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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-21159
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ATRIA COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1303738
(State or other (I.R.S.Employer
jurisdiction of Identification No.)
incorporation or
organization)
501 SOUTH FOURTH AVENUE, SUITE 140
LOUISVILLE, KENTUCKY 40202
(Address of principal (Zip Code)
executive offices)
(502) 719-1600
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.10 per share
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment of this Form 10-K. [_]
As of March 26, 1998, there were 23,381,237 shares of the Registrant's
Common Stock, $.10 par value, outstanding. The aggregate market value of the
shares of Registrant held by non-affiliates of the Registrant, based on the
closing price of such stock on the National Association of Securities
Dealers--National Market System on March 26, 1998, was approximately
$247,291,000. For purposes of the foregoing calculation only, Vencor, Inc. and
all directors and executive officers of the Registrant have been deemed
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of Part III is incorporated by reference from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
1998.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1.Business......................................................... 1
Item 2.Properties....................................................... 16
Item 3.Legal Proceedings................................................ 16
Item 4.Submission of Matters to a Vote of Security Holders.............. 16
PART II
Item 5.Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 18
Item 6.Selected Financial Data.......................................... 19
Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 20
Item 7a.Quantitative and Qualitative Disclosures About Market Risk...... 24
Item 8.Financial Statements and Supplementary Data...................... 25
Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 25
PART III
Item 10.Directors and Executive Officers of the Registrant.............. 25
Item 11.Executive Compensation.......................................... 25
Item 12.Security Ownership of Certain Beneficial Owners and Management.. 25
Item 13.Certain Relationships and Related Transactions.................. 25
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K. 25
</TABLE>
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PART I
ITEM 1. BUSINESS
OVERVIEW
Atria Communities, Inc. ("Atria" or the "Company") is a leading national
provider of assisted and independent living services 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, or no longer
desire, a totally independent lifestyle. At December 31, 1997, the Company
operated 41 communities in 19 states with a total of 4,170 units, including
2,158 assisted living units and 2,012 independent living units. The Company
also had 40 assisted living communities under development, including 19
communities under construction. The Company owns 35 of its communities, leases
four communities and manages two communities. At March 1, 1998, the Company
operated 53 communities in 19 states with a total of 4,915 units and two
nursing centers with a total of 332 beds. The Company had 41 assisted living
communities under development at March 1, 1998.
The Company was incorporated in Delaware on May 1, 1996, as a wholly-owned
subsidiary of Vencor, Inc. ("Vencor"). Vencor operates an integrated network
of health care services primarily focusing on the needs of the elderly. Prior
to the Company's initial public offering of its Common Stock in August 1996
(the "IPO"), Vencor contributed to the Company substantially all of Vencor's
assisted and independent living communities in exchange for shares of the
Company's Common Stock, and the Company assumed certain liabilities related to
such communities. In July 1997, the Company completed a public offering of 6.9
million shares of Common Stock. At December 31, 1997, Vencor owned 42.8% of
the Company's outstanding Common Stock. In February 1998, Vencor announced its
intention to sell all of its shares of the Company's Common Stock during 1998.
See "Business--Additional Company Information--Cautionary Statements."
On September 28, 1995, Vencor consummated a merger (the "Hillhaven Merger")
with The Hillhaven Corporation ("Hillhaven"). Hillhaven and its subsidiaries
operated certain of the communities now operated by the Company. Also, prior
to the Hillhaven Merger, Hillhaven consummated a share exchange (the
"Nationwide Exchange") with Nationwide Care, Inc. ("Nationwide") on June 30,
1995. Four of the communities now operated by the Company were operated by
Nationwide until the effective date of the Nationwide Exchange, and from that
date until the consummation of the Hillhaven Merger, by Hillhaven. The Company
and its predecessors have operated assisted and independent living communities
as part of a health care network for over a decade.
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 41 communities with 4,170 units
at December 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 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 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 and subsequent acquisition of one community in Stamford,
Connecticut with 123 units; (v) the addition of 40 units to an existing
community; and (vi) the opening of nine communities with 560 units that have
been developed by the Company since the IPO. In addition, the Company
terminated the lease of an 80-unit community in October 1996 and canceled five
management contracts relating to 219 units during 1997.
Atria has also significantly expanded its new community development efforts.
The number of communities under development has increased from 13 in August
1996 to 40 at December 31, 1997, including ongoing development projects
assumed by Atria through various acquisitions and communities under
development by
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Elder HealthCare Developers, LLC ("Elder HealthCare Developers"). The Company
has entered into a development agreement with Elder HealthCare Developers to
develop at least 25 communities over the next three years (including the ten
communities being developed by Elder HealthCare Developers at December 31,
1997). See "Business--Acquisition Program."
This Report contains a number of forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are qualified by reference to the cautionary statements set forth
under "Business--Additional Company Information--Cautionary Statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things: (1) successful and timely implementation
of the Company's acquisition and development strategy; (2) 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; (3)
the cost of implementing the Company's acquisition and development strategies;
and (4) other factors referenced herein. The Company does not undertake to
update any forward-looking statement that may be made from time to time by, or
on behalf of, the Company.
INDUSTRY BACKGROUND
The assisted living industry, which represented approximately $12.0 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, or no longer desire, a totally independent
lifestyle. It is estimated that 45% of the people over the age of 85 require
assistance with at least one of the activities of daily living ("ADLs"), such
as eating, grooming and bathing, personal hygiene and toileting, dressing,
transportation, walking and medication supervision. Assisted living residents
typically require assistance with two or more ADLs. The independent living
industry serves the needs of the elderly who require only occasional
assistance with ADLs.
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 offered in assisted
or independent living communities. 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 their homes.
Consumer Preference and Price Advantages. The Company believes that assisted
and independent living communities provide residents and their families with
attractive alternatives to skilled nursing facilities. Assisted living
communities allow residents to age in place and preserve their independence in
more residential settings. 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 private pay skilled nursing
facilities rates 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
that serve less than 10% of the seven million elderly who need
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or desire 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 people who need assistance with ADLs but do
not require or desire 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 leading 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 approximately 5,400 to 7,650 units of additional
capacity by the year 2000 (including the communities developed or acquired
since the IPO and the 41 communities being developed at March 1, 1998). The
Company plans to expand its base of assisted living communities on a national
basis in targeted markets with high density population areas 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 efficiencies. At December 31, 1997 and March 1,
1998, the Company had 40 sites and 41 sites, respectively, under development
for new assisted living communities, 22 of which were under construction as of
March 1, 1998. As a component of its development plans, the Company also plans
to develop units for the memory impaired and convert a portion of its existing
independent living units to assisted living units by the year 2000. 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 currently represents the largest 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 Hospital
HealthCare Services, Inc. ("JHHS") 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 JHHS facilities. In addition, Massachusetts General
Hospital participates in a wellness program for the residents of Foxhill
Village community near Boston, Massachusetts. 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 believes that its 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.
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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 AtriaCare (TM) Personalized Assisted Living Services Program
("AtriaCare (TM)") to meet the needs of these residents. This program bundles
Atria's assisted living services into four levels of increasing acuity that
allow Atria's residents to age in place in attractive residential settings. As
a result, residents with few or no health care needs are able to continue
living in Atria communities as their needs increase, unless they develop
medical conditions requiring institutional care available only in skilled
nursing facilities or acute care hospitals. Atria implemented this program in
most of its existing communities in 1997 and intends to establish this program
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-one and 25 of the Company's sites under
development at December 31, 1997 and March 1, 1998, respectively, will be
Atria Model 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 attractive residential settings.
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 vans or minibuses 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 supervision. Health-related services,
which are made available and provided according to individual resident needs
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. AtriaCare (TM) enables the Company to bundle
services into four levels of care, allowing the Company to charge prices that
correspond more closely to the levels of services provided.
Under AtriaCare (TM), 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, Atria Enriched Living, is a specialized program for the
memory impaired. At December 31, 1997, the Company operated memory impairment
programs at 16 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
welcoming process, during which the community's management staff, the resident
and, if appropriate, the resident's family and physician evaluate the
resident's needs. After the initial design and implementation, each
individual's 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.
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Most residents in Atria communities rent units through month-to-month
Residence & Services Agreements. If the resident dies or transfers to another
facility due to the need for a higher level of medical care, the Agreement can
be terminated earlier.
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.
ATRIA COMMUNITIES
The Company's communities vary in size from 23 to 356 units and are designed
to maximize privacy in attractive residential settings. Atria has developed
the Atria Model, which 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
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 40.0% 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
services. The Atria Model is designed to accommodate two ten-unit wings
dedicated to memory impairment and dementia care. Atria's assisted living
units 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 in the Atria
Model feature a private bathroom, kitchenette, closet, living and sleeping
areas, emergency call system, individual temperature controls, and fire alarm
and sprinkler systems.
In February 1998, the Company acquired two nursing centers located in Texas
in connection with the Company's acquisition of assisted and independent
living centers located in Texas. The prior owner manages both nursing centers.
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The table below sets forth certain information regarding communities
operated by the Company at March 1, 1998:
<TABLE>
<CAPTION>
ASSISTED NURSING
YEAR FIRST INDEPENDENT LIVING CENTER OWNERSHIP
ATRIA COMMUNITY LOCATION OPERATED(1) LIVING UNITS UNITS BEDS TOTAL STATUS
- --------------- -------------- ----------- ------------ -------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALABAMA
Atria Auburn(2)........ Auburn 1996 14 40 -- 54 Owned
ARIZONA
Atria Valley Manor..... Tucson 1975 45 24 -- 69 Owned
Atria Villa Campana.... Tucson 1984 141 -- -- 141 Owned
Atria Campana Del Rio.. Tucson 1988 190 24 -- 214 Owned
Atria Kachina Point
(Independent Living).. Sedona 1986 102 -- -- 102 Owned
Atria Kachina Point
(Assisted Living)(3).. Sedona 1997 -- 62 -- 62 Owned
CALIFORNIA
Atria Courtyard at San
Marcos(4)............. San Marcos 1987 -- 212 -- 212 Owned
Atria Redding.......... Redding 1997 -- 60 -- 60 Owned
COLORADO
Atria Northglenn....... Northglenn 1986 -- 99 -- 99 Owned
CONNECTICUT
Atria Courtland
Gardens............... Stamford 1972 -- 123 -- 123 Owned
FLORIDA
Atria Evergreen Woods.. Spring Hill 1979 161 55 -- 216 Owned
Atria Heritage ........ Brooksville 1992 -- 57 -- 57 Owned
Atria Windsor Woods.... Hudson 1988 88 92 -- 180 Owned
Atria Meridian House... Lantana 1986 140 33 -- 173 Owned
Atria Timberlin
Parc(5)............... Jacksonville 1998 -- 67 -- 67 Leased
GEORGIA
Atria Johnson Ferry.... Marietta 1995 -- 56 -- 56 Owned
Atria Stone Mountain... Stone Mountain 1995 -- 40 -- 40 Owned
Atria Hartwell......... Harwell 1995 -- 34 -- 34 Owned
Atria Lawrenceville.... Lawrenceville 1996 -- 48 -- 48 Owned
Atria Martinez(5)...... Augusta 1998 -- 57 -- 57 Owned
Atria Woodstock........ Woodstock 1996 -- 50 -- 50 Owned
Regal Residence........ Calhoun 1991 -- 23 -- 23 Managed
Atria Swan Manor....... Roswell 1997 -- 65 -- 65 Owned
IDAHO
Atria Hillcrest(6)..... Boise 1984 -- 115 -- 115 Owned
INDIANA
Atria Heritage ........ Indianapolis 1995 -- 72 -- 72 Owned
KANSAS
Atria Hearthstone...... Topeka 1987 115 40 -- 155 Owned
KENTUCKY
Atria St. Matthews..... Louisville 1997 -- 70 -- 70 Owned
Atria Highland
Crossing(5)........... Ft. Wright 1988 88 49 -- 137 Owned
MASSACHUSETTS
Foxhill Village........ Westwood 1990 329 27 -- 356 Managed
Atria New Pond Village. Walpole 1990 167 32 -- 199 Leased
Atria Woodbriar(5)..... Falmouth 1975 46 53 -- 99 Owned
MISSOURI
Atria Villa Ventura.... Kansas City 1983 129 43 -- 172 Owned
NEW HAMPSHIRE
Atria The Greens....... Hanover 1984 28 -- -- 28 Owned
NORTH CAROLINA
Atria Carmel Glen...... Charlotte 1997 -- 60 -- 60 Leased
TENNESSEE
Atria Cordova.......... Memphis 1997 -- 84 -- 84 Owned
Atria Hamilton Place... Chattanooga 1997 -- 50 -- 50 Leased
Atria Primacy.......... Memphis 1997 -- 48 -- 48 Owned
Atria Weston Place..... Knoxville 1993 -- 102 -- 102 Owned
Atria Weston Court..... Knoxville 1996 -- 27 -- 27 Owned
Atria Riverdale........ Memphis 1997 -- 92 -- 92 Owned
</TABLE>
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<TABLE>
<CAPTION>
ASSISTED NURSING
YEAR FIRST INDEPENDENT LIVING CENTER OWNERSHIP
COMMUNITY LOCATION OPERATED(1) LIVING UNITS UNITS BEDS TOTAL STATUS
- --------- ------------ ----------- ------------ -------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TEXAS
Atria Briarcliff Health
Center(5)............. Tyler 1987 -- -- 242 242 Leased
Atria Briarcliff
(Assisted Living)(5).. Tyler 1995 -- 62 -- 62 Leased
Atria Briarcliff
(Independent
Living)(5)............ Tyler 1985 100 -- -- 100 Leased
Atria Chandler Nursing
Center(5)............. Chandler 1987 -- -- 90 90 Leased
Atria Cypresswood...... Houston 1996 -- 56 -- 56 Leased
Atria Flower Mound
Village(5)............ Flower Mound 1997 -- 41 -- 41 Managed
Atria Village on
Copeland(5)........... Tyler 1997 -- 72 -- 72 Leased
Atria Cottage
Village(5)............ Lubbock 1993 16 40 -- 56 Owned
UTAH
Atria Crosslands
(Independent Living).. Sandy 1986 120 -- -- 120 Owned
Atria Crosslands
(Assisted Living)..... Sandy 1997 -- 63 -- 63 Owned
Atria St. George(5).... St. George 1998 -- 38 -- 38 Owned
WASHINGTON
Atria Narrows Glen..... Tacoma 1987 142 -- -- 142 Owned
Atria Laurel House(7).. Tacoma 1994 -- 97 -- 97 Owned
----- ----- --- -----
Total.................. 2,161 2,754 332 5,247
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</TABLE>
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(1) Represents the year in which the facility originally opened or commenced
operations.
(2) Fourteen-unit purchase completed in 1998.
(3) Two-unit expansion completed in 1998.
(4) The Company owns a 65.0% interest in this community.
(5) The Company began operating this facility after December 31, 1997.
(6) The community converted 115 units from independent living to licensed
assisted living units.
(7) Forty-unit expansion project completed in December 1997.
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DEVELOPMENT PROGRAM
At March 1, 1998, the Company had 41 sites for new assisted living
communities under development, 22 of which were under construction. The table
below sets forth certain information regarding the Company's communities under
development, including ten sites under development by Elder HealthCare
Developers.See "Business--Acquisition Program."
