ATRIA COMMUNITIES INC, DEF 14A, 1998-05-04

ATRIA COMMUNITIES INC
DEF 14A, 1998-05-04
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

ATRIA COMMUNITIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

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ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202

May 4, 1998

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 9:00 a.m. on Tuesday, May 26, 1998, at the Seelbach Hotel, 500 South
Fourth Avenue, Louisville, Kentucky.

The Board of Directors appreciates your interest in the Company and we hope
to see you at the meeting. If you are not able to attend, it is still important
that your shares be represented. Please sign, date and mail the enclosed proxy
in the envelope provided at your earliest convenience.

Sincerely yours,

LOGO
W. Patrick Mulloy, II
Chief Executive Officer,
President and Director
<PAGE>

ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 26, 1998

To the Stockholders of ATRIA COMMUNITIES, INC.:

The Annual Meeting of Stockholders of Atria Communities, Inc. will be held
on Tuesday, May 26, 1998 at the Seelbach Hotel, 500 South Fourth Avenue,
Louisville, Kentucky, at 9:00 a.m. (EDT), for the following purposes:

(1) To elect two directors to serve until the Annual Meeting of
Stockholders in 2001;

(2) To consider and approve an amendment to the Atria Communities, Inc.
1996 Stock Ownership Incentive Plan;

(3) To consider and approve an amendment to the Atria Communities, Inc.
Non-Employee Directors 1996 Stock Incentive Plan; and

(4) To transact such other business as may properly come before the
meeting.

Only stockholders of record at the close of business on March 27, 1998, will
be entitled to vote at the meeting and any adjournments thereof.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES. PLEASE SIGN AND DATE YOUR PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.

LOGO
W. Patrick Mulloy, II
Chief Executive Officer, President
and Director
<PAGE>

ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202
(502) 719-1600

PROXY STATEMENT

FOR

ANNUAL MEETING OF STOCKHOLDERS

MAY 26, 1998

GENERAL INFORMATION

The Annual Meeting of Stockholders (the "Annual Meeting") of Atria
Communities, Inc. (the "Company" or "Atria") will be held at 9:00 a.m., EDT on
Tuesday, May 26, 1998, at the Seelbach Hotel, 500 South Fourth Avenue,
Louisville, Kentucky. This Proxy Statement is being furnished in connection
with the solicitation of proxies by the Board of Directors of the Company to
be used at the Annual Meeting and at any adjournments thereof.

Only stockholders of record at the close of business on March 27, 1998, are
entitled to vote at the meeting or any adjournments thereof. A list of all
stockholders entitled to vote at the Annual Meeting will be available for
inspection by any stockholder for any purpose reasonably related to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the Company's principal executive offices at 501 South
Fourth Avenue, Suite 140, Louisville, Kentucky. At the record date, 23,381,237
shares of the Company's common stock, par value $.10 per share ( "Common
Stock"), were outstanding. Each share of Common Stock entitles the owner to
one vote. A majority of the outstanding shares present in person or by proxy
is required to constitute a quorum to transact business at the meeting.
Abstentions and broker non-votes will be counted as present for purposes of
determining whether a quorum exists, but as not voted for purposes of
determining the approval of any matter submitted to the stockholders for a
vote.

The Company intends to first distribute this Proxy Statement and the
materials accompanying it on or about May 4, 1998. The Annual Report of the
Company for the year ended December 31, 1997 accompanies this Proxy Statement.

If the proxy is properly signed, returned to the Company and not revoked, it
will be voted in accordance with the instructions contained therein. Unless
contrary instructions are given, the proxy will be voted (1) in favor of the
nominees for director named in the Proxy Statement; (2) in favor of the
amendment to the Atria Communities, Inc. 1996 Stock Ownership Incentive Plan
(the "1996 Plan"); (3) in favor of the amendment to the Atria Communities,
Inc. Non-Employee Directors 1996 Stock Incentive Plan (the "Directors Plan");
and (4) in the discretion of the proxy holders on such other business as may
properly come before the Annual Meeting. A person giving the enclosed proxy
has the power to revoke it at any time before it is exercised. However, such
revocation must be made in writing and received by the General Counsel of the
Company at the Company's principal executive offices at 501 South Fourth
Avenue, Suite 140, Louisville, Kentucky 40202 at or before the time and date
of the Annual Meeting. A stockholder may also attend the Annual Meeting and
vote in person, in which event any prior proxy given by the stockholder will
be automatically revoked.

The cost of soliciting proxies by the Board of Directors will be borne by
the Company. Such solicitation will be made by mail and in addition may be
made personally or by telephone by directors, officers and employees of the
Company, none of whom will receive additional compensation for these services.
The Company's regularly retained investor relations firm, Corporate
Communications, Inc., may also solicit proxies by telephone and mail. Forms of
proxies and proxy materials will also be distributed through brokers,
custodians and other like parties to the beneficial owners of Common Stock.
The Company will reimburse such parties for their reasonable out-of-pocket
expenses incurred in connection with the distribution.
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1. ELECTION OF DIRECTORS

The Certificate of Incorporation of the Company provides that the Board of
Directors must be composed of not less than three nor more than 15 members,
the exact number to be established by the Board of Directors, and further
provides for the division of the Board of Directors into three approximately
equal classes. The Board size is currently fixed at eight members. William C.
Ballard Jr. and Peter J. Grua are the members of the class to be elected at
the Annual Meeting and have been nominated to serve as directors for a three-
year term expiring at the Annual Meeting of Stockholders to be held in 2001.
The remaining six directors will continue to serve in accordance with their
previous elections.

NOMINEES FOR ELECTION TO THE BOARD

FOR A THREE-YEAR TERM EXPIRING IN 2001

WILLIAM C. BALLARD JR. (age 57) has served as 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 a director
and Chief Financial Officer of Humana Inc., a provider of health care
services. Mr. Ballard is a director of Mid-America Bancorp, United Health Care
Corp., LG&E Energy Corp., Health Care REIT, Inc., Healthcare Recoveries, Inc.,
and American Safety Razor Company.(/1/)

PETER J. GRUA (age 43) 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.(/1/)(/2/)

DIRECTORS CONTINUING IN OFFICE

TERM EXPIRING IN 1999

SANDRA HARDEN AUSTIN (age 50) has served as a Director of the Company since
May 1996. Ms. Austin has served as President and Chief Executive Officer of
Sedona Healthcare Group, Inc., a physician practice management company, since
1997. 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, a bank holding company, and Ferro Corporation, a multi-specialty
chemical manufacturer.(/1/)(/2/)

THOMAS T. LADT (age 47) has served as a Director of the Company since May
1996. Mr. Ladt has served as Executive Vice President, Operations of Vencor,
Inc. ("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.(/1/)

R. GENE SMITH (age 63) 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 Program Services, which was
a marketer of direct broadcast satellite television services. In addition, he
has been President and owner of R. Gene Smith, Inc., a private investment
firm, since 1980.(/2/)(/3/)
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(1) Member of the Audit Committee, of which Mr. Ballard is Chairman.
(2) Member of the Executive Compensation Committee, of which Mr. Smith is
Chairman.
(3) Member of the Executive Committee, of which Mr. Lunsford is Chairman.

