income............................ 24.0 21.1 19.1 22.7 21.5
Interest expense............................ 8.9 9.0 8.3 7.8 8.3
Investment income........................... (0.9) (0.2) (2.8) (0.4) (5.3)
----- ----- ----- ----- -----
Income before income taxes and
extraordinary loss....................... 16.0 12.3 13.6 15.3 18.5
Provision for income taxes.................. 6.3 4.8 5.4 6.1 7.4
----- ----- ----- ----- -----
Income before extraordinary loss.......... 9.7% 7.5% 8.2% 9.2% 11.1%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1997 and 1996.
Revenues increased 12.7% to $14.2 million in the first quarter of 1997
compared to $12.6 million in the same period last year. The increases were
primarily attributable to price increases ($700,000), growth in ancillary
services ($100,000) and the addition of two acquired communities and two newly
constructed communities in the first quarter of 1997 ($800,000).
Compensation costs and other operating expenses as a percentage of revenues
increased in the first quarter of 1997 compared to 1996. Increases in such
costs resulted primarily from growth in administrative expenses of
approximately $650,000 associated with Atria's expansion and development
program.
Despite growth in administrative expenses, first quarter 1997 operating
income totaled $3.1 million, up 6.7% from $2.9 million a year ago primarily as
a result of improved same community operations. Same community occupancy was
95.7% in the first quarter of 1997, approximately the same as the same period
in 1996, and same community revenue growth was 6.4% in the first quarter of
1997. Operating results of the two newly constructed communities opened in
March 1997 had no material effect on first quarter operating income.
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Net income rose 35.3% to $1.6 million from $1.2 million last year. The
increase was attributable to improvements in operating income and growth in
investment income resulting from the IPO.
For periods prior to the IPO, certain allocations and estimates have been
made by management in the consolidated financial statements to present the
historical financial position and results of operations of Atria as a separate
entity. Upon consummation of the IPO, Atria became contractually obligated to
pay Vencor for certain centralized management and administrative services
underlying such historical allocations and estimates. The operating results of
Atria include $114,000 and $150,000 of corporate costs and expenses charged by
Vencor for the three months ended March 31, 1997 and 1996, respectively.
Management believes that these allocations reasonably reflect the proportional
costs incurred by Vencor on behalf of Atria.
Years Ended December 31, 1996, 1995 and 1994.
Revenues increased 8.1% to $51.8 million in 1996 and 20.7% to $48.0 million
in 1995. This increase in 1996 was primarily attributable to price increases
approximating 5.0% ($2.2 million), growth in occupancy ($1.0 million) and
expansion of ancillary services ($600,000). The increase in 1995 revenues was
primarily attributable to the purchase of controlling interests in two
communities previously accounted for under the equity method ($4.4 million),
the effect of two newly constructed communities ($2.2 million), price increases
approximating 4.0% ($1.2 million), growth in occupancy ($600,000) and expansion
of ancillary services ($400,000). Revenues in 1994 include approximately
$600,000 related to the operations of a sold community.
Compensation costs and other operating expenses as a percentage of revenues
increased in 1996 compared to 1995. Increases in such costs resulted primarily
from growth in administrative expenses of approximately $1.3 million associated
with Atria's expansion and development program. Compensation and other
operating expenses as a percentage of revenue declined in 1995 compared to 1994
primarily as a result of operating efficiencies associated with increased
occupancy and the fixed nature of a significant portion of such costs.
Operating income declined 1.9% to $9.9 million in 1996 and increased 5.7% to
$10.1 million in 1995. Excluding the effect of non-recurring transactions,
operating income increased 2.4% to $11.0 million in 1996 and increased 35.9% to
$10.7 million in 1995. In both years, operating income increased primarily due
to growth in revenues, operating efficiencies associated with higher occupancy
levels and growth in ancillary services. However, operating income in 1996 was
adversely impacted by administrative costs incurred in connection with Atria's
expansion and development program.
Income before extraordinary loss increased 19.1% to $4.3 million in 1996 and
declined 6.6% to $3.6 million in 1995. Excluding the effect of non-recurring
transactions, income before extraordinary loss increased 24.2% to $4.9 million
in 1996 and 39.3% to $3.9 million in 1995. The improvement in 1996 was
primarily attributable to a decline in interest costs and increased investment
income resulting from the IPO. The improvement in 1995 resulted primarily from
growth in operating income.
For periods prior to the IPO, certain allocations and estimates have been
made by management in the consolidated financial statements to present the
historical financial position and results of operations of Atria as a separate
entity. Upon consummation of the IPO, Atria became contractually obligated to
pay Vencor for certain centralized management and administrative services
underlying such historical allocations and estimates. The operating results of
Atria include corporate costs and expenses of Vencor aggregating $620,000,
$600,000 and $570,000 for the three years ended December 31, 1996, 1995 and
1994, respectively. Management believes that these allocations reasonably
reflect the proportional costs incurred by Vencor on behalf of Atria.
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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. Results of operations
in 1995 include a charge of $600,000 ($360,000 net of tax) related to the
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
increased pretax earnings by approximately $1.3 million ($750,000 net of tax)
in 1994.
SUMMARY OF RESULTS OF OPERATIONS BY QUARTER
The following table presents summarized unaudited quarterly operating
results for the periods from March 31, 1996 to March 31, 1997. The Company
believes that all necessary adjustments have been included to present fairly
the following selected information when read in conjunction with the Company's
annual audited consolidated financial statements and related notes thereto.
Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or any other quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
JUNE SEPT. DEC.
MARCH 31, 30, 30, 31, MARCH 31,
1996 1996 1996 1996 1997
--------- ------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $12,611 $12,837 $13,038 $13,360 $14,217
------- ------- ------- ------- -------
Salaries, wages and
benefits............... 4,677 4,727 5,253 5,204 5,660
Supplies................ 1,227 1,223 1,233 1,341 1,290
Rent.................... 100 99 114 40 39
Depreciation and
amortization........... 1,312 1,313 1,123 1,312 1,388
Non-recurring
transactions........... -- 1,050 -- -- --
Other operating
expenses............... 2,434 2,495 2,750 2,915 2,786
------- ------- ------- ------- -------
9,750 10,907 10,473 10,812 11,163
------- ------- ------- ------- -------
Operating income........ 2,861 1,930 2,565 2,548 3,054
Interest expense........ 982 1,051 966 1,288 1,182
Investment income....... (48) (61) (404) (926) (753)
------- ------- ------- ------- -------
Income before income
taxes.................. 1,927 940 2,003 2,186 2,625
Provision for income
taxes.................. 761 372 791 863 1,047
------- ------- ------- ------- -------
Net income............ $ 1,166 $ 568 $ 1,212 $ 1,323 $ 1,578
======= ======= ======= ======= =======
Earnings per common and
common equivalent
share.................. $ 0.11(1) $ 0.06(1) $ 0.10(1) $ 0.08 $ 0.10
======= ======= ======= ======= =======
Shares used in computing
earnings per common and
common equivalent
share.................. 10,095 10,095 12,595 15,924 15,987
STATISTICAL DATA:
Average occupancy (2)... 95.7% 95.4% 96.2% 97.0% 94.6%
Number of communities
(at end of period)..... 22 22 22 21 25
Number of units (at end
of period)............. 3,022 3,022 3,022 2,942 3,226
</TABLE>
- --------
(1)Computed on a pro forma basis.
(2) Average occupancy is calculated on a daily basis by dividing the number of
occupied units by the number of available units.
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LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1997 and 1996.
Net cash provided by operations totaled $5.0 million and $3.4 million for the
first quarter of 1997 and 1996, respectively. The improvement in cash flows
from operations resulted primarily from improvements in net income and growth
in accrued liabilities.
Net cash used in investing activities totaled $20.0 million and $800,000 for
the first quarter of 1997 and 1996, respectively. Atria's investing activities
included capital expenditures related to the development of new communities and
expansion of existing operations totaling $11.3 million and $500,000 for the
respective periods. In addition, Atria acquired two communities in the first
quarter of 1997 at a cost of approximately $8.0 million.
Net cash used in financing activities totaled $200,000 and $1.5 million for
the first quarter of 1997 and 1996, respectively. The 1996 amount includes $1.6
million of net repayments of advances from Vencor prior to the IPO.
Working capital totaled $28.4 million at March 31, 1997, compared to $45.6
million at December 31, 1996. Substantially all cash and cash equivalents in
excess of working capital needs will be used to fund the Company's expansion
and development program. In connection with its expansion and development
plans, Atria maintains the $200 million Credit Facility. At March 31, 1997,
available borrowings under the Credit Facility approximated $110 million.
Capital expenditures related to acquisitions of existing communities,
construction of new communities and expansion and improvement of existing
communities could approximate $100 to $110 million in 1997. Additionally, Atria
is committed to finance the development costs of its joint venture with Elder
Healthcare through its Credit Facility which costs are not expected to exceed
$10 million in 1997. Atria has borrowed $14 million from Vencor which becomes
due in August 1997. Atria expects to extend the term of this note through the
end of 1997. Although management believes that cash flows from operations,
proceeds from the IPO, proceeds from this offering, and available borrowings
under the Credit Facility are sufficient to meet these liquidity needs, Atria
will require substantial additional financing to continue its growth plans
beyond mid-1998. At March 31, 1997, the additional cost to complete and equip
seven communities under construction approximated $26 million.
At March 31, 1997, Atria had 26 sites under development for new assisted
living communities, eight of which were under construction. In addition, in
April 1997, the Company completed its acquisition of American Elderserve for
$30.5 million in stock, cash and assumption of debt.
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. The Credit Facility prohibits Atria from paying cash dividends.
In connection with the IPO, all amounts previously classified as investments
by and advances from Vencor were contributed to Atria as part of its permanent
capitalization. In addition, Vencor also contributed approximately $4.3 million
in cash to Atria prior to the consummation of the IPO.
The Credit Facility contains financial covenants and other restrictions that
(i) require Atria to meet certain financial tests, (ii) require that there be
no change of control of Atria, (iii) limit, among other things, the ability of
Atria and certain of its subsidiaries to borrow additional funds, dispose of
certain assets and engage in mergers and other business combinations, (iv)
prohibit distributions to Atria's stockholders and (v) require that Vencor own
at least 30.0% of Atria's common stock. Vencor has guaranteed for four years
certain borrowings by Atria under the Atria Credit Facility in amounts up to
$100 million in the first year following the IPO, declining to $75 million, $50
million and $25 million in each respective year thereafter. Atria was in
compliance with all debt covenants at March 31, 1997.
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<PAGE>
In June 1997, the Company and MedGroup Management, Inc., a wholly owned
subsidiary of Jewish HealthCare, reached an agreement regarding the joint
development of assisted living communities within the market areas of Jewish
HealthCare facilities. Pursuant to this arrangement, MedGroup Management, Inc.
has the right to purchase up to a 40% equity interest in any such development
projects and the right to put its equity interest to the Company at any time
based upon a fair market value formula. Three such projects are currently under
development in the greater Louisville area.
Years Ended December 31, 1996, 1995 and 1994.
Cash provided by operations totaled $13.2 million, $8.5 million and $7.6
million for the three years ended December 31, 1996, 1995 and 1994,
respectively. The improvement in cash flows from operations resulted primarily
from growth in net income (excluding non-recurring transactions) and, in 1996,
growth in accounts payable and other accrued liabilities.
As a result of the IPO, working capital at December 31, 1996 totaled $45.6
million. Current liabilities exceeded current assets by $776,000 at December
31, 1995, primarily as a result of the timing of cash settlements of advances
from Vencor (which comprised 100% of Atria's pre-IPO equity). Substantially all
cash and cash equivalents in excess of working capital needs will be used to
fund Atria's expansion and development program.
In August 1996, Atria entered into the $200 million Credit Facility
(including a letter of credit option not to exceed $70 million) which has a
maturity of four years and may be extended at the option of the banks for one
additional year. The Credit Facility bears 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 certain
leverage ratios. The obligations under the Credit Facility are secured by
substantially all of Atria's property, the capital stock of its present and
future principal subsidiaries and all intercompany indebtedness owed to Atria
by its subsidiaries. Available borrowings under the Credit Facility at December
31, 1996 approximated $107 million.
Net cash used in investing activities totaled $8.5 million, $2.9 million and
$4.0 million for the three years ended December 31, 1996, 1995 and 1994,
respectively. Atria's investing activities included capital expenditures
related to the development of new communities and expansion of existing
operations totaling $7.4 million, $4.0 million and $5.7 million for the
respective periods.
Net cash provided by financing activities was $57.8 million (including $52.1
million of proceeds from the IPO) for 1996, while net cash used in financing
activities totaled $4.3 million for 1995 and $3.8 million for 1994. In all
periods prior to the IPO, operating cash flows in excess of capital
expenditures were used primarily to repay advances from Vencor.
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 resident
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 conditions, including the effect of unfavorable real estate
zoning requirements, increased government regulation, and limitations
associated with industrial revenue bond and HUD financing could adversely
impact Atria's ability to increase prices or control growth in operating
expenses.
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<PAGE>
BUSINESS
OVERVIEW
Atria is a leading national provider of assisted and independent living
services for the elderly. At May 31, 1997, the Company operated 40 communities
in 17 states with a total of 3,977 units. The Company also had 35 assisted
living communities under development, including 14 communities under
construction. The Company's communities included 1,718 assisted living units
and 2,259 independent living units. The Company owns 27 of its communities,
holds a majority interest in two communities, leases two communities and
manages nine communities. The Company is in the process of terminating
management contracts for four communities (156 units).
Atria has made significant progress in implementing its business plan since
the IPO. Through a combination of acquisitions and new development, Atria has
increased its total number of communities and units in operation from 22
communities with 3,022 units in August 1996 to 40 communities with 3,977 units
at May 31, 1997. The number of communities and units in operation increased as
a result of: (i) the acquisition in April 1997 of American Elderserve, an
operator of 12 assisted living communities with 503 units; (ii) the opening in
March 1997 of an assisted living community with 92 units in Memphis,
Tennessee, one of the five assisted living community development sites to be
acquired from Carra; (iii) the acquisition in February 1997 of two communities
in Knoxville, Tennessee with a total of 129 units; (iv) the commencement of
the management of one community in Stamford, Connecticut with 123 units; and
(v) the opening of three communities with 188 units that have been developed
by the Company since the IPO. In addition, the Company terminated the lease of
one community (80 units) in October 1996.
Atria has also significantly expanded its new community development efforts.
The number of communities under development has increased from 13 in August
1996 to 35 at May 31, 1997, including ongoing development projects assumed by
Atria through various acquisitions. In addition, the Company has entered into
a development agreement with Elder Healthcare to develop at least 15
communities over the next three years.
The Company is continuing to execute its strategy to develop network
relationships and strategic alliances with leading national and regional
health care providers. These providers include Massachusetts General Hospital,
University of Louisville Medical School, Jewish HealthCare, and Vencor.
Specifically, in June 1997, the Company and Jewish HealthCare, one of the
largest operators of health care facilities in Kentucky and southern Indiana,
finalized a joint venture arrangement whereby Atria will develop assisted
living communities within the market areas of existing Jewish HealthCare
facilities. Twenty-two of the Company's communities and 19 communities under
development are or will be in close proximity to Vencor facilities. The
Company is also in discussions with other major health care providers and
leading academic institutions regarding additional network relationships and
strategic alliances. The Company's residents will gain increased access to a
broad array of health care services from other providers as a result of these
network relationships and strategic alliances.
INDUSTRY BACKGROUND
The assisted living industry, which represented approximately $12 billion in
revenue in 1996, is a rapidly emerging component of the non-acute health care
system for the elderly. The assisted and independent living industries serve
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. It is estimated that 45% of
the people over the age of 85 require assistance with at least one ADL, such
as eating, grooming and bathing, personal hygiene and toileting, dressing,
transportation, walking and medication management. Assisted living residents
typically require assistance with two or more ADLs. The independent living
industry serves the long term care needs of the elderly who require only
occasional assistance with ADLs.
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<PAGE>
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 segment, the number of people
who will need or desire to reside in an assisted or independent living
community will also increase.
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 but can afford to pay for quality care such as that which is offered in
an assisted or independent living community. 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.
Consumer Preference and Price Advantages. The Company believes that assisted
and independent living communities provide residents and their families with
an attractive alternative to skilled nursing facilities. Assisted living
communities allow residents to age in place and preserve their independence in
a more residential setting. 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.
Limited Supply of Assisted Living Facilities. The Assisted Living Federation
of America estimates that there are fewer than 700,000 assisted living beds
which serve less than 10% of the seven million elderly who need assisted
living services. The Company believes that there is currently a limited supply
of purpose-built assisted living beds relative to the growing demand for
assisted living services. The number of elderly who need assisted living
services is expected to grow from seven million to over nine million by the
year 2000.
Supply/Demand Imbalance. The ratio of skilled nursing beds to persons 85
years of age and older is declining. This decline may be attributed to several
factors, including the aging of the population and limitations on the granting
of certificates of need for new skilled nursing facilities. Many skilled
nursing facilities are also focusing on higher acuity patients with higher
reimbursement profiles. As a result, fewer skilled nursing beds are available
for the growing number of elderly who need assistance with ADLs but do not
require the significant medical attention available in a skilled nursing
facility.