Company's Sites:
<TABLE>
<CAPTION>
ESTIMATED(1)
LOCATION DEVELOPMENT PHASE COMPLETION DATE PLANNED UNITS
- -------- ------------------ ------------------- -------------
<S> <C> <C> <C>
Huntsville, AL (Weatherly
Springs)(2).............. Under construction First Quarter 1998 46
Dallas, TX (Preston
Hollow)(2)............... Under construction First Quarter 1998 64
Atlanta, GA (Buckhead)(3)
......................... Under construction Second Quarter 1998 76
Jackson, TN(2)............ Under construction Second Quarter 1998 52
Virginia Beach, VA
(Hilltop)(4)............. Under construction Second Quarter 1998 111
Kennebunk, ME(4).......... Under construction Second Quarter 1998 74
Evansville, IN(4)......... Under construction Second Quarter 1998 90
Tucson, AZ(4)............. Under construction Second Quarter 1998 40
Elizabethtown, KY(4)...... Under construction Second Quarter 1998 60
Northglenn, CO(4)......... Under construction Third Quarter 1998 45
Topeka, KS(4)............. Under construction Third Quarter 1998 89
Newark, DE(5)............. Under contract Third Quarter 1998 30
Carrollton, TX(4)(6)...... Under construction Third Quarter 1998 88
Mobile, AL (Regency)(4)... Under construction Fourth Quarter 1998 90
Dallas, TX (Grapevine)(4). Under construction Fourth Quarter 1998 90
Covington, KY (Summit
Hills)(4)................ Under construction Fourth Quarter 1998 90
Louisville, KY
(Stoneybrook)(4)(7)...... Under construction Fourth Quarter 1998 90
Houston, TX (Kingwood).... Under construction Fourth Quarter 1998 57
Lexington, KY(3).......... Land owned First Quarter 1999 24
Lantana, FL(4)(8)......... Zoned First Quarter 1999 48
Louisville, KY
(Springdale)(4)(7)....... Under contract First Quarter 1999 90
Sandy, UT................. Under contract First Quarter 1999 60
Dallas, TX
(Richardson)(4).......... Under construction First Quarter 1999 91
Lexington, KY(4).......... Under contract Second Quarter 1999 102
Shreveport, LA(4)......... Under contract Second Quarter 1999 70
Bossier City, LA(4)....... Under contract Second Quarter 1999 70
Newark, DE(5)............. Under contract Third Quarter 1999 75
Louisville, KY(4)(7)...... Under contract Third Quarter 1999 104
Athens, GA................ Under contract Fourth Quarter 1999 56
Asheville, NC............. Under contract Fourth Quarter 1999 63
Salem, NH(4).............. Under contract Fourth Quarter 1999 114
Dennis, MA(4)............. Land owned Fourth Quarter 1999 47
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Total.................... 2,296
=====
</TABLE>
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Elder Healthcare Developers' Sites:
<TABLE>
<CAPTION>
ESTIMATED(1)
LOCATION DEVELOPMENT PHASE COMPLETION DATE PLANNED UNITS
- -------- ------------------ ------------------- -------------
<S> <C> <C> <C>
Powder Springs, GA
(Marietta)............... Under construction Third Quarter 1998 58
Montgomery, AL............ Under construction Third Quarter 1998 57
Jacksonville, FL (San
Pablo)................... Under construction Fourth Quarter 1998 67
Orlando, FL (Tuscawilla).. Under construction Fourth Quarter 1998 67
Houston, TX
(Sugarland)(4)........... Land Owned Fourth Quarter 1998 60
Orlando, TX (Wekiva
Springs)................. Land Owned Fourth Quarter 1998 72
Houston, TX (West
Chase)(4)................ Land Owned First Quarter 1999 90
Atlanta, GA (Holcomb
Bridge)(4)............... Under Contract First Quarter 1999 101
Gainesville, FL (N.W. 83rd
St.)..................... Under Contract Second Quarter 1999 71
Marco Island, FL(4)....... Under Contract Second Quarter 1999 100
---
Total................... 743
===
</TABLE>
- --------
(1) Zoning or construction delays may be experienced.
(2) Communities being developed by Carra.
(3) The Company owns a 50.0% interest in this development.
(4) An Atria Model is planned.
(5) The construction of this community is being completed in two phases.
Thirty memory impairment units will be completed in the third quarter of
1998. The remaining assisted living units will be completed in the third
quarter of 1999.
(6) The land is leased from Metrocrest Hospital Authority pursuant to a long-
term lease.
(7) Communities being developed in conjunction with the joint venture with
MedGroup.
(8) A special use permit is also required to begin construction.
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 41 assisted living communities under development at March 1,
1998 and the communities acquired or developed since the IPO). In addition,
the Company plans to convert a portion of its existing independent living
units to assisted living units by the year 2000.
In June 1997, the Company and MedGroup Management, Inc. ("MedGroup"), a
wholly-owned for-profit subsidiary of JHHS, reached an agreement regarding the
development of assisted living communities within the market areas of JHHS
facilities. MedGroup has the 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. Pursuant to this agreement, one
community located in Louisville, Kentucky was opened in December 1997. Three
communities were under development at March 1, 1998 in the greater Louisville
area. JHHS is one of the largest operators of health care facilities in
Kentucky and southern Indiana, with a network of 36 health care facilities.
Cornerstone Care, L.L.C., a Kentucky limited liability company of which
Atria owns a 50.0% interest, is presently developing a community in Lexington,
Kentucky. This community will have 24 units, all of which will be designated
for the memory impaired.
The Company's development efforts begin with site selection. When selecting
a new development site, the Company considers the local and regional economic
environment, demographics, competition, labor market, 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 the development. The Company's
internal development efforts will be based on the Atria Model. However, the
Company may continue to acquire ongoing
9
<PAGE>
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 approximately
ten months and the cost of each unit, before capitalized interest and working
capital needs, will average between $70,000 and $80,000.
Prior to 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 "Business--Additional
Company Information--Cautionary Statements."
ACQUISITION PROGRAM
From the date of the IPO through December 31, 1997, the Company had
completed the acquisition of American ElderServe Corporation ("American
ElderServe"), an operator of 12 communities with 503 units, and the
acquisition of two communities in Knoxville, Tennessee with 129 units and one
community in Stamford, Connecticut with 123 units. During the period beginning
January 1, 1998 and ending March 1, 1998, the Company acquired seven
communities with a total of 578 units and two nursing centers with a total of
332 beds. The former owner of the two nursing centers continues to manage both
nursing centers. 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 "Business--
Additional Company Information--Cautionary Statements."
In April 1997, the Company acquired American ElderServe, an Atlanta-based
operator of assisted living communities, for approximately $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 terminated the management contracts on four of
the five managed communities during July 1997. At the time of the acquisition,
American ElderServe had six additional communities under construction, three
of which opened in 1997, and the remainder of which are scheduled to open in
1998. 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 Atria Common Stock (including certain demand and incidental
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 an agreement with Elder HealthCare Developers, a Georgia limited
liability company owned ten percent by Atria 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 this southeast region over
the next three years; ten of those communities were under development at March
1, 1998. 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 through the time of purchase plus $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. 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 the 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 such communities,
Atria will extend the necessary funds or guarantees to Elder HealthCare
Developers. Assisted Care Developers has agreed to indemnify the Company for
up to 90.0% of any loss suffered by Atria as
10
<PAGE>
a result of the default of Elder HealthCare Developers on any loan either
extended or guaranteed by Atria. The Company will manage communities developed
by Elder HealthCare Developers from the day they commence operations.
The Company has completed the acquisition from Carra of five assisted living
community 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, with 92 units located in Memphis, Tennessee, was completed
in March 1997. A second 84-unit community located in Memphis opened in
September 1997. Communities to be developed at the remaining three sites are
scheduled to open during early 1998.
RECENT ACQUISITIONS
In January 1998, the Company acquired a 99-unit assisted and independent
living complex in Falmouth, Massachusetts. Of the 99 units, 70 units are
independent or assisted living units and 29 units are dedicated to care for
the memory impaired.
In January 1998, the Company acquired 14 independent living cottages located
at its Auburn, Alabama community and a 38-unit assisted living community
located in St. George, Utah.
In February 1998, the Company acquired five facilities located in Texas. The
Company financed the acquisitions with a synthetic lease entered into with an
unaffiliated party. The facilities included two assisted living communities
with 134 units, a 100-unit independent living center and a 242-bed nursing
center, all of which are located in Tyler, Texas. The transaction also
included a 90-bed nursing center located in nearby Chandler, Texas. While the
Company's strategic plan remains focused on assisted living communities,
management believes that this multi-facility acquisition represented an
attractive opportunity to accelerate the Company's presence in Texas. The
prior owners will continue to manage both nursing centers.
In February 1998, the Company acquired a 137-unit assisted and independent
living community located in Ft. Wright, Kentucky. The Company began managing
the Ft. Wright community in January 1998. In March 1998, the Company completed
the acquisition of a 56-unit assisted and independent living community located
in Lubbock, Texas.
MANAGEMENT OF THE COMMUNITIES
An Executive Director manages the day-to-day operations at each community,
including coordination and oversight of the quality of care, marketing,
services and financial performance. The Executive Director is responsible for
all personnel, including management, security, staff and independent
contractors. Executive Directors are compensated based on the 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 who oversee environmental
services, delivery of services, business office functions, dietary services,
activities, security, transportation and sales and marketing. Most assisted
living communities employ a licensed practical nurse or a registered nurse.
Some residents contract with third parties such as home health agencies to
provide additional services.
The Company actively recruits personnel to maintain adequate staffing levels
at its existing communities, as well as to add new staff prior to opening
developed or acquired communities. The Company maintains 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 fourteen-day sessions.
Executive Directors report to Regional Directors. The Company has seven
Regional Directors, each with defined geographic responsibility. Regional
Directors report to Regional Vice-Presidents, corporate Vice-Presidents of
Operations or corporate Directors of Operations, who in turn report to the
Chief Operating Officer.
11
<PAGE>
MARKETING
Each community typically employs a 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 source 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 attractive residential settings.
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 providers. 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 "Business--Additional
Company Information--Cautionary Statements."
SOURCES OF REVENUE FOR ASSISTED AND INDEPENDENT LIVING CARE
The Company currently relies primarily on its residents' abilities to pay
for the Company's services from their own financial 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."
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 assisted and independent living 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 levels of services provided
by the Company.
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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 "Business--Additional Company Information--Cautionary
Statements."
The health care industry is subject to extensive regulation and frequent
regulatory change. At this time, federal laws or regulations specifically
regulating assisted or independent living facilities have not yet been
enacted. However, the Company's communities are subject to regulation,
licensing, certificate of need requirements and permitting by many 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 and permitted 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 increase and affect 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 the effects on its business. There can be
no assurance that the Company's operations will not be adversely affected by
changes in existing laws and regulations, adoption of new laws and regulations
or new interpretations of existing laws and regulations.
Federal and state fraud and abuse or anti-self-referral statutes, such as
the Medicare/Medicaid anti-kickback laws and certain provisions of Section
1877 of the Social Security Act (commonly known as "Stark I"), the Omnibus
Budget Reconciliation Act (commonly known as "Stark II"), the Health Insurance
Portability and Accountability Act of 1997 and the Balanced Budget Act of
1997, and regulations thereunder, 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. Fraud and abuse oversight is increasing, and the application of
these laws has been expanded to include payors beyond Medicare and Medicaid,
such as indemnity insurers, managed care organizations and other private
payors. These laws have been broadly interpreted to apply to certain
relationships between health care providers and sources of patient referral.
These laws and regulations are extremely complex and have been subject to
little judicial or regulatory interpretation. Similarly, state laws vary, are
sometimes vague, and have seldom been interpreted by courts or regulatory
authorities. 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 statutory and regulatory requirements. However, in the ordinary
course of business, one or more of the Company's communities could be cited
for deficiencies. In such cases, the appropriate corrective action would be
taken. To the Company's knowledge, no material regulatory actions are
currently pending with respect to any of the Company's communities.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist that also may require modifications to existing and planned
properties to create access to
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<PAGE>
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 greater expenditures 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.
ADDITIONAL COMPANY INFORMATION
EMPLOYEES
At March 5, 1998, the Company had approximately 2,650 employees of which
2,000 were full-time and 650 were part-time. Forty full-time and two part-time
employees were employed at the Company's executive offices at that time. 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.
CAUTIONARY STATEMENTS
Information provided in this Report contains, and from time to time the
Company may disseminate materials and make statements which may contain,
"forward-looking" statements as that term is defined by the Private Securities
Litigation Reform Act of 1995 (the "Act"). These cautionary statements are
being made pursuant to the provisions of the Act. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements as a result of various factors,
including, but not limited to, the following:
(i) Typically, a newly developed 90-unit assisted living community is
expected to incur operating losses of between $150,000 and $250,000 during
the first 12 months of operations. Once opened, the Company estimates that
it will take an average of 12 months for one of its communities to achieve
targeted occupancy levels. The Company may incur additional 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.
(ii) To achieve its growth objectives, the Company will need to obtain
substantial additional financing to fund its development, construction, and
acquisition activities beyond the first quarter of 1999. 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 funding sources,
including equity or debt financing. If additional funds are raised by
issuing equity securities, the Company's stockholders may experience
dilution. Accordingly, the Company's future growth will depend upon its
ability to obtain additional financing on acceptable terms. 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.
(iii) The Company's ability to expand and develop additional assisted
living communities will depend upon a number of factors, including, but not
limited to, the Company's ability to acquire suitable properties or
communities at reasonable prices; the Company's success in obtaining the
necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations; and the Company's ability
to control construction and renovation costs and project completion
schedules. In addition, the Company's development plan is subject to
numerous factors outside its control, including competition for
acquisitions, shortages of, or the inability to obtain, labor or materials,
changes in applicable
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laws or regulations or in the methods of applying and/or interpreting such
laws and regulations, the failure of general contractors or subcontractors
to perform under their contracts, strikes and adverse weather. The Company
does not currently have a substantial internal development staff, but it
has retained third parties to locate suitable sites for new assisted living
communities and to handle other aspects of the development process on a
contract basis. Final approval of all development sites 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 adversely affected.
(iv) 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 communities after acquisition and
the ability of the Company to integrate effectively the operations of
acquired communities.
(v) The amount of debt and debt-related payments is substantial and 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 interest payments, debt service and related payments and
the Company will be subject to risks normally associated with increasing
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. At December 31, 1997, $61.3
million of the Company's indebtedness bore interest at floating rates.
Therefore, increases in prevailing interest rates could increase the
Company's interest payment obligations. The degree to which the Company is
leveraged could adversely affect the Company's ability to obtain additional
financing for working capital, acquisitions or other purposes and could
make it more vulnerable to economic downturns and competitive pressures.
The Company's increased leverage could also adversely affect its liquidity,
could force the Company to forego other expenditures, including potential
acquisitions, and could have a material adverse effect on the Company's
business, financial condition and results of operation.
(vi) 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. The Company will need to expand its
operational, financial, legal 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.
(vii) 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 that the Company receives for its services could be adversely
affected. In addition, inflation and other circumstances that 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.
(viii) The assisted living industry is highly competitive. The Company
believes that the assisted living industry will become even more
competitive in the future. The Company competes with various local,
regional and national 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.
(ix) At December 31, 1997, Vencor owned 42.8% of the Company's
outstanding stock. In February 1998, Vencor announced its intention to sell
all of its shares of the Company's Common Stock during 1998. The Company's
Credit Facility requires, among other things, that Vencor own at least
30.0% of the Company's Common Stock. Accordingly, the sale of the Company's
Common Stock by Vencor would constitute an event of default under the
Credit Facility. Although management is considering a plan to renegotiate
the terms of the Credit Facility prior to the sale of the Company's Common
Stock by Vencor, there can be no assurance that any renegotiation will be
successful or that the Company will be able to obtain refinancing on terms
acceptable to the Company.
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<PAGE>
ITEM 2. PROPERTIES
For information concerning the Company's communities, see "Business--Atria
Communities" and "Business--Development Program." The Company has recently
relocated to new corporate headquarters with approximately 15,000 square feet.