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TERM EXPIRING IN 2000

W. BRUCE LUNSFORD (age 50) has served as a Director and Chairman of the
Board 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 Chairman of
the Board, President and Chief Executive Officer of Vencor since it commenced
operations in 1985. He is a director of National City Corporation, 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.(/3/)

W. PATRICK MULLOY, II (age 44) 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.(/3/)

ANDY L. SCHOEPF (age 49) has been the Company's Chief Operating Officer
since April 1997 and a Director of the Company since May 1997. For over nine
years prior to that time, Mr. Schoepf served as President and Chief Executive
Officer of American ElderServe Corporation, an operator of assisted living
communities. He is a founding member of the Senior Living Association of
Georgia and the Executive Vice President and founding board member of the
Assisted Living Association.

The information given in this Proxy Statement concerning the nominees and
the other directors is based upon statements made or confirmed to the Company
by or on behalf of such nominees, except to the extent certain information
appears in its records. The ages are given as of January 1, 1998.
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(3) Member of the Executive Committee, of which Mr. Lunsford is Chairman.

Vencor 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 there will be two independent directors.
In addition, Vencor has agreed to vote its shares of Common Stock in favor of
a nominee for the Board selected by Mr. Schoepf, until such time as he holds
less than 400,000 shares of Common Stock. At the 1997 Annual Meeting of
Stockholders, Mr. Schoepf was elected a Director pursuant to this agreement.

The Company has entered into an agreement and plan of merger ("Merger
Agreement") with Kapson Senior Quarters Corp. ("Kapson") dated as of April 19,
1998, whereby a subsidiary of Kapson ("Merger Subsidiary") would merge (the
"Merger") into the Company with the Company as the surviving corporation
("Surviving Corporation"). Pursuant to the terms and conditions of the Merger
Agreement, the public stockholders of the Company would have the right to
receive $20.25 in cash per share of Common Stock. Vencor, which holds 42.8% of
the Company's Common Stock, would also receive $20.25 in cash for
approximately 88% of its Common Stock and would retain its remaining shares of
Common Stock upon the consummation of the Merger. Following the Merger, Kapson
will own approximately 90% of the outstanding shares of Common Stock and
Vencor will retain approximately 10% of the outstanding shares of Common
Stock. The Merger is subject to customary conditions, including stockholder
approval and certain regulatory approvals. In connection with the execution of
the Merger Agreement, Vencor and certain directors and officers of the Company
owning an aggregate of 10,850,157 shares of Common Stock (or approximately
46.4% of the outstanding Common Stock) entered into Support Agreements with
Kapson and the Merger Subsidiary, pursuant to which such stockholders agreed
to vote their shares in favor of the Merger. Concurrently with the
consummation of the Merger, Kapson, Vencor and certain executive officers of
the Company will enter into a Shareholders Agreement, pursuant to which Vencor
will have the right to designate one member of the Board of Directors of the
Surviving Corporation and Kapson will have the right to designate the
remaining directors.

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SHARES OF COMMON STOCK OF THE COMPANY COVERED BY PROXIES EXECUTED AND
RECEIVED IN THE ACCOMPANYING FORM WILL BE VOTED FOR THE NOMINEES SPECIFIED
ABOVE, UNLESS OTHERWISE SPECIFIED ON THE PROXY. The Board of Directors does
not contemplate that any of the nominees will be unable to accept election as
a director. However, in the event that one or more nominees are unable or
unwilling to accept or are unavailable to serve, the persons named in the
proxies or their substitutes will have authority, according to their judgment,
to vote or refrain from voting for other individuals as directors. Directors
are elected by a plurality of the votes cast.

CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS

During 1997, the Board of Directors of the Company held six regular
meetings. With the exception of R. Gene Smith (who attended five of seven
meetings), each Director attended 75.0% or more of the aggregate of the
meetings of the Board and the committees on which he or she serves. The
Company has an Executive Compensation Committee and an Audit Committee. The
Company does not have a nominating or similar committee.

The Executive Compensation Committee held one meeting in 1997. The functions
of the Executive Compensation Committee are to establish annual salary levels,
approve fringe benefits and administer any special compensation plans or
programs for executive officers of the Company.

The Audit Committee held two meetings during 1997. The Audit Committee
reviews the adequacy of the Company's system of internal controls and
accounting practices. In addition, the Audit Committee reviews the scope of
the annual audit of the Company's auditors, Ernst & Young LLP, prior to its
commencement, and reviews the types of services for which the Company retains
Ernst & Young LLP.

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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by (a) each person known to
the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (b) each director of the Company, (c) each of the
Company's executive officers and (d) all of the Company's directors and
executive officers.

<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR COMMON STOCK PERCENT
NUMBER IN GROUP BENEFICIALLY OWNED(1) OF CLASS
--------------------- --------------------- --------
<S> <C> <C>
Sandra Harden Austin......................... 7,500(2) *
William C. Ballard Jr........................ 23,000(3) *
Peter J. Grua................................ 9,500(2) *
Thomas T. Ladt............................... 25,535(4) *
W. Bruce Lunsford............................ 10,080,000(5) 43.1%
W. Patrick Mulloy, II........................ 116,635(6) *
Andy L. Schoepf.............................. 636,487(7) 2.7%
R. Gene Smith................................ 67,500(2) *
J. Timothy Wesley............................ 26,500(8) *
Vencor, Inc.................................. 10,000,000(9) 42.8%
All executive officers and directors as a
group (9 persons)........................... 10,992,657(10) 47.0%
Dresdner RCM Global Investors, LLC........... 1,835,500(11) 7.9%
Wellington Management Company, LLP........... 1,704,600(12) 7.3%
</TABLE>
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(*) Less than 1.0%
(1) Beneficial ownership of shares for purposes of this Proxy Statement, as
determined in accordance with the applicable rules and regulations of the
Securities and Exchange Commission (the "Commission"), includes shares as
to which a person has or shares voting power or investment power or which
the person has the right to acquire beneficial ownership within 60 days.
Except as set forth in the accompanying footnotes, the named persons have
sole voting power and sole investment power over the shares beneficially
owned by them. Beneficial ownership is given as of March 3, 1998, except
as otherwise noted below.
(2) Includes 2,500 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998 and 2,500 shares subject to options exercisable within
60 days.
(3) Includes 7,000 shares held in trust for Mr. Ballard's spouse, 4,000 shares
held in trust for his children, 2,500 restricted shares of Common Stock
with restrictions lapsing on August 20, 1998, and 2,500 shares subject to
options exercisable within 60 days.
(4) Includes 2,000 shares held by a partnership of which Mr. Ladt is the
managing general partner and 6,000 shares held by an estate of which Mr.
Ladt is executor. This amount also includes 35 shares held as custodian
for his son, 2,500 restricted shares of Common Stock with restrictions
lapsing on August 20, 1998 and 2,500 shares subject to options exercisable
within 60 days.
(5) Includes 10,000,000 shares held by Vencor. Mr. Lunsford is Chairman of the
Board, President and Chief Executive Officer of Vencor. Because Mr.
Lunsford has authority to direct the voting and disposition of such
shares, he may be deemed to beneficially own these shares. Mr. Lunsford
disclaims beneficial ownership of these shares. This amount also includes
10,000 restricted shares of Common Stock with restrictions lapsing on
August 20, 1998 and 20,000 shares subject to options exercisable within 60
days. Excludes 10,000 shares held in trust for the benefit of his
children. Mr. Lunsford's address is 3300 Aegon Center, 400 West Market
Street, Louisville, Kentucky 40202.
(6) Includes 1,830 shares held by his spouse, 380 shares held as custodian for
his minor children, 80,000 shares subject to options exercisable within 60
days and 15,000 restricted shares of Common Stock with restrictions
lapsing on August 20, 1998.