BUSINESS STRATEGY
The Company and its predecessors have operated assisted and independent
living communities for over a decade. The Company's objective is to expand its
position as a national provider of high-quality assisted 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 consisting of 5,400 to 7,650 units by the year 2000 (including 35
communities being developed at May 31, 1997 and the communities developed or
acquired since the IPO). The Company plans to expand its base of assisted
living communities in targeted markets with high population density and where
demographic and competitive factors are favorable. Atria will continue to
execute its development program using internal development personnel and
third-party developers. The Company will also cluster these communities to
achieve regional density, thereby increasing brand awareness and enabling the
Company to achieve operating
24
<PAGE>
efficiencies. At May 31, 1997, the Company had 35 sites under development for
new assisted living communities and had received zoning approvals for 23 of
those 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 (approximately 250 units per
year). The Company believes that its development efforts have been accelerated
by outsourcing selected development functions to third parties, such as
preliminary site selection, zoning, architecture and construction.
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.
Development of Network Relationships and Strategic Alliances with Health
Care Providers. The Company believes that assisted living is an integral part
of the continuum of health care services for the elderly. The Company's
strategy is to participate in health care delivery networks by developing
relationships and strategic alliances with leading national and regional
health care providers. Current network relationships include Massachusetts
General Hospital, University of Louisville Medical School, Jewish HealthCare
and Vencor. These relationships include shared campuses with Vencor skilled
nursing facilities and a joint venture arrangement whereby Atria will develop
assisted living communities within the market areas of existing Jewish
HealthCare facilities. In addition, Massachusetts General Hospital
participates in a wellness program for the residents of Foxhill Village
community near Boston, Massachusetts.
Offer a Broad Range of High Quality Assisted Living Services. Atria provides
its residents with a broad range of high quality assisted living services and
has developed the "Atria Levels of Care Program" to meet the needs of these
residents. This program bundles Atria's assisted living services into four
levels of increasing acuity which allow Atria's residents to age in place in
an attractive residential setting. As a result, residents with few or no
health care needs are able to continue living in an Atria community as their
needs increase, unless they develop medical conditions requiring institutional
care available only in a skilled nursing facility or an acute care hospital.
Atria intends to implement this program in most of its existing communities by
the end of 1997 and in all new communities under development.
Continued Development of Atria Prototype Model in Targeted Markets. Atria
will continue to develop the Atria prototype model (the "Atria Model") in
targeted markets to increase brand awareness and achieve operating and
construction efficiencies. Twenty-two of the Company's 35 sites under
development at May 31, 1997 are Atria prototype communities.
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 while promoting independence and dignity. The Company provides a
full range of assisted living services to fit individual resident needs and
allow residents to age in place in an attractive residential setting.
Residents live in private studios or apartments and have access to basic
services ("Basic Services"), which include 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. In addition to Basic Services,
residents are also offered assisted living services ("Assisted Living
Services") which include assistance with one or more ADLs, such as eating,
grooming and bathing, personal hygiene and toileting, dressing, additional
transportation, walking and medication management. Health-related services,
which are made available and provided according to individual resident needs
25
<PAGE>
and state regulatory requirements, may include assistance with taking
medication and injections, as well as health care monitoring.
Residents historically have paid a monthly fee for Basic Services and have
been charged for Assisted Living Services based upon hourly rates or as part of
an increased service package. The new Atria Levels of Care Program will enable
the Company to bundle services into four levels of care, allowing the Company
to charge prices that better correspond to the level of service provided.
Under the Atria Levels of Care Program, the entry level of care, Atria
Supportive Living, offers the resident an apartment, together with access to
all Basic Services. The second level of care, Atria Enhanced Living, is
designed for the resident who also requires assistance with up to two ADLs. The
third level of care, Atria Comprehensive Care, is designed for residents who
need assistance with more than two ADLs or residents needing incontinence care
management. The fourth level of care is a specialized program for the memory
impaired. The Company currently operates memory impairment programs at ten of
its existing communities and plans to add these services to selected existing
communities as well as incorporate memory impairment programs in substantially
all of its newly developed communities.
Determining the proper level of care for a resident begins with the admission
process, when the community's management staff, the resident and, if
appropriate, the resident's family and physician evaluate the resident's needs.
Once implemented, the service plan is periodically reviewed, and modified to
accommodate the resident's changing needs. If recommended by the resident's
physician, additional health or medical services may be provided at the
community by a third party home health care agency or other medical provider.
In some states, Atria is a licensed home health care provider.
Most residents in Atria communities rent units through a one year agreement.
If the resident dies or transfers to another facility due to the need for a
higher level of medical care, the agreement is no longer binding on the
resident.
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 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 all services offered by the Company.
THE COMPANY'S COMMUNITIES
The Company's communities vary in size from 23 to 356 units and are designed
to maximize privacy in an attractive residential setting. Atria has developed
the Atria Model which generally ranges in size from 60 to 90 units. At the
center of the Atria Model is an atrium, from which the Company derives its
name, where the residents gather to socialize and participate in community
activities. The architectural and interior design concepts used by Atria are
intended to recognize and enhance the value of individuals while providing
assistance with daily living. The Company will adapt the Atria Model to
regional architectural styles. Approximately 40% of the building is devoted to
common areas and amenities, including communal dining rooms, family and living
rooms, beauty salons, libraries, computer rooms and exercise facilities, all
designed to promote social and communal interaction. Additionally, the Atria
Model has a wellness clinic which serves as the central point of coordination
for many of the ADL and wellness services. The Atria Model also is designed to
accommodate a 20 unit wing dedicated to memory impairment and dementia care.
Atria's assisted living units typically range in size from 375 to 525 square
feet while the independent living units range in size from 375 to 1,000 square
feet. All units feature a private bathroom, kitchenette, closet, living and
sleeping areas, emergency call system, individual temperature controls, and
fire alarm and sprinkler systems.
26
<PAGE>
The table below sets forth certain information regarding communities operated
by the Company at May 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF UNITS
--------------------------
YEAR FIRST INDEPENDENT ASSISTED OWNERSHIP
COMMUNITY LOCATION OPERATED(1) LIVING LIVING TOTAL STATUS
- --------- -------- ----------- ----------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA
Auburn................. Auburn 1996 -- 40 40 Owned
ARIZONA
Valley Manor........... Tucson 1975 45 24 69 Owned
Villa Campana.......... Tucson 1984 141 -- 141 Owned
Campana Del Rio........ Tucson 1988 190 24 214 Owned
Kachina Point.......... Sedona 1986 102 -- 102 Owned
CALIFORNIA
Courtyard at San
Marcos(2)............. San Marcos 1987 176 36 212 Owned
Atria Redding.......... Redding 1997 -- 60 60 Owned
COLORADO
The Court at Castle
Gardens(3)............ Northglenn 1986 -- 99 99 Owned
CONNECTICUT
Courtland Gardens...... Stamford 1972 -- 123 123 Managed
FLORIDA
Evergreen Woods........ Spring Hill 1979 161 55 216 Owned
The Heritage(3)........ Brooksville 1992 -- 57 57 Owned
Windsor Woods.......... Hudson 1988 96 84 180 Owned
Meridian House......... Lantana 1986 140 33 173 Owned
GEORGIA
Johnson Ferry(3)....... Marietta 1995 -- 56 56 Owned
Stone Mountain(3)...... Stone Mountain 1995 -- 40 40 Owned
Hartwell(3)............ Hartwell 1995 -- 34 34 Owned
Lawrenceville(3)....... Lawrenceville 1996 -- 48 48 Owned
Woodstock(3)........... Woodstock 1996 -- 50 50 Owned
Duluth(4).............. Duluth 1989 -- 62 62 Managed
Decatur(4)............. Decatur 1988 -- 24 24 Managed
Cedartown(4)........... Cedartown 1990 -- 30 30 Managed
Dunwoody(4)............ Dunwoody 1993 -- 40 40 Managed
Calhoun................ Calhoun 1991 -- 23 23 Managed
Roswell(5)(3).......... Roswell 1997 -- 65 65 Owned
IDAHO
Hillcrest.............. Boise 1984 115 -- 115 Owned
INDIANA
The Heritage at
Wildwood.............. Indianapolis 1995 -- 72 72 Owned
Colonial Oaks.......... Marion 1978 63 -- 63 Managed
KANSAS
The Hearthstone........ Topeka 1987 115 40 155 Owned
MASSACHUSETTS
Foxhill Village........ Westwood 1990 329 27 356 Managed
New Pond Village....... Walpole 1990 167 32 199 Leased
MISSOURI
Villa Ventura.......... Kansas City 1985 129 43 172 Owned
NEW HAMPSHIRE
The Greens............. Hanover 1984 28 -- 28 Owned
TENNESSEE
Weston Place........... Knoxville 1993 -- 102 102 Owned
Weston Court(3)........ Knoxville 1996 -- 27 27 Owned
Winfield Village(6).... Memphis 1997 -- 92 92 Managed
TEXAS
Cypresswood(3)......... Houston 1996 -- 56 56 Leased
UTAH
The Crosslands......... Sandy 1986 120 -- 120 Owned
Atria Crosslands....... Sandy 1997 -- 63 63 Owned
WASHINGTON
The Narrows Glen....... Tacoma 1987 142 -- 142 Owned
Laurel House........... Tacoma 1994 -- 57 57 Owned
----- ----- -----
Total................ 2,259 1,718 3,977
===== ===== =====
</TABLE>
- --------
(1) Represents year in which Company or predecessor of the Company opened or
commenced operations.
(2) The Company owns a 65.0% interest in this community.
(3) Memory impairment level of care offered at this facility.
(4) Company has provided notice of intent to cancel this management contract.
(5) The Company owns a 57.5% interest in this community.
(6) The Company is managing the facility pending final approval from HUD to
transfer the property.
27
<PAGE>
DEVELOPMENT PROGRAM
At May 31, 1997, the Company had 35 sites for new assisted living communities
under development and had received zoning approvals for 23 of these
communities. The table below sets forth certain information regarding the
Company's development properties:
<TABLE>
<CAPTION>
ESTIMATED (1) PLANNED
LOCATION DEVELOPMENT PHASE COMPLETION DATE UNITS
-------- ------------------ --------------- -------
<S> <C> <C> <C>
Charlotte, NC............. Under Construction July 1997 60
Chattanooga, TN........... Under Construction July 1997 50
Memphis, TN (Primacy)(2).. Under Construction July 1997 48
Memphis, TN (Cordova)(3).. Under Construction July 1997 84
Jacksonville, FL.......... Under Construction August 1997 67
Sedona, AZ(2)............. Under Construction October 1997 60
Louisville, KY (St.
Matthews)................ Under Construction October 1997 70
Tacoma, WA(2)............. Under Construction October 1997 40
Augusta, GA............... Under Construction November 1997 57
Houston, TX (Kingswood)... Under Construction December 1997 57
Tucson, AZ(2)............. Under Construction January 1998 40
Elizabethtown, KY(2)...... Zoned January 1998 60
Huntsville, AL............ Under Construction March 1998 50
Northglenn, CO(2)......... Zoned March 1998 48
Atlanta, GA (Buckhead).... Zoned March 1998 74
Jackson, TN............... Under Construction March 1998 51
Dallas, TX (Preston
Hollow).................. Under Construction March 1998 64
Evansville, IN(2)......... Zoned April 1998 90
Topeka, KS(2)............. Zoned April 1998 90
Virginia Beach, VA(2)..... Zoned April 1998 110
Kennebunk, ME(2).......... Zoned May 1998 75
Carrollton, TX(2)(4)...... Under Contract May 1998 90
Dallas, TX (Grapevine)(2). Under Contract June 1998 90
Louisville, KY (Springdale
Road)(2)................. Under Contract August 1998 90
Lantana, FL(2)(5)......... Zoned September 1998 48
Dallas, TX
(Richardson)(2).......... Under Contract September 1998 90
Dennis, MA(2)............. Land owned December 1998 47
Nashua, NH(2)............. Under Contract January 1999 90
Houston, TX (West
Chase)(2)................ Under Contract January 1999 90
Mobile, AL(2)............. Zoned February 1999 90
Indianapolis, IN(2)....... Under Contract March 1999 90
Covington, KY(2).......... Under Contract May 1999 90
Louisville, KY (Six
Mile)(2)................. Under Contract March 1999 90
Athens, GA................ Under Contract December 1999 56
Ashville, NC.............. Under Contract December 1999 63
-----
Total................... 2,459
=====
</TABLE>
- --------
(1) There can be no assurance that zoning or construction delays will not be
experienced.
(2) Atria Model.
(3) The Company has agreed to acquire this community in connection with the
Carra transaction.
(4) This property is leased from Metrocrest Hospital Authority pursuant to a
long-term land lease.
(5) A special use permit is also required to begin construction.
28
<PAGE>
The Company plans to expand its base of assisted living communities in
targeted markets with high population density and where demographic and
competitive factors are favorable. Atria will continue to execute its
development program using internal development personnel and third party
developers. The Company currently expects to develop or acquire 60 to 85
communities consisting of approximately 5,400 to 7,650 units by the year 2000
(including the 35 assisted living communities under development at May 31,
1997 and the communities acquired and developed since the IPO). In addition,
the Company plans to convert at least 750 of its existing independent living
units to assisted living units by the year 2000 (approximately 250 units per
year).
The Company's development efforts begin 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 under contract, the Company typically initiates the zoning,
architectural and construction aspects of development. The Company's internal
development efforts will be based on the Atria Model. However, the Company may
continue to acquire ongoing development projects from third parties similar to
the Carra transaction, which could result in the development of non-Atria
Model communities. The Company estimates that zoning and other site approvals
may take approximately six months after a site is placed under contract. 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 $70,000 to
$80,000.
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 approximately 12 months for
communities to achieve targeted occupancy levels. See "Risk Factors--
Development and Construction Risks."
ACQUISITION PROGRAM
Since the IPO, the Company has completed the acquisition of American
Elderserve, an operator of 12 communities with 503 units, and the acquisition
of two communities in Knoxville, Tennessee with a total of 129 units. The
Company plans to acquire additional assisted living communities or other
properties that can be repositioned as 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, including its clustering strategy. See "Risk Factors--Acquisition
Risks; Difficulties of Integration."
MANAGEMENT OF THE COMMUNITIES
An executive director 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.
29
<PAGE>
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 regional training sites at
various communities for its executive directors and other key personnel.
Participants receive intensive training in all facets of community management
in three- to four-day sessions.
Executive directors report to area executive directors. The Company has
seven area executive directors, each with regional responsibility. Area
executive directors report to the Vice President of Operations or Corporate
Director of Operations, who in turn report to the Chief Operating Officer.
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 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 in an attractive residential setting.
COMPETITION
The assisted living industry is highly competitive. The Company faces
competition from numerous local, regional and national providers of assisted
living and other long-term care services. 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, location, appearance and price. 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--
Competition."
SOURCES OF REVENUE FOR ASSISTED AND INDEPENDENT LIVING CARE
The Company currently relies primarily on its residents' ability to pay for
the Company's services 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."
30
<PAGE>
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 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. However,
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 changes in existing law and
regulations, adoption of new laws and regulations and new interpretations of
existing laws and regulations.
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 and other health care providers offer
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.
31
<PAGE>
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.
EMPLOYEES
At May 31, 1997, the Company had approximately 1,500 employees of which 950
were full-time and 550 were part-time. Seventeen full-time employees are
employed at the Company's principal executive offices. None of the Company's
employees is 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 good.
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 or results of operations.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
W. Bruce Lunsford(1)(2) 49 Chairman of the Board
W. Patrick Mulloy, II(1) 44 Chief Executive Officer, President and Director
Andy L. Schoepf 48 Chief Operating Officer and Director
J. Timothy Wesley 37 Chief Financial Officer, Vice President of Development and Secretary
Sandra Harden 49 Director
Austin(3)(4)
William C. Ballard 56 Director
Jr.(4)
Peter J. Grua(3)(4) 42 Director
Thomas T. Ladt(2)(4) 46 Director
R. Gene Smith(1)(2)(3) 62 Director
</TABLE>
- --------
(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. 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.
Mr. Mulloy 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 is on the board of directors of the Assisted Living
Federation of America and the American Seniors Housing Association. Mr. Mulloy
has also been actively involved in commercial and multi-family real estate
acquisitions and developments.
Mr. Schoepf has served as Chief Operating Officer of the Company since April
1997, and a director of the Company since May 1997. For over nine years prior
to that time, Mr. Schoepf was President and Chief Executive Officer of American
ElderServe Corporation. He is a founding member of the Senior Living
Association of Georgia and the Executive Vice President and the founding board
member of the Assisted Living Association of Georgia.
Mr. 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.
33
<PAGE>
Ms. Austin has served as a director of the Company since May 1996. From 1994
to 1996 Ms. Austin was a Division President of 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.
Mr. Ballard has been a director of the Company since May 1996. 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.
Mr. Grua has served as a director of the Company since August 1996. 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.