The previous corporate offices were leased from Vencor and no longer contained
adequate space for the Company's corporate employees. The Company believes
that its new corporate offices are adequate for the Company's current needs
and will continue to evaluate such needs in the future.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the normal
course of business. In the opinion of management of the Company, although the
outcomes of these suits and claims are uncertain, in the aggregate they should
not have a material adverse effect on the Company's business, financial
condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the executive officers of the Company, their ages (as of
January 1, 1998) and their positions with the Company. Messrs. Mulloy and
Wesley were appointed to their positions in May 1996. Mr. Schoepf became an
executive officer in April 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- ----------------------------------------
<S> <C> <C>
W. Patrick Mulloy, II............... 44 Chief Executive Officer, President and
Director
J. Timothy Wesley................... 38 Chief Financial Officer, Vice-President
of Development and Secretary
Andy L. Schoepf..................... 49 Chief Operating Officer and Director
</TABLE>
W. PATRICK MULLOY, II has served as the Chief Executive Officer, President
and a Director of the Company since May 1996. From 1994 to 1996, Mr. Mulloy
was a member and of counsel to the law firm of Greenebaum Doll & McDonald
PLLC. From 1992 to 1994, Mr. Mulloy served as the Secretary of the Finance and
Administration Cabinet for the Commonwealth of Kentucky. For over ten years
prior to 1992, Mr. Mulloy was engaged in the private practice of law in
Louisville, Kentucky. Mr. Mulloy has also been actively involved in commercial
and multi-family real estate acquisitions and developments.
J. TIMOTHY WESLEY has been the Chief Financial Officer, Vice-President of
Development and Secretary of the Company since May 1996. From 1994 to 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.
ANDY L. 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. He was a Director of the Senior Living Association of
Georgia and the Executive Vice-President and the founding board member of the
Assisted Living Association of Georgia.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed and traded on the NASDAQ National
Market System ("NASDAQ") under the symbol "ATRC." The following table sets
forth the high and low sales prices for the Common Stock, as reported by
NASDAQ, for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year ended December 31, 1996 :
Third Quarter(1)............................................... $13.50 $10.00
Fourth Quarter................................................. 14.50 9.25
Year ended December 31, 1997:
First Quarter.................................................. 13.75 9.88
Second Quarter................................................. 15.50 10.25
Third Quarter.................................................. 19.50 14.25
Fourth Quarter................................................. 19.00 15.13
Year ending December 31, 1998:
First Quarter (through February 27)............................ 21.25 16.00
</TABLE>
- --------
(1) Atria Common Stock commenced trading on August 20, 1996.
On March 26, 1998, the closing price for the Common Stock as reported by
NASDAQ was $19.75 per share. As of such date, the Company had approximately
325 holders of record of the Common Stock.
The Company intends to retain any earnings to finance operations and its
development strategy. In addition, the Company's Credit Facility prohibits
distributions to the Company's stockholders. Accordingly, the payment of any
cash dividends on the Common Stock is unlikely in the foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
ATRIA COMMUNITIES, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Revenues.......................... $68,878 $51,846 $47,976 $39,758 $35,870
------- ------- ------- ------- -------
Salaries, wages and benefits...... 28,152 19,861 17,455 14,638 14,735
Supplies.......................... 6,332 5,024 4,860 4,023 4,360
Rent.............................. 615 353 383 333 351
Depreciation and amortization..... 7,399 5,060 5,113 4,541 4,503
Non-recurring transactions........ -- 1,050 600 (1,675) (266)
Other operating expenses.......... 13,752 10,594 9,465 8,347 8,031
------- ------- ------- ------- -------
56,250 41,942 37,876 30,207 31,714
------- ------- ------- ------- -------
Operating income.................. 12,628 9,904 10,100 9,551 4,156
Interest expense.................. 5,409 4,287 4,322 3,538 3,499
Investment income................. (4,579) (1,439) (147) (330) (346)
------- ------- ------- ------- -------
Income before income taxes and
extraordinary loss............... 11,798 7,056 5,925 6,343 1,003
Provision for income taxes........ 4,413 2,787 2,341 2,506 396
------- ------- ------- ------- -------
Income before extraordinary loss.. 7,385 4,269 3,584 3,837 607
Extraordinary loss on
extinguishment of debt, net of
income tax benefit............... (199) -- (146) -- (103)
------- ------- ------- ------- -------
Net income........................ $ 7,186 $ 4,269 $ 3,438 $ 3,837 $ 504
======= ======= ======= ======= =======
Earnings per common share (a):
Basic:
Income before extraordinary
loss......................... $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on
extinguishment of debt....... (0.01) -- (0.02)
------- ------- -------
Net income.................... $ 0.36 $ 0.35 $ 0.34
======= ======= =======
Diluted:
Income before extraordinary
loss......................... $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on
extinguishment of debt....... (0.01) -- (0.02)
------- ------- -------
Net income.................... $ 0.36 $ 0.35 $ 0.34
======= ======= =======
Shares used in computing earnings
per common share (a):
Basic........................... 19,720 12,140 10,095
Diluted......................... 20,054 12,226 10,095
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Average occupancy(b)............. 89.5% 96.1% 94.5% 93.8% 90.8%
Number of communities(c):
Owned and leased............... 39 19 20 19 19
Managed........................ 2 2 2 2 2
-------- ------- ------- ------- -------
Total........................ 41 21 22 21 21
======== ======= ======= ======= =======
Number of units(c):
Owned and leased............... 3,791 2,523 2,603 2,531 2,574
Managed........................ 379 419 419 419 419
-------- ------- ------- ------- -------
Total........................ 4,170 2,942 3,022 2,950 2,993
======== ======= ======= ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents........ $152,724 $65,238 $ 2,819 $ 1,497 $ 1,695
Assets........................... 475,463 209,782 140,917 133,016 137,308
Long-term debt, including amounts
due within one year............. 256,847 110,032 105,350 91,193 91,744
Stockholders' equity............. 192,839 88,946 28,447 31,835 34,959
</TABLE>
19
<PAGE>
- --------
(a) Share and per share amounts for periods prior to the IPO are presented on
a pro forma basis.
(b) Average occupancy is calculated on a daily basis by dividing the number of
occupied units by the total number of available units.
(c) At end of period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Selected Financial Data in Item 6 and the consolidated financial
statements included in this Annual Report on Form 10-K set forth certain data
with respect to the financial position, results of operations and cash flows
of the Company that should be read in conjunction with the following
discussion and analysis.
Atria is a leading national provider of assisted and independent living
services for the elderly. At December 31, 1997, the Company operated 41
communities located in 19 states with a total of 4,170 units, including 2,158
assisted living units and 2,012 independent living units. At December 31,
1997, the Company had 40 assisted living communities under development,
including 19 communities under construction. At March 1, 1998, Atria operated
53 communities located in 19 states with a total of 4,915 units (2,754
assisted living units and 2,161 independent living units), as well as two
nursing centers in Texas with a total of 332 beds. At March 1, 1998, Atria had
41 assisted living communities under development, including 22 under
construction.
Substantially all revenues for the year ended December 31, 1997 were derived
from private pay sources and were earned from services provided to residents
under both daily Residence & Services Agreements and ancillary service
agreements. Revenues related to management contracts were not significant.
PLANNED EXPANSION AND DEVELOPMENT
Atria intends to expand its business in the future through both construction
of additional communities and acquisition of existing facilities, which could
add 60 to 85 assisted and independent living communities consisting of
approximately 5,400 to 7,650 units by the year 2000 (including communities
acquired or developed since the IPO and communities currently under
development). The Company also expects to convert a portion of its existing
independent living units to assisted living units by the year 2000. 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 communities in
accordance with this growth plan could approximate $375.0 to $550.0 million,
which substantially exceeds the Company's presently existing capital
resources. Management believes that substantial additional financing will be
required to continue Atria's growth plans beyond the first quarter of 1999.
Available sources of future capital may include, among other things, equity,
public or private debt and additional bank revolving credit. However, there
can be no assurance that such financing will be available on terms that are
acceptable to Atria, nor can there be any assurance that additional financing
will not be required or sought by Atria in 1998.
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 level 12 months from commencement of
operations. Accordingly, the Company 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 reasonable periods, the results of operations, financial
position and liquidity of the Company could be materially and adversely
impacted.
The statements contained under "Planned Expansion and Development" are
forward looking statements and are qualified by reference to the cautionary
statements set forth under "Business--Additional Company Information--
Cautionary Statements."
20
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0%
------- ------- -------
Salaries, wages and benefits..................... 40.9 38.3 36.4
Supplies......................................... 9.2 9.7 10.1
Rent............................................. 0.9 0.7 0.8
Depreciation and amortization.................... 10.7 9.8 10.7
Non-recurring transactions....................... -- 2.0 1.2
Other operating expenses......................... 20.0 20.4 19.7
------- ------- -------
81.7 80.9 78.9
------- ------- -------
Operating income................................. 18.3 19.1 21.1
Interest expense................................. 7.9 8.3 9.0
Investment income................................ (6.7) (2.8) (0.2)
------- ------- -------
Income before income taxes and extraordinary
loss.......................................... 17.1 13.6 12.3
Provision for income taxes....................... 6.4 5.4 4.8
------- ------- -------
Income before extraordinary loss............... 10.7% 8.2% 7.5%
======= ======= =======
</TABLE>
1997 Compared to 1996
Revenues increased 32.9% to $68.9 million in 1997. This increase was
primarily attributable to the acquisition of American ElderServe and newly
constructed communities ($14.1 million), price increases ($4.0 million) and
expansion of ancillary services ($675,000) offset by a slight decline in
occupancy ($1.8 million). Same community occupancy was 95.1% and 96.4% for the
years ended December 31, 1997 and 1996, respectively. Management deems a
community to be fully utilized at a 95.0% occupancy rate due to the periodic
time gaps between the occupation of units by former residents and new
residents inherent to the operation of assisted and independent living
communities.
Compensation costs and other operating expenses increased as a percentage of
revenues in 1997 as compared to 1996, primarily as a result of the American
ElderServe acquisition, growth in administrative expenses associated with
Atria's expansion and development programs and increased overhead costs
associated with development communities that opened in 1997.
Operating income increased 27.5% to $12.6 million in 1997. Excluding the
effect of non-recurring items, operating income increased 15.3% in 1997. In
1997, operating income increased primarily due to growth in revenues from the
American ElderServe acquisition. However, operating income for 1997 was
adversely impacted by administrative costs incurred in connection with Atria's
expansion and development program.
Income before extraordinary loss increased 73.0% to $7.4 million in 1997.
Excluding the effect of non-recurring items, income before extraordinary loss
increased 50.6%. The improvement in 1997 was attributable to the increase in
operating income discussed above and the increased investment income resulting
from the sale in 1997 of 6.9 million shares of Common Stock in a public
offering (the "Secondary Offering") and the private placement (the "Note
Offering") in 1997 of $143.75 million principal amount of 5.0% Convertible
Subordinated Notes Due 2002 (the "Convertible Notes").
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 the Company as a
separate entity. Upon consummation of the IPO, the Company became
contractually obligated to pay Vencor for certain centralized management and
administrative services underlying such historical allocations and estimates.
The Company's operating results include corporate costs and expenses of Vencor
aggregating
21
<PAGE>
$374,000, $620,000 and $600,000 for the three years ended December 31, 1997,
1996 and 1995, respectively. Management believes that these allocations
reasonably reflect the proportional costs incurred by Vencor on behalf of the
Company.
For an analysis of the Company's income tax provision and effective tax
rate, see Note 5 of the Notes to Consolidated Financial Statements.
As discussed in Note 1 of the Notes to Consolidated Financial Statements, on
December 31, 1997, Statement of Financial Accounting Standards No. 128
required the Company to change the method of computing earnings per share on a
retroactive basis. The change in the method of calculation did not have a
material impact on previously reported earnings per common share.
1996 Compared to 1995
Revenues increased 8.1% to $51.8 million in 1996. This increase in revenues
was primarily the result of price increases ($2.2 million), growth in
occupancy ($1.0 million) and expansion of ancillary services ($600,000).
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 the Company's expansion and development programs.
Operating income declined 1.9% to $9.9 million in 1996. Excluding the effect
of non-recurring transactions, operating income increased 2.4% to $11.0
million in 1996. 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 the Company's
expansion and development programs.
Income before extraordinary loss increased 19.1% to $4.3 million in 1996.
Excluding the effect of non-recurring transactions, income before
extraordinary loss increased 24.2% to $4.9 million in 1996. The improvement in
1996 was primarily attributable to a decline in interest costs and increased
investment income resulting from the IPO.
In June 1996, the Company recorded a non-recurring pre-tax 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $15.5, $13.2 and $8.5 million for the
three years ended December 31, 1997, 1996 and 1995, respectively. The
improvement in cash flows from operations resulted primarily from growth in
net income, increases in depreciation and amortization, increases in accrued
liabilities in 1997 and increases in accounts payable for 1996.
The Company's working capital totaled $180.7 million and $45.6 million at
December 31, 1997 and 1996, respectively. Working capital increased
substantially during 1997 primarily due to the net proceeds received from the
Secondary Offering ($91.1 million) and the Notes Offering ($139.8 million)
offset by the acquisitions during the period. The increase in working capital
for 1996 resulted primarily from the IPO. Substantially all cash and cash
equivalents in excess of working capital needs will be used to fund Atria's
expansion and development program.
On August 26, 1996, Atria entered into a bank credit facility (the "Credit
Facility") aggregating $200.0 million, which was reduced to $125.0 million in
January 1998 (including a letter of credit option not to exceed $70.0
million), which has a maturity of four years and which 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 derived from PNC Bank's
prime rate or the daily federal funds rate or (ii) a LIBOR rate, plus an
additional percentage based on
22
<PAGE>
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, 1997 approximated $90.3 million.
Net cash used in investing activities totaled $128.4 million, $8.5 million
and $2.9 million for the three years ended December 31, 1997, 1996 and 1995,
respectively. For 1997, Atria's investing activities included, among other
things, capital expenditures related to the development of new communities and
expansion of existing operations totaling $53.4 million, $7.4 million and $4.0
million for 1997, 1996 and 1995, respectively. During 1997, the Company also
acquired (i) five communities for $21.7 million in cash plus the assumption of
debt; and (ii) American ElderServe for $8.7 million in cash plus the issuance
of 636,487 shares of Common Stock and the assumption of debt. The Company also
had net purchases of short-term investments of $35.6 million in 1997.
Net cash provided by financing activities was $200.4 million and $57.8
million for 1997 and 1996, respectively, while net cash used in financing
activities was $4.3 million for 1995. In 1997, cash provided from financing
activities was attributable to the net proceeds from the Secondary Offering
and the Notes Offering, offset by payments on long-term debt, which included
$14.4 million of debt assumed in the American ElderServe acquisition. In 1996,
net cash provided by financing activities was primarily attributable to the
net proceeds received from the IPO, which approximated $52.1 million. In 1995,
operating cash flows in excess of capital expenditures were used primarily to
repay advances from Vencor.
Capital expenditures related to the Company's acquisition of existing
facilities, construction of new communities and improvement of existing
communities could approximate $175.0 to $200.0 million in 1998. Although
management believes that cash flows from operations, proceeds from the
Secondary Offering and the Note Offering and available borrowing under the
Credit Facility are sufficient to meet these liquidity needs, Atria will
require substantial additional financing to continue its growth plans beyond
the first quarter of 1999. At March 1, 1998, Atria had 41 sites under
development for new assisted living communities, 22 of which were under
construction. The additional cost to complete and equip the 22 communities
under construction at March 1, 1998 approximated $91.3 million.
The Company made cash advances to Elder HealthCare Developers (included in
other long-term assets) totaling $5.0 million at December 31, 1997 to finance
the development of certain assisted living communities. Elder HealthCare
Developers plans to obtain third party financing to fund future development,
construction and start-up costs associated with its development of
communities. Management believes that Elder HealthCare Developer's financing
needs for 1998 should not exceed approximately $40.0 million. If such
financing is unavailable or insufficient to cover all of the construction and
start-up costs related to these communities, the Company will be responsible
for providing any additional financing.