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(7) As part of the acquisition of American ElderServe Corporation by the
Company, Mr. Schoepf received 636,487 shares of the Company's Common Stock
on April 1, 1997. See "Certain Transactions with Management."
(8) Includes 2,500 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998 and 20,000 shares subject to options exercisable within
60 days.
(9) The ownership given for Vencor is based on information contained in the
Schedule 13G dated January 28, 1997 filed by Vencor with the Securities
and Exchange Commission. The address of Vencor is 3300 Aegon Center, 400
West Market Street, Louisville, Kentucky 40202.
(10) Includes 40,000 restricted shares of Common Stock with restrictions
lapsing on August 20, 1998 and 132,500 shares subject to options
exercisable within 60 days held by all directors and executive officers.
(11) As reported by Dresdner RCM Global Investors, LLL ("Dresdner RCM") as of
December 31, 1997, in a Schedule 13G filed with the Commission on
February 6, 1998, Dresdner had sole voting power with respect to
1,529,500 shares, sole dispositive power with respect to 1,761,500
shares, and shared dispositive power with respect to 74,000 shares. RCM
Limited L.P. is the Managing Agent of Dresdner RCM, and RCM General
Corporation is the General Partner of RCM Limited L.P. Dresdner RCM is an
investment advisor under Section 203 of the Investment Advisors Act of
1940. As reported by Dresdner Bank AG ("Dresdner") in a Schedule 13G
filed with the Commission on February 6, 1998, Dresdner RCM is a wholly-
owned subsidiary of Dresdner, an international banking organization
headquartered in Frankfurt, Germany. The address of Dresdner RCM is Four
Embarcadero Center, San Francisco, California 94111.
(12) As reported by Wellington Management Company, LLP ("WMC") as of December
31, 1997, in a Schedule 13G filed with the Commission on February 10,
1998, WMC has shared voting power with respect to 1,341,500 shares and
shared dispositive power with respect to all of the shares beneficially
owned by WMC. The address of WMC is 75 State Street, Boston,
Massachusetts 02109.

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<PAGE>

REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
ATRIA COMMUNITIES, INC.

The Executive Compensation Committee of the Board of Directors ("Committee")
of Atria Communities, Inc. is composed entirely of outside, independent
directors. The Committee is responsible for reviewing and approving the
compensation of Atria's executive officers and for determining Atria's general
compensation policies. The Committee also administers Atria's 1996 Stock
Ownership Incentive Plan and Non-Employee Directors 1996 Stock Incentive Plan.

EXECUTIVE COMPENSATION PHILOSOPHY

Atria's executive compensation policy is based upon principles designed to
ensure that an appropriate relationship exists between executive pay and
corporate performance, while at the same time motivating, attracting and
retaining executive officers. In determining the level and composition of
compensation for the executive officers, the Committee considers various
corporate and individual performance measures but does not apply any specific
quantitative formula in making compensation decisions.

EXECUTIVE COMPENSATION COMPONENTS

The key components of the Company's compensation policy are base salary, an
annual incentive award and equity participation. These components are
administered with the goal of providing total compensation that is competitive
in the marketplace, rewards successful financial performance and aligns
executive officers' interests with those of Atria's stockholders. The
Committee reviews each component of executive compensation on an annual basis.

Base Salary. For 1997, base salaries for executive officers were established
by the Committee based upon an evaluation of each executive's performance, as
well as the performance of the Company as a whole. The Committee also
considered the success of the executive officers in developing and executing
Atria's strategic plans, developing management employees and exercising
leadership. The Committee believes that executive officer base salaries for
1997 were slightly lower than the average base salaries paid by companies in
the assisted living industry.

Annual Incentive. Bonus payments to executive officers for 1997 were based
upon a combination of the Company's performance and the individual officer's
achievement of pre-established performance goals. Performance bonuses for 1997
were capped at one-third of the base salary for the Chief Executive Officer
and one-quarter of the base salary for all other executive officers. The
Committee believes that a significant proportion of total cash compensation
for executive officers should be subject to the attainment of specific
performance criteria. This approach creates a direct incentive for executive
officers to achieve desired performance goals and places a significant
percentage of each executive officer's compensation at risk. Consequently, at
the beginning of each year, the Committee establishes potential bonuses for
executive officers based upon Atria's achievement of certain performance
criteria.

Equity Participation Through Options and Restricted Stock. The Committee
believes that equity participation is a key component of its executive
compensation policy. The use of stock based awards provides a long-term link
between the results achieved for Atria's stockholders and the rewards provided
to executive officers. Stock options and other stock based awards are granted
to executive officers primarily based on the officer's actual and potential
contribution to Atria's growth and profitability. These awards are designed to
retain executive officers and motivate them to enhance stockholder value by
aligning the financial interests of executive officers with those of Atria's
stockholders. Stock options, in particular, provide an effective incentive for
management to create stockholder value over the long term since the full
benefit of the options cannot be realized unless an appreciation of the price
of Atria's Common Stock occurs over a number of years.

Options to purchase a total of 735,000 shares of the Company's Common Stock
were granted to Atria's three executive officers (including the Chief
Executive Officer) in 1997 with an exercise price equal to the fair

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<PAGE>

market value of the underlying Common Stock at the date of grant. To encourage
long-term performance, these options vest cumulatively in four annual
installments of 25.0% and expire ten years from the date of grant. The
Committee did not grant any shares of restricted stock to the executive
officers in 1997.

The Committee granted these stock options in recognition of the significant
efforts expended by the executive officers in connection with the
implementation of Atria's growth strategy. The Committee granted options to
the executive officers based upon its judgment that the grants were
appropriate and desirable considering their actual and potential contribution
to Atria. The assessment of actual and potential contribution was based on the
Committee's subjective evaluation of each executive officer's ability, skill
and leadership.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

The base salary of W. Patrick Mulloy, II, President, Chief Executive Officer
and Director, was established as a result of the Committee's evaluation of Mr.
Mulloy's performance, as well as the performance of the Company as a whole.
For services rendered in 1997, Mr. Mulloy received an annual base salary of
$200,000. The Committee believes that this base salary was below the average
base salary paid to chief executive officers of companies in the assisted
living industry. Mr. Mulloy was also awarded options to purchase 300,000
shares of Atria's Common Stock in 1997. The Committee granted options to
purchase 275,000 shares to Mr. Mulloy based upon its judgment that these
grants were appropriate and desirable in light of his actual and potential
contribution to Atria. The assessment of actual and potential contribution
resulted from the Committee's subjective evaluation of his abilities, skills,
efforts and leadership. Mr. Mulloy also received a bonus of $66,000, which he
elected to take in the form of options for 25,000 shares of Common Stock due
to Atria's achievement of certain earnings per share goals established by the
Committee and Mr. Mulloy's efforts and leadership in implementing Atria's
growth strategy. The Committee did not grant any restricted stock to Mr.
Mulloy in 1997.