Mr. 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.
Mr. 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, which was a
marketer of direct broadcast satellite television services through 1996. In
addition, he has been President and owner of R. Gene Smith, Inc., a private
investment firm, since 1980.
In connection with the American Elderserve acquisition, Atria agreed to
cause a nominee selected by Andy L. Schoepf to be included in the slate of
directors recommended for election by management at each annual meeting of
stockholders until such time that Mr. Schoepf no longer owns at least 400,000
shares of Common Stock. In addition, Vencor agreed to vote all of its shares
of Common Stock in favor of Mr. Schoepf's nominee so long as Mr. Schoepf owns
at least 400,000 shares of Common Stock. Pursuant to these agreements, Mr.
Schoepf selected himself and was elected to the Company's board of directors
at its annual meeting of stockholders in May 1997. See "Certain Transactions--
Transactions with Management."
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 Grua, 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,
Grua and Ladt, and Ms. Austin, all of whom are non-employee 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.
34
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by the Company to each
of the Company's three executive officers, including the Chief Executive
Officer and President (collectively, the "named executive officers"), during
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-------------------- --------------------
NAME AND RESTRICTED OPTIONS
PRINCIPAL STOCK (NO. OF ALL OTHER
POSITIONS YEAR SALARY(1) BONUS AWARDS(2) SHARES) COMPENSATION
--------- ---- --------- ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
W. Patrick 1996 $127,500 $60,000 $337,500 200,000 --
Mulloy, II
Chief Ex-
ecutive
Officer
and Presi-
dent
Ralph H. 1996 $153,779(4) $34,780(5) $168,750(3) 75,000(3) $149,097(6)
Bellande
(3)
Chief Op-
erating
Officer
J. Timothy 1996 $ 60,000 $22,500 $ 56,250 35,000 --
Wesley
Chief Fi-
nancial
Officer,
Vice Pres-
ident of
Development
and Secre-
tary
</TABLE>
- --------
(1) Except as otherwise specified below, these amounts represent cash
compensation paid to these named executive officers for approximately eight
months of service with the Company.
(2) The restrictions on the restricted shares will lapse in two equal annual
installments beginning on August 20, 1997, the first anniversary of their
grant date. These amounts were calculated based on a value of $11.25 per
share, the closing market value of the Common Stock on the date of the
grant. As of December 31, 1996, the following number of restricted shares
were held by the named executive officers: Mr. Mulloy--30,000 shares and
Mr. Wesley--5,000 shares. The restricted shares granted to Mr. Bellande
were forfeited upon his resignation. See footnote 3. The market values of
the restricted shares held by the named executive officers at December 31,
1996 were as follows: Mr. Mulloy--$307,500 and Mr. Wesley--$51,250. The
market value of the Common Stock was $10.25 per share as of December 31,
1996 (the last trading date in 1996) based on the closing price per share
on the Nasdaq National Market. If the Company were to declare a dividend on
the Common Stock, any such dividend would also be paid on the restricted
shares.
(3) Mr. Bellande resigned his position with the Company effective December 24,
1996. Pursuant to the terms of his option agreement and restricted shares
agreement, all stock options and restricted shares were forfeited as of the
effective date of his resignation.
(4) Mr. Bellande was employed by the Company or a subsidiary of the Company for
all of 1996 until his resignation on December 24, 1996. As such, his salary
represents nearly a full year of service.
(5) Represents a bonus paid to Mr. Bellande by a subsidiary of the Company
prior to the time such subsidiary was owned by the Company.
(6) Represents a $50,000 severance payment made to Mr. Bellande in connection
with his resignation from the Company, $18,173 in accrued vacation pay
distributed in connection with his resignation, and $80,924 in relocation
expenses paid to Mr. Bellande by a subsidiary of the Company prior to the
time such subsidiary was owned by the Company.
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COMPENSATION OF DIRECTORS
During 1996, directors not employed by the Company received $500 for each
board meeting they attended. Non-employee directors also received $250 for
each committee meeting they attended. In addition, non-employee directors
received a $750 retainer for each calendar quarter they served as director.
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending Board meetings.
Directors not employed by the Company receive options to purchase Common
Stock pursuant to the Company's Non-Employee Directors 1996 Stock Incentive
Plan (the "Directors Plan"). On each August 20, the Company will issue to each
of the Company's non-employee directors an option to purchase 1,000 shares of
Common Stock. In addition, 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 to the Board of Directors. The exercise price of these options will
be equal to the fair market value of the Common Stock on the date of grant and
will become exercisable in four equal annual installments, beginning on the
first anniversary of the date of grant.
In addition to the annual grants, the Directors Plan provided for an
initial, one-time grant of 5,000 and 20,000 restricted shares of Common Stock
to each non-employee director and the Chairman of the Board, respectively. The
restrictions on all such shares lapse in two equal annual installments
beginning on August 20, 1997, the first anniversary of their date of grant.
The Directors Plan also provided for an initial, one-time grant of options to
purchase 10,000 shares of Common Stock at the IPO price of $10 per share to
each non-employee director and an option to purchase 80,000 shares at the IPO
price for the Chairman of the Board. These options become exercisable in four
equal annual installments, beginning on August 20, 1997, the first anniversary
of their grant date.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of Common Stock granted in 1996 to the Company's named executive
officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS GRANT DATE
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED(1) IN 1996 PER SHARE(2) DATE VALUE(3)
---- -------------------- -------------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
W. Patrick Mulloy, II
(4).................... 200,000 49.0% $10.00 8/20/06 $1,338,000
Ralph H. Bellande (5)... 75,000 18.0% $10.00 8/20/06 $ 501,750
J. Timothy Wesley (6)... 35,000 9.0% $10.00 8/20/06 $ 234,150
</TABLE>
- --------
(1) All options shown in the above table become exercisable in four equal
annual installments, beginning on August 20, 1997. All options become
fully exercisable upon a change in control of the Company.
(2) All options were granted on August 20, 1996 at the IPO price. The exercise
price and any tax withholding obligations related to exercise may be paid
by delivery of shares of Common Stock.
(3) The Company used the Black-Scholes model of option valuation to determine
grant date present value. The present value calculation for the options
granted on August 20, 1996 is based on, among other things, the following
assumptions: (a) a .50 expected volatility factor, (b) a 6.50% risk-free
interest rate, (c) no dividend yield and (d) expected term of nine years.
The Company does not advocate or necessarily agree that the Black-Scholes
model can properly determine the value of an option. There is no assurance
that the value, if any, realized by the option holder will be at or near
the value estimated under the Black-Scholes model.
(4) Mr. Mulloy has been granted options to purchase an additional 120,000
shares of the Common Stock since January 1, 1997.
(5) Mr. Bellande resigned his position with the Company effective December 24,
1996. Pursuant to the terms of his option agreement, the stock options
granted to Mr. Bellande were forfeited as of the effective date of his
registration.
(6) Mr. Wesley has been granted options to purchase an additional 45,000
shares of Common Stock since January 1, 1997.
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OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Company's
named executive officers concerning options held as of December 31, 1996. No
options were exercisable by the named executive officers during 1996.
AGGREGATE YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT 12/31/96 12/31/96(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Patrick Mulloy, II....... -- 200,000 -- $50,000
Ralph H. Bellande(2)........ -- -- -- --
J. Timothy Wesley........... -- 35,000 -- 8,750
</TABLE>
- --------
(1) These amounts were calculated by subtracting the exercise price from the
market value of the underlying Common Stock as of year-end. The market
value of the Common Stock was $10.25 per share as of December 31, 1996 (the
last trading date in 1996), based on the closing price per share on the
Nasdaq National Market.
(2) Mr. Bellande resigned his position with the Company effective December 24,
1996. Pursuant to the terms of his option agreement, the stock options
granted to Mr. Bellande were forfeited as of the effective date of his
resignation.
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 provided for an initial, one-time grant of 5,000 restricted
shares of Common Stock as of the date of the IPO (the "Initial Grant Date").
However, the Chairman of the Board of Directors, Mr. Lunsford, received 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 provided for an
initial grant of options to purchase shares of Common Stock on the Initial
Grant Date at the IPO price. The Company annually issues, on the 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 is 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.
VENCOR EMPLOYEE OPTION GRANTS
On the IPO date, the Company issued options for 90,000 shares of Common Stock
to certain Vencor employees with an exercise price of $10.00 per share. These
options were granted to 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.
1996 STOCK OWNERSHIP INCENTIVE PLAN
The 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
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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 is 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 determines, 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 also construes, interprets, and corrects defects,
omissions, and inconsistencies in the 1996 Plan.
The Common Stock subject to the 1996 Plan is 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 40.0% of
the total shares authorized for the 1996 Plan. The total number of shares of
Common Stock available for awards of restricted stock is 20.0% 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 100.0% of the fair
market value of a share of Common Stock on the date of grant (110.0% 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.
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
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<PAGE>
the restriction period ends. Grantees of restricted stock 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.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
SCM Partners, a Kentucky general partnership, leases a parking lot next to
the 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.
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<PAGE>
On April 1, 1997, the Company completed its acquisition of American
Elderserve, an Atlanta based operator of assisted living communities, for
$30.5 million in cash, stock and assumption of debt. Andy L. Schoepf, the
Chief Operating Officer of the Company and a director, was a 50.0% shareholder
in American Elderserve and was serving as its President and Chief Executive
Officer at the time of the acquisition. In addition, Mr. Schoepf's wife,
Elizabeth Schoepf, was a 25.0% shareholder. In connection with the
acquisition, Mr. Schoepf received 636,487 shares of Common Stock, including
certain demand and incidental registration rights with respect to such Common
Stock. Elizabeth Schoepf received $3.7 million in cash. In addition, the
Company agreed to nominate a person selected by Mr. Schoepf to the Board of
Directors and obtain the commitment of Vencor to vote its shares of Common
Stock in favor of such nominee, until such time as Mr. Schoepf holds fewer
than 400,000 shares of Common Stock. At the 1997 annual meeting of the
Company's shareholders, Mr. Schoepf was elected a director pursuant to these
arrangements.
In connection with the American Elderserve acquisition, the Company entered
into a development agreement with Elder Healthcare, a limited liability
company owned 10.0% by Atria and 90.0% by Assisted Care Developers. Assisted
Care Developers is wholly owned by George A. Schoepf, former Executive Vice
President of American Elderserve and the brother of Andy L. Schoepf. Elder
Healthcare has the exclusive right to develop assisted living communities for
the Company in an 11 state region in the southeast United States. George A.
Schoepf serves as President and Chief Executive Officer of Elder Healthcare.
The Company has agreed that Elder Healthcare will develop at least 15
communities in the southeast region over the next three years. The Company
will have the first option to purchase any such developed community at the
lesser of its fair market value or the costs to develop and operate such
community up to the time of purchase plus the sum of $666,666. The Company may
exercise its option to purchase such a community only after the community's
operations become profitable as defined by the development agreement. In
connection with the development of such communities, the Company has agreed to
fund all construction costs and working capital needs of the communities
through the use of its Credit Facility. Such communities will serve as
additional security for the borrowings under the Credit Facility. The Company
will manage these communities from the date they commence operations.
From time to time, Elder Healthcare may engage DevCon Realty, LLC
("DevCon"), a commercial real estate brokerage firm, to serve as its broker in
the acquisition of new community development sites. DevCon is owned 50.0% by
George A. Schoepf, 25.0% by Andy L. Schoepf and 25.0% by the adult children of
Andy L. Schoepf. In connection with such transactions, DevCon would receive
brokerage commissions in amounts customary in the geographic area.
Pursuant to the acquisition of American Elderserve, Atria assumed
construction contracts between Delta Construction Corporation ("Delta") and
American Elderserve for four of the communities then under development. Delta
is owned by Andy L. Schoepf (40.0%) and his brothers--George Schoepf (40.0%)
and Earl Schoepf (20.0%). The contracts allow Delta to act as the construction
manager or general contractor for each of the communities. When it serves only
as construction manager, it must pay for the services of the general
contractor out of its fee. The Company estimates that it will pay Delta
approximately $425,000 during 1997. The Company believes that the construction
contracts entered into between American Elderserve and Delta prior to the
acquisition are on terms substantially similar to those that would have been
available from unaffiliated third parties.
Although Elder Healthcare has no obligation to contract with Delta in the
future, Elder Healthcare expects to use Delta's construction management or
general contracting services subject to Atria's approval of the specific terms
of each construction contract. The Company believes that future contracts with
Delta will be on terms substantially similar to those entered into between the
Company and unaffiliated third parties.
Pursuant to the acquisition of American Elderserve, the Company acquired a
promissory note that Schoepf Equities, LLC had originally issued to American
Elderserve (the "Note") in the approximate principal amount of $545,000, with
principal and 7.0% per annum interest due March 31, 1999. Schoepf
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Equities, LLC is owned 50.0% by Andy L. Schoepf and 50.0% by George A. Schoepf.
The funds were used to purchase land in Chattanooga, Tennessee and the Note is
secured by the land.
Pursuant to the acquisition of American Elderserve, the Company acquired a
50% interest in an extended stay hotel in Savannah, Georgia, subject to the
lease of that property to Southeastern Lodges, LLC ("Lessee"). Schoepf
Equities, LLC, owns a 50.0% interest in, and is the managing member of, Lessee.
The lease runs from January 1, 1997 through December 31, 1999 with annual
aggregate payments of approximately $29,000.
TRANSACTIONS WITH VENCOR
In May 1996, the Company was incorporated as a wholly-owned subsidiary of
Vencor. In connection with the IPO, the Company and Vencor entered into the
following agreements to provide for the transition of the Company from a
wholly-owned subsidiary of Vencor to a separate company. Vencor currently owns
approximately 60.7% of the Company's Common Stock. After the completion of this
offering, Vencor will own 44.5% of the outstanding Common Stock (42.8% if the
Underwriters' over-allotment option is exercised in full).
Incorporation Agreement. Prior to the completion of the IPO, Vencor
transferred to the Company, or caused its respective subsidiaries or affiliates
to transfer to the Company, their respective interests in various communities
pursuant to the terms of an Incorporation Agreement. The Company assumed all
the communities' liabilities in accordance with the Incorporation Agreement.
Except as expressly set forth in the Incorporation Agreement, no party made 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 were transferred on an "as is" basis, and
the Company agreed to bear the economic and legal risks that the conveyance was
insufficient to vest in the Company good and marketable title, free and clear
of any security interest or adverse claim.
The Company has indemnified 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 also indemnified
Vencor, as a controlling person, against any loss, claim, damage, or liability
arising out of the IPO, except for losses, claims, damages or liabilities
arising from information supplied in writing by Vencor for inclusion in the
prospectus used for the IPO. Vencor indemnified the Company and its
subsidiaries with respect to any inaccurate representation or breach of
warranty under the Incorporation Agreement. The Company paid Vencor $150,000
for legal and accounting assistance provided to the Company in connection with
the IPO.
Administrative Services Agreement. The Company and Vencor 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 (expiring in August 1997) which may be terminated by
the Company at any time upon 30 days' written notice to Vencor. Some of the
services provided to the Company by Vencor include finance and accounting,
human resources, risk management, legal support, and information systems
support. The Company, however, may extend the Administrative Services Agreement
after the first year for up to one additional year. In such case, Vencor or the
Company may terminate the Administrative Services Agreement upon 60 days'
written notice. During 1996, the Company paid Vencor approximately $620,000 for
these services. During 1997, the Company expects to pay Vencor approximately
$458,000 for such services due to a decrease in the level of service provided.
The Company or Vencor may agree to increase or decrease the services to be
provided in accordance with the Administrative Services Agreement, if needed.
The Company intends to substantially terminate the Administrative Services
Agreement during 1997.
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Services Agreements and Sublease Agreement. The Company and subsidiaries of
Vencor 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 systems. These Services
Agreements may be canceled 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 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. The Company paid Vencor approximately
$18,000 in rent during 1996.
New Pond Lease. New Pond Village Associates, a partnership owned by
subsidiaries of Vencor ("New Pond"), leases 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 entered into a Guaranty Fee
Agreement prior to completion of the IPO. 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. Pursuant to this
agreement, Vencor has guaranteed for four years borrowings by Atria under the
Credit Facility in amounts up to $100 million in the first year following the
IPO, declining by $25 million each year thereafter. During 1996, the Company
did not incur any costs related to Vencor's guarantee.
Redding Lease. During part of 1996 and 1997 the Company leased certain real
estate in Redding, California from Vencor pursuant to a lease categorized as a
finance lease for financial and tax accounting purposes. The lease had a term
of 99 years, unless earlier terminated. Under the lease, the Company paid $1.00
per year rent and was obligated to pay all ad valorem property taxes,
insurance, and utilities relating to the leased property. The lease also
required Vencor to use its reasonable best efforts to obtain the requisite
approval for the subdivision of a larger parcel of which the leased property
was a part. Upon receipt of such approval in 1997, Vencor conveyed the property
to the Company for $1.00 and the lease terminated.
Registration Rights Agreement. The Company 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 all incidental 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 to limit the number of shares
owned by Vencor included in such registration.