In June 1997, the Company and MedGroup reached an agreement regarding the
joint development of assisted living communities within the market areas of
JHHS. Pursuant to this arrangement, MedGroup has the right to purchase up to a
40.0% 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. At March 1, 1998, three such projects were under development in the
greater Louisville area. The Company's portion of the estimated cost to
complete the three projects under development at March 1, 1998 was
approximately $21.3 million.
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 the Company as well as other factors deemed relevant by the
Board of Directors. The Credit Facility prohibits the Company from paying cash
dividends.
In connection with the IPO, all amounts previously classified as investments
by and advances from Vencor were contributed to the Company as part of its
permanent capitalization. In addition, Vencor also contributed approximately
$4.3 million in cash to the Company prior to the consummation of the IPO.
The Credit Facility contains financial covenants and other restrictions that
(i) require the Company to meet certain financial tests; (ii) require that
there be no change in control of the Company; (iii) limit, among other
23
<PAGE>
things, the ability of the Company 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 the Company's
stockholders; and (v) require that Vencor own at least 30.0% of the Company's
Common Stock. Vencor guaranteed for four years certain borrowings by the
Company under the Credit Facility in amounts up to $75.0 million at December
31, 1997, declining to $50.0 million in 1998 and $25.0 million in 1999.
In February 1998, Vencor announced its intention to sell all the Company's
Common Stock held by Vencor during 1998. The Company is currently reviewing
various options with respect to the registration and sale of the Common Stock
held by Vencor. The sale of the Company's Common Stock by Vencor would violate
certain covenants contained in the Credit Facility. Management is considering
a plan to renegotiate the terms of the Credit Facility prior to the sale of
the Company's Common Stock by Vencor. See "Business--Additional Company
Information--Cautionary Statements."
EFFECTS OF INFLATION AND CHANGING PRICES
The Company derives substantially all of its revenues from private pay
sources within its assisted and independent living business. The terms of most
Residence & Services Agreements approximate one month, generally enabling the
Company 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 the Company operates,
the effect of which may limit the Company's ability to increase prices to
maintain operating margins in the future. In addition, other market
conditions, including the effect of unfavorable real estate zoning
requirements, increased government regulation, limitations associated with
industrial revenue bond and HUD financing and increased labor costs, could
adversely impact the Company's ability to increase prices or control growth in
operating expenses.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" refers to the result of computer programs having been
written using two digits rather than four to define the applicable year.
Computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This recognition could result
in a system failure or miscalculations causing disruptions of operations.
Among other things, this problem could lead to a temporary inability to
process transactions, send invoices or engage in similar normal business
transactions.
The Company replaced substantially all of its information systems software
in early 1998. The Company believes that with the conversion to the new
information systems software, the Year 2000 Issue will not pose significant
business or operational issues.
The Company has engaged in communications with the third-party providers of
certain of its administrative services (primarily the Company's payroll
function), as well as its significant suppliers of services and products to
determine the extent to which the Company is vulnerable to those parties'
failures to remediate their own Year 2000 Issues. The Company does not
presently believe that third-party Year 2000 Issues will have a material
adverse effect on the Company. However, there can be no guarantee that the
systems of other companies on which the Company's operations or systems rely
will be timely remediated or that a failure by another company to remediate
its systems in a timely manner would not have a material adverse effect on the
Company.
The Company's assessment of the Year 2000 Issue is based on management's
best estimate, which was derived utilizing numerous assumptions of future
events including third party modification plans and other factors. However,
actual results could differ materially from management's expectations.
Specific factors that might cause material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and collect all relevant code, compatibility of third-party
interfaces and similar uncertainties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Appendix pages F-1
through F-19 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these Items other than the information set forth
above under Part I, "Executive Officers of the Company," is omitted because
the Company is filing a definitive proxy statement pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this
Report. The required information contained in the Company's proxy statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) 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, 1997,
1996 and 1995 F-3
Consolidated Balance Sheet, December 31, 1997 and 1996 F-4
Consolidated Statement of Stockholders' Equity for the years ended De-
cember 31, 1997, 1996 and 1995 F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Quarterly Consolidated Financial Information (unaudited) F-19
</TABLE>
25
<PAGE>
(a)(2) INDEX TO EXHIBITS.
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
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 By-laws. 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.
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 dated as of January 15, 1997 to Credit Agreement among
Atria Communities, Inc., as Borrower, the lending institutions named
therein, PNC Bank, N. A., as Administrative Agent, PNC Bank Kentucky,
Inc., as Managing Agent, and National City Bank of Kentucky, Inc., as
Documentation Agent. Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1997 (Comm. File No. 0-21159)
is hereby incorporated by reference.
4.5 Amendment No. 2 dated as of March 27, 1997 to Credit Agreement among
Atria Communities, Inc., as Borrower, the lending institutions named
therein, PNC Bank, N. A., as Administrative Agent, PNC Bank Kentucky,
Inc., as Managing Agent, and National City Bank of Kentucky, Inc., as
Documentation Agent. Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1997 (Comm. File No. 0-21159)
is hereby incorporated by reference.
4.6 Amendment No. 3 dated as of May 27, 1997 to Credit Agreement among
Atria Communities, Inc., as Borrower, the lending institutions named
therein, PNC Bank, N. A., as Administrative Agent, PNC Bank Kentucky,
Inc., as Managing Agent, and National City Bank of Kentucky, Inc., as
Documentation Agent. Exhibit 4.6 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-28577) is hereby incorporated by
reference.
4.7 Amendment No. 4 dated as of September 29, 1997 to Credit Agreement
among Atria Communities, Inc., as Borrower, the lending institutions
named therein, PNC Bank, N. A., as Administrative Agent, PNC Bank
Kentucky, Inc., as Managing Agent, and National City Bank of Kentucky,
Inc., as Documentation Agent. Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 1997 (Comm.
File No. 0-21159) is hereby incorporated by reference.
4.8 Amendment No. 5 dated as of December 31, 1997 to Credit Agreement among
Atria Communities, Inc., as Borrower, the lending institutions named
therein, PNC Bank, N.A., as Administrative Agent and Managing Agent,
and National City Bank of Kentucky, Inc., as Documentation Agent.
4.9 Amendment No. 6 dated as of January 30, 1998 to Credit Agreement among
Atria Communities, Inc., as Borrower, the lending institutions named
therein, PNC Bank, N.A., as Administrative Agent and Managing Agent,
and National City Bank of Kentucky, Inc., as Documentation Agent.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
4.10 Indenture dated as of October 16, 1997 between Atria Communities, Inc.
and PNC Bank, Kentucky, Inc. as Trustee. Exhibit 4.2 to the Company's
Current Report on Form 8-K dated October 16, 1997 is hereby
incorporated by reference.
4.11 Form of 5.0% Convertible Subordinated Notes due 2002 (included in
Exhibit 4.10).
4.12 Shareholder Protection Rights Agreement dated as of February 15, 1998,
between Atria Communities, Inc. and National City Bank, as Rights
Agent. Exhibit 99.1 to the Company's Current Report on Form 8-K dated
February 24, 1998 (Comm. File No. 0-21159) is hereby incorporated by
reference.
4.13 First Amendment to Shareholder Protection Rights Agreement dated as of
February 24, 1998, between Atria Communities, Inc. and National City
Bank, as Rights Agent. Exhibit 99.3 to the Company's Current Report on
Form 8-K dated February 24, 1998 (Comm. File No. 0-21159) is hereby
incorporated by reference.
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 Administrative Services Agreement dated as of August 19, 1997 between
Atria Communities, Inc. and Vencor, Inc.
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 Atria Communities, Inc. 1996 Stock Ownership Incentive Plan.
10.6 Atria Communities, Inc. Non-Employee Directors 1996 Stock Incentive
Plan.
10.7 First Amendment to Atria Communities, Inc. Non-Employee Directors 1996
Stock Incentive Plan.
10.8 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 Registration
Statement on Form S-1 (Comm. File No. 333-06097) is hereby incorporated
by reference.
10.9 Indenture of Trust and Agreement dated as of December 1, 1985, by and
among The Redevelopment Agency of the City of San Marcos, San Marcos
Retirement Village, The First National Bank of Boston, as Trustee, and
Security Pacific National Bank. Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (Comm. File No. 333-06907) is hereby
incorporated by reference.
10.10 Form of Services Agreements relating to Kachina Point, San Marcos,
McMillen Senior Village, 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 incorporated by
reference.
10.11 Form of Voting Agreement. Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Comm. File No. 333-06907) is hereby incorporated
by reference.
10.12 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.
10.13 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.
10.14 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.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
10.15 Security Agreement dated as of August 15, 1996 among Atria Communities,
Inc. as 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. No. 0-21159) is
hereby incorporated by reference.
10.16 Amendment No. 1 to Security Agreement dated as of March 27, 1997 among
Atria Communities, Inc., as Assignor, other original assignors named
therein, additional pledgors 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 Quarter Ended March 31, 1997
(Comm. File No. 0-21159) is hereby incorporated by reference.
10.17 Pledge Agreement dated as of August 15, 1996 among Atria Communities,
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 reference.
10.18 Amendment No. 1 to Pledge Agreement dated as of March 27, 1997 among
Atria Communities, Inc., as Pledgor, other original pledgors 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 Quarter Ended March 31, 1997
(Comm. File No. 0-21159) is hereby incorporated by reference.
10.19 Parent Guaranty dated as of August 15, 1996 among (a) Atria
Communities, Inc., as Borrower, (b) Vencor, Inc., as parent Guarantor,
(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. Exhibit 4 to the Company's
Current Report on Form 8-K dated August 26, 1996 (Comm. File No. 0-
21159) is hereby incorporated by reference.
10.20 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 Hospitals California, Inc.,
Vencor Hospitals Texas, Ltd., Ventech Systems, Inc., Pastiempo
Development Corp., VCI Specialty Services, Inc., and Vencor Properties,
Inc., as Supporting Guarantors, and PNC Bank, National Association, as
Administrative Agent. Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1997 (Comm. File No. 0-21159)
is hereby incorporated by reference.
10.21 Subsidiary Guaranty dated as of August 15, 1996 between the
subsidiaries 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.
10.22 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 Quarter Ended
March 31, 1997 (Comm. File No. 0-21159) is hereby incorporated by
reference.
10.23 Future Advance Mortgage, Assignment of Leases and Security Agreement
dated as of August 15, 1996, executed by Atria Communities, Inc., in
favor of PNC Bank, National Association, as Collateral Agent (Heritage
at Wildwood). (Similar forms were used for other properties.) Exhibit 6
to the Company's Current Report on Form 10-K dated August 26, 1996
(Comm. File No. 0-21159) is hereby incorporated by reference.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
10.24 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.)
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.
10.25 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.
10.26 Letter from Vencor, Inc. to Andy L. Schoepf dated April 1, 1997,
agreeing to vote all of Vencor, Inc.'s shares of Atria Common Stock for
Mr. Schoepf's nominee for the Board of Directors. Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (Comm. File No. 333-28577)
is hereby incorporated by reference.
10.27 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 reference.
10.28 Letter dated March 9, 1998 from Atria Communities, Inc. to Assisted
Care Developers agreeing to amend the Development Agreement between
Elder HealthCare Developers, LLC and Atria Communities, Inc., dated as
of April 1, 1997.
10.29 Amended and Restated Operating Agreement of Elder HealthCare
Developers, LLC dated as of
April 1, 1997, as amended and restated on November 18, 1997.
10.30 First Amendment to the Amended and Restated Operating Agreement of
Elder HealthCare Developers, LLC, dated as of February 18, 1998.
10.31 Second Amendment to the Amended and Restated Operating Agreement of
Elder HealthCare Developers, LLC, dated as of February 26, 1998.
10.32 Agreement by and among MedGroup Management, Inc., Atria Communities,
Inc. and Atrium at St. Matthews, LLC dated June 3, 1997. Exhibit 10.31
to the Company's Registration Statement on Form S-1 (Comm. File No.
333-28577) is hereby incorporated by reference.
10.33 Amendment No. 2 to Parent Guaranty dated as of May 27, 1997 by Atria
Communities, Inc., as Borrower, Vencor, Inc., as Parent Guarantor, the
Supporting Guarantors named therein, and PNC Bank, National
Association, as Administrative Agent. Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997
(Comm. File No. 0-21159) is hereby incorporated by reference.
10.34 Agreement for Purchase and Sale of Assets by and among Atria
Communities, Inc., Briarcliff Health Center of Texas, Briarcliff Health
Center, Inc., and Larry S. Parker, Randy Parker and Don Steele dated as
of December 15, 1997. Exhibit 2.1 to the Company's Current Report on
Form 8-K dated February 17, 1998 (Comm. File No. 0-21159) is hereby
incorporated by reference.
10.35 Agreement for Purchase and Sale of Assets by and among Atria
Communities, Inc., Briarcliff Village Health Center, Briarcliff Village
Health Center, Inc., and Larry S. Parker, Randy Parker, Mary G.
Tedford, Laura R. Tedford, David Tedford and Don Steele dated as of
December 15, 1997. Exhibit 2.2 to the Company's Current Report on Form
8-K dated February 17, 1998 (Comm. File No. 0-21159) is hereby
incorporated by reference.
10.36 Agreement for Purchase and Sale of Assets by and among Atria
Communities, Inc., Nursing Care Four, Chandler Nursing Center, Inc.,
and Larry S. Parker, Randy Parker, Mary G. Tedford, Laura R. Tedford,
David Tedford and Don Steele dated as of December 15, 1997. Exhibit 2.3
to the Company's Current Report on Form 8-K dated February 17, 1998
(Comm. File No. 0-21159) is hereby incorporated by reference.
10.37 Agreement for Purchase and Sale of Assets by and among Atria
Communities, Inc., and Larry S. Parker dated as of December 15, 1997.
Exhibit 2.4 to the Company's Current Report on Form 8-K dated February
17, 1998 (Comm. File No. 0-21159) is hereby incorporated by reference.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
10.38 Master Participation Agreement dated as of January 30, 1998 among Asset
XVIII Holdings Company, LLC, as Lessor, Atria Communities, Inc., as
Lessee and Bank One, Kentucky, N.A., as Lender. Exhibit 99.1 to the
Company's Current Report on Form 8-K dated February 17, 1998 (Comm.
File No. 0-21159) is hereby incorporated by reference.
10.39 Master Lease and Development Agreement dated as of January 10, 1998,
between Asset XVIII Holdings Company, LLC, as Lessor, and Atria
Communities, Inc., as Lessee. Exhibit 99.2 to the Company's Current
Report on Form 8-K dated February 17, 1998 (Comm. File No. 0-21159) is
hereby incorporated by reference.
10.40 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.
10.41 Registration Rights Agreement dated as of October 16, 1997 by and among
Atria Communities, Inc., BT Alex. Brown Incorporated, Donaldson, Lufkin
& Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated,
Smith Barney Inc. and J.C. Bradford & Co. Exhibit 99.1 to the Company's
Current Report on Form 8-K (Comm. File No. 0-21159) dated October 16,
1997 is hereby incorporated by reference.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (included only in filings under the Electronic
Data Gathering, Analysis, and Retrieval System).
</TABLE>
(b) REPORTS ON FORM 8-K.
During the fourth quarter of 1997, the Company filed a Current Report on
Form 8-K dated October 16, 1997 related to the private placement of the
Company's 5.0% Convertible Subordinated Notes due 2002.
(c) EXHIBITS.
The response to this portion of Item 14 is submitted as a separate section
of this Report.
(d) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ATRIA COMMUNITIES, INC.