OMNIBUS BUDGET RECONCILIATION ACT OF 1993

Under the Omnibus Budget Reconciliation Act of 1993, publicly held companies
may not deduct compensation paid to certain executive officers to the extent
that such compensation exceeds $1 million in any year for each such officer.
The Company will continue its efforts to preserve tax deductibility of
compensation where it is reasonable and feasible to do so.

EXECUTIVE COMPENSATION COMMITTEE
R. Gene Smith, Chairman
Sandra Harden Austin
Peter J. Grua

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<PAGE>

EXECUTIVE COMPENSATION AND OTHER INFORMATION

The following table sets forth the compensation earned by each of the
Company's three executive officers, including the Chief Executive Officer and
President, (collectively, the "named executive officers") during 1997 and
1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-
ANNUAL COMPENSATION TERM COMPENSATION
------------------------ ---------------------
SECURITIES
RESTRICTED UNDERLYING ALL
NAME AND STOCK OPTIONS/ OTHER
PRINCIPAL POSITIONS YEAR SALARY BONUS(1) AWARDS(2) SARS COMPENSATION(3)
------------------- ---- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
W. Patrick Mulloy, II... 1997 $ 200,000 -0- -0- 300,000(5) $714
Chief Executive Officer, 1996 127,500(4) $60,000 $337,500 200,000 246
President and Director
Andy L. Schoepf(6)...... 1997 123,000 -0- -0- 235,000(7) $233
Chief Operating Officer
and Director
J. Timothy Wesley....... 1997 110,000 -0- -0- 200,000(8) $783
Chief Financial Officer, 1996 60,000(4) 22,500 56,250 35,000 67
Vice-President of
Development
and Secretary
</TABLE>
- --------
(1) The amounts shown represent cash bonuses awarded under the Company's 1996
Plan which were based on the Company's profitability.
(2) Represents the value of restricted shares of Common Stock awarded under
the 1996 Plan. These amounts were calculated based on the closing market
value of the Common Stock on the date of grant. The Compensation
Committee did not grant any shares of restricted stock to the named
executive officers in 1997. As of December 31, 1997, the following number
of restricted shares were held by the named executive officers: Mr.
Mulloy--15,000 shares and Mr. Wesley--2,500 shares. The market values of
the restricted shares held by the named executive officers at December
31, 1997 were as follows: Mr. Mulloy--$256,875 and Mr. Wesley--$42,813.
The market value of the Common Stock was $17.125 per share as of December
31, 1997 (the last trading date in 1997) 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) The compensation reported represents amounts imputed or credited to the
named executive officer for premiums paid for life insurance.
(4) These amounts represent cash compensation paid to the named executive
officers for approximately eight months of service with the Company in
1996.
(5) Includes options to purchase 25,000 shares of Common Stock granted as a
result of Mr. Mulloy's election to receive his 1997 bonus of $66,000 in
the form of stock options.
(6) Mr. Schoepf first became an executive officer of the Company in April
1997. The salary shown is the compensation paid to Mr. Schoepf for
approximately eight months of service with the Company in 1997.
(7) Includes options to purchase 35,000 shares of Common Stock granted as a
result of Mr. Schoepf's election to receive his 1997 bonus of $32,813 in
the form of stock options.
(8) Includes options to purchase 35,000 shares of Common Stock granted as a
result of Mr. Wesley's election to receive his 1997 bonus of $31,250 in
the form of stock options.

9
<PAGE>

COMPENSATION OF DIRECTORS

During 1997, 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 a 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 Directors Plan. In July 1997, the Board amended the
Directors Plan, subject to stockholder approval, to increase the annual option
grant from 1,000 to 5,000 and 10,000 shares of Common Stock to non-employee
Directors and the Chairman of the Board, respectively. On July 18, 1997, the
Company issued to each of the Company's non-employee Directors an option to
purchase 5,000 shares of Common Stock and to the Chairman of the Board an
option to purchase 10,000 shares of Common Stock. In addition, each new non-
employee Director is 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 is equal to the fair market value of the
Common Stock on the date of grant, and the options will become exercisable in
four equal annual installments, beginning on the first anniversary of the date
of grant.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning options to purchase
shares of the Company's Common Stock granted in 1997 to the Company's named
executive officers.

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO DATE
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED(1) IN 1997 PER SHARE(2) DATE VALUE(3)
---- ---------- ---------- ------------------ ------------------- ----------
<S> <C> <C> <C> <C> <C>
W. Patrick Mulloy, II... 300,000 16.2% 120,000 at $10.00 120,000 on 1/9/07 $ 697,200
80,000 at $15.25 80,000 on 7/18/07 708,000
100,000 at $17.125 100,000 on 12/31/07 994,000
Andy L. Schoepf......... 235,000 12.7% 25,000 at $11.00 25,000 on 4/1/07 $ 159,750
135,000 at $15.25 135,000 on 7/18/07 1,194,750
75,000 at $17.125 75,000 on 12/31/07 745,500
J. Timothy Wesley....... 200,000 10.8% 45,000 at $10.00 45,000 on 1/9/07 $ 261,450
80,000 at $15.25 80,000 on 7/18/07 708,000
75,000 at $17.125 75,000 on 12/31/07 745,500
</TABLE>
- --------
(1) All options shown in the above table become exercisable in four equal
annual installments, beginning on the first anniversary of the date of the
grant. All options become fully exercisable upon a "change in control", as
defined in the 1996 Plan, of the Company. Of such number of shares of
Common Stock underlying options, the following number are subject to
stockholder approval of the proposed amendment to the 1996 Plan (to
increase the number of shares of Common Stock reserved for issuance under
the 1996 Plan): Mr. Mulloy-180,000; Mr. Schoepf-210,000; and Mr. Wesley-
155,000.
(2) All options were granted at fair market value (closing price on the Nasdaq
National Market on the date of the grant.) 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 is based on, among other things, the following assumptions: (a) an
expected volatility factor of .40, (b) a risk-free interest rate of 6.90%,
(c) no dividend yield and (d) an expected term of eight 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.

10
<PAGE>

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, 1997.

AGGREGATE YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 12/31/97 IN-THE-MONEY OPTIONS AT 12/31/97(1)
---------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
---- ----------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
W. Patrick Mulloy, II... 50,000 450,000 $ 356,250.00 $ 2,073,750.00
Andy L. Schoepf......... -- 235,000 -- $ 406,250.00
J. Timothy Wesley....... 8,750 226,250 $ 62,343.75 $ 657,656.25
</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 $17.125 per share as of December 31, 1997
(the last trading date in 1997) based on the closing price per share on
the NASDAQ National Market.
(2) The number of shares of Common Stock underlying options unexercisable as
of December 31, 1997 include options for the following numbers that are
subject to stockholder approval of the proposed amendment to the 1996 Plan
(to increase the number of shares of Common Stock reserved for issuance
under the 1996 Plan): Mr. Mulloy-180,000; Mr. Schoepf-210,000; and Mr.
Wesley-155,000.

PERFORMANCE GRAPH

The following graph summarizes the cumulative total return to holders of the
Company's Common Stock from August 20, 1996 to December 31, 1997, compared to
the cumulative total return on the NASDAQ National Market and the S&P SmallCap
600 Index.