Voting Agreement. Vencor entered into a Voting Agreement pursuant to which it
agrees 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 the IPO 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 period between the
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Company's organization and the sale by the Company of the Common Stock pursuant
to the IPO and income tax deficiencies/refunds resulting from future audit
adjustments. The Company will be required to pay Vencor an amount equal to the
excess of the income tax liability which the Company would have for such 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 is indebted to Vencor in
the amount of $14 million as of both December 31, 1996 and March 31, 1997. The
indebtedness is evidenced by a promissory note in favor of Vencor, bears
interest at a rate equal to the floating prime rate of National City Bank,
Kentucky plus 1.0%, payable quarterly, and the principal amount is due on
August 20, 1997. The promissory note may be prepaid without premium or penalty.
The interest costs incurred by the Company in connection with the promissory
note aggregated $482,000 for 1996. The Company expects that Vencor will extend
the term of the note through the end of 1997.
Additional Capital Contribution by Vencor. In connection with the Credit
Facility, Vencor contributed $4.3 million in cash to the Company before the
completion of the IPO.
Company policy provides that 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. Because Vencor is a principal stockholder of Atria, an inherent
conflict of interest will exist. When 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 members of the Board of Directors and the retention of
independent financial and other advisors. 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.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth at May 31, 1997, certain information with
respect to beneficial ownership of the Common Stock 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF COMMON STOCK
SHARES -----------------
BENEFICIALLY BEFORE AFTER
OWNED(1) OFFERING OFFERING
------------ -------- --------
<S> <C> <C> <C>
Sandra Harden Austin(2)......................... 5,000 * *
William C. Ballard(3)........................... 20,500 * *
Peter J. Grua(4)................................ 7,000 * *
Thomas T. Ladt(5)............................... 15,035 * *
W. Bruce Lunsford(6)............................ 10,060,000 61.1% 44.8%
W. Patrick Mulloy, II(7)........................ 36,515 * *
Andy L. Schoepf(8).............................. 636,487 3.9% 2.8%
R. Gene Smith(4)................................ 65,000 * *
J. Timothy Wesley(4)............................ 6,500 * *
Vencor, Inc.(9)................................. 10,000,000 60.7% 44.5%
All executive officers and directors as a group
(9 persons)(10)................................ 10,852,037 65.9% 48.3%
</TABLE>
- --------
(*)Less than 1%
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares as
to which a person has or shares voting power and/or investment power.
Except as set forth in the accompanying footnotes, the named persons have
sole voting power and sole investment power over the shares shown as
beneficially owned by them.
(2) Represents restricted shares of Common Stock. The restrictions lapse in
two equal annual installments beginning on August 20, 1997.
(3) Includes 7,000 shares held in trust for Mr. Ballard's spouse, 4,000
shares held in trust for his children and 5,000 restricted shares of
Common Stock. Restrictions on restricted shares lapse in two equal annual
installments beginning on August 20, 1997.
(4) Includes 5,000 restricted shares of Common Stock. The restrictions lapse
in two equal annual installments beginning on August 20, 1997.
(5) Includes 35 shares held as custodian for his son and 5,000 restricted
shares of Common Stock. Restrictions on restricted shares lapse in two
equal annual installments beginning on August 20, 1997.
(6) Includes 10,000,000 shares held by Vencor, Inc. Mr. Lunsford is Chairman
of the Board, President and Chief Eexecutive Officer of Vencor, Inc.
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. This amount also
includes 20,000 restricted shares of Common Stock. Restrictions on
restricted shares lapse in two equal annual installments beginning August
20, 1997. Excludes 10,000 shares held in trust for the benefit of his
children. Mr. Lunsford's address is 3300 Providian Center, 400 West
Market Street, Louisville, Kentucky 40202.
(7) Includes 350 shares held jointly with Mr. Mulloy's spouse, 1,360 shares
held by his spouse and 380 shares held as custodian for his minor
children. With respect to the shares held jointly by his spouse, Mr.
Mulloy shares voting and investment power with his spouse. This amount
also includes 30,000 restricted shares of Common Stock. Restrictions on
restricted shares lapse in two equal annual installments beginning on
August 20, 1997.
(8) As part of the American Elderserve acquisition, Mr. Schoepf received
636,487 shares of the Company's Common Stock in April 1997. See "Certain
Transactions--Transactions with Management."
(9) The ownership given for Vencor, Inc. is based on information contained in
the Schedule 13G dated January 28, 1997 filed by Vencor, Inc. with the
Securities and Exchange Commission. The address of Vencor, Inc. is 3300
Providian Center, 400 West Market Street, Louisville, Kentucky 40202.
(10) Includes 80,000 restricted shares of Common Stock. The restrictions on
restricted shares lapse in two equal annual installments beginning on
August 20, 1997.
44
<PAGE>
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, 22,466,487
shares of Common Stock will be issued and outstanding (23,366,487 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 acts 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
Pursuant to the Company's Restated Certificate of Incorporation and the
Amended and Restated By-laws, the Board is divided into three classes. Two
classes of directors consist of three directors each and one class consists of
two 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, that prior to the date that Vencor and its affiliates cease owning at
least a majority of the Company's
45
<PAGE>
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 consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the
46
<PAGE>
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 AGREEMENTs
The Company has granted demand and incidental registration rights to both
Vencor and Andy Schoepf, the Company's Chief Operating Officer, for the
registration under the Securities Act of shares of Common Stock owned by them.
Vencor is permitted four demand registrations. Mr. Schoepf is permitted only
one demand registration once the Company is eligible to register its Common
Stock on Form S-3. The Company will pay the fees and expenses for the demand
registration of Mr. Schoepf and two demand registrations of Vencor, as well as
all incidental registrations, while Vencor and Mr. Schoepf will pay all
underwriting discounts and commissions. The registration rights of Vencor
expire August 20, 2001 and the registration rights of Mr. Schoepf expire April
1, 1999. The registration rights are subject to certain conditions and
limitations, including the right of underwriters to limit the number of shares
included in a registration.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
22,466,487 shares of Common Stock (23,366,487 shares if the Underwriters' over-
allotment option is exercised in full). The 6,000,000 shares sold in this
offering (or a maximum of 6,900,000 shares if the Underwriters' over-allotment
option is exercised in full) will be and the 5,750,000 shares sold in the IPO
are 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 10,716,487 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 or
pursuant to an exemption therefrom, including Rule 144. See "Risk Factors--
Shares Eligible for Future Sale."
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 one year 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
47
<PAGE>
Company at any time during the 90 days preceding a sale by such person, and
who has beneficially owned such shares for at least two years, would be
entitled to sell such shares without regard to the volume limitations
described above.
The Company has registered under the Securities Act 1,250,000 shares of
Common Stock reserved for issuance pursuant to the Company's incentive
compensation programs. At May 31, 1997, there were outstanding options to
purchase 1,059,000 shares of Common Stock. The options become exercisable in
four equal installments beginning one year from the date of grant.
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 90
days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated.
Vencor is entitled to certain rights with respect to the registration for
sale under the Securities Act of 10,000,000 restricted shares of Common Stock,
and Andy L. Schoepf, the Company's Chief Operating Officer, is entitled to
certain rights with respect to the registration for sale under the Securities
Act of 636,487 restricted shares of Common Stock. See "Description of Capital
Stock--Registration Rights Agreements."
48
<PAGE>
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, J.C. Bradford & Co., and
Donaldson, Lufkin & Jenrette Securities Corporation have severally agreed to
purchase from the Company, the following respective numbers of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.................................
J.C. Bradford & Co..............................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
---------
6,000,000
=========
</TABLE>
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 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 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 900,000
additional shares of Common Stock at the 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 6,000,000, 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 6,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Subject to certain exceptions, the Company has agreed not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock for a period of
90 days from the date of this Prospectus without the prior consent of Alex.
Brown & Sons Incorporated. In addition, directors, executive officers and
certain shareholders of the Company, who will own upon the completion of this
offering an aggregate of 10,852,037 shares of Common Stock and options
representing the right to purchase 555,000 shares of Common Stock, have agreed
not to offer, sell, sell short or otherwise dispose of any such shares of
Common Stock beneficially owned by them or any shares issuable upon exercise of
stock options for a period of 90 days from the date of this Prospectus without
the prior written consent of Alex. Brown & Sons Incorporated. See "Shares
Eligible for Future Sale."
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualifying registered market makers on the Nasdaq
Stock Market may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 103 of
49
<PAGE>
Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), during the qualifying period which is two business days before
commencement of sales in this offering. The passive market making transactions
must comply with applicable price and volume limits and be identified as such.
In general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded. Net purchases by a passive
market maker on each day are generally limited to 30.0% of the passive market
maker's average daily trading volume in the Common Stock during a prior period
and must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which
might otherwise prevail, and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of Common Stock on behalf of the Underwriters
for the purchase of fixing or maintaining the price of the Common Stock. A
"syndicate covering transaction" is the bid for or the purchase of the Common
Stock on behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
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.
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 20,500 shares
of Common Stock. Alston & Bird LLP, 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 consolidated 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, and the rules and regulations promulgated
thereunder, with respect to this
50
<PAGE>
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.
The Company is subject to the informational and reporting requirements of the
Exchange Act and, in accordance therewith, is 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.
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.
51
<PAGE>
ATRIA COMMUNITIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements:
Consolidated Statement of Income for the years ended December 31, 1996,
1995 and 1994........................................................... F-3
Consolidated Balance Sheet, December 31, 1996 and 1995................... F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1996, 1995
and 1994................................................................ F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Statement of Income -- for the three months ended
March 31, 1997 and 1996................................................. F-15
Condensed Consolidated Balance Sheet -- March 31, 1997 and December 31,
1996.................................................................... F-16
Condensed Consolidated Statement of Cash Flows -- for the three months
ended March 31, 1997 and 1996........................................... F-17
Notes to Condensed Consolidated Financial Statements..................... F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Atria Communities, Inc.
We have audited the accompanying consolidated balance sheet of Atria
Communities, Inc. (formerly the assisted and independent living businesses of
Vencor, Inc.--see Note 1) as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Atria Communities, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 1, 1997, except
for Note 11 as to which
the date is March 3, 1997
F-2
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $51,846 $47,976 $39,758
------- ------- -------
Salaries, wages and benefits........................ 19,861 17,455 14,638
Supplies............................................ 5,024 4,860 4,023
Rent................................................ 353 383 333
Depreciation and amortization....................... 5,060 5,113 4,541
Non-recurring transactions.......................... 1,050 600 (1,675)
Other operating expenses............................ 10,594 9,465 8,347
------- ------- -------
41,942 37,876 30,207
------- ------- -------
Operating income.................................... 9,904 10,100 9,551
Interest expense.................................... 4,287 4,322 3,538
Investment income................................... (1,439) (147) (330)
------- ------- -------
Income before income taxes and extraordinary loss... 7,056 5,925 6,343
Provision for income taxes.......................... 2,787 2,341 2,506
------- ------- -------
Income before extraordinary loss.................... 4,269 3,584 3,837
Extraordinary loss on extinguishment of debt, net of
income
tax benefit of $93 in 1995......................... - (146) -
------- ------- -------
Net income...................................... $ 4,269 $ 3,438 $ 3,837
======= ======= =======
Earnings per common and common equivalent share:
Income before extraordinary loss................... $ 0.35 $ 0.36
Extraordinary loss on extinguishment of debt, net
of income
tax benefit....................................... - (0.02)
------- -------
Net income...................................... $ 0.35 $ 0.34
======= =======
Shares used in computing earnings per common
and common equivalent share........................ 12,226 10,095
</TABLE>
See accompanying notes.
F-3
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 65,238 $ 2,819
Accounts receivable less allowance for loss of $130--1996
and $89--1995............................................ 574 561
Other..................................................... 985 366
-------- --------
66,797 3,746
Property and equipment, at cost:
Land...................................................... 21,368 20,668
Buildings................................................. 123,707 122,986
Equipment................................................. 11,228 10,510
Construction in progress (estimated cost to complete and
equip after December 31, 1996--$7,000)................... 5,643 73
-------- --------
161,946 154,237
Accumulated depreciation.................................. (27,426) (23,027)
-------- --------
134,520 131,210
Intangible assets less accumulated amortization of $3,599--
1996 and $3,294--1995..................................... 3,353 2,173
Other...................................................... 5,112 3,788
-------- --------
$209,782 $140,917
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 2,536 $ 1,875
Salaries, wages and other compensation.................... 1,163 1,019
Other accrued liabilities................................. 2,686 784
Long-term debt due within one year........................ 14,825 844
-------- --------
21,210 4,522
Long-term debt............................................. 95,207 104,506
Deferred credits and other liabilities..................... 4,419 3,442
Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 5,000 shares:
none issued and outstanding.............................. - -
Common stock, $0.10 par value; authorized 50,000 shares;
issued and
outstanding 15,830 shares................................ 1,583 -
Capital in excess of par value............................ 85,658 -
Retained earnings......................................... 1,705 -
Investments by and advances from Vencor, Inc.............. - 28,447
-------- --------
88,946 28,447
-------- --------
$209,782 $140,917
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENTS
CAPITAL BY AND
COMMON COMMON IN EXCESS ADVANCES
STOCK STOCK OF RETAINED FROM
SHARES PAR VALUE PAR VALUE EARNINGS VENCOR, INC. TOTAL
------ --------- --------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1993................... - $ - $ - $ - $ 34,959 $34,959
Net income............. 3,837 3,837
Net cash payments to
Vencor, Inc........... (6,811) (6,811)
Non-cash transfers to
Vencor, Inc........... (150) (150)
------ ------ ------- ------ -------- -------
Balances, December 31,
1994................... - - - - 31,835 31,835
Net income............. 3,438 3,438
Net cash payments to
Vencor, Inc........... (6,350) (6,350)
Non-cash transfers to
Vencor, Inc........... (476) (476)
------ ------ ------- ------ -------- -------
Balances, December 31,
1995................... - - - - 28,447 28,447
Net income January 1,
through
August 19, 1996....... 2,564 2,564
Net income after August
19, 1996.............. 1,705 1,705
Net cash advances by
Vencor, Inc........... 2,621 2,621
Non-cash transfers from
Vencor, Inc........... 1,646 1,646
Equity contribution
from Vencor, Inc...... 10,000 1,000 34,278 (35,278) -
Net proceeds from
public offering of
common stock.......... 5,750 575 51,234 51,809
Award of restricted
stock................. 80 8 146 154
------ ------ ------- ------ -------- -------
Balances, December 31,
1996................... 15,830 $1,583 $85,658 $1,705 $ - $88,946
====== ====== ======= ====== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 4,269 $ 3,438 $ 3,837
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization.................... 5,060 5,113 4,541
Provision for doubtful accounts.................. 42 79 7
Deferred income taxes............................ 860 (63) 169
Extraordinary loss on extinguishment of debt..... - 239 -
Non-recurring transactions....................... 750 600 (425)
Other............................................ 22 (261) (745)
Changes in operating assets and liabilities:
Accounts receivable............................. (340) (240) (212)
Other assets.................................... 164 234 18
Accounts payable................................ 1,354 53 572
Other accrued liabilities....................... 1,017 (661) (179)
-------- ------- -------
Net cash provided by operating activities...... 13,198 8,531 7,583
-------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (7,389) (4,025) (5,714)
Sale of assets.................................... - - 672
Collection of notes receivable.................... - - 1,800
Net change in partnership investments............. 31 716 (814)
Other............................................. (1,185) 437 54
-------- ------- -------
Net cash used in investing activities.......... (8,543) (2,872) (4,002)
-------- ------- -------
Cash flows from financing activities:
Issuance of long-term debt........................ 23,205 6,806 6,450
Repayment of long-term debt....................... (18,205) (4,659) (3,348)
Payment of deferred financing costs............... (1,816) - -
Public offering of common stock................... 52,097 - -
Equity contribution from Vencor, Inc.............. 4,350 - -
Net payments to Vencor, Inc....................... (1,729) (6,350) (6,811)
Other............................................. (138) (134) (70)
-------- ------- -------
Net cash provided by (used in) financing
activities.................................... 57,764 (4,337) (3,779)
-------- ------- -------
Change in cash and cash equivalents................ 62,419 1,322 (198)
Cash and cash equivalents at beginning of period... 2,819 1,497 1,695
-------- ------- -------
Cash and cash equivalents at end of period......... $ 65,238 $ 2,819 $ 1,497
======== ======= =======
Supplemental information:
Interest payments................................. $ 3,528 $ 4,397 $ 3,667
Income tax payments............................... 2,446 2,310 2,336
Non-cash transaction:
Exchange of note receivable for additional
partnership interest............................ - 4,552 -
</TABLE>
See accompanying notes.
F-6
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
BASIS OF PRESENTATION
Atria Communities, Inc. ("Atria" or the "Company") is a national provider of
assisted and independent living communities for the elderly. At December 31,
1996, Atria operated 21 communities located in 12 states with a total of 2,942
units, including 650 assisted living units and 2,292 independent living units.