Date: March 30, 1998 By: /s/ J. Timothy Wesley
----------------------------------
J. Timothy Wesley
Chief Financial Officer, Vice-
President of
Development and Secretary
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ W. Bruce Lunsford Chairman of the March 30, 1998
- ------------------------------- Board
W. Bruce Lunsford
/s/ W. Patrick Mulloy, II Chief Executive March 30, 1998
- ------------------------------- Officer, President
W. Patrick Mulloy, II and Director
/s/ J. Timothy Wesley Chief Financial March 30, 1998
- ------------------------------- Officer, Vice-
J. Timothy Wesley President of
Development and
Secretary (Chief
Financial and
Accounting Officer)
/s/ Andy L. Schoepf Chief Operating March 30, 1998
- ------------------------------- Officer and Director
Andy L. Schoepf
/s/ Sandra Harden Austin Director March 30, 1998
- -------------------------------
Sandra Harden Austin
/s/ William C. Ballard Jr. Director March 30, 1998
- -------------------------------
William C. Ballard Jr.
/s/ Peter J. Grua Director March 30, 1998
- -------------------------------
Peter J. Grua
/s/ Thomas T. Ladt Director March 30, 1998
- -------------------------------
Thomas T. Ladt
/s/ R. Gene Smith Director March 30, 1998
- -------------------------------
R. Gene Smith
<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, 1997,
1996 and 1995.......................................................... F-3
Consolidated Balance Sheet, December 31, 1997 and 1996.................. F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31,
1997, 1996, and 1995................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 1997,
1996 and 1995.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Quarterly Consolidated Financial Information (unaudited)................ F-19
</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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 11, 1998
F-2
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $68,878 $51,846 $47,976
------- ------- -------
Salaries, wages and benefits........................ 28,152 19,861 17,455
Supplies............................................ 6,332 5,024 4,860
Rent................................................ 615 353 383
Depreciation and amortization....................... 7,399 5,060 5,113
Non-recurring transactions.......................... -- 1,050 600
Other operating expenses............................ 13,752 10,594 9,465
------- ------- -------
56,250 41,942 37,876
------- ------- -------
Operating income.................................... 12,628 9,904 10,100
Interest expense.................................... 5,409 4,287 4,322
Investment income................................... (4,579) (1,439) (147)
------- ------- -------
Income before income taxes and extraordinary loss... 11,798 7,056 5,925
Provision for income taxes.......................... 4,413 2,787 2,341
------- ------- -------
Income before extraordinary loss.................... 7,385 4,269 3,584
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $134 in 1997 and $93 in 1995. (199) -- (146)
------- ------- -------
Net income.................................... $ 7,186 $ 4,269 $ 3,438
======= ======= =======
Earnings per common share:
Basic:
Income before extraordinary loss................ $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on extinguishment of debt.... (0.01) -- (0.02)
------- ------- -------
Net income.................................... $ 0.36 $ 0.35 $ 0.34
======= ======= =======
Diluted:
Income before extraordinary loss................ $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on extinguishment of debt.... (0.01) -- (0.02)
------- ------- -------
Net income.................................... $ 0.36 $ 0.35 $ 0.34
======= ======= =======
Shares used in computing earnings per common
share:
Basic........................................... 19,720 12,140 10,095
Diluted......................................... 20,054 12,226 10,095
</TABLE>
See accompanying notes.
F-3
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $152,724 $ 65,238
Short-term investments................................... 35,570 --
Resident accounts receivable less allowance for loss of
$239--1997 and $130--1996............................... 743 356
Income taxes............................................. 2,846 193
Other.................................................... 2,878 1,010
-------- --------
194,761 66,797
Property and equipment, at cost:
Land..................................................... 33,228 21,368
Buildings................................................ 201,209 123,707
Equipment................................................ 17,724 11,228
Construction in progress (estimated cost to complete and
equip after December 31, 1997--$63,000)................. 29,856 5,643
-------- --------
282,017 161,946
Accumulated depreciation................................... (33,754) (27,426)
-------- --------
248,263 134,520
Intangible assets less accumulated amortization of $2,531--
1997 and $3,599--1996..................................... 14,190 3,353
Notes receivable........................................... 7,273 --
Other...................................................... 10,976 5,112
-------- --------
$475,463 $209,782
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 6,121 $ 2,536
Salaries, wages and other compensation................... 2,095 1,163
Other accrued liabilities................................ 4,892 2,686
Long-term debt due within one year....................... 992 14,825
-------- --------
14,100 21,210
Long-term debt............................................. 255,855 95,207
Deferred credits and other liabilities..................... 12,669 4,419
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: 1997--23,375; 1996--15,830
shares.................................................. 2,338 1,583
Capital in excess of par value........................... 181,610 85,658
Retained earnings........................................ 8,891 1,705
-------- --------
192,839 88,946
-------- --------
$475,463 $209,782
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENTS
BY AND
COMMON COMMON CAPITAL IN ADVANCES
STOCK STOCK EXCESS OF RETAINED FROM
SHARES PAR VALUE PAR VALUE EARNINGS VENCOR, INC. TOTAL
------ --------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1995................... -- $ -- $ -- $ -- $ 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
Net income............ -- -- -- 7,186 -- 7,186
Stock issued in
conjunction with the
acquisition of
American ElderServe.. 636 64 5,131 -- -- 5,195
Secondary stock
offering............. 6,900 690 90,339 -- -- 91,029
Amortization of
restricted stock..... -- -- 400 -- -- 400
Stock options
exercised............ 9 1 82 -- -- 83
------ ------ -------- ------ -------- --------
Balances, December 31,
1997................... 23,375 $2,338 $181,610 $8,891 $ -- $192,839
====== ====== ======== ====== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
ATRIA COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 7,186 $ 4,269 $ 3,438
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 7,399 5,060 5,113
Provision for doubtful accounts................ 98 42 79
Deferred income taxes.......................... 3,716 860 (63)
Extraordinary loss on extinguishment of debt... 333 -- 239
Non-recurring transactions..................... -- 750 600
Other.......................................... (167) 22 (261)
Changes in operating assets and liabilities,
net of adjustments for acquisitions of
businesses:
Accounts receivable.......................... (269) (340) (240)
Other assets................................. (702) 164 234
Accounts payable............................. (636) 1,354 53
Income taxes................................. (3,034) 190 --
Other accrued liabilities.................... 1,617 827 (661)
--------- -------- -------
Net cash provided by operating activities.. 15,541 13,198 8,531
--------- -------- -------
Cash flows from investing activities:
Purchases of property and equipment............ (53,452) (7,389) (4,025)
Payment for acquisition of American Elderserve. (8,720) -- --
Acquisitions of other new businesses........... (21,716) -- --
(Investments in) distributions from joint
ventures...................................... (6,572) 31 716
Purchases of short-term investments............ (41,611) -- --
Sales of short-term investments................ 6,041 -- --
Other.......................................... (2,401) (1,185) 437
--------- -------- -------
Net cash used in investing activities...... (128,431) (8,543) (2,872)
--------- -------- -------
Cash flows from financing activities:
Issuance of long-term debt..................... 148,828 23,205 6,806
Repayment of long-term debt.................... (34,748) (18,205) (4,659)
Payment of deferred financing costs............ (4,727) (1,816) --
Issuance of common stock....................... 91,112 52,097 --
Equity contribution from Vencor, Inc........... -- 4,350 --
Net payments to Vencor, Inc.................... -- (1,729) (6,350)
Other.......................................... (89) (138) (134)
--------- -------- -------
Net cash provided by (used in) financing
activities................................ 200,376 57,764 (4,337)
--------- -------- -------
Change in cash and cash equivalents.............. 87,486 62,419 1,322
Cash and cash equivalents at beginning of period. 65,238 2,819 1,497
--------- -------- -------
Cash and cash equivalents at end of period....... $ 152,724 $ 65,238 $ 2,819
========= ======== =======
Supplemental information:
Interest payments, net of amounts capitalized.. $ 3,744 $ 3,528 $ 4,397
Income tax payments............................ 3,238 2,446 2,310
Non-cash transactions:
Exchange of note receivable for additional
partnership interest........................ -- -- 4,552
Fair value of common stock issued in
connection with the acquisition of American
Elderserve Corporation...................... 5,195 -- --
Assumption of long-term debt through business
and community acquisitions.................. 32,632 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
Basis of Presentation
Atria is a leading national provider of assisted and independent living
services for the elderly. At December 31, 1997, Atria operated 41 communities
located in 19 states with a total of 4,170 units, including 2,158 assisted
living units and 2,012 independent living units.
In May 1996, the Board of Directors of 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, Vencor consummated
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, 1997, Vencor owned 10,000,000
shares, or 42.8%, of Atria's outstanding common stock.
The consolidated financial statements include all subsidiaries. Significant
intercompany transactions have been eliminated. Investments in affiliates in
which the Company has a 50% or less interest are accounted for by the equity
method.
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. Residence and service
agreements 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>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Owned and leased communities...................... $68,312 $51,568 $47,635
Managed communities............................... 566 278 341
------- ------- -------
$68,878 $51,846 $47,976
======= ======= =======
</TABLE>
The terms of resident agreements at two communities 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 straightline basis over the estimated stay of a resident based
upon the community's historical experience. See Note 6.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less.
F-7
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
Short Term Investments
Short-term investments consist of U.S. government and municipal securities
and are carried at fair value. Short-term investments, which mature in 1998,
have an original maturity in excess of three months at the time of
acquisition.
Allowance For Doubtful Accounts
A summary of the allowance for doubtful accounts follows (dollars in
thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
Balance at beginning of period......................... $ 130 $ 89 $ 46
Provision for doubtful accounts........................ 98 42 79
Assumed in acquisitions................................ 334 -- --
Accounts written off................................... (323) (1) (36)
----- ----- ----
Balance at end of period............................... $ 239 $ 130 $ 89
===== ===== ====
</TABLE>
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. The Company capitalized interest costs of $1.4 million and
$58,000 in 1997 and 1996, respectively, (none in 1995) related to the
construction and development of certain communities.
Depreciation expense, computed by the straight line method, was $5.9 million
in 1997, $4.6 million in 1996 and $4.4 million in 1995. Depreciable lives for
buildings range generally from 20 to 45 years. Estimated useful lives of
equipment vary from five to ten years.
Intangible Assets
Intangible assets primarily consist of goodwill, debt issuance costs and
pre-opening costs. Costs in excess of the fair value of identifiable net
assets of acquired entities are amortized using the straight-line method
principally over 30 years. Amortization expense for goodwill in 1997 totaled
$148,000 (none in 1996).
The Company regularly reviews the carrying value of certain long-lived
assets and the related identifiable intangible assets with respect to any
events or circumstances that indicate impairment or that the depreciation or
amortization period may require adjustment. If such circumstances suggest the
recorded amounts cannot be recovered, calculated based on estimated
undiscounted cash flows over the remaining amortization period, the carrying
value of such assets are reduced accordingly. At December 31, 1997, the
Company does not believe that the carrying value or the depreciation or
amortization period of its long-lived assets and related identifiable
intangibles requires such adjustments.
Pre-opening costs aggregating $780,000 at December 31, 1997 (none at
December 31, 1996), represent costs incurred by the Company prior to the
opening of a community, and are amortized over a period of one year. Debt
issuance costs are amortized over 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
F-8
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
statements of Vencor prior to the IPO 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
files separate federal and state income tax returns.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"), replacing the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share exclude any dilutive effects of options, warrants and convertible
securities. Earnings per share for all periods presented have been restated to
conform to the requirements of SFAS 128. The impact of the restatement was not
significant.
Share and per share amounts for periods prior to the IPO are presented on a
pro forma basis.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which will become
effective in December 1998 and requires interim disclosures beginning in 1999.
SFAS 131 requires public companies to report certain information about
operating segments, products and services, the geographic areas in which they
operate and major customers. The operating segments are to be based on the
structure of the enterprise's internal organization whose operating results
are regularly reviewed by senior management. Management has not yet determined
the effect, if any, of SFAS 131 on the consolidated financial statements
disclosures.
NOTE 2--NON-RECURRING TRANSACTIONS
In June 1996, Atria recorded a nonrecurring 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.
NOTE 3--AMERICAN ELDERSERVE ACQUISITION
On April 1, 1997, Atria acquired American ElderServe, an operator of
assisted living communities, for a combination of Atria's common stock, cash
and assumption of debt valued at approximately $30.7 million. At the time of
the acquisition, American ElderServe operated 12 assisted living communities
consisting of 503 units and also had six additional communities under
construction containing 345 units. A summary of the American ElderServe
acquisition follows (dollars in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired..................................... $36,812
Fair value of liabilities assumed................................. 22,873
-------
Net assets acquired............................................. 13,939
Fair value of common stock issued................................. (5,195)
Cash received from acquired entity................................ (24)
-------
Net cash paid................................................... $ 8,720
=======
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets acquired (to be amortized over 30 years by the straight line method)
aggregated $5.7 million.
F-9
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--AMERICAN ELDERSERVE ACQUISITION (CONTINUED)
The pro forma effect of the American ElderServe acquisition, assuming that
the transaction occurred on January 1, 1996, follows (dollars in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1997 1996
------- -------
<S> <C> <C>
Revenues.................................................. $70,700 $57,140
Income before extraordinary loss.......................... 3,810 3,188
Net income................................................ 3,611 3,188
Earnings per basic and diluted common share:
Income before extraordinary loss........................ $ 0.19 $ 0.25
Net income.............................................. 0.18 0.25
</TABLE>
Pro forma income for the year ended December 31, 1997 includes nonrecurring
compensation expense incurred by American ElderServe in connection with
accelerated vesting of certain stock options exercised in conjunction with the
American ElderServe acquisition, the effect of which reduced pro forma net
income by $2.2 million, or $0.11 per common share.
In connection with the American ElderServe acquisition, the Company entered
into an agreement with Elder HealthCare Developers, a limited liability
company owned 10% by Atria and 90% by Assisted Care Developers, to develop at
least 25 assisted living communities for the Company in the southeastern
United States over the next three years. Assisted Care Developers is wholly-
owned by George A. Schoepf, former Executive Vice President of American
ElderServe and the brother of Andy L. Schoepf, the Company's Chief Operating
Officer and a Director.
Atria has made advances to Elder Health Care Developers, included in other
long-term assets, totaling $5.0 million at December 31, 1997 to finance the
development of certain assisted living communities. Elder HealthCare
Developers plans to obtain third party financing during 1998 to fund the
development, construction and working capital needs of its communities. If
such financing is unavailable or insufficient to cover all of the construction
and start-up costs associated with such communities, Atria will be responsible
for providing any additional financing.
NOTE 4--OTHER ACQUISITIONS
The Company has acquired a number of communities, all of which have been
accounted for by the purchase method. Accordingly, the aggregate purchase
price of these transactions has been allocated to tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective
fair values. The consolidated financial statements include the operations of
acquired entities since the respective acquisition dates. The pro forma effect
of these acquisitions on the Company's results of operations prior to the
consummation was not significant.
The following is a summary of acquisitions consummated during 1997,
including the acquisition of a community from Vencor for $14.0 million (see
Note 8), under the purchase method of accounting (dollars in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $29,672
Fair value of liabilities assumed................................ 7,663
-------
Net assets acquired.............................................. 22,009
Cash received from acquired entities............................. 293
-------
Net cash paid for acquisitions................................... $21,716
=======
</TABLE>
F-10
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INCOME TAXES
A summary of the provision for income taxes follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal......................................... $ 634 $1,634 $2,021
State........................................... 63 293 383
------ ------ ------
697 1,927 2,404
Deferred.......................................... 3,716 860 (63)
------ ------ ------
$4,413 $2,787 $2,341
====== ====== ======
Reconciliation of federal statutory rate to effective income tax rate follows:
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit.......................................... 3.5 3.7 4.0
Goodwill amortization............................. 0.5 -- --
Tax-free interest income.......................... (2.3) -- --
Other items, net.................................. 0.7 0.8 0.5
------ ------ ------
Effective income tax rate......................... 37.4% 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>
1997 1996
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Depreciation.......................... $ -- $ 7,319 $ -- $3,761
Acquired property basis differences... -- 5,821 -- --
Partnerships.......................... 1,821 -- 2,040 --
Compensation.......................... -- -- 214 198
Subsidiary net operating losses
(expiring in 2012)................... 1,353 -- -- --
Other................................. 1,242 350 361 223
------ ------- ------ ------
$4,416 $13,490 $2,615 $4,182
====== ======= ====== ======
</TABLE>
Deferred income taxes totaling $442,000 and $193,000 at December 31, 1997
and 1996, respectively, are included in current assets. Non-current deferred
income taxes, included in deferred credits and other liabilities, totaled
$9,516,000 and $1,760,000 at December 31, 1997 and 1996, respectively.