LOGO

<TABLE>
<CAPTION>
AUGUST 20, DECEMBER 31, DECEMBER 31,
1996 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Atria Communities, Inc. ................... $100 $103 $171
NASDAQ..................................... $100 $113 $139
S&P SmallCap 600........................... $100 $112 $140
</TABLE>

11
<PAGE>

The Company has elected to compare its performance with the S&P SmallCap 600
Index because these companies generally have similar market capitalization to
the Company. Due to the limited number of publicly held companies exclusively
engaged in the assisted living industry, the Company does not believe that a
meaningful peer group of companies currently exists.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

At December 31, 1997, the following persons served on the Executive
Compensation Committee of the Company's Board of Directors: R. Gene Smith,
Sandra Harden Austin and Peter J. Grua. None of the members of the Executive
Compensation Committee are employees of the Company.

CERTAIN TRANSACTIONS WITH MANAGEMENT

William C. Ballard Jr. is of counsel to the firm of Greenebaum Doll &
McDonald PLLC, which provided legal services to the Company in 1997 and will
provide legal services to the Company in 1998. Prior to joining the Company,
Mr. Mulloy was a member of Greenebaum Doll & McDonald PLLC.

On April 1, 1997, the Company completed its acquisition of American
ElderServe Corporation ("American ElderServe"), an Atlanta based operator of
assisted living communities in the southeast portion of the United States, for
a combination of stock and cash plus debt assumption valued at approximately
$30.5 million (the "American ElderServe Acquisition"). 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 American
ElderServe Acquisition, Mr. Schoepf received 636,487 shares of Common Stock,
including one demand registration right with respect to such Common Stock.
Elizabeth Schoepf received $3.7 million in cash. Pursuant to Mr. Schoepf's
exercise of his demand registration right, the Company has filed a
registration statement under the Securities Act of 1933, as amended, with
respect to 236,470 shares of Common Stock held by Mr. Schoepf. In addition,
the Company agreed to nominate a person selected by Mr. Schoepf for the Board
of Directors and obtained the commitment of Vencor to vote its shares of
Common Stock in favor of such nominee, until such time as Mr. Schoepf holds
less than 400,000 shares of Common Stock. At the 1997 Annual Meeting of
Stockholders, Mr. Schoepf was elected a Director pursuant to these
arrangements.

Simultaneously with the closing of the American ElderServe Acquisition, the
Company entered into a development agreement with Elder HealthCare Developers,
LLC ("Elder HealthCare Developers"), a Georgia limited liability company owned
10.0% by the Company and 90.0% 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 Developers has the exclusive
right to develop assisted living communities for the Company in nine
southeastern states. The Company has agreed that Elder HealthCare Developers
will develop at least 25 communities in the southeast region over a two-year
period; ten of those communities were under development at February 28, 1998.
The Company will have a 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. Under the terms of the operating agreement of Elder HealthCare
Developers, as amended, Elder HealthCare Developers will fund the development,
construction and working capital needs of its communities by use of third-
party financing. If such financing is unavailable or insufficient to cover all
of the construction and start-up costs associated with any of such
communities, the Company will extend the necessary funds or guarantees to
Elder HealthCare Developers. Assisted Care Developers has agreed to indemnify
the Company in the event of the default of Elder HealthCare Developers on any
loan either extended or guaranteed by the Company. The Company will manage
these communities from the

12
<PAGE>

date on which they commence operations. During 1997, the Company paid Assisted
Care Developers $451,000 primarily for services relating to the location of
future development sites for the Company's communities.

From time to time, the Company 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 will receive
brokerage commissions in amounts customary in the geographic area. The Company
paid DevCon $85,000 for such services during 1997.

Pursuant to the acquisition of American ElderServe, the Company 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 A. Schoepf
(40.0%) and Earl T. Schoepf (20.0%). The contracts allow Delta to act as the
construction manager or general contractor for each of the communities. When
Delta serves only as construction manager, it must pay for the services of the
general contractor out of its fee. The Company paid Delta approximately $4.9
million for such services 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 Developers has no obligation to contract with
Delta in the future, Elder HealthCare Developers expects to use Delta's
construction management or general contracting services subject to the
Company's approval of the specific terms of each construction contract. The
Company expects 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 "Schoepf Note") in the approximate principal amount of
$545,000, with principal and 7.0% per annum interest due March 31, 1999.
Schoepf 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 Schoepf Note is secured by the land.

Pursuant to the acquisition of American ElderServe, the Company acquired a
50.0% 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. Pursuant to the lease, which expires December 31, 1999, Atria receives
approximately $16,500 per month.

CERTAIN TRANSACTIONS WITH VENCOR

In May 1996, the Company was incorporated as a wholly-owned subsidiary of
Vencor. In connection with the Company's initial public offering on August 20,
1996 (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. At April 15, 1998, Vencor owned approximately
42.8% of the Company's Common Stock.

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

13
<PAGE>

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," "where 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.

Administrative Services Agreement. The Company and Vencor entered into an
administrative services agreement (the "1996 Administrative Services
Agreement") pursuant to which Vencor provided certain administrative services
to the Company. The 1996 Administrative Services Agreement expired in August
1997. Some of the services provided to the Company by Vencor included finance
and accounting, human resources, risk management, legal, marketing and
information systems support. During 1997, the Company paid Vencor
approximately $32,000 per month pursuant to the 1996 Administrative Services
Agreement. Upon the expiration of the 1996 Administrative Services Agreement,
the Company and Vencor entered into another administrative services agreement
(the "New Administrative Services Agreement") relating to the provision of
marketing, human resources and information systems support for a monthly fee
of $17,033. The New Administrative Services Agreement expired on December 31,
1997.

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 Services
Agreements expired in August 1997. 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. This Sublease Agreement expired in January 1998.

New Pond Lease. New Pond Village Associates, a partnership owned by
subsidiaries of Vencor ("New Pond"), leases the New Pond Village Retirement
Center to the Company pursuant to the terms of a lease which is 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. In connection with
the Credit Facility, Vencor is obligated to guarantee up to $100.0 million in
the first year following the IPO, declining to $75.0 million, $50.0 million
and

14
<PAGE>

$25.0 million in each respective year thereafter. During 1997, 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, 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 the 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 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 will continue in effect for
five years from the date of the IPO so long as Vencor beneficially owns 30.0%
or more of the Common Stock.

Tax Sharing Agreement. Vencor and the Company entered into a Tax Sharing
Agreement which generally provides for the manner in which the parties will
bear taxes for the period between the Company's organization and the sale by
the Company of the Common Stock pursuant to the IPO, and income tax
deficiencies or 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 the short period over the amount
which the Company has previously paid (or been charged with by Vencor) with
respect to such taxes.

If additional taxes must be paid by the Company or Vencor as a result of an
adjustment made by a tax regulatory authority and as a result of that
adjustment the other party would obtain an offsetting tax benefit, the party
obtaining the tax benefit pays an amount equal to the additional tax to the
party whose income tax liability was increased. Likewise, if income taxes are
reduced as a result of an adjustment made by a tax regulatory authority and as
a result of that adjustment the other party would suffer an offsetting tax
detriment, the party whose taxes were reduced pays that amount to the other
party. The Tax Sharing Agreement also contains provisions dealing with
challenging adjustments made by tax regulatory authorities, who will bear the
expenses of any such challenge and cooperation between the parties.