In May 1996, the Board of Directors of Vencor, Inc. ("Vencor") authorized
management to establish Atria as a wholly owned subsidiary to operate Vencor's
assisted and independent living business. As part of that transaction,
management consummated an initial public offering (the "IPO") of 5,750,000
shares of Atria's common stock (including 750,000 shares in connection with
the exercise of the underwriters' overallotment option) in the third quarter
of 1996. At December 31, 1996, Vencor owned 10,000,000 shares, or 63.2%, of
Atria's outstanding common stock.
The consolidated financial statements include all subsidiaries. Significant
intercompany transactions have been eliminated.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based upon the estimates and judgments of management. Actual amounts may
differ from these estimates.
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):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Owned and leased facilities............................ $51,568 $47,635 $39,340
Managed facilities..................................... 278 341 418
------- ------- -------
$51,846 $47,976 $39,758
======= ======= =======
</TABLE>
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 based
upon the community's historical experience. 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):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period................................ $ 89 $46 $47
Provision for doubtful accounts............................. 42 79 7
Accounts written off........................................ (1) (36) (8)
---- --- ---
Balance at end of period...................................... $130 $89 $46
==== === ===
</TABLE>
F-7
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED 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 $4.6 million
in 1996, $4.4 million in 1995 and $3.8 million in 1994. Depreciable lives for
buildings range generally from 20 to 45 years. Estimated useful lives of
equipment vary from 5 to 10 years.
During 1996, Atria adopted Financial Accounting Standards Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The provisions of this statement did not have a material
impact on the consolidated 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
Prior to the IPO, Atria's operations were included in Vencor's 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 consolidated financial statements, the provision
for income taxes has been recorded as if Atria were filing separate income tax
returns. Subsequent to the IPO, Atria will file separate federal and state
income tax returns.
MINORITY INTEREST IN CONSOLIDATED ENTITIES
The consolidated 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
Shares used in the computation of earnings per share include 10,000,000
shares of common stock issued to Vencor for its contribution of assets to
Atria and the assumption by Atria of related liabilities, and 95,000 shares of
restricted stock. In addition, for the year ended December 31, 1996, the
computation also gives effect to the 5,750,000 shares issued in connection
with the IPO and the dilution associated with the issuance of common stock
options. Share and per share amounts for periods prior to the IPO are
presented on a pro forma basis.
NOTE 2--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. Results of operations in 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.
F-8
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INCOME TAXES
A summary of provision for income taxes follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current
Federal................................................ $1,634 $2,021 $1,965
State.................................................. 293 383 372
------ ------ ------
1,927 2,404 2,337
Deferred................................................ 860 (63) 169
------ ------ ------
$2,787 $2,341 $2,506
====== ====== ======
Reconciliation of federal statutory rate to effective income tax rate follows:
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit... 3.7 4.0 4.1
Other items, net........................................ 0.8 0.5 0.4
------ ------ ------
Effective income tax rate.............................. 39.5% 39.5% 39.5%
====== ====== ======
</TABLE>
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Depreciation.............................. $ - $3,761 $ - $2,954
Partnerships.............................. 2,040 - 1,908 -
Compensation.............................. 214 198 187 -
Other..................................... 361 223 152 -
------ ------ ------ ------
$2,615 $4,182 $2,247 $2,954
====== ====== ====== ======
</TABLE>
Deferred income taxes totaling $193,000 and $79,000 at December 31, 1996 and
1995, respectively, are included in other current assets. Non-current deferred
income taxes, included principally in deferred credits and other liabilities,
totaled $1,760,000 and $786,000 at December 31, 1996 and 1995, respectively.
NOTE 4--LONG-TERM DEBT
A summary of long-term debt at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Industrial revenue bonds, 5.0% to 6.1% (rates generally
floating, average 5.2%) payable in periodic installments
through 2010................................................ $ 62,115 $ 66,456
Non-interest bearing residential mortgage bonds, payable in
periodic installments through 2040.......................... 33,917 33,344
Collateralized borrowings under Vencor, Inc. bank revolving
credit agreement (floating rates averaging 6.9%)............ - 5,550
Note payable to Vencor, Inc., at prime plus 1%, due August
1997........................................................ 14,000 -
-------- --------
Total debt, average life of 20 years (rates averaging
4.1%)..................................................... 110,032 105,350
Amounts due within one year.................................. 14,825 844
-------- --------
Long-term debt............................................. $ 95,207 $104,506
======== ========
</TABLE>
F-9
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
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-transferable. 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 the Company 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. The consolidated statement of cash flows includes issuances of
resident mortgage bonds aggregating $5.5 million, $4.2 million and $6.5
million in 1996, 1995 and 1994, respectively, and redemptions of such bonds
aggregating $4.7 million, $3.5 million and $2.8 million for each of the
respective years.
Maturities of long-term debt in years 1998 through 2001 are $825,000,
$875,000, $875,000 and $875,000, respectively.
The estimated fair value of Atria's long-term debt was $97.0 million and
$91.8 million at December 31, 1996 and 1995, respectively, compared to
carrying amounts aggregating $110.0 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.
On August 26, 1996, Atria entered into a bank credit facility (the "Credit
Facility") aggregating $200 million (including a letter of credit option not
to exceed $70 million) which has a maturity of four years and may be extended
at the option of the banks for one additional year. The 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 certain leverage ratios. The obligations
under the Credit Facility are secured by substantially all of Atria's
property, the capital stock of its present and future principal subsidiaries
and all intercompany indebtedness owed to Atria by its subsidiaries.
The Credit Facility contains financial covenants and other restrictions that
(i) require Atria to meet certain financial tests, (ii) require that there be
no change of control of Atria, (iii) limit, among other things, the ability of
Atria and certain of its subsidiaries to borrow additional funds, dispose of
certain assets and engage in mergers and other business combinations, (iv)
prohibit distributions to Atria's stockholders and (v) require that Vencor own
at least 30% of Atria's common stock. Vencor has guaranteed for four years
certain borrowings by Atria under the Credit Facility in amounts up to $100
million in the first year following the IPO, declining to $75 million, $50
million and $25 million in each respective year thereafter.
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.
F-10
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--TRANSACTIONS WITH VENCOR
For periods prior to the IPO, certain allocations and estimates have been
made by management in the consolidated financial statements to present the
historical financial position and results of operations of Atria as a separate
entity. Upon consummation of the IPO, Atria became contractually obligated to
pay Vencor for certain centralized management and administrative services
underlying such historical allocations and estimates. The operating results of
Atria include corporate costs and expenses of Vencor aggregating $620,000,
$600,000 and $570,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Management believes that these allocations reasonably reflect
the proportional costs incurred by Vencor on behalf of Atria.
Administrative Services--Vencor provides 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.
Shared Services--Atria and subsidiaries of Vencor share certain costs at
seven communities relating to marketing and certain administrative services.
These agreements may be canceled by either party upon 90 days prior written
notice. Atria will pay a maximum of $150,000 per year for such services.
Guarantees--Vencor guarantees for four years certain borrowings by Atria
under the Credit Facility in amounts up to $100 million in the first year
following the IPO, declining to $75 million, $50 million and $25 million in
each respective year thereafter. Atria will pay to Vencor a fee equal to 1
1/2% of any guaranteed amounts. During 1996, Atria did not incur any costs
related to Vencor's guarantee.
Leases--Atria leases certain properties from Vencor including its
headquarters office space. Rent expense approximated $18,000 in 1996.
Borrowings From Vencor--A subsidiary of Atria is indebted to Vencor in the
amount of $14 million, due August 1997, which bears interest (payable
quarterly) at a rate equal to the floating prime rate of National City Bank,
Kentucky plus 1%. The promissory note may be prepaid without penalty at any
time after six months. Interest costs incurred by Atria in connection with
this note aggregated $482,000 for the year ended December 31, 1996.
Income Taxes--A tax sharing agreement provides 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 paid Vencor $150,000 for Vencor's assistance
provided to Atria in connection with the IPO.
F-11
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--TRANSACTIONS WITH VENCOR (CONTINUED)
Liabilities and Indemnifications--Atria assumed all contractual liabilities
relating to the assets transferred by Vencor to Atria.
In connection with the IPO, all amounts previously classified as investments
by and advances from Vencor were contributed to Atria as part of its permanent
capitalization. In addition, Vencor also contributed approximately $4.3
million in cash to Atria prior to the consummation of the IPO.
NOTE 7--CAPITAL STOCK
PLAN DESCRIPTIONS
Atria's Restated Certificate of Incorporation authorizes 50,000,000 shares
of common stock (par value $0.10 per share) and 5,000,000 shares of preferred
stock (par value $1.00 per share). No preferred stock was issued in 1996.
The accompanying consolidated financial statements are presented as if Atria
had been operated as a separate entity. Accordingly, stockholders' equity
prior to the IPO comprises both investments by and non-interest bearing
advances from Vencor. In connection with the IPO, such amounts have been
classified 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. Options are exercisable in whole or in
part one to four years after grant and ending ten years after grant. The plans
also provide that awards of restricted stock may be distributed to officers,
key employees and certain directors. The initial restricted stock issued in
connection with the IPO will vest one-half annually over a two-year period.
Options granted in 1996 (option price of $10.00 per share) aggregated
639,500, of which 549,500 were outstanding at December 31, 1996. The remaining
contractual life of the options outstanding at December 31, 1996 approximated
10 years. Shares of common stock available for future grants were 700,500 at
December 31, 1996.
STATEMENT NO. 123 DATA
Atria has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement No.
123"), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
Atria's employee stock options is equal to the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, which also requires that the information be
determined as if Atria has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1996: risk-free interest rate of 6.5%; no dividend yield;
expected term of 9 years and a volatility factor of the expected market price
of Atria's common stock of .50. The fair value of options granted in 1996
approximated $6.69 per share.
F-12
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CAPITAL STOCK (CONTINUED)
STATEMENT NO. 123 DATA (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because Atria's employee stock options have characteristics significantly
different from those of traded options, and because the changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma
information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996
------
<S> <C>
Pro forma net income.................................................... $3,929
Pro forma earnings per common share..................................... 0.32
</TABLE>
All stock options outstanding as of December 31, 1996 were granted in
connection with the IPO.
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
$84,000 for 1996, $77,000 for 1995 and $66,000 for 1994. Amounts equal to
retirement plan expense are funded annually.
Atria participates 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):
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Taxes other than income............................................ $ 779 $625
Interest........................................................... 835 70
Due to Vencor...................................................... 257 -
Employee benefits.................................................. 243 77
Income taxes....................................................... 190 -
Professional fees.................................................. 167 9
Other.............................................................. 215 3
------ ----
$2,686 $784
====== ====
</TABLE>
F-13
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FAIR VALUE DATA
A summary of fair value data at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------- ---------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 65,238 $65,238 $ 2,819 $2,819
Long-term debt, including amounts due within
one year..................................... 110,032 96,989 105,350 91,822
</TABLE>
NOTE 11--SUBSEQUENT EVENT
On March 3, 1997, the Company entered into a definitive agreement to acquire
American ElderServe Corporation ("American ElderServe"), an Atlanta based
operator of assisted living communities, for a combination of stock and cash
plus debt assumption valued at approximately $30.5 million. American
ElderServe currently operates 12 assisted living communities consisting of 503
units and also has six additional communities under construction scheduled to
open in 1997.
F-14
<PAGE>
ATRIA COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revenues..................................................... $14,217 $12,611
------- -------
Salaries, wages and benefits................................. 5,660 4,677
Supplies..................................................... 1,290 1,227
Rent......................................................... 39 100
Depreciation and amortization................................ 1,388 1,312
Other operating expenses..................................... 2,786 2,434
------- -------
11,163 9,750
------- -------
Operating income............................................. 3,054 2,861
Interest expense............................................. 1,182 982
Investment income............................................ (753) (48)
------- -------
Income before income taxes................................... 2,625 1,927
Provision for income taxes................................... 1,047 761
------- -------
Net income............................................... $ 1,578 $ 1,166
======= =======
Earnings per common and common equivalent share.............. $ 0.10 $ 0.11
======= =======
Shares used in computing earnings per common and common
equivalent share............................................ 15,987 10,095
</TABLE>
See accompanying notes.
F-15
<PAGE>
ATRIA COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH DECEMBER 31,
31, 1997 1996
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 50,004 $ 65,238
Accounts receivable less allowance for loss of $133--
March 31
and $130--December 31................................. 739 574
Other.................................................. 909 985
-------- --------
51,652 66,797
Property and equipment, at cost........................ 184,588 161,946
Accumulated depreciation............................... (28,625) (27,426)
-------- --------
155,963 134,520
Intangible assets less accumulated amortization of
$3,788--March 31
and $3,599--December 31................................ 3,714 3,353
Other................................................... 5,770 5,112
-------- --------
$217,099 $209,782
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $ 2,553 $ 2,536
Salaries, wages and other compensation................. 1,521 1,163
Other accrued liabilities.............................. 4,320 2,686
Long-term debt due within one year..................... 14,825 14,825
-------- --------
23,219 21,210
Long-term debt.......................................... 98,817 95,207
Deferred credits and other liabilities.................. 4,437 4,419
Stockholders' equity:
Common stock, $.10 par value; authorized 50,000 shares:
issued and outstanding 15,830 shares at March 31 and
December 31........................................... 1,583 1,583
Capital in excess of par value......................... 85,760 85,658
Retained earnings...................................... 3,283 1,705
-------- --------
90,626 88,946
-------- --------
$217,099 $209,782
======== ========
</TABLE>
See accompanying notes.
F-16
<PAGE>
ATRIA COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 1,578 $ 1,166
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 1,388 1,312
Deferred income taxes..................................... - 35
Other..................................................... (42) 31
Changes in operating assets and liabilities:
Accounts receivable...................................... (167) (51)
Other assets............................................. 95 30
Accounts payable......................................... 374 206
Income taxes............................................. 916 761
Other accrued liabilities................................ 834 (65)
-------- -------
Net cash provided by operating activities............... 4,976 3,425
-------- -------
Cash flows from investing activities:
Purchase of property and equipment......................... (11,293) (509)
Acquisition of assisted living communities................. (8,000) -
Other...................................................... (695) (288)
-------- -------
Net cash used in investing activities................... (19,988) (797)
-------- -------
Cash flows from financing activities:
Issuance of long-term debt................................. 868 1,277
Repayment of long-term debt................................ (1,001) (1,069)
Net payments to Vencor, Inc................................ - (1,628)
Other...................................................... (89) (73)
-------- -------
Net cash used in financing activities................... (222) (1,493)
-------- -------
Change in cash and cash equivalents......................... (15,234) 1,135
Cash and cash equivalents at beginning of period............ 65,238 2,819
-------- -------
Cash and cash equivalents at end of period.................. $ 50,004 $ 3,954
======== =======
Supplemental information:
Interest payments.......................................... $ 1,352 $ 617
Income tax payments........................................ 131 761
</TABLE>
See accompanying notes.
F-17
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--REPORTING ENTITY
Atria Communities, Inc. ("Atria" or the "Company") is a national provider of
assisted and independent living communities for the elderly. At March 31,
1997, Atria operated 25 communities located in 13 states with a total of 3,226
units, including 967 assisted living units and 2,259 independent living units.
In May 1996, the Board of Directors of Vencor, Inc. ("Vencor") authorized
management to establish Atria as a wholly owned subsidiary to operate Vencor's
assisted and independent living business. As part of that transaction,
management consummated an initial public offering (the "IPO") of 5,750,000
shares of Atria's common stock (including 750,000 shares in connection with
the exercise of the underwriters' overallotment option) in the third quarter
of 1996. At March 31, 1997, Vencor owned 10,000,000 shares, or 63.2%, of
Atria's outstanding common stock.
NOTE 2--BASIS OF PRESENTATION
For periods prior to the IPO, the accompanying condensed consolidated
financial statements reflect the operations of the assisted and independent
living business of Vencor which were 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 reflect the operations of
Atria as a separate entity for all periods presented.
The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in Atria's annual audited financial
statements. Accordingly, these financial statements should be read in
conjunction with Atria's audited consolidated financial statements for the
year ended December 31, 1996 filed with the Securities and Exchange Commission
on Form 10-K.
The accompanying condensed consolidated financial statements have been
prepared in accordance with Atria's customary accounting practices and have
not been audited. Management believes that the financial information included
herein reflects all adjustments necessary for a fair presentation of interim
results and all such adjustments are of a normal and recurring nature.
NOTE 3--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 for the three months ended March 31, 1997 and 1996 follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Owned and leased facilities.................................... $14,138 $12,544
Managed facilities............................................. 79 67
------- -------
$14,217 $12,611
======= =======
</TABLE>
F-18
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--EARNINGS PER COMMON SHARE
Shares used in the computation of earnings per common share include
10,000,000 shares of common stock issued to Vencor for its contribution of
assets to Atria and the assumption by Atria of related liabilities and shares
of restricted stock issued at the consummation date of the IPO. In addition,
for the three months ended March 31, 1997, the computation also gives effect
to the 5,750,000 shares issued in connection with the IPO and the dilution
associated with the issuance of common stock options. Share and per share
amounts for the periods prior to the IPO are presented on a pro forma basis.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share," which will require Atria to change the current
method of computing earnings per common share and restate all prior periods.