F-11
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT
A summary of long-term debt at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
5.0% Convertible Subordinated Notes due 2002.............. $143,750 $ --
Industrial revenue bonds, 5.3% to 7.7% (rates generally
floating, average 6.5%) payable in periodic installments
through 2010............................................. 61,290 62,115
Non-interest bearing residential mortgage bonds, payable
in periodic installments through 2040.................... 33,384 33,917
Mortgage notes payable, 8.3% to 9.5% (average 9.0%)
payable in periodic installments through 2036............ 12,194 --
Note payable to Vencor.................................... -- 14,000
Other..................................................... 6,229 --
-------- --------
Total debt, average life of 12 years (rates averaging
5.0%).................................................. 256,847 110,032
Amounts due within one year............................... 992 14,825
-------- --------
Long-term debt.......................................... $255,855 $ 95,207
======== ========
</TABLE>
In October 1997, the Company completed a $143,750,000 private offering (the
"Convertible Notes Offering") of 5.0% Convertible Subordinated Notes due 2002
(the "Convertible Notes"). Net proceeds from this offering approximated $139.8
million and are being used to finance the development and acquisition of
assisted living communities, for working capital and general corporate
purposes. The Convertible Notes are convertible into shares of the Company's
common stock at $20.864 per share and may not be redeemed by the Company prior
to October 15, 2000.
In conjunction with the American ElderServe acquisition, the Company assumed
approximately $16.8 million in long-term debt, of which $14.3 million was
repaid simultaneous with the acquisition. The Company recorded, net of income
tax benefit, an extraordinary loss on extinguishment of long-term debt of
$199,000, primarily relating to unamortized deferred costs, relating to the
aforementioned retired debt.
Under the terms of a residence and service agreement at two communities,
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 20.0%
of the face amount of the bond. The consolidated statement of cash flows
includes issuances of resident mortgage bonds aggregating $5.0 million, $5.5
million and $4.2 million in 1997, 1996 and 1995, respectively, and redemptions
of such bonds aggregating $5.4 million, $4.7 million and $3.5 million for each
of the respective years.
Maturities of long-term debt in years 1999 through 2002 are $1,044,000,
$1,057,000, $1,074,000 and $144,843,000, respectively.
On August 26, 1996, Atria entered into a bank credit facility (the "Credit
Facility") which was amended in January 1998 and aggregates $125.0 million
(including a letter of credit option not to exceed $70.0 million) and 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
F-12
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG TERM DEBT (CONTINUED)
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 Vencor to own
at least 30.0% of Atria's common stock. In addition, Vencor guaranteed for
four years certain borrowings by Atria under the Credit Facility in amounts up
to $75.0 million at December 31, 1997 and declining to $50.0 million in 1998
and $25.0 million in 1999.
NOTE 7--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.
NOTE 8--TRANSACTIONS WITH VENCOR
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.
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 $374,000,
$620,000 and $600,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Management believes that these allocations reasonably reflect
the proportional costs incurred by Vencor on behalf of Atria.
Administrative Services--Atria and Vencor entered into an agreement to which
Vencor provided certain administrative services to Atria. Some of the services
provided to the Company by Vencor included finance and accounting, human
resources, risk management, legal, marketing and information systems support.
The Company paid Vencor $374,000 and $620,000 for these services in 1997 and
1996, respectively. The agreement expired on December 31, 1997.
Services Agreement--The Company and Vencor entered into an agreement
pertaining to the sharing of costs at seven communities relating to
maintenance and lawn services, marketing, food services, general office,
housekeeping and emergency call services. The agreement expired in August
1997.
Guarantees--Vencor guarantees certain borrowings by Atria under the Credit
Facility through 2000. Atria will pay to Vencor a fee equal to 1.5% of any
guaranteed amounts. For both 1997 and 1996, Atria did not incur any costs
related to Vencor's guarantee.
F-13
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--TRANSACTIONS WITH VENCOR (CONTINUED)
Leases--Atria leases certain properties from Vencor including its
headquarters office space. Rent expense approximated $48,000 and $18,000 in
1997 and 1996, respectively. The agreement expired in January 1998.
Borrowings From Vencor--A subsidiary of Atria was indebted to Vencor in the
amount of $14.0 million, which bore interest at a rate equal to the floating
prime rate of National City Bank, Kentucky plus 1.0%. In July 1997, the
promissory note was repaid in full. Interest costs incurred by Atria in
connection with this note aggregated $697,000 and $482,000 for the years ended
December 31, 1997 and 1996, respectively.
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.
Liabilities and Indemnifications--Atria assumed all contractual liabilities
relating to the assets transferred by Vencor to Atria.
In October 1997, the Company purchased the assets of a retirement community
in Stamford, Connecticut for approximately $14.0 million. This community was
previously owned by Vencor and had been managed by Atria since April 1997.
NOTE 9--OTHER RELATED PARTY TRANSACTIONS
During 1997, Atria paid Assisted Care Developers $451,000 primarily for
services relating to the location of future development sites of Atria
communities.
During 1997, Atria engaged DevCon Realty, LLC ("DevCon"), a commercial real
estate brokerage firm, to serve as its broker in the acquisition of new
community development sites. Atria paid DevCon $85,000 for such services
during 1997. DevCon is owned 50% by George A. Schoepf, 25% by Andy L. Schoepf
and 25% by adult children of Andy L. Schoepf.
Pursuant to the acquisition of American ElderServe, Atria assumed
construction contracts between Delta Construction Corporation (Delta) and
American ElderServe for four communities then under development. Delta is
owned by Andy L. Schoepf (40%) and his brothers, George A. Schoepf (40%) and
Earl Schoepf (20%). The contracts allow Delta to act as the construction
manager or general contractor for selected projects, including the four then
under development. Atria paid Delta approximately $4.9 million for such
services during 1997.
In the acquisition of American ElderServe, the Company assumed a promissory
note, amounting to $545,000 at December 31, 1997, that Schoepf Equities, LLC
had originally issued to American ElderServe (the Schoepf Note). The
promissory note includes 7% per annum interest and the note is due March 31,
1999. Schoepf Equities, LLC is owned 50% by Andy L. Schoepf and 50% by George
A. Schoepf. The Schoepf Note is secured by certain land.
F-14
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--CAPITAL STOCK
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 or
outstanding in 1996 or 1997.
In July 1997, the Company completed a secondary offering of 6,900,000 shares
of common stock at $14 per share (the "Secondary Offering"). The net proceeds
from the Secondary Offering (approximately $91.1 million) are being used to
finance the development and acquisition of assisted living communities and for
general corporate purposes.
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 non-
employee directors. Options may be granted at not less than the 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 vests one-half annually over a two-year period. Under certain
conditions (e.g., change in control, as defined) the options and restricted
stock immediately vest.
Activity in the plans is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OPTION PRICE PER AVERAGE
UNDER OPTION SHARE EXERCISE PRICE
------------ ---------------- --------------
<S> <C> <C> <C>
Balances, January 1, 1996. -- $ -- $ --
Granted................. 639,500 10.00 10.00
Canceled................ (90,000) 10.00 10.00
---------
Balances, December 31,
1996..................... 549,500 10.00 10.00
Granted................. 1,850,750 10.00 to 17.13 14.58
Exercised............... (8,125) 10.00 10.00
Canceled................ (162,275) 10.00 to 15.25 11.88
---------
Balances, December 31,
1997..................... 2,229,850 $10.00 to $17.13 13.66
=========
</TABLE>
A summary of stock options outstanding at December 31, 1997 follows:
<TABLE>
<CAPTION>
NUMBER
OUTSTANDING AT REMAINING WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE
EXERCISE PRICES 1997 LIFE EXERCISE PRICE
--------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Issued in
1996-- $10.00 515,600 8.6 years $10.00
Issued in
1997-- $10.00 - $17.13 1,714,250 9-10 years $14.76
</TABLE>
F-15
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--CAPITAL STOCKS (CONTINUED)
The weighted average remaining contractual life of options outstanding at
December 31, 1997 approximated 9.40 years. Shares of common stock available
for future grants were 1,012,025 and 700,500 at December 31, 1997 and 1996,
respectively. Approximately 128,000 shares were exercisable at December
31,1997 (none at December 31, 1996).
In February 1998, Atria established a Shareholders Protection Rights
Agreement that allows common stockholders the right to purchase Series A
Preferred Stock in the event of accumulation of or tender offer for 15.0% or
more of the Company's common stock. The rights are not triggered by beneficial
holders of 15.0% or more prior to February 16, 1998 or by any person who
becomes a beneficial owner of common stock solely as a result of acquiring not
more than 10,000,000 shares of common stock from Vencor, unless such holder
increases its beneficial holdings. The rights will expire in 2008 unless
redeemed earlier by the Company.
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" ("SFAS 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 SFAS 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: risk-free interest rate of 6.9% in 1997 and 6.5% in 1996; no
dividend yield; expected term of eight years in 1997 and nine years in 1996
and a volatility factor of the expected market price of Atria's common stock
of .40 in 1997 and .50 in 1996. The weighted fair value of options granted in
1997 and 1996 approximated $8.57 and $6.69 per share, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that 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>
1997 1996
------ ------
<S> <C> <C>
Pro forma net income........................................ $5,152 $3,929
Pro forma basic and diluted earnings per common share....... $ 0.26 $ 0.32
</TABLE>
F-16
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--EARNINGS PER COMMON SHARE
A computation of the earnings per common share follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Numerator:
Income before extraordinary loss................ $ 7,385 $ 4,269 $ 3,584
Extraordinary loss.............................. (199) -- (146)
------- ------- -------
Numerator for basic and dilutive earnings per
share.......................................... $ 7,186 $ 4,269 $ 3,438
======= ======= =======
Denominator:
Denominator for basic earnings per share--
weighted-average shares........................ 19,720 12,140 10,095
Effect of dilutive securities:
Employee stock options.......................... 334 86 --
------- ------- -------
Denominator for diluted earnings per share-
adjusted weighted-average shares and assumed
conversions...................................... 20,054 12,226 10,095
======= ======= =======
Earnings per common share:
Basic:
Income before extraordinary loss.............. $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on extinguishment of debt.. (0.01) -- (0.02)
------- ------- -------
Net income.................................. $ 0.36 $ 0.35 $ 0.34
======= ======= =======
Dilutive:
Income before extraordinary loss.............. $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on extinguishment of debt.. (0.01) -- (0.02)
------- ------- -------
Net income.................................. $ 0.36 $ 0.35 $ 0.34
======= ======= =======
</TABLE>
The impact of the conversion of the Convertible Notes is not included in the
above calculation because the effect of including such shares, and the related
reduction in interest expense, is antidilutive.
NOTE 12--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
$83,000 for 1997, $84,000 for 1996 and $77,000 for 1995. Amounts equal to
retirement plan expense are funded annually.
NOTE 13--ACCRUED LIABILITIES
A summary of other accrued liabilities at December 31 follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Taxes other than income.................................... $1,254 $ 779
Interest................................................... 2,545 835
Due to Vencor.............................................. 63 257
Employee benefits.......................................... 549 243
Income taxes............................................... -- 190
Other...................................................... 481 382
------ ------
$4,892 $2,686
====== ======
</TABLE>
F-17
<PAGE>
ATRIA COMMUNITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--LEASES
The Company leases real estate and equipment under cancelable and non-
cancelable arrangements. Future minimum payments under non-cancelable
operating leases as of December 31, 1997 are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998............................................................... $ 952
1999............................................................... 1,056
2000............................................................... 1,124
2001............................................................... 1,144
2002............................................................... 1,165
Thereafter......................................................... $8,007
</TABLE>
NOTE 15--FAIR VALUE DATA
A summary of fair value data at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $152,724 $152,724 $ 65,238 $65,238
Short-term investments................... 35,570 35,570 -- --
Notes receivable......................... 7,273 7,273 -- --
Long-term debt, including amounts due
within
one year................................ 256,847 247,044 110,032 96,989
</TABLE>
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash, cash equivalents and short-term investments: The carrying amounts
approximate fair values.
Notes receivable: The carrying amounts approximate fair values.
Long-term debt: 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.
NOTE 16--SUBSEQUENT EVENTS
In February 1998, Vencor announced its plans to sell all of its holdings of
Atria common stock during 1998. Atria is currently reviewing various options
with respect to the registration and sale of the Company's common stock held
by Vencor. The sale of the Company's common stock by Vencor will violate
certain covenants contained in the Credit Facility. Management is considering
a plan to renegotiate the Credit Facility prior to the sale of the Company's
common stock by Vencor.
In January 1998, Atria announced the purchase of a community in Falmouth,
Massachusetts aggregating $10.2 million and acquired five communities, two of
which are nursing centers in Tyler, Texas by entering into a lease agreement
with an outside third party with annual payments approximating $2.1 million
through 2003.
F-18
<PAGE>
ATRIA COMMUNITIES, INC.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
--------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues...................................... $14,217 $16,982 $17,731 $19,948
Income before extraordinary loss.............. 1,578 1,479 2,048 2,280
Extraordinary loss on extinguishment of debt.. -- (199) -- --
------- ------- ------- -------
Net income.................................. 1,578 1,280 2,048 2,280
Earnings per common share:
Basic:
Income before extraordinary loss.......... 0.10 0.09 0.09 0.10
Extraordinary loss on extinguishment of
debt..................................... -- (0.01) -- --
------- ------- ------- -------
Net income.............................. 0.10 0.08 0.09 0.10
Diluted:
Income before extraordinary loss.......... 0.10 0.09 0.09 0.10
Extraordinary loss on extinguishment of
debt..................................... -- (0.01) -- --
------- ------- ------- -------
Net income.............................. 0.10 0.08 0.09 0.10
Market prices per common share(c):
High........................................ $ 13.75 $ 15.50 $ 19.50 $ 19.00
Low......................................... 9.88 10.25 14.25 15.13
<CAPTION>
1996
--------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues...................................... $12,611 $12,837 $13,038 $13,360
Net income(a)................................. 1,166 568 1,212 1,323
Earnings per common share(b):
Basic....................................... 0.11 0.06 0.10 0.08
Diluted..................................... 0.11 0.06 0.10 0.08
Market prices per common share(c):
High........................................ -- -- 13.50 14.50
Low......................................... -- -- 10.00 9.25
</TABLE>
- --------
(a) Second quarter results include a charge of $1.1 million ($630,000 net of
tax) related to the settlement of certain litigation.
(b) Share and per share amounts for periods prior to the IPO are presented on
a pro forma basis.
(c) Atria Common Stock commenced trading on August 20, 1996. Atria Common
Stock is traded on NASDAQ (ticker symbol--ATRC).
F-19
<PAGE>
EXHIBIT 4.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATRIA COMMUNITIES, INC.
AS BORROWER
AND
THE LENDERS NAMED HEREIN
AS LENDERS
AND
PNC BANK, N. A.