Borrowing From Vencor. A subsidiary of the Company was indebted to Vencor in
the amount of $14.0 million at December 31, 1996. The indebtedness was
evidenced by a promissory note in favor of Vencor, bearing interest at a rate
equal to the floating prime rate of National City Bank, Kentucky plus 1.0%,
payable quarterly, and the principal amount was due on August 20, 1997. The
Company repaid this note in July 1997. The interest costs incurred by the
Company in connection with the promissory note aggregated $697,000 for 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.

The Company's 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

15
<PAGE>

the Board of Directors. Although the Company was a 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.

2. PROPOSAL TO ADOPT AMENDMENT TO THE COMPANY'S
1996 STOCK OWNERSHIP INCENTIVE PLAN

The Board of Directors has adopted, and recommends that stockholders
approve, an amendment to the Company's 1996 Stock Ownership Incentive Plan
(the "1996 Plan"). This amendment, subject to stockholder approval at the
Annual Meeting, is being made to increase the number of shares of Common Stock
reserved for issuance under the 1996 Plan from 1,000,000 shares to a number
equal to 10.0% of the number of shares of Common Stock outstanding from time
to time. Pursuant to the 1996 Plan, at March 31, 1998, options to purchase
2,096,125 shares were outstanding, 35,000 restricted shares had been issued
and 14,875 shares had been issued upon option exercises. The outstanding
options included options to purchase 1,275,750 shares which are subject to
approval of the proposed amendment. Giving effect to the proposed amendment,
190,924 shares would be available for issuance under the 1996 Plan at March
31, 1998. The amendment also provides that the maximum number of incentive
stock options that may be granted pursuant to the 1996 Plan is 2,000,000. The
proposed amendment is set forth as Exhibit A to this Proxy Statement.

DESCRIPTION OF THE 1996 PLAN

The 1996 Plan provides for the granting of any of the following awards
("Employee Awards") to eligible employees of the Company and its subsidiaries:
(i) stock options which do not constitute "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended,
("nonqualified stock options"); (ii) incentive stock options; (iii) restricted
shares; and (iv) performance units. The 1996 Plan is intended to provide
incentives and rewards to employees for their contributions to the Company's
business and to associate the interests of employees with those of the
Company's stockholders.

The 1996 Plan is administered by the Executive Compensation Committee of the
Board of Directors (the "Committee"). In administering the 1996 Plan, the
Committee will determine, among other things: (i) the 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 and restriction or option period. The
Committee may also construe, interpret and correct defects, omissions and
inconsistencies in the 1996 Plan.

The Common Stock subject to the 1996 Plan is authorized but unissued shares.
Before giving effect to the proposed amendment described below, the 1996 Plan
provided that 1,000,000 shares of Common Stock would be available for grant of
Employee Awards. 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 1996
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 employees
in the form of an incentive stock option or a nonqualified 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-

16
<PAGE>

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 following the retirement date 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 employees. Restricted stock awards are
shares of Common Stock that are subject to restrictions on transfer or other
incidents of ownership where the restrictions lapse based solely on continued
employment with the Company for specified periods or based on the attainment
of specified performance standards in either case, as the Committee may
determine. The Committee will determine all terms and conditions pursuant to
which restrictions upon restricted stock will lapse. At the discretion of the
Committee, certificates representing shares of restricted stock will be
deposited with the Company until the restriction period ends. Grantees of
restricted stock will have all the rights of a stockholder with respect to the
restricted stock and may receive dividends, unless the Committee determines
otherwise. Dividends may, at the discretion of the Committee, be deferred
until the restriction period ends and may bear interest if the Committee so
determines.

If a grantee's employment terminates by reason of death or disability prior
to the expiration of the restriction period applicable to any restricted
shares then held by the grantee, all restrictions pertaining to such shares
immediately lapse. Upon termination for any other reason, all restricted
shares are forfeited.

Performance Units. The Committee may grant performance units to eligible
employees. 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.

17
<PAGE>

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.

DESCRIPTION OF PROPOSED AMENDMENT TO 1996 PLAN

The proposed amendment to the 1996 Plan would change the number of shares
authorized for issuance from a fixed number of shares to a number based on a
percentage of the number of shares of Common Stock outstanding from time to
time. Pursuant to the proposed amendment, the number of shares authorized for
issuance under the 1996 Plan would equal 2,336,924 (being an amount equal to
10.0% of the Company's outstanding shares on the date the Board of Directors
approved the amendment) plus 10.0% of any increase in the number of authorized
and issued shares of Common Stock in excess of 23,369,237 shares (other than
any increase due to shares issued pursuant to the 1996 Plan or the Directors
Plan). If the total number of shares of Common Stock outstanding were to
increase, the number of shares issuable under the 1996 Plan would
automatically increase to equal 10.0% of the total shares of Common Stock
outstanding. At March 31, 1998, the proposed amendment would increase to
2,336,924 the number of shares available for issuance under the 1996 Plan as
of that date. In addition, the proposed amendment provides that the maximum
number of shares of Common Stock with respect to which incentive stock options
may be granted pursuant to the 1996 Plan is 2,000,000.

The Board of Directors believes that this approach to determining shares of
Common Stock available under the 1996 Plan is superior to the approach
currently employed (fixing a specific number of shares issuable under the 1996
Plan). The Board believes that providing for an "evergreen" pool of shares
available to satisfy outstanding stock options will ensure that there is an
appropriate number of shares available under the 1996 Plan at any particular
time. The Company has in the past utilized stock options as a significant
element of compensation of the named executive officers and other key
employees. Basing availability under the 1996 Plan on the Company's
outstanding shares will allow the 1996 Plan to be reflective of the size and
growth of the Company. For example, if the Company grows through acquisitions
that involve the issuance of Common Stock, availability under the 1996 Plan
will correspondingly increase. Among other things, this approach is expected
to provide the Company with greater flexibility when entering into appropriate
compensation arrangements with management of any acquired companies.

The Board believes that the proposed amendment to the 1996 Plan will
preserve the intended benefits of the 1996 Plan by validating the outstanding
options granted subject to stockholder approval and providing that executives
and other eligible employees may continue to receive such options subject to
the limitations of the 1996 Plan. Without such an amendment, the Company would
be unable to grant additional stock-based incentives under the 1996 Plan. The
Board believes that it is appropriate to provide a mechanism for regularly
replenishing the number of shares available under the 1996 Plan.

In the event that the Merger is consummated, the 1996 Plan will terminate as
of the effective time of the Merger. The Merger Agreement provides that at the
effective time of the Merger, outstanding options will be canceled in exchange
for the right to receive a cash payment from the Surviving Corporation in an
amount equal to (i) the excess, if any, of (x) the price per share to be paid
pursuant to the Merger over (y) the exercise price per share of Common Stock
subject to the option, multiplied by (ii) the number of shares of Common Stock
with respect to which the option has not previously been exercised.
Notwithstanding the foregoing, certain options held by management ("Rollover
Options"), will not be canceled pursuant to the Merger. The Rollover Options
will remain outstanding following the Merger as options to acquire shares of
the Surviving Corporation.

18
<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

Because tax results may vary due to individual circumstances, participants
in the 1996 Plan are urged to consult their personal tax advisors regarding
the tax consequences of awards or grants, or the sale of any shares received,
under the 1996 Plan. The federal income tax consequences of awards under the
1996 Plan, as previously disclosed to stockholders, will not be impacted by
the proposed amendment.