Statement No. 128 is required to be adopted on December 31, 1997 and requires,
among other things, that the calculation of primary earnings per common share
exclude the dilutive effect of common stock options. The change in the
calculation method is not expected to have a material impact on previously
reported earnings per common share.
NOTE 5--SUBSEQUENT EVENT
On April 1, 1997, Atria acquired American ElderServe Corporation ("American
ElderServe"), an operator of assisted living communities, for a combination of
Atria common stock, cash and assumption of debt valued at approximately $30.5
million. At the time of the acquisition, American ElderServe operated 12
assisted living communities consisting of 503 units and also had six
additional facilities under construction containing 345 units scheduled to
open in 1997.
F-19
<PAGE>
[Photograph of Atria Community] [Photograph of Atria Community]
Atria Kachina Point Atria New Pond Village
Sedona, Arizona Walpole, Massachusetts
[RENDERING OF 90-UNIT ATRIA MODEL COMMUNITY]
Atria Model-90 Units
[Photograph of Atria community] [Photograph of Atria community]
Atria Narrows Glen and Atria Atria Villa Campana
Laurel House Tucson, Arizona
Tacoma, Washington
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER 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 DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 13
The Company and its Predecessors.......................................... 14
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Price Range of Common Stock............................................... 15
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 23
Management................................................................ 33
Certain Transactions...................................................... 39
Principal Stockholders.................................................... 44
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 47
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 50
Available Information..................................................... 50
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-----------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,000,000 Shares
LOGO
Common Stock
-------------
PROSPECTUS
-------------
Alex. Brown & Sons
incorporated
J.C. Bradford & Co.
Donaldson, Lufkin & Jenrette
securities corporation
July , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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.
<TABLE>
<S> <C>
Registration Fee................................................ $ 27,313
Legal Fees and Expenses......................................... 150,000
Accounting Fees and Expenses.................................... 50,000
Printing and Engraving Expenses................................. 150,000
Blue Sky Registration Fees and Expenses......................... 5,000
Transfer Agent's Fees........................................... 10,000
NASD Filing Fees................................................ 9,513
Miscellaneous Expenses.......................................... 98,174
--------
Total....................................................... $500,000
========
</TABLE>
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 Corporation 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
<PAGE>
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, if 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 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 standards 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
II-2
<PAGE>
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 Articles 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 Articles 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
On August 23, 1996, Atria issued 10,000,000 shares of its Common Stock to
Vencor, Inc. in consideration of Vencor's contribution to the Company of
substantially all of its assisted and independent living communities. The
shares were acquired by Vencor, Inc. for investment purposes. The shares were
issued without registration under the Securities Act of 1933 (the "Act") in
reliance on the exemption afforded by Section 4(2) thereof.
On April 1, 1997, Atria issued 636,487 shares of its Common Stock to Andy L.
Schoepf in connection with Atria's acquisition of American Elderserve
Corporation. The shares were acquired by Mr. Schoepf for investment purposes.
The shares were issued without registration under the Act in reliance on the
exemption afforded by Section 4(2) thereof.
ITEMS 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) INDEX TO AND DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1 Form of Underwriting Agreement
2 Agreement and Plan of Merger among Atria Communities, Inc., Atria
Communities Southeast, Inc., American ElderServe Corporation, Andy
L. Schoepf, Elizabeth A. Schoepf, and Evely C. Schoepf, dated as of
March 3, 1997. Exhibit 2.1 to the Company's Current Report on Form
8-K dated April 1, 1997 (Comm. File No. 0-21159) is hereby
incorporated by reference
3.1 Restated Certificate of Incorporation. Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Comm. File 333-06907) is hereby
incorporated by reference.
3.2 Amended and Restated Bylaws. Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
4.1 Specimen Common Stock Certificate. Exhibit 4 to the Company's
Registration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.2 Article IV of the Restated Certificate of Incorporation is
included in Exhibit 3.1
4.3 Credit Agreement dated as of August 15, 1996, among (a) Atria
Communities, Inc., as Borrower; (b) the lending institutions
listed in Annex I to the Credit Agreement, as Lenders; (c) PNC
Bank, National Association, as Administrative Agent; (d) PNC
Bank, Kentucky, Inc., as Managing Agent; (e) National City Bank
of Kentucky, as Documentation Agent, and (f) PNC Bank, National
Association, National City Bank of Kentucky, and the Toronto-
Dominion Bank, New York Agency, as Syndication Agent Exhibit 1
to the Company's Current Report on Form 8-K dated August 26,
1996 (Comm. File No. 0-21159) is hereby incorporated by
reference
4.4 Amendment No. 1 to Credit Agreement dated as of January 15, 1997
among Atria Communities, Inc., as borrower, the lending institu-
tions named therein, PNC Bank, National Association, as Adminis-
trative Agent, PNC Bank, Kentucky, Inc., as Managing Agent, and
National City Bank of Kentucky, as Documentation Agent. Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q for the pe-
riod ended March 31, 1997 (Comm. File No. 0-21159) is hereby in-
corporated by reference
4.5 Amendment No. 2 to Credit Agreement dated as of March 27, 1997
among Atria Communities, Inc., as borrower, the lending institu-
tions named therein, PNC Bank, National Association, as Adminis-
trative Agent, PNC Bank Kentucky, Inc., as Managing Agent, and
National City Bank of Kentucky, as Documentation Agent. Exhibit
4.2 to the Company's Quarterly Report on Form 10-Q for the pe-
riod ended March 31, 1997 (Comm. File No. 0-21159) is hereby in-
corporated by reference
4.6 Amendment No. 3 to Credit Agreement dated as of May 27, 1997
among Atria Communities, Inc., as borrower, the lending institu-
tions named therein, PNC Bank, National Association as Adminis-
trative Agent, PNC Bank Kentucky, Inc. as Managing Agent, and
National City Bank of Kentucky, as Documenting Agent
5 Opinion of Greenebaum Doll & McDonald PLLC as to legality of the
securities being registered
10.1 Form of Registration Rights Agreement. Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Comm. File No.
333-06907) is hereby incorporated by reference
10.2 Form of Incorporation Agreement. Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
10.3 Form of Administrative Services Agreement. Exhibit 10.3 to the
Company's Registration Statement on Form S-1 (Comm. File No.
333-06907) is hereby incorporated by reference
10.4 Form of Tax Sharing Agreement. Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
10.5 Form of 1996 Stock Ownership Incentive Plan. Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (Comm. File No.
333-06907) is hereby incorporated by reference
10.6 Form of Non-Employee Directors 1996 Stock Incentive Plan. Ex-
hibit 10.6 to the Company's Registration Statement on Form S-1
(Comm. File No. 333-06907) is hereby incorporated by reference
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. Exhibit 10.7 to the Company's Regis-
tration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
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 Bos-
ton, as Trustee, and Security Pacific National Bank. Exhibit
10.8 to the Company Registration Statement on Form S-1 (Comm.
File No. 333-06907) is hereby incorporated by reference
10.9 Form of Services Agreements relating to Kachina Point, San Mar-
cos, McMillen, Valley Manor, The Greens, Heritage at Wildwood
and Villa Campana. Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Comm. File No. 333-06907) is hereby in-
corporated by reference
10.10 Form of Sublease Agreement. Exhibit 10.10 to the Company's Reg-
istration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
10.11 Form of Voting Agreement. Exhibit 10.11 to the Company's Regis-
tration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
10.12 Form of Redding Lease. Exhibit 10.12 to the Company's Registra-
tion Statement on Form S-1 (Comm. File No. 333-06907) is hereby
incorporated by reference
10.13 Form of New Pond Village Associates Lease. Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (Comm. File No.
333-06907) is hereby incorporated by reference
10.14 Form of Term Promissory Note to Vencor. Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Comm. File No.
333-06907) is hereby incorporated by reference
10.15 Foxhill Village Management Agreement. Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (Comm. File No.
333-06907) is hereby incorporated by reference
10.16 Form of Guaranty Fee Agreement. Exhibit 10.16 to the Company's
Registration Statement on Form S-1 (Comm. File No. 333-06907) is
hereby incorporated by reference
10.17 Security Agreement dated as of August 15, 1996 among Atria Com-
munities, Inc. as an Assignor and the other Assignors named
therein, and PNC Bank, National Association, as Collateral
Agent. Exhibit 2 to the Company's Current Report on Form 8-K
dated August 26, 1996 (Comm. File No. 0-21159) is hereby incor-
porated by reference
10.18 Pledge Agreement dated as of August 15, 1996 among Atria Commu-
nities, Inc. as a Pledgor and the other Pledgors named therein,
and PNC Bank, National Association, as Collateral Agent. Exhibit
3 to the Company's Current Report on Form 8-K dated August 26,
1996 (Comm. File No. 0-21159) is hereby incorporated by refer-
ence
10.19 Parent Guaranty dated as of August 15, 1996 among (a) Atria Com-
munities, Inc., as Borrower, (b) Vencor, Inc., as Parent Guaran-
tor, (c) First Healthcare Corporation, Northwest Healthcare,
Inc., Medisave Pharmacies, Inc., Hillhaven of Central Florida,
Inc., and Nationwide Care, Inc., as Supporting Guarantors, and
(d) PNC Bank, National Association, as Administrative Agent. Ex-
hibit 4 to the Company's Current Report on Form 8-K dated August
26, 1996 (Comm. File No. 0-21159) is hereby incorporated by ref-
erence
10.20 Subsidiary Guaranty dated as of August 15, 1996 between the sub-
sidiaries of Atria Communities, Inc. named therein and PNC Bank,
National Association, as Administrative Agent. Exhibit 5 to the
Company's Current Report on Form 8-K dated August 26, 1996
(Comm. File No. 0-21159) is hereby incorporated by reference
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.21 Future Advance Mortgage, Assignment of Leases and Security
Agreement dated as of August 15, 1996, executed by Atria Commu-
nities, Inc., in favor of PNC Bank, National Association, as
Collateral Agent (Heritage at Wildwood). (Similar forms were
used for other properties. See Annex III to the Credit Facility
Agreement.) Exhibit 6 to the Company's Current Report on Form 8-
K dated August 26, 1996 (Comm. File No. 0-21159) is hereby in-
corporated by reference
10.22 Future Advance Deed of Trust, Fixture Filing, and Assignment of
Leases and Rents and Security Agreement dated as of August 15,
1996, executed by Atria Communities, Inc. in favor of
Transnation Title Insurance Company (Valley Manor). (Similar
forms were used for other properties. See Annex III to the
Credit Facility Agreement). Exhibit 7 to the Company's Current
Report on Form 8-K dated August 26, 1996 (Comm. File No. 0-
21159) is hereby incorporated by reference
10.23 Amendment No. 1 to Security Agreement dated as of March 27, 1997
among Atria Communities, Inc., as Assignor, other original as-
signors named therein, additional assignors named therein, and
PNC Bank, National Association, as Collateral Agent. Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the pe-
riod ended March 31, 1996 (Comm. File No. 0-21159) is hereby in-
corporated by reference
10.24 Amendment No. 1 to Pledge Agreement dated as of March 27, 1997
among Atria Communities, Inc., as Pledgor, other original pled-
gors named therein, additional pledgors named therein, and PNC
Bank, National Association, as Collateral Agent. Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (Comm. File No. 0-21159) is hereby incorporated
by reference
10.25 Amendment No. 1 to Parent Guaranty dated as of March 27, 1997
among Atria Communities, Inc., as Borrower, Vencor, Inc., as
Parent Guarantor, First Healthcare Corporation, Northwest Health
Care, Inc., Medisave Pharmacies, Inc., Nationwide Care, Inc.,
TheraTx, Incorporated, Vencor Hospitals Illinois, Inc., Vencor
Hospitals South, Inc., Vencor Hospitals East, Inc., Vencor Hos-
pitals California, Inc., Vencor Hospitals Texas, Ltd., Bentech
Systems, Inc., Pasatiempo Development Corp., VCI Specialty Serv-
ices, Inc. and Vencor Properties, Inc., as Supporting Guaran-
tors, and PNC Bank, National Association, as Administrative
Agent. Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1997 (Comm. File No.
0-21159) is hereby incorporated by reference
10.26 Amendment No. 1 to Subsidiary Guaranty dated as of March 27,
1997 between the subsidiaries of Atria Communities, Inc. named
therein and PNC Bank, National Association, as Administrative
Agent. Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1997 (Comm. File No. 0-
21159) is hereby incorporated by reference
10.27 Registration Rights Agreement between Atria Communities, Inc.
and Andy L. Schoepf dated as of April 1, 1997. Exhibit 99.1 to
the Company's Current Report on Form 8-K dated April 1, 1997
(Comm. File No. 0-21159) is hereby incorporated by reference
10.28 Development Agreement between Elder Healthcare Developers, LLC
and Atria Communities, Inc. dated as of April 1, 1997. Exhibit
99.2 to the Company's Current Report on Form 8-K dated April 1,
1997 (Comm. File No. 0-21159) is hereby incorporated by refer-
ence
10.29 Operating Agreement of Elder Healthcare Developers, LLC dated as
of April 1, 1997. Exhibit 99.3 to the Company's Current Report
on Form 8-K dated April 1, 1997 (Comm. File No. 0-21159) is
hereby incorporated by reference
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.30 Letter from Vencor, Inc. to Andy L. Schoepf dated April 1, 1997,
agreeing to vote all Vencor, Inc.'s shares of Atria Common Stock
for Mr. Schoepf's nominee for the Board of Directors
10.31 Agreement by and among MedGroup Management, Inc., Atria Communi-
ties Inc., and Atrium at St. Matthews, LLC dated June 3, 1997
11.1 Statement Regarding Computation of Per Share Earnings for Years
Ended December 31, 1996 and 1995
11.2 Statement Regarding Computation of Per Share Earnings for the
Three Months Ended March 31, 1997 and 1996
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Greenebaum Doll & McDonald PLLC (included in Exhibit
5)
24 Power of Attorney (included on Signature Page of the Registra-
tion Statement)
27 Financial Data Schedule (included only in filings under the
Electronic Data Gathering, Analysis, and Retrieval System)
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable
ITEM 17. UNDERTAKINGS
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(h) 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-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, IN THE CITY OF LOUISVILLE, COMMONWEALTH OF KENTUCKY, ON JUNE 5,
1997.
Atria Communities, Inc.
/s/ W. Patrick Mulloy, II
By: _________________________________
W. Patrick Mulloy, II
Chief Executive Officer, President
and Director
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints W. Patrick Mulloy, II, Audra Eckerle,
and J. Timothy Wesley, and each of them such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and stead, in
any and all capacities, to sign all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to the offering contemplated by this Registration Statement that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission and any State
or other regulatory authority, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ W. Bruce Lunsford Chairman of the Board June 5, 1997
____________________________________
W. Bruce Lunsford
/s/ W. Patrick Mulloy, II Chief Executive Officer, June 5, 1997
____________________________________ President and Director
W. Patrick Mulloy, II
/s/ Andy L. Schoepf Chief Operating Officer, and June 5, 1997
____________________________________ Director
Andy L. Schoepf
/s/ J. Timothy Wesley Chief Financial Officer, June 5, 1997
____________________________________ Vice President of
J. Timothy Wesley Development and Secretary
(Chief Financial and
Accounting Officer)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Sandra Harden Austin Director June 5, 1997
____________________________________
Sandra Harden Austin
/s/ William C. Ballard Jr. Director June 5, 1997
____________________________________
William C. Ballard Jr.
/s/ Peter J. Grua Director June 5, 1997
____________________________________
Peter J. Grua
/s/ Thomas T. Ladt Director June 5, 1997
____________________________________
Thomas T. Ladt
/s/ R. Gene Smith Director June 5, 1997
____________________________________
R. Gene Smith
</TABLE>
II-9
<PAGE>
EXHIBIT 1
6,900,000 Shares
ATRIA COMMUNITIES, INC.
Common Stock
($.10 Par Value)
UNDERWRITING AGREEMENT
----------------------
__________, 1997
Alex. Brown & Sons Incorporated
J.C. Bradford & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
1 South 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 6,000,000 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 900,000 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."
<PAGE>
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-________) 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 (defined below) taken as a whole. The
2
<PAGE>
outstanding shares 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
either the Company or a Subsidiary is a general partner, as listed in
Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the
"Partnerships") 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. Each limited liability company of which
either the Company or a Subsidiary is a member, as listed in Exhibit 21 to
Item 16(a) of the Registration Statement (collectively, the "LLCs," and
together with the Corporate Subsidiaries and the Partnerships, the
"Subsidiaries") has been duly organized and is an existing limited
liability company 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 LLCs 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
membership or other ownership interests of each of the LLCs have been made
to the LLCs. To the knowledge of the Company, all
3
<PAGE>
outstanding membership or other ownership interests in the LLCs were issued
and sold in compliance with all applicable Federal and state securities
laws. The membership or other ownership 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
operating agreement pursuant to which the Company or a Subsidiary holds an
interest in an LLC 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, a Partnership in which the Company or a Corporate Subsidiary
owns at least 50% of the outstanding partnership interests or an LLC in
which the Company or a Subsidiary owns at least a 50% membership or other
ownership interest.