AS ADMINISTRATIVE AGENT
AND
AS MANAGING AGENT
NATIONAL CITY BANK OF KENTUCKY
AS DOCUMENTATION AGENT
-----------------
AMENDMENT NO. 5
DATED AS OF
DECEMBER 31, 1997
TO
CREDIT AGREEMENT
DATED AS OF
AUGUST 15, 1996
-----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 5 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO CREDIT AGREEMENT, dated as of December 31, 1997
("THIS AMENDMENT"), 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, N. A., a national
banking association, as administrative agent (the "ADMINISTRATIVE AGENT") and as
managing agent (the "MANAGING AGENT") for the Lenders under the Credit Agreement
(hereafter defined); 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, Amendment No. 2 to Credit
Agreement, dated as of March 27, 1997, Amendment No. 3 to Credit Agreement,
dated as of May 27, 1997, and Amendment No. 4 to Credit Agreement, dated as of
September 29, 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) PNC Bank, Kentucky, Inc. and PNC Bank, National Association, both
parties to the Credit Agreement, are now by merger and change of name PNC Bank,
N. A.
(3) The Borrower desires to make several acquisitions and an investment as
described in a letter dated December 11, 1997 from the Managing Agent to the
Lenders.
(4) The Borrower, such Agents and the Lenders party hereto desire to amend
certain of the terms and provisions of the Credit Agreement in order to permit
the Borrower to complete such acquisitions and investment, all as more fully set
forth below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 DEFINITION OF PERMITTED ACQUISITIONS. Effective on the Effective Date
(as hereinafter defined), the definition of the term Permitted Acquisitions,
which appears in section 10 of the Credit Agreement, is amended by adding the
following at the end thereof:
Nothwithstanding the foregoing, (i) there shall be excluded from the
$50,000,000 limitation provided in clause (B) above in the case of the
Borrower's fiscal year ended December 31, 1998, the actual consideration,
including Priority Debt, of up to $58.9 million, expended for the following
acquisitions, as described in a letter dated December 11, 1997 from the
Managing Agent to the Lenders: (1) Woodbriar, (2) Briarcliff-BVRC, (3)
Briarcliff-BVHC, (4) Briarcliff-Chandler, (5) Cottage Village, (6) Highland
Crossing, (7) Evergreen Gardens, and (8) Briarcliff-Copeland; and (ii)
there shall be excluded from the $15,000,000 and $25,000,000 limitations
contained in
<PAGE>
clause (A) above the consideration, including Priority Debt, expended for
the acquisition of the Briarcliff-related properties referred to in the
preceding clause (i)
.
1.2 ADDITIONS TO MATURE PROPERTY POOL, ETC. Effective on the Effective
Date, as contemplated by clause (8) of the definition of the term Mature
Property Pool, each of the following properties described in a letter dated
December 11, 1997 from the Managing Agent to the Lenders, namely, (1) Woodbriar,
(2) Briarcliff-BVRC, (3) Briarcliff-BVHC, (4) Briarcliff-Chandler, and (5)
Cottage Village, shall on the date of acquisition thereof, be added to and
become part of the Mature Property Pool, SUBJECT to removal of any such property
from the Mature Property Pool and transfer of such property to the Development
Property Pool if any of the following conditions shall not have been satisfied
within 60 days following the acquisition thereof:
(1) ENVIRONMENTAL REPORT, ETC.: the Borrower shall have provided to
the Managing Agent a Phase I environmental audit report, addressed to the
Managing Agent and the Administrative Agent, or accompanied by an
appropriate letter authorizing such reliance, with respect to such
property, prepared by an environmental consulting firm acceptable to the
Managing Agent, which report shall be satisfactory in form and substance to
the Managing Agent, and the Borrower shall have, or shall have caused its
applicable Subsidiary to, complete, to the satisfaction of the Managing
Agent, any remedial work and establish any additional environmental
compliance activities as are recommended in such environmental report;
(2) SURVEY ON OWNED PROPERTY: in the case of any such property which
is owned by the Borrower or a Subsidiary, the Borrower shall have provided
to the Managing Agent, with respect to such property, a survey, in form and
substance reasonably satisfactory to the Collateral Agent and the Managing
Agent, of such property, certified in a manner satisfactory to the
Collateral Agent and the Managing Agent by a licensed professional surveyor
reasonably satisfactory to the Collateral Agent and the Managing Agent;
(3) SUBSIDIARY TO JOIN IN SUBSIDIARY GUARANTY, ETC.: any Subsidiary
which is the owner of any direct or indirect interest therein shall have
become (if it is not already) a party to the Subsidiary Guaranty, the
Pledge Agreement and the Security Agreement;
(4) MORTGAGE: the Collateral Agent shall have been granted a Mortgage
covering the ownership or leasehold interest in such property, which
Mortgage shall be first priority and subject to no Permitted Encumbrances
which are not acceptable to the Managing Agent;
(5) MORTGAGE POLICY, ETC.: the Collateral Agent shall have received a
Mortgage Policy, related UCC financing statements, consents of landlords,
non-disturbance and attornment agreements and similar documents (not
including a survey, if such property is leased), as are contemplated by and
meet the requirements of section 5.1(n)(iii) of the Credit Agreement, all
in form and substance satisfactory to the Managing Agent and the Collateral
Agent, with respect to such property.
2
<PAGE>
1.3 LEVERAGE RATIO. Effective on the Effective Date, the text appearing
below the table in section 8.12(a) of the Credit Agreement is amended to read in
its entirety as follows:
As used herein, the term "NET DEBT ON THE MATURE PROPERTY POOL" means (i)
all Indebtedness of the Borrower and its Subsidiaries, on a consolidated
basis, but without duplication in respect of Letters of Credit supporting
any Indebtedness otherwise included, LESS the sum of (ii) cash and Cash
Equivalents of the Borrower and the Subsidiary Guarantors, to the extent
that the same exceeds $10,000,000, (iii) any such Indebtedness guaranteed
pursuant to the Parent Guaranty, (iv) the existing $14,000,000 Indebtedness
owed to HPL, incurred pursuant to the Incorporation Agreement, (v) any such
Indebtedness associated with the existing Resident Mortgage Bonds programs
referred to in the Registration Statement (without giving effect to any
refinancing thereof which increases the aggregate principal amount thereof
above $50,000,000), and (v) any such Indebtedness which constitutes
Priority Debt of a Subsidiary; and the term "CASH FLOW FROM OPERATIONS"
means, for any particular property or group of properties, the sum of,
after elimination of minority interests not owned by the Borrower or a
Subsidiary Guarantor, of net income, depreciation, amortization and other
non-cash charges to net income, interest expense and provision for income
taxes, minus non-cash credits to net income, all as determined under GAAP
with respect to the property or group of properties, and after allocation
of a management fee of 5% with respect to such property or group of
properties. In determining Cash Flow from Operations with respect to
properties in the Mature Property Pool, (w) the appropriate financial items
for any properties which have been acquired shall be included (without
duplication) for any portion of the Testing Period prior to the date of
acquisition (but without giving effect to any unobtained or unrealized
gains or adjustments to overhead in connection with such acquisition), (x)
if for any property which has been acquired rent which was payable and the
obligation to pay rent was eliminated in connection with such acquisition,
such rent may be excluded, (y) the appropriate financial items for any
properties which have been disposed of shall be excluded for the portion of
the period prior to disposition, and (z) there shall be excluded from such
Cash Flow from Operations the Cash Flow from Operations in respect of (A)
any such properties which are leased (other than Hearthstone #7165), to the
extent that the Cash Flow from Operations of all such properties for any
Testing Period exceeds $1,500,000, (B) any such properties which are
managed but not owned or leased, to the extent that the Cash Flow from
Operations of all such properties for any Testing Period exceeds $200,000,
or (C) any such properties are leased if there is any restriction on the
payment by the Borrower of the cash flow or dividends in respect thereof.
1.4 SPECIFIC INVESTMENT. Effective on the Effective Date,
(a) clause (C) of section 8.5(k) of the Credit Agreement is amended
by adding at the end thereof the following:
except that the foregoing requirement that the Borrower or a
Subsidiary Guarantor be retained to manage such property or properties
shall not be applicable to the proposed investment in the owner of two
assisted living properties (160 units and 130 units) which is
described in the letter dated December 11, 1997 from the Managing
Agent to the Lenders;
and
3
<PAGE>
(b) clause (D) of section 8.5(k) of the Credit Agreement is amended
by adding at the end thereof before the word "and" the following:
except that the foregoing requirement of confirmation that the
Borrower or a Subsidiary Guarantor be retained to manage such property
or properties shall not be applicable to the proposed investment in
the owner of two assisted living properties (160 units and 130 units)
which is described in the letter dated December 11, 1997 from the
Managing Agent to the Lenders;
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
2.1 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.
2.2 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.
2.3 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.
2.4 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.
SECTION 3. 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 4. BINDING EFFECT.
This Amendment shall become effective if and when, on a date (the
"EFFECTIVE DATE") on or prior to January 31, 1998, 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;
4
<PAGE>
(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; and
(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);
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 5. MISCELLANEOUS.
5.1 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.
5.2 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.
5.3 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 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.
5.4 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.
5.5 APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
5.6 HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7 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
5
<PAGE>
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.
5.8 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.]
6
<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 J. DOUGHERTY, III
--------------------------------- ------------------------------------
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT
VICE PRESIDENT OF DEVELOPMENT
PNC BANK, N. A., THE CHASE MANHATTAN BANK
INDIVIDUALLY AND AS
ADMINISTRATIVE AGENT,
AND AS MANAGING AGENT
BY: /s/ JUSTIN A. 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. INKOF
--------------------------------- ------------------------------------
VICE PRESIDENT VICE PRESIDENT
AMSOUTH BANK OF ALABAMA
BY: /s/ JOSEPH M. ROSEN
------------------------------------
VICE PRESIDENT
THE TORONTO-DOMINION BANK U.S BANK OF WASHINGTON,
NATIONAL ASSOCIATION
BY: /s/ JIMMY SIMIEN BY:
--------------------------------- ------------------------------------
MGR. CREDIT ADMINISTRATION VICE PRESIDENT
BANK ONE, KENTUCKY, NA FIRST AMERICAN NATIONAL BANK
BY: /s/ DENNIS P. HEISHMAN BY: /s/ KENT P. WOOD
--------------------------------- ------------------------------------
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
NATIONSBANK, N.A. KEY CORPORATE CAPITAL INC.
BY: /s/ KEVIN WAGLEY BY: /s/ J. MARK MULLEN
--------------------------------- ------------------------------------
VICE PRESIDENT ASSISTANT VICE PRESIDENT
FLEET NATIONAL BANK
BY: /s/ GINGER STOLZENTHALER
---------------------------------
VICE PRESIDENT
7
<PAGE>
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and effect
of sections 5 and 6 of the Parent Guaranty and sections 6 and 10 of the
Subsidiary Guaranty (as each of such terms is defined in the Credit Agreement
referred to in the Amendment No. 5 to Credit Agreement (the "AMENDMENT"), to
which this Acknowledgment and Consent is appended), each of the undersigned
hereby unconditionally and irrevocably (i) acknowledges receipt of a copy of the
Credit Agreement and the Amendment, and (ii) consents to all of the terms and
provisions of the Credit Agreement as amended by the Amendment.
Capitalized terms which are used herein without definition shall have the
respective meanings ascribed thereto in the Credit Agreement referred to herein.
This Acknowledgment and Consent is for the benefit of the Lenders, the
Administrative Agent, the Collateral Agent, the Managing Agent, the
Documentation Agent, any other person who is a third party beneficiary of the
Parent Guaranty or the Subsidiary Guaranty, and their respective successors and
assigns. No term or provision of this Acknowledgment and Consent may be modified
or otherwise changed without the prior written consent of the Administrative
Agent, given as provided in the Credit Agreement. This Acknowledgment and
Consent shall be binding upon the successors and assigns of each of the
undersigned. This Acknowledgment and Consent may be executed by any of the
undersigned in separate counterparts, each of which shall be an original and all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and delivered
this Acknowledgment and Consent as of the date of the Amendment referred to
herein.
SIGNATURES OF PARTIES TO THE PARENT GUARANTY
VENCOR, INC.
FIRST HEALTHCARE CORPORATION
NORTHWEST HEALTH CARE, INC.
MEDISAVE PHARMACIES, INC.
NATIONWIDE CARE, INC.
THERATX, INCORPORATED
(SUCCESSOR BY MERGER WITH
PEACH ACQUISITION CORP.)
VENCOR HOSPITALS ILLINOIS, INC.
VENCOR HOSPITALS SOUTH, INC.
VENCOR HOSPITALS EAST, INC.
VENCOR HOSPITALS CALIFORNIA, INC.
VENCOR HOSPITALS TEXAS, LTD.
BY: VCI SPECIALTY SERVICES, INC.,
ITS GENERAL PARTNER
VENTECH SYSTEMS, INC.
PASATIEMPO DEVELOPMENT CORP.
VCI SPECIALTY SERVICES, INC.
VENCOR PROPERTIES, INC.
BY: /s/ RICHARD A. LECHLEITER
----------------------------------------
VICE PRESIDENT
<PAGE>
SIGNATURES OF PARTIES TO THE PARENT GUARANTY-CONTINUED
PERSONACARE, INC.
RESPIRATORY CARE SERVICES, INC.
THERATX MEDICAL SUPPLIES, INC.
THERATX HEALTHCARE MANAGEMENT INC.
THERATX STAFFING, INC.
HORIZON HEALTHCARE SERVICES, INC.
PERSONACARE OF CONNECTICUT, INC.
PERSONACARE OF HUNTSVILLE, INC.
PERSONACARE OF OHIO, INC.
PERSONACARE OF OWENSBORO, INC.
PERSONACARE OF PENNSYLVANIA, INC.
PERSONACARE OF READING, INC.
PERSONACARE OF SAN ANTONIO, INC.
PERSONACARE OF SAN PEDRO, INC.
PERSONACARE OF WISCONSIN, INC.
PERSONACARE OF RHODE ISLAND, INC.
PERSONACARE OF ST. PETERSBURG, INC.
PERSONACARE OF POMPANO WEST, INC.
PERSONACARE OF CLEARWATER, INC.
PERSONACARE OF BRADENTON, INC.
PERSONACARE OF POMPANO EAST, INC.
PERSONACARE OF SHREVEPORT, INC.
TUCKER NURSING CENTER, INC.
LAFAYETTE HEALTH CARE CENTER, INC.
PERSONACARE OF WARNER ROBINS, INC.
NFM, INC.
STAMFORD HEALTH FACILITIES, INC.
COURTLAND GARDENS HEALTH CENTER, INC.
COURTLAND GARDENS RESIDENCE, INC.
HOMESTEAD HEALTH CENTER, INC.
TUNSTALL ENTERPRISES, INC.
STAMFORD HEALTH ASSOCIATES LIMITED
PARTNERSHIP
BY: STAMFORD HEALTH FACILITIES, INC.,
ITS GENERAL PARTNER
CARE VENTURE PARTNERS, L.P.
BY: PERSONACARE OF RHODE ISLAND, INC.
ITS GENERAL PARTNER
OAK HILL NURSING ASSOCIATES LIMITED
PARTNERSHIP
BY: PERSONACARE OF RHODE ISLAND, INC.,
ITS GENERAL PARTNER
HEALTH HAVENS ASSOCIATES LIMITED PARTNERSHIP
BY: PERSONACARE OF RHODE ISLAND, INC.,
ITS GENERAL PARTNER
BY: /s/ RICHARD A. LECHLEITER
-----------------------------------------
VICE PRESIDENT
2
<PAGE>
SIGNATURES OF PARTIES TO THE PARENT GUARANTY-CONTINUED
TRANSITIONAL HOSPITALS CORPORATION, A NEVADA CORPORATION
TRANSITIONAL HOSPITALS CORPORATION, A DELAWARE CORPORATION
COMMUNITY PSYCHIATRIC CENTERS OF CALIFORNIA, A CALIFORNIA CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF LOUISIANA INC., A LOUISIANA CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF TEXAS INC., A TEXAS CORPORATION
THC-SEATTLE, INC., A WASHINGTON CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF INDIANA, INC., AN INDIANA CORPORATION
THC MINNEAPOLIS, INC., A MINNESOTA CORPORATION
J. B. THOMAS HOSPITAL, INC., A MASSACHUSETTS CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF NEVADA, INC., A NEVADA CORPORATION
THC-CHICAGO, INC., AN ILLINOIS CORPORATION
THC-NORTH SHORE, INC., AN ILLINOIS CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF NEW MEXICO, INC., A NEW MEXICO CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF TAMPA, INC., A FLORIDA CORPORATION
THC-HOLLYWOOD, INC., A FLORIDA CORPORATION
THC-HOUSTON, INC., A TEXAS CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF WISCONSIN, INC., A WISCONSIN CORPORATION
THC-ORANGE COUNTY, INC., A CALIFORNIA CORPORATION
THC-SAN DIEGO, INC., A CALIFORNIA CORPORATION
COMMUNITY PSYCHIATRIC CENTERS PROPERTIES, INCORPORATED, A CALIFORNIA CORPORATION
CPC INVESTMENT CORPORATION, A CALIFORNIA CORPORATION
VENCOR KENTUCKY, INC., A DELAWARE CORPORATION
BY: /s/ RICHARD A. LECHLEITER
----------------------------------------
RICHARD A. LECHLEITER
VICE PRESIDENT OF FINANCE AND
CORPORATE CONTROLLER, ON BEHALF OF
EACH OF THE ABOVE CORPORATIONS
3
<PAGE>
SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY
LANTANA PARTNERS, LTD.