Non-Qualified Stock Options. The granting of a non-qualified stock option
does not produce taxable income to the optionee or a tax deduction to the
Company. Taxable ordinary income will generally be recognized by the optionee
at the time of exercise in an amount equal to the excess of the fair market
value of the shares purchased at the time of exercise over the aggregate
option price. The Company is entitled to a corresponding federal income tax
deduction. The tax basis for the shares acquired is the option price plus the
taxable income recognized.

Incentive Stock Options. In the case of an incentive stock option, an
optionee will not recognize any taxable income at the time of grant and the
Company will not be entitled to a federal income tax deduction. No income will
be recognized by an optionee at the time of exercise of the incentive stock
option. If the optionee holds the shares acquired upon exercise of the
incentive stock option for at least two years from the date of grant of the
incentive stock option and at least one year from the date of exercise, the
optionee would realize taxable long-term capital gain or loss upon a
subsequent sale of the shares at a price different from the option price. If
the foregoing holding period is met, no deduction would be allowed to the
Company for federal income tax purposes at any time. If, however, the optionee
disposes of the shares prior to satisfying the required holding period,
generally (1) the optionee would realize ordinary income in the year of such
disposition in an amount equal to the difference between (a) the fair market
value of such shares on the date of exercise or (b) the sales price, whichever
is less, and the option price; (2) the Company would be entitled to a
deduction for such year in the amount of the ordinary income so realized; and
(3) the optionee would realize capital gain in an amount equal to the
difference between (a) the amount realized upon the sale of the shares and (b)
the option price plus the amount of ordinary income, if any, realized upon the
disposition.

Restricted Stock. In the absence of an election ("Section 83(b) Election")
under section 83(b) of the Internal Revenue Code of 1986, as amended, a
participant who receives restricted stock will recognize no income at the time
of issuance. When the restriction period expires with respect to shares of
restricted stock, a participant will recognize ordinary income equal to the
fair market value of the shares as of the date the restrictions expire over
the amount paid for such shares (if any). The participant's basis for the
shares is equal to the amount paid (if any) plus the ordinary income
recognized, and the holding period begins just after the restriction period
ends. An employee may, however, make a Section 83(b) Election to include in
income in the year of purchase or grant the excess of the fair market value of
the shares (computed without regard to the restrictions) on the date of
purchase or grant over their purchase price. The Company will be entitled to a
deduction in the same year and in the same amount as income is recognized by
the participant. If a Section 83(b) Election is made, a participant's basis
for the shares will be the amount paid for the shares, if any, plus the
ordinary income recognized.

Performance Units. Generally, performance units granted to a participant
will be taxable to the participant in the amount of cash and the fair market
value of shares received. The Company will be entitled to a deduction for such
amount at the time it is includible in the income of the participant.

The affirmative vote of the holders of a majority of the shares of Common
Stock present, in person or by proxy, at the Annual Meeting is required for
the approval of the proposed amendment to the 1996 Plan. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE 1996 PLAN.
Shares of Common Stock covered by proxies executed and received in the
accompanying form will be voted in favor of the amendment, unless otherwise
specified on the proxy.

19
<PAGE>

3. PROPOSAL TO ADOPT AMENDMENT TO THE COMPANY'S NON-EMPLOYEE DIRECTORS 1996
STOCK INCENTIVE PLAN

The Board of Directors has adopted, and recommends that stockholders ratify
and approve, an amendment to the Company's 1996 Non-Employee Directors Stock
Incentive Plan (the "Directors Plan"). This amendment would be made to
increase (i) the annual option grant to non-employee Directors from 1,000 to
5,000 and to the Chairman of the Board from 1,000 to 10,000; and (ii) the
number of shares of Common Stock available for issuance pursuant to the
Directors Plan from 250,000 to 350,000. The proposed amendment is set forth as
Exhibit B to this Proxy Statement.

Directors not employed by the Company receive options to purchase shares of
Common Stock pursuant to the Directors Plan. The Directors Plan was originally
adopted in June 1996. 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, as of the date
of the IPO (the "Initial Grant Date"). The restrictions on all such shares
lapse in two equal annual installments beginning the first anniversary of
their date of grant.

The Directors Plan also provided for an initial, one time grant on the
Initial Grant Date of options to purchase 10,000 shares of Common Stock at the
initial public offering price of $10 per share to each non-employee Director
and an option to purchase 80,000 shares at the initial public offering price
to the Chairman of the Board (the "Initial Grants"). Each new non-employee
director will be granted options to purchase 10,000 shares of Common Stock on
the date of his or her election. On July 18, 1997, the Company, subject to
stockholder approval, issued to each of the Company's non-employee Directors,
options to purchase 5,000 shares of Common Stock (10,000 shares in the case of
the Chairman of the Board).

The Initial Grants were at an exercise price equal to the initial public
offering price. Thereafter, all options have been and will be granted at the
fair market value of the Common Stock on the date of grant. All options
granted under the Directors Plan become exercisable in four equal annual
installments, beginning on the first anniversary of such option's date of
grant. All such options expire on the tenth anniversary of their date of
grant.

Generally, in the event of a "change in control" (as defined in the
Directors Plan) of the Company, all outstanding stock options become fully
vested and immediately exercisable in their entirety. In addition, the
optionee will be permitted to sell the option to the Company generally for an
amount equal to the excess of (i) the fair market value over (ii) the per
share exercise price for such shares under the stock option.

The Board may at any time terminate and, from time to time, may amend or
modify the Directors Plan; provided, however, that no amendment may impair the
rights of a participant with respect to outstanding options without the
optionee'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
Directors Plan will terminate ten years from its effective date.

Because tax results may vary due to individual circumstances, participants
in the Directors Plan are urged to consult their personal tax advisors
regarding the tax consequences of awards or grants, or the sale of any shares
received, under the Directors Plan. The federal income tax consequences of
awards under the Directors Plan, as previously disclosed to stockholders, will
not be impacted by the proposed amendment.

The options granted pursuant to the Directors Plan are non-qualified stock
options. The granting of a non-qualified stock option does not produce taxable
income to the optionee or a tax deduction to the Company. Taxable ordinary
income will generally be recognized by the optionee at the time of exercise in
an amount equal to the excess of the fair market value of the shares purchased
at the time of exercise over the aggregate option price. The Company is
entitled to a corresponding federal income tax deduction. The tax basis for
the shares acquired is the option price plus the taxable income recognized.

The ratification and approval of the proposed amendment to the Directors
Plan would increase: (i) the annual option grant to non-employee Directors
from 1,000 to 5,000 and to the Chairman of the Board from 1,000

20
<PAGE>

to 10,000; and (ii) the number of shares of Common Stock available for
issuance pursuant to the Directors Plan from 250,000 to 350,000. At March 31,
1998 and giving effect to the proposed amendment, options to purchase 165,000
shares of Common Stock were outstanding, 45,000 restricted shares had been
issued and 140,000 shares remained available for issuance. The proposed
amendment would validate the outstanding options granted subject to
stockholder approval. Management believes that the proposed amendment would
enhance the Company's ability to attract and retain the services of talented
non-employee Directors who are essential to the Company's growth and financial
success.