(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 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
Partnership, as contained in the applicable partnership agreement, and with
respect to any LLC, as contained in the applicable operating 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 Partnership, as
contained in the applicable partnership agreement, and with respect to any
LLC, as contained in the applicable operating 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
such LLC's membership or other ownership 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 debt
agreements relating to indebtedness disclosed in the Prospectus, to
transfer any of its properties or assets to the Company or any other
Subsidiary.
4
<PAGE>
(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 consolidated 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 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
5
<PAGE>
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, 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, operating
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
6
<PAGE>
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, 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,
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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, or 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
will become, 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" (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,
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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.
(y) The Company's Common Stock, $.10 par value per share, is
registered pursuant to Section 12(g) of the Exchange Act and is listed on
The Nasdaq Stock Market, Inc.'s Nasdaq National Market (the "Nasdaq
National Market"), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from the Nasdaq
National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration or
listing. The Company has filed in a timely manner all reports and other
information required to be filed with the Commission pursuant to the
Exchange Act during the twelve calendar months and any portion of a month
immediately preceding the filing of the Registration Statement (or during
such shorter period of time that the Company has been subject to the
reporting requirements of the Exchange Act). The Company has filed an
application to list the Shares on the Nasdaq National Market, 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
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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, 1 South Street,
Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business
day after the date of this Agreement (or if this Agreement is executed and
delivered after 4:30 p.m., Baltimore, Maryland time, the fourth business
day after the day that this Agreement is executed and delivered) 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, 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
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<PAGE>
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 by
wire transfer of immediately available funds to the order of the Company
against delivery of certificates therefor at the offices of Alex. Brown &
Sons Incorporated, 1 South 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 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 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
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<PAGE>
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.
(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 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.
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<PAGE>
(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 90 days
after the date of this Agreement, directly or indirectly, by the Company
otherwise than (i) hereunder, (ii) pursuant to director and employee
benefit plans, (iii) in connection with the acquisition of property or
assets for up to one million shares, or (iv) with the prior written consent
of Alex. Brown & Sons Incorporated.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(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 90 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.
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<PAGE>
(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
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
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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.
(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 Corporate 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
15
<PAGE>
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 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 held, 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 partnership
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,
except as enforcement thereof may be limited by equitable principles
or by bankruptcy, 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) Each of the LLCs is a validly existing limited liability
company 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 membership or other ownership interests in the
LLCs held directly or indirectly by the Company are held, 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 operating agreement; each operating
agreement pursuant to which the Company or a Subsidiary holds a
membership or other ownership interest in an LLC is in full force and
effect and constitutes the legal, valid and binding agreement of the
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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, 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.
(iv) 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.
(v) 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.
(vi) Except (a) as described in or contemplated by the
Prospectus, (b) with respect to any Partnership, as contained in the
applicable partnership agreement, and (c) with respect to any LLC, as
contained in the applicable operating 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, membership or other ownership
interest in, any Subsidiary.
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(vii) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Act.
(viii) 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 consolidated financial statements and
related schedules).
(ix) 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.
(x) 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.
(xi) Neither the Company nor any of the Subsidiaries is in
violation of its certificate or articles of incorporation or bylaws,
partnership agreement, operating agreement 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.
(xii) 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.
(xiii) 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
18
<PAGE>
a default under, the certificate or articles or by-laws of the Company
or the certificate or articles or bylaws, partnership agreement,
operating agreement or other organizational document of 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 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.
(xiv) This Agreement has been duly authorized, executed and
delivered by the Company.
(xv) 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.
(xvi) 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.
(xvii) 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.
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
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<PAGE>
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 Audra J. Eckerle,
Esq., Vice President and General Counsel of Atria Communities, 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:
(i) To such counsel's knowledge, the Company and each of the
Subsidiaries has 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 under such federal and state health care
laws as are applicable to the Company and the Subsidiaries, and no
event has occurred 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 LLP,
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,
20
<PAGE>
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 LLP 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 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
Registrations 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;
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<PAGE>
(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 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.
(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 LLP, 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.
---------------------------------------------
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<PAGE>
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 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
23
<PAGE>
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 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
24
<PAGE>
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 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
25
<PAGE>
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 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
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<PAGE>
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 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, 1 South Street, Baltimore, Maryland 21202,
Attention: Mr. Steven Schuh; with a copy to Alex. Brown & Sons
Incorporated, 1 South 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
27
<PAGE>
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
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 National 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)
28
<PAGE>
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.
29
<PAGE>
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
J.C. BRADFORD & CO.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:
--------------------------------
Authorized Officer
30
<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
Alex. Brown & Sons Incorporated
J.C. Bradford & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
TOTAL UNDERWRITERS (__) 6,000,000
31
<PAGE>
Exhibit 4.6
================================================================================
ATRIA COMMUNITIES, INC.
as Borrower
And
THE LENDERS NAMED HEREIN
as Lenders
And
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent
PNC BANK, KENTUCKY, INC.
as Managing Agent
NATIONAL CITY BANK OF KENTUCKY
as Documentation Agent
_____________________
AMENDMENT NO. 3
dated as of
May 27, 1997
to
CREDIT AGREEMENT
dated as of
August 15, 1996
_____________________
================================================================================
<PAGE>
AMENDMENT NO. 3 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT, dated as of May 27, 1997, among
ATRIA COMMUNITIES, INC., a Delaware corporation (herein, together with its
successors and assigns, the "Borrower"); the Lenders who have executed this
Amendment as indicated by their signatures on the signature pages hereof,
constituting all of the Lenders party to the Credit Agreement referred to herein
(the "Lenders"); PNC BANK, NATIONAL ASSOCIATION, a national banking association,
as administrative agent (the "Administrative Agent") for the Lenders under the
Credit Agreement (hereafter defined); PNC BANK, KENTUCKY, INC., a Kentucky
banking corporation, as managing agent (the "Managing Agent") for the Lenders
under the Credit Agreement; and NATIONAL CITY BANK OF KENTUCKY, a national
banking association, as documentation agent (the "Documentation Agent") for the
Lenders under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, and the Agents party hereto
entered into the Credit Agreement, dated as of August 15, 1996, Amendment No. 1
to Credit Agreement, dated as of January 15, 1997, and Amendment No. 2 to Credit
Agreement, dated as of March 27, 1997 (as so amended, the "Credit Agreement";
with the terms defined therein, or the definitions of which are incorporated
therein, being used herein as so defined).
(2) The Borrower, such Agents and the Lenders party hereto desire to amend
certain of the terms and provisions of the Credit Agreement, all as more fully
set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT.
Effective on the Effective Date (as hereinafter defined), the Pricing Grid
which appears in section 1.8(h) of the Credit Agreement is replaced with the
following:
PRICING GRID
<TABLE>
<CAPTION>
=====================================================================================================================
Applicable DPP Base Applicable DPP
Leverage Ratio Rate Margin Eurodollar Margin
<S> <C> <C>
less than or equal to 2.00 to 1.00 0% 3/4 of 1%
greater than 2.00 to 1.00 but less than or equal to 2.25 to 1.00 0% 7/8 of 1%
greater than 2.25 to 1.00 but less than or equal to 2.50 to 1.00 0% 1%
greater than 2.50 to 1.00 but less than or equal to 2.75 to 1.00 1/8 of 1% 1+1/8%
greater than 2.75 to 1.00 but less than or equal to 3.00 to 1.00 1/4 of 1% 1+1/4%
greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 1/2 of 1% 1+1/2%
greater than 3.50 to 1.00 but less than or equal to 4.00 to 1.00 3/4 of 1% 1+3/4%
greater than 4.00 to 1.00 1% 2%
=====================================================================================================================
</TABLE>
<PAGE>
SECTION 2. AMENDMENTS TO OTHER CREDIT DOCUMENTS.
2.1. Parent Guaranty. On the Effective Date, the Credit Parties named
therein and the Administrative Agent shall enter into Amendment No. 2 to Parent
Guaranty, substantially in the form attached hereto as Exhibit A ("Amendment No.
2 to Parent Guaranty").
2.2. Consent to Amendments. The Lenders party hereto and the Agents party
hereto hereby consent to the execution and delivery of Amendment No. 2 to Parent
Guaranty, and to the amendments effected thereby.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
3.1. Current Financial Statements. The Borrower has delivered to the
Administrative Agent and each Lender prior to the execution of this Amendment
true, correct and complete copies of (i) the audited consolidated financial
statements of the Borrower and its consolidated subsidiaries for the fiscal year
ended December 31, 1996, and (ii) the unaudited condensed consolidated financial
statements of the Borrower and its consolidated subsidiaries for the fiscal
quarter ended March 31, 1997. Such consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied (except as noted therein), and fairly present the
consolidated financial condition of the Borrower and its consolidated
subsidiaries at such dates and the consolidated results of their operations and
cash flows for the periods then ended, subject in the case of such unaudited
financial statements to normal audit adjustments which are not expected to be
material.
3.2. Amendment of Parent Credit Agreement. The Borrower has delivered to
the Managing Agent and the Documentation Agent prior to the execution of this
Amendment true, correct and complete copies of a proposed Amended and Restated
Credit Agreement, amending (and/or restating) the Parent's Credit Agreement,
dated as of March 17, 1997, among the Parent, as Borrower, the Banks referred to
therein, the Swingline Bank referred to therein, the LC Issuing Banks referred
to therein, Morgan Guaranty Trust Company of New York, as Documentation Agent
and Collateral Agent, and NationsBank, N.A., as Administrative Agent, providing,
among other things, for an increase in the credit facilities thereunder to
$2,000,000,000.
3.3. Authorization, Validity and Binding Effect. This Amendment has been
duly authorized by all necessary corporate action on the part of the Borrower,
has been duly executed and delivered by a duly authorized officer or officers of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms.
3.4. Representations and Warranties True and Correct. The representations
and warranties of the Borrower contained in the Credit Agreement, as amended
hereby, are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent that such representations and
warranties expressly relate to a specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct when
made.
3.5. No Event of Default, etc. No condition or event has occurred or
exists which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
3.6. Compliance. The Borrower is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby, and the other
Credit Documents to which it is a party.
2
<PAGE>
SECTION 4. RATIFICATIONS.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 5. BINDING EFFECT.
This Amendment shall become effective if and when, on a date (the
"Effective Date") on or prior to June 15, 1997, the following conditions shall
have been satisfied:
(a) this Amendment shall have been executed by the Borrower, the
Administrative Agent, the Managing Agent and the Documentation Agent, and
counterparts hereof as so executed shall have been delivered to the
Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have been
executed by the Credit Parties named therein, and counterparts thereof as
so executed shall have been delivered to the Administrative Agent;
(c) the Administrative Agent shall have been notified by all of the
Lenders that such Lenders have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution);
(d) Amendment No. 2 to Parent Guaranty shall have been duly executed
and delivered and shall be in full force and effect; and
(e) the amendment to the Parent's Credit Agreement referred to in
section 3.2 shall have become effective in accordance with its terms;
and thereafter this Amendment shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent, the Managing Agent, the Documentation
Agent and each Lender and their respective permitted successors and assigns.
After this Amendment becomes effective, the Managing Agent will promptly furnish
a copy of this Amendment to each Lender and the Borrower and confirm the
specific Effective Date hereof.
SECTION 6. MISCELLANEOUS.
6.1. Survival of Representations and Warranties. All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and no investigation by any Agent or any Lender or any
subsequent Loan or other Credit Event shall affect the representations and
warranties or the right of any Agent or any Lender to rely upon them.
6.2. Reference to Credit Agreement. The Credit Agreement and any and all
other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
6.3. Expenses. As provided in the Credit Agreement, but without limiting
any terms or provisions thereof, the Borrower agrees to pay on demand all costs
and expenses incurred by the Administrative Agent, the Managing Agent or the
Documentation Agent in connection with the preparation, negotiation, and
execution of this Amendment, including without limitation the costs and fees of
the Documentation Agent's and the
3
<PAGE>
Administrative Agent's special legal counsel, regardless of whether this
Amendment becomes effective in accordance with the terms hereof, and all costs
and expenses incurred by the Administrative Agent, the Managing Agent, the
Documentation Agent or any Lender in connection with the enforcement or
preservation of any rights under the Credit Agreement, as amended hereby.
6.4. Severability. Any term or provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
6.5. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
6.6. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.7. Entire Agreement. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
6.8. Counterparts. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
[The balance of this page is intentionally blank.]
4
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as
of the date first above written.
ATRIA COMMUNITIES, INC. THE BANK OF NEW YORK
By: /s/ J. Timothy Wesley By: /s/ Edward Dougherty
------------------------------ --------------------------
Chief Financial Officer and Vice President
Vice President of Development
PNC BANK, NATIONAL ASSOCIATION, THE CHASE MANHATTAN BANK
individually and as
Administrative Agent
By: /s/ Justin Falgione By: /s/ Dawn Lee-Lum
------------------------------ --------------------------
Vice President Vice President
NATIONAL CITY BANK OF KENTUCKY, MORGAN GUARANTY TRUST COMPANY OF
individually and as NEW YORK
Documentation Agent
By:/s/ DeRoy Scott By: /s/ Diana H. Imhof
------------------------------ --------------------------
Vice President Vice President
PNC BANK, KENTUCKY, INC., AMSOUTH BANK OF ALABAMA
individually and as
Managing Agent
By: /s/ Benjamin A. Willingham By: /s/ Ken DiSatta
------------------------------ --------------------------
Vice President Vice President
THE TORONTO-DOMINION BANK U.S BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: /s/ Jimmy Simien By: /s/ Arnold Conrad
------------------------------ --------------------------
Mgr. Credit Administration Vice President
BANK ONE, KENTUCKY, NA FIRST AMERICAN NATIONAL BANK
By:/s/ Dennis P. Heishman By: /s/ Kent Wood
------------------------------ --------------------------
Senior Vice President Assistant Vice President
NATIONSBANK, N.A. KEYBANK NATIONAL ASSOCIATION
By: /s/ Kevin Wagley By: /s/ Mark Mullen
------------------------------ --------------------------
Vice President Assistant Vice President
FLEET NATIONAL BANK
By: /s/ Ginger Stolzenthaler
------------------------------
Vice President
5
<PAGE>
EXHIBIT 5
June 5, 1997
ATRIA COMMUNITIES, INC.
Providian Center
515 West Market Street
Louisville, KY 40202
Ladies and Gentlemen:
We have acted as legal counsel in connection with preparation of a
Registration Statement on Form S-1 under the Securities Act of 1993, as amended
(the "Registration Statement"), covering an aggregate of 6,900,000 shares
(including 900,000 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
<PAGE>
EXHIBIT 10.30
[VENCOR LETTERHEAD]
April 1, 1997
Mr. Andy L. Schoepf
5907 Basswood Cove
Buford, Ga 30518
Dear Mr. Schoepf:
As an inducement to you to consummate the merger ("Merger") of American
ElderServe Corporation into Atria Communities Southeast, Inc., Atria agreed to
cause a nominee selected by you to be included in the slate of board of director
candidates recommended for election by management at each annual meeting of
stockholders of Atria held after the Merger until such time that you are the
beneficial owners of fewer than 400,000 shares of Atria's common stock, $.10 par
value per share (the "Atria Shares").
Vencor, Inc. ("Vencor") is currently a substantial shareholder of Atria and
desires that the Merger be consummated. As further inducement to you to
consummate the Merger, Vencor hereby covenants and agrees that it will vote all
of its Atria Shares in favor of the election of your nominee to Atria's board of
directors until such time that you beneficially own fewer than 400,000 Atria
Shares.
Sincerely yours,
VENCOR, INC.
/s/ W. Bruce Lunsford
W. Bruce Lunsford
President and Chief Executive Officer
cc: Jill L. Force, Esq.
W. Patrick Mulloy, II
J. Timothy Wesley
<PAGE>
EXHIBIT 10.31
AGREEMENT
---------
AGREEMENT dated as of June 3, 1997, by and among MEDGROUP MANAGEMENT, INC.,
a Kentucky corporation ("MMI"), ATRIA COMMUNITIES, INC., a Kentucky corporation
("Atria"), and Atrium at St. Matthews, LLC a Kentucky limited liability company
("Atrium").