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
PHILLIPPE ENTERPRISES, INC.
HILLHAVEN PROPERTIES, LTD.
CASTLE GARDENS RETIREMENT CENTER
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
HILLCREST RETIREMENT CENTER, LTD.
BY: FAIRVIEW LIVING CENTERS, INC.,
A GENERAL PARTNER
SANDY RETIREMENT CENTER LIMITED PARTNERSHIP
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
TOPEKA RETIREMENT CENTER, LTD.
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
EVERGREEN WOODS, LTD.
BY: ATRIA COMMUNITIES, INC.,
A GENERAL PARTNER
FAIRVIEW LIVING CENTERS, INC.
TWENTY-NINE HUNDRED ASSOCIATES, LTD.
BY: TWENTY-NINE HUNDRED CORPORATION,
A GENERAL PARTNER
TWENTY-NINE HUNDRED CORPORATION
WOODHAVEN PARTNERS, LTD.
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
TUCSON RETIREMENT CENTER LIMITED
PARTNERSHIP
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
BY: /s/ J. TIMOTHY WESLEY
-----------------------------------
VICE PRESIDENT
4
<PAGE>
SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY-CONTINUED
ATRIA COMMUNITIES SOUTHEAST, INC.
AMERICAN ELDERSERVE MANAGEMENT, INC.
SOUTHERN CARE, INC.
AMERICAN ELDERSERVE OF ALABAMA, INC.
AMERICAN ELDERSERVE OF TEXAS, INC.
SOUTHEAST ASSISTED LIVING RESIDENCES, INC.
AMERICAN ELDERSERVE OF NORTH CAROLINA, INC.
AMERICAN ELDERSERVE OF FLORIDA, INC.
PLANTATION SOUTH ON CYPRESSWOOD
LIMITED PARTNERSHIP
BY: AMERICAN ELDERSERVE OF TEXAS, INC.
ITS GENERAL PARTNER
PLANTATION SOUTH AT AUBURN PARTNERSHIP
BY: AMERICAN ELDERSERVE OF ALABAMA, INC.
ITS GENERAL PARTNER
BY: /s/ J. TIMOTHY WESLEY
------------------------------------
VICE PRESIDENT
5
<PAGE>
EXHIBIT 4.9
================================================================================
ATRIA COMMUNITIES, INC.
AS BORROWER
AND
THE LENDERS NAMED HEREIN
AS LENDERS
AND
PNC BANK, N. A.
AS ADMINISTRATIVE AGENT
AND
AS MANAGING AGENT
NATIONAL CITY BANK OF KENTUCKY
AS DOCUMENTATION AGENT
_____________________
AMENDMENT NO. 6
DATED AS OF
JANUARY 30, 1998
TO
CREDIT AGREEMENT
DATED AS OF
AUGUST 15, 1996
_____________________
================================================================================
<PAGE>
AMENDMENT NO. 6
TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 6 TO CREDIT AGREEMENT, dated as of January 30, 1998
("THIS AMENDMENT"), among (i) ATRIA COMMUNITIES, INC., a Delaware corporation
(herein, together with its successors and assigns, the "BORROWER"); (ii) the
Lenders who have executed this Amendment as indicated by their signatures on the
signature pages hereof; (iii) PNC BANK, N. A., a national banking association,
as administrative agent (the "ADMINISTRATIVE AGENT") and as managing agent (the
"MANAGING AGENT") for the Lenders under the Credit Agreement (hereafter
defined); and (iv) 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, as amended by
Amendment No. 1 to Credit Agreement, dated as of January 15, 1997, Amendment No.
2 to Credit Agreement, dated as of March 27, 1997, Amendment No. 3 to Credit
Agreement, dated as of May 27, 1997, Amendment No. 4 to Credit Agreement, dated
as of September 29, 1997, and Amendment No. 5 to Credit Agreement, dated as of
December 31, 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 has received a proposal from a separate financing source
for a synthetic lease financing of certain of the properties referred to in
Amendment No. 5 to Credit Agreement, which properties were originally
contemplated to be acquired by the Borrower. It is a condition to such lease
financing that cash or Cash Equivalents be deposited as collateral security
therefor.
(3) The Borrower, such Agents and the Lenders party hereto desire to amend
certain of the terms and provisions of the Credit Agreement in order to (i)
permit the Borrower to complete such synthetic lease financing, and (ii)
specifically provide that obligations in respect of synthetic lease transactions
are considered Indebtedness, all as more fully set forth below.
(4) The result of these changes will be that, in determining the leverage
ratio under section 8.12(a) of the Credit Agreement, (i) the amount of
obligations in respect of the synthetic lease transaction will be considered
Indebtedness, and (ii) the cash and Cash Equivalents which constitute collateral
security for such synthetic lease obligations will be taken into account for
purposes of determining the aggregate cash and Cash Equivalents in excess of
$10,000,000.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 ADDITIONS TO MATURE PROPERTY POOL, ETC. Effective on the Effective
Date (as hereinafter defined), for the avoidance of doubt, the Borrower hereby
confirms that, because it proposes to make the following properties the subject
of a separate synthetic lease financing transaction, (i) such properties will
<PAGE>
not become part of the Mature Property Pool as contemplated by section 1.2 of
Amendment No. 5 to Credit Agreement, referred to above, namely, (1) Briarcliff-
BVRC, (2) Briarcliff-BVHC, (3) Briarcliff-Chandler, and (4) Briarcliff-Copeland,
and (ii) at some future time such properties may become part of the Mature
Property Pool in accordance with the applicable provisions of the Credit
Agreement.
1.2 LIEN COVENANT. Effective on the Effective Date, clause (i) of section
8.3 of the Credit Agreement is amended to add thereto provisions permitting the
Borrower to grant certain cash collateral, so that, as so amended, such clause
(i) reads in its entirety as follows:
(i) Liens arising from financing statements regarding leases not in
violation of this Agreement; and during the term of a synthetic lease
financing of the following properties for a basic term of 5 years, namely,
(1) Briarcliff-BVRC, (2) Briarcliff-BVHC, (3) Briarcliff-Chandler, and (4)
Briarcliff-Copeland Liens on cash and Cash Equivalents with an original
valuation of approximately $35,300,000 deposited as security with a
financial institution as security for such synthetic lease financing;
1.3 DEFINITION OF INDEBTEDNESS. The definition of the term "Indebtedness"
contained in section 10 of the Credit Agreement is amended to include a
reference to synthetic leases (which appears as clause (vii) below) so that as
so amended such definition reads in its entirety as follows:
"INDEBTEDNESS" of any person shall mean without duplication (i) all
indebtedness of such person for borrowed money, (ii) all bonds, notes,
debentures and similar debt securities of such person, (iii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such person, (iv) the
face amount of all letters of credit issued for the account of such person
and, without duplication, all drafts drawn thereunder, (v) all Indebtedness
of a second person secured by any Lien on any property owned by such first
person, whether or not such indebtedness has been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all obligations of such
person under synthetic leases (I.E. leases which are accounted for as
"operating leases" in accordance with GAAP but as to which the lessee is
the owner for Federal income tax purposes of the property subject to such
leases and is entitled to depreciate its ownership of such property),
(viii) all obligations of such person to pay a specified purchase price for
goods or services whether or not delivered or accepted, I.E., take-or-pay
and similar obligations, (ixi) all net obligations of such person under
Interest Rate Agreements and (x) all Contingent Obligations of such person,
PROVIDED that neither trade payables and accrued expenses, in each case
arising in the ordinary course of business, nor obligations in respect of
insurance policies or performance or surety bonds which themselves are not
guarantees of Indebtedness (nor drafts, acceptances or similar instruments
evidencing the same nor obligations in respect of letters of credit
supporting the payment of the same), shall constitute Indebtedness.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
2.1 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.
2
<PAGE>
2.2 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.
2.3 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.
2.4 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.
SECTION 3. 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 4. BINDING EFFECT.
This Amendment shall become effective if and when, on a date (the
"EFFECTIVE DATE") on or prior to February 3, 1998, 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; and
(c) the Administrative Agent shall have been notified by the Required
Lenders that such Lenders have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution);
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.
3
<PAGE>
SECTION 5. MISCELLANEOUS.
5.1 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.
5.2 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.
5.3 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 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.
5.4 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.
5.5 APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
5.6 HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7 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.
5.8 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 J. DOUGHERTY, III
--------------------------------- ---------------------------------
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT
VICE PRESIDENT OF DEVELOPMENT
PNC BANK, N. A., THE CHASE MANHATTAN BANK
INDIVIDUALLY AND AS
ADMINISTRATIVE AGENT,
AND AS MANAGING AGENT
BY: /s/ JUSTIN A. 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. INKOF
--------------------------------- ---------------------------------
VICE PRESIDENT VICE PRESIDENT
AMSOUTH BANK OF ALABAMA
BY: /s/ JOSEPH M. ROSEN
---------------------------------
VICE PRESIDENT
THE TORONTO-DOMINION BANK U.S BANK OF WASHINGTON,
NATIONAL ASSOCIATION
BY: /s/ JIMMY SIMIEN BY:
--------------------------------- ---------------------------------
MGR. CREDIT ADMINISTRATION VICE PRESIDENT
BANK ONE, KENTUCKY, NA FIRST AMERICAN NATIONAL BANK
BY: /s/ DENNIS P. HEISHMAN BY: /s/ KENT P. WOOD
--------------------------------- ---------------------------------
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
NATIONSBANK, N.A. KEY CORPORATE CAPITAL INC.
BY: /s/ KEVIN WAGLEY BY: /s/ J. MARK MULLEN
--------------------------------- ---------------------------------
VICE PRESIDENT ASSISTANT VICE PRESIDENT
FLEET NATIONAL BANK
BY: /s/ GINGER STOLZENTHALER
---------------------------------
VICE PRESIDENT
5
<PAGE>
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and effect
of sections 5 and 6 of the Parent Guaranty and sections 6 and 10 of the
Subsidiary Guaranty (as each of such terms is defined in the Credit Agreement
referred to in the Amendment No. 6 to Credit Agreement (the "AMENDMENT"), to
which this Acknowledgment and Consent is appended), each of the undersigned
hereby unconditionally and irrevocably (i) acknowledges receipt of a copy of the
Credit Agreement and the Amendment, and (ii) consents to all of the terms and
provisions of the Credit Agreement as amended by the Amendment.
Capitalized terms which are used herein without definition shall have the
respective meanings ascribed thereto in the Credit Agreement referred to herein.
This Acknowledgment and Consent is for the benefit of the Lenders, the
Administrative Agent, the Collateral Agent, the Managing Agent, the
Documentation Agent, any other person who is a third party beneficiary of the
Parent Guaranty or the Subsidiary Guaranty, and their respective successors and
assigns. No term or provision of this Acknowledgment and Consent may be modified
or otherwise changed without the prior written consent of the Administrative
Agent, given as provided in the Credit Agreement. This Acknowledgment and
Consent shall be binding upon the successors and assigns of each of the
undersigned. This Acknowledgment and Consent may be executed by any of the
undersigned in separate counterparts, each of which shall be an original and all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and delivered
this Acknowledgment and Consent as of the date of the Amendment referred to
herein.
SIGNATURES OF PARTIES TO THE PARENT GUARANTY
VENCOR, INC.
FIRST HEALTHCARE CORPORATION
NORTHWEST HEALTH CARE, INC.
MEDISAVE PHARMACIES, INC.
NATIONWIDE CARE, INC.
THERATX, INCORPORATED
(SUCCESSOR BY MERGER WITH
PEACH ACQUISITION CORP.)
VENCOR HOSPITALS ILLINOIS, INC.
VENCOR HOSPITALS SOUTH, INC.
VENCOR HOSPITALS EAST, INC.
VENCOR HOSPITALS CALIFORNIA, INC.
VENCOR HOSPITALS TEXAS, LTD.
BY: VCI SPECIALTY SERVICES, INC.,
ITS GENERAL PARTNER
VENTECH SYSTEMS, INC.
PASATIEMPO DEVELOPMENT CORP.
VCI SPECIALTY SERVICES, INC.
VENCOR PROPERTIES, INC.
BY: /s/ RICHARD A. LECHLEITER
-----------------------------------------
VICE PRESIDENT
<PAGE>
SIGNATURES OF PARTIES TO THE PARENT GUARANTY-CONTINUED
PERSONACARE, INC.
RESPIRATORY CARE SERVICES, INC.
THERATX MEDICAL SUPPLIES, INC.
THERATX HEALTHCARE MANAGEMENT INC.
THERATX STAFFING, INC.
HORIZON HEALTHCARE SERVICES, INC.
PERSONACARE OF CONNECTICUT, INC.
PERSONACARE OF HUNTSVILLE, INC.
PERSONACARE OF OHIO, INC.
PERSONACARE OF OWENSBORO, INC.
PERSONACARE OF PENNSYLVANIA, INC.
PERSONACARE OF READING, INC.
PERSONACARE OF SAN ANTONIO, INC.
PERSONACARE OF SAN PEDRO, INC.
PERSONACARE OF WISCONSIN, INC.
PERSONACARE OF RHODE ISLAND, INC.
PERSONACARE OF ST. PETERSBURG, INC.
PERSONACARE OF POMPANO WEST, INC.
PERSONACARE OF CLEARWATER, INC.
PERSONACARE OF BRADENTON, INC.
PERSONACARE OF POMPANO EAST, INC.
PERSONACARE OF SHREVEPORT, INC.
TUCKER NURSING CENTER, INC.
LAFAYETTE HEALTH CARE CENTER, INC.
PERSONACARE OF WARNER ROBINS, INC.
NFM, INC.
STAMFORD HEALTH FACILITIES, INC.
COURTLAND GARDENS HEALTH CENTER, INC.
COURTLAND GARDENS RESIDENCE, INC.
HOMESTEAD HEALTH CENTER, INC.
TUNSTALL ENTERPRISES, INC.
STAMFORD HEALTH ASSOCIATES LIMITED
PARTNERSHIP
BY: STAMFORD HEALTH FACILITIES, INC.,
ITS GENERAL PARTNER
CARE VENTURE PARTNERS, L.P.
BY: PERSONACARE OF RHODE ISLAND, INC.
ITS GENERAL PARTNER
OAK HILL NURSING ASSOCIATES LIMITED
PARTNERSHIP
BY: PERSONACARE OF RHODE ISLAND, INC.,
ITS GENERAL PARTNER
HEALTH HAVENS ASSOCIATES LIMITED PARTNERSHIP
BY: PERSONACARE OF RHODE ISLAND, INC.,
ITS GENERAL PARTNER
BY: /s/ RICHARD A. LECHLEITER