In the event that the Merger is consummated, the Directors Plan will
terminate as of the effective time of the Merger. The Merger Agreement
provides that at the effective time of the Merger, outstanding options will be
canceled in exchange for the right to receive a cash payment from the
Surviving Corporation in an amount equal to (i) the excess, if any, of (x) the
price per share to be paid pursuant to the Merger over (y) the exercise price
per share of Common Stock subject to the option, multiplied by (ii) the number
of shares of Common Stock with respect to which the option has not previously
been exercised.

The affirmative vote of the holders of a majority of the shares of Common
Stock present, in person or by proxy, at the Annual Meeting is required for
the approval of the proposed amendment to the Directors Plan. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION AND APPROVAL OF THE AMENDMENT
TO THE DIRECTORS PLAN. Shares of Common Stock covered by proxies executed and
received in the accompanying form will be voted in favor of the amendment,
unless otherwise specified on the proxy.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers and persons who own more than 10.0% of the
Company's Common Stock to file initial stock ownership reports and reports of
changes in ownership with the Securities and Exchange Commission. Based on a
review of these reports and on written representations from the reporting
persons that no other reports were required, the Company believes that
applicable Section 16(a) reporting requirements were complied with for all
transactions which occurred in 1997 except that (a) Messrs. Mulloy, Schoepf
and Wesley each filed an amended Form 5 after its due date to report
additional options to purchase shares of Common Stock granted on December 31,
1997; (b) Mr. Schoepf reported on his amended Form 5 additional options to
purchase shares of Common Stock granted on April 1, 1997; and (c) Mr. Ladt
filed an amended Form 5 after its due date to report his beneficial ownership
through a partnership of certain shares of Common Stock.

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, Louisville, Kentucky, has been retained by
the Company as independent auditors to audit the financial statements of the
Company. Representatives of Ernst & Young LLP will be present at the Annual
Meeting and will be afforded the opportunity to make a statement if they
desire to do so and to respond to appropriate questions.

STOCKHOLDER PROPOSALS

Any stockholder proposal intended to be presented at the next Annual Meeting
of Stockholders must be received by the Company by December 19, 1998 in order
to be considered for inclusion in the Company's proxy materials for such
meeting.

21
<PAGE>

OTHER MATTERS

The only matters to be considered at the Annual Meeting or any adjournment
thereof, so far as known to the Board of Directors, are those set forth in the
Notice of Meeting and routine matters incident to the conduct of the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, it is the intention of the persons named
in the accompanying form of proxy, or their substitutes, to vote said proxy in
accordance with their judgment in such matters.

By Order of the Board of Directors,

LOGO
W. Patrick Mulloy, II
Chief Executive Officer, President
and
Director

Louisville, Kentucky
May 4, 1998

22
<PAGE>

EXHIBIT A

PROPOSED AMENDMENT TO
ATRIA COMMUNITIES, INC.
1996 STOCK OWNERSHIP INCENTIVE PLAN

(a) The first sentence of Section 4.1 of the Plan is hereby deleted and the
following substituted in its place:

"Subject to adjustment as provided in Section 4.3, the number of Shares
reserved for issuance upon the exercise of Awards and the payment of
benefits in connection with Awards is 2,336,924 Shares (being an amount
equal to 10% of the Company's issued and outstanding Shares on the date
hereof), plus 10% of any increase (other than any increase due to Shares
issued pursuant to the Plan or the Atria Communities, Inc. Non-Employee
Directors 1996 Stock Incentive Plan) in the number of authorized and issued
Shares in excess of 23,368,237 Shares."

(b)Section 6.1 of the Plan is hereby amended by adding at the end thereof the
following:

"Notwithstanding anything herein to the contrary, the maximum number of
Shares with respect to which ISOs may be granted under the Plan shall not
exceed 2,000,000 Shares."
<PAGE>

EXHIBIT B

PROPOSED AMENDMENT TO
ATRIA COMMUNITIES, INC.
NON-EMPLOYEE DIRECTORS 1996 STOCK INCENTIVE PLAN

(a)Section 3.3 of the Plan is hereby deleted and the following substituted in
its place:

"3.3 Additional Option Grants. On July 18, 1997, and each anniversary of
that date hereafter, each Non-Employee Director, other than the Chairman of
the Board of the Company, shall automatically be granted an Option to
purchase 5,000 Shares, and the Chairman of the Board of the Company shall
be automatically granted an Option to purchase 10,000 Shares, provided that
(i) such Non-Employee Director shall have continually served as a director
of the Company for the nine-month period prior to the date of the Option
grant and (ii) the number of Shares available for grant under the Plan is
sufficient to permit such automatic grant."

(b) Article 4 of the Plan is hereby amended by deleting the number "250,000"
and substituting therefor the number "350,000".
<PAGE>

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202
PROXY -- ANNUAL MEETING OF STOCKHOLDERS

The undersigned, a stockholder of ATRIA COMMUNITIES, INC., a Delaware
corporation (the "Company"), hereby constitutes and appoints W. PATRICK MULLOY,
II and J. TIMOTHY WESLEY, and each of them, the true and lawful attorneys and
proxies with full power of substitution, for and in the name, place and stead of
the undersigned, to vote all shares of the Common Stock of the Company which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held at the Seelbach Hotel, 500 South Fourth
Avenue, Louisville, Kentucky, on Tuesday, May 26, 1998, at 9:00 A.M. (E.D.T.)
and at any adjournment thereof.

The undersigned hereby instructs said proxies or their substitutes:

1. ELECTION OF DIRECTORS
NOMINEES: William C. Ballard Jr.
Peter J. Grua
[ ] For the above-named nominees.
[ ] Withhold authority to vote for the above-named nominees.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:)

----------------------------------------------------------------------

2. AMENDMENT TO THE ATRIA COMMUNITIES, INC., 1996 STOCK OWNERSHIP
INCENTIVE PLAN: To approve an amendment increasing the number of
shares and incentive stock options available for issuance under the
plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. AMENDMENT TO THE ATRIA COMMUNITIES, INC., NON-EMPLOYEE DIRECTORS 1996
STOCK INCENTIVE PLAN: To approve an amendment increasing (i) the
annual option grant to non-employee Directors and the Chairman of the
Board, and (ii) the number of shares available for issuance under the
plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. DISCRETIONARY AUTHORITY: To vote with discretionary authority with
respect to all other matters which may properly come before the Annual
Meeting.

<PAGE>

This proxy, when properly executed, will be voted in accordance with any
directions hereinbefore given. Unless otherwise specified, this proxy will be
voted FOR the nominees named in Item 1 and FOR the Proposals set forth in Items
2, 3 and 4. MANAGEMENT RECOMMENDS A VOTE FOR THE ABOVE MATTERS.

The undersigned hereby revokes all proxies heretofore given and ratifies
and confirms all that the proxies appointed hereby, or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof. The
undersigned hereby acknowledges receipt of a copy of the Notice of Annual
Meeting and Proxy Statement, both dated May 4, 1998, and a copy of the Company's
Annual Report for the fiscal year ended December 31, 1997.

Please sign exactly as name appears on
label. If shares are held by joint
tenants, all parties in the joint
tenancy must sign. When signing as
attorney, executor, administrator,
trustee or guardian, state capacity.
If executed by a corporation, the proxy
should be signed by a duly authorized
officer. If a partnership, please sign
in partnership name by authorized
person.

---------------------------------------
Signature Date