WITNESSETH:
WHEREAS, by means of Articles of Organization, filed with the Commonwealth
of Kentucky on March 5, 1997, MMI and Atria formed Atrium under the limited
liability company laws of the Commonwealth of Kentucky, and became initial
Members thereof; and,
WHEREAS, MMI and Atria, as initial Members of Atrium, have authorized,
approved and promulgated an Operating Agreement for Atrium, on even date
herewith, which includes provisions covering, among other items, initial
contributions to Atrium, management of the entity, events resulting in
dissociation, and procedures for dissolution; and,
WHEREAS, certain agreements reached between MMI and Atria, as accepted and
acknowledged by Atrium, in regard to mortgage financing to be supplied to Atrium
by Atria, and certain rights of first refusal granted by Atria to MMI, affect
Atrium and/or the relationship between MMI and Atria, but are not appropriately
cited in said Operating Agreement, or in a certain Management Agreement,
executed by and between Atrium and Atria on even date herewith; and,
WHEREAS, MMI, Atria and Atrium desire to formalize these other agreements.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, covenants, and conditions herein contained, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
1. Financing for the Atrium Project. Thirty (30) days after the Effective
Date hereof, which is also the effective date of the Operating Agreement for
Atrium, Atria agrees to provide mortgage financing to Atrium, in an amount of
$4,160,000; this amount representing the difference between the consideration
contributed by both MMI and Atria as their initial Capital Contributions to
Atrium, as set forth in Exhibit A to the Operating Agreement, and the
anticipated total costs of the project of $5,200,000 being undertaken by Atrium,
located at Hubbards Lane, Louisville, Kentucky, which will include 70 units of
assisted living facility, as described in more detail in Exhibit I hereto (the
"Project"). Such mortgage financing will be upon such terms, conditions and
provisions as are mutually
Page 1
<PAGE>
acceptable to Atrium, MMI, and Atria; provided, however, the interest rate
charged by Atria to Atrium for the permanent mortgage financing shall be equal
to Twenty-Five (25) basis points, in excess of Atria's cost of funds (the "Cost
of Funds") (i.e., the amount Atria pays pursuant to its $200,000,000 Credit
Facility Agreement dated August 15, 1996 by among Atria, as Borrower, and the
lending institution named therein, PNC Bank as Administrative Agent, as the same
may be amended from time to time. Atria's Cost of Funds shall include interest
paid by Atria under the Credit Facility Agreement and the guaranty fee (the
"Guaranty Fee") paid by Atria to Vencor, Inc., at the rate of 1-1/2% per annum
on the unpaid principal balance directly advanced for the construction of the
Project within the development pool (the "Development Pool") under the Credit
Facility Agreement, until construction of the Project has been completed and the
Project has been placed in the mature property pool (the "Mature Property Pool")
under the Credit Facility Agreement, at which time Atria's obligation to pay the
Guaranty Fee to Vencor, Inc. shall automatically cease and terminate. As of the
execution of this Agreement, Atria's Cost of Funds is currently 7.1562%. The
parties also acknowledge that, pursuant to this Credit Facility Agreement, a
mortgage must be given on the real estate associated with the Project, and
Atrium must guarantee said Credit Facility. Other than the initial mortgage
financing for the Atrium Project as referenced above, and any other additional
financing, including additional financing necessary to fund operating losses
incurred by the Project during its first two years of operation, shall not
exceed $500,000. Any other additional or subsequent financing for Atrium or the
Project shall require unanimous written consent of MMI and Atria.
2. Exclusive Option and Territory. MMI shall have the exclusive right by
way of execution of a right of first refusal agreement between MMI and Atria,
within forty-five (45) days after receipt of a written notice from Atria, to
become the sole participant with Atria in any and every other, future assisted
living projects and facilities (similar in concept to Atrium), in which Atria
may become involved hereafter, from the date of the execution of the Agreement,
that may be sited in Louisville and Jefferson County, Kentucky; Lexington and
Fayette County, Kentucky; Elizabethtown and Hardin County, Kentucky; Southern
Indiana, including, but not limited to, Clark, Floyd, Washington and Scott
Counties; and including all contiguous areas within a fifty (50) mile radius
from each of such locations. It is understood that, in the event that MMI shall
fail to exercise its exclusive right to participate in any given assisted living
project with Atria, Atria has the right to pursue said project, either alone or
with any third party. MMI shall, nevertheless, have a continuing right to
exercise the exclusive option to participate, granted herein, in regard to the
ownership of any other facilities or projects as Atria may suggest that are
located at the sites referred to above in this Section. It is specifically
understood and agreed by the parties that if MMI does exercise its right of
first refusal described above, MMI shall be permitted to purchase, at inception,
a minimum equity interest of ten percent (10%) in any such future Atria
project(s) and facility(ies) and exercises its option right, or in an entity to
be organized for such a project, up to a maximum of forty percent (40%). The
purchase price for MMI's interest shall be, on a pro rata basis, equal to the
purchase price for the other participants in the
Page 2
<PAGE>
project. The parties agree that the same forms of operating and management
agreements will be utilized in all future projects, unless modified by all of
the parties hereto. All future projects and facility(ies) in which MMI exercises
its exclusive right of first refusal shall be financed upon the same terms as
contained herein and that the LLC which shall owns such future project(s) and
facility(ies) shall issue a mortgage and a guarantee as required by Atrium
hereunder.
Notwithstanding anything to the contrary hereinabove expressed, MMI shall
not have an exclusive option to become a participant with Atria in, nor shall
Atria be precluded from being involved with, any future project to be
constructed on the campus or the contiguous expansion of the campus of, or on
any property currently owned by, any other health care organization in any
geographical area, , including without limitation, those listed above.
3. Termination. Any of the parties hereto may terminate this
Agreement if the other party or parties fail to perform their undertakings, set
forth above, provided that the party desiring to terminate shall give the other
party or parties written notice specifying the failure to perform and an
opportunity to cure within thirty (30) days of notice. If the failure of
performance is not cured, or good faith, diligent effort to cure said failure of
performance is not commenced within said notice period, then this Agreement
shall terminate at the end of the notice period.
4. Put Option. MMI shall have the right, at its sole option, to put and
tender its interest in Atrium to Atria at anytime. Notice of MMI's election to
put its interest to Atria must be given in writing as set forth in Section 6(g)
herein. The purchase price that Atria must pay for MMI's interest in Atrium
shall be forty-percent (40%) of the fair market value ("Fair Market Value") of
the Project less its unpaid principal balance ("Unpaid Principal Balance"), or
forty-percent (40%) of the equity ("Equity") in the Project. For the purpose
of this Section, the terms "Fair Market Value", Unpaid Principal Balance, and
"Equity" shall mean as follows:
(a) Fair Market Value. The term "Fair Market Value" shall be determined
by an independent MAI qualified appraiser selected by mutual agreement
of MMI and Atria. In the event MMI and Atria are unable to agree on
an appraiser, then each shall select their own appraiser to determine
fair market value. Should the difference on the fair market value by
the two appraisers be less than 20% of the higher of the two
appraisals, then the two appraisals will be averaged to determine fair
market value. If the difference between the two appraisals exceed 20%
of the highest appraisal, then the two appraisers shall select a third
independent MAI qualified appraiser and the three appraisals shall be
averaged to determine fair market value.
Page 3
<PAGE>
(b) Unpaid Principal Balance. The term "Unpaid Principal Balance" shall
mean the initial mortgage financing on the Project of $4,160,000,
reduced by principal payments of $208,000 on an annualized basis and
$17,333 on a monthly basis over a 20 year period. For example, at the
end of 5 years the Unpaid Principal Balance would be $3,120,000. The
Unpaid Principal Balance shall also include any additional financing
permitted and approved under the terms of this Agreement.
(c) Equity. The term "Equity" shall mean the difference between the Fair
Market Value of the Project and the Unpaid Principal Balance.
(d) Example. Should MMI put its interest in Atrium to Atria after a 5
year period, MMI would be entitled to receive $2,752,000 as computed
below:
<TABLE>
<CAPTION>
<S> <C>
Fair Market Value (as determined by appraisal process) $10,000,000
Unpaid Principal Balance 3,120,000
-----------
Equity in Project $ 6,880,000
MMI Pro Rata Percentage 40%
PUT PURCHASE PRICE $ 2,752,000
</TABLE>
5. Assignment. Neither party may assign its interest, nor delegate the
performance of its obligations under this Agreement without obtaining the prior
written consent of the other party.
6. Provision of Medical and Other Healthcare Services to Project.
Atria shall manage and provide all services at the facility that constitute
assistance with activities of daily living, in accordance with the management
agreement (the "Management Agreement") which is attached hereto and incorporated
here and by reference, in its entirety, and marked Exhibit "A". Atria and MMI
jointly shall agree on the operation of the wellness clinic to be developed at
the facility. With respect to any healthcare services that involve third party
reimbursement of any kind and which require a CON, MMI, an affiliate of Jewish
Hospital Healthcare Services, Inc. and any of MMI's other affiliates, shall be
the provider of those services at the facility to the extent legally and
practicably possible. Atria and MMI shall enter into agreements which properly
reflect the intent set forth herein.
7. Miscellaneous
Page 4
<PAGE>
(a) Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement, shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that
provision or of any other provision of this Agreement by that party or
any other party.
(b) Governing Law. This Agreement shall in all respects be subject
to, and governed by, the internal laws of the Commonwealth of
Kentucky.
(c) Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or
enforceability of any other provision and this Agreement shall be
construed in all respects as if such invalid or unenforceable
provision had never been in the Agreement.
(d) Amendments. This Agreement may be amended at any time by mutual
consent of the parties, with any such amendment to be invalid unless
executed in writing by both parties.
(e) Entire Agreement. This Agreement contains the entire agreement
and understanding by and among Atria, MMI and Atrium, as appropriate,
with respect to mortgage financing for the Project and rights of first
refusal regarding participation in future Atria ventures, and no
representations, promises, agreements, or understandings, written or
oral, relating to the said financing covenants and/or rights of first
refusal provided by Atria to MMI and/or Atrium not contained in this
Agreement shall be of any force or effect.
(f) Headings. The various headings in this Agreement are inserted for
convenience only and are not to be used in interpreting the Agreement.
(g) Notices. All notices and other communications shall be in
writing, shall be given either by personal delivery or by telex,
facsimile, courier or telegraph or sent by registered or certified
mail, return receipt requested. All notices and other communications
shall be deemed given when actually received by a party. Notice shall
be directed to a party at its address set forth below or such other
address as shall be given in accordance with this Section:
Page 5
<PAGE>
(i) If to Atria:
W. Patrick Mulloy, II
President & CEO
515 West Market Street
Louisville, KY 40202
or to such other address as Atria may from time to time
designate, by notice to the other parties;
(ii) If to Atrium:
W. Patrick Mulloy, II
President & CEO
515 West Market Street
Louisville, KY 40202
or to such other address as Atrium may from time to time
designate, by notice to Atria and MMI;
(iii) If to MMI:
Ronald Greenberg, Sr. Vice President
Jewish Hospital HealthCare Services, Inc.
217 East Chestnut Street
Louisville, KY 40202
cc: James S. Goldberg
Steven A. Goodman
Goldberg & Simpson, P.S.C.
3000 National City Tower
Louisville, KY 40202
or to such other address as MMI may from time to time designate,
by notice to the other parties.
IN WITNESS WHEREOF, the MMI, Atrium and Atria have duly executed this
Agreement as of the day and year first above written.
Page 6
<PAGE>
ATRIA COMMUNITIES, INC.
BY: /s/ W. Patrick Mulloy, II
--------------------------------------
TITLE: President & Chief Executive Officer
-----------------------------------
MEDGROUP MANAGEMENT, INC.
BY: /s/ Ronald Greenberg
--------------------------------------
TITLE: Vice President
-----------------------------------
ATRIUM AT ST. MATHEWS, LLC
------------------------------------------
BY: /s/ W. Patrick Mulloy, II
--------------------------------------
TITLE: President & Chief Executive Officer
-----------------------------------
Page 7
<PAGE>
EXHIBIT A
---------
BOOK VALUE OF CAPITAL CONTRIBUTIONS
-----------------------------------
___________________, 1997
<TABLE>
<CAPTION>
Membership
Member Capital Contributions Date Interest
- ------ -------------------------- --------
<S> <C> <C>
Medgroup Management, Inc. $ 416,000 40%
Atria Communities, Inc. 624,000 60%
TOTAL: $1,040,000
----------
</TABLE>
Page 8
<PAGE>
EXHIBIT 11.1
ATRIA COMMUNITIES, INC.
COMPUTATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Earnings:
Income before extraordinary loss................................ $4,269 $3,584
Extraordinary loss on extinguishment of debt,
net of income tax benefit...................................... - (146)
------ ------
Net income..................................................... $4,269 $3,438
====== ======
Shares used in the computation(a):
Weighted average common shares outstanding(b)................... 12,140 10,095
Dilutive effect of common stock equivalents consisting of
common stock options........................................... 86 -
------ ------
Shares used in computing earnings per common
and common equivalent shares.................................. 12,226 10,095
====== ======
Earnings per common and common equivalent share(a):
Income before extraordinary loss................................ $ 0.35 $ 0.36
Extraordinary loss on extinguishment of debt.................... - (0.02)
------ ------
Net income..................................................... $ 0.35 $ 0.34
====== ======
</TABLE>
- --------
(a) Share and per share amounts for periods prior to the IPO are presented on a
pro forma basis.
(b) Reflects the issuance of 10,000,000 shares of Atria common stock to Vencor
in exchange for its contribution of assets to Atria and assumption by Atria
of related liabilities, and issuance of 95,000 shares of restricted stock.
In addition, the 1996 amounts also give effect to the 5,750,000 shares
issued in connection with the IPO.
<PAGE>
EXHIBIT 11.2
ATRIA COMMUNITIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Net income................................................... $ 1,578 $ 1,166
======= =======
Shares used in the computation (a):
Weighted average common shares outstanding................. 15,830 10,095
Dilutive effect of common stock equivalents................ 157 -
------- -------
Shares used in computing earnings per common and common
equivalent share......................................... 15,987 10,095
======= =======
Primary earnings per common and common equivalent share (a).. $ 0.10 $ 0.11
======= =======
FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Net income................................................... $ 1,578 $ 1,166
======= =======
Shares used in the computation (a):
Weighted average common shares outstanding................. 15,830 10,095
Dilutive effect of common stock equivalents................ 157 -
------- -------
Shares used in computing earnings per common and common
equivalent share......................................... 15,987 10,095
======= =======
Fully diluted earnings per common and common
equivalent share (a)....................................... $ 0.10 $ 0.11
======= =======
</TABLE>
- ------------------
(a) Share and per share amounts for periods prior to the IPO are presented on a
pro forma basis.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Castle Gardens Retirement Center, an Oregon general partnership
Evergreen Woods, Ltd., a Florida limited partnership
Hillcrest Retirement Center, Ltd., an Oregon limited partnership
Lancana Partners, Ltd., a Florida limited partnership
San Marcos Retirement Village, a California general partnership
Sandy Retirement Center Limited Partnership, an Oregon limited partnership
Topeka Retirement Center, Ltd. Limited Partnership, a Missouri limited
partnership
Tucson Retirement Center Limited Partnership, an Oregon limited partnership
Twenty-Nine Hundred Associates, Ltd., a Florida limited partnership
Woodhaven Partners, Ltd., a Florida limited partnership
Plantation South on Cypresswood Limited Partnership, a Texas limited partnership
Roswell ALC Limited Partnership, a Georgia limited partnership
Germantown Assisted Living Center, L.P., a Tennessee limited partnership
Atrium at Buckhead, LLC, a Georgia limited liability company
Atrium at Weston Place, LLC, a Tennessee limited liability company
Atrium at Weston Court, LLC, a Tennessee limited liability company
Atrium at Germantown, LLC, a Tennessee limited liability company
Atrium at St. Matthews, LLC, a Kentucky limited liability company
Elder Healthcare Developers, LLC, a Georgia limited liability company
Hillhaven Properties, Ltd. an Oregon corporation
Fairview Living Centers, Inc., an Oregon corporation
Twenty-Nine Hundred Corporation, a Florida corporation
Phillippe Enterprises, Inc., an Indiana corporation
Atria Communities Southeast, Inc., a Delaware Corporation
American ElderServe of Alabama, Inc., a Georgia corporation
American ElderServe of Texas, Inc., a Texas corporation
Southern Care, Inc., a Georgia corporation
Southeast Assisted Living Residences, Inc., a Georgia corporation
American ElderServe of North Carolina, Inc., a North Carolina corporation
American ElderServe of Florida, Inc., a Florida corporation
American ElderServe Management, Inc., a Georgia Corporation
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 1, 1997, except for Note 11 as to which the date is March 3, 1997, in
the Registration Statement [Form S-1] and related Prospectus of Atria
Communities, Inc. for the registration of 6,000,000 shares of its common stock.
/S/ Ernst & Young LLP
Louisville, Kentucky
June 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM ATRIA COMMUNITIES,
INC.'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 50,004
<SECURITIES> 0
<RECEIVABLES> 739
<ALLOWANCES> (133)
<INVENTORY> 132
<CURRENT-ASSETS> 51,652
<PP&E> 184,588
<DEPRECIATION> (28,625)
<TOTAL-ASSETS> 217,099
<CURRENT-LIABILITIES> 23,219
<BONDS> 98,817
0
0
<COMMON> 1,583
<OTHER-SE> 89,043
<TOTAL-LIABILITY-AND-EQUITY> 217,099
<SALES> 0
<TOTAL-REVENUES> 14,217
<CGS> 0
<TOTAL-COSTS> 6,989
<OTHER-EXPENSES> 2,777
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 1,182
<INCOME-PRETAX> 2,625
<INCOME-TAX> 1,047
<INCOME-CONTINUING> 1,578
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,578
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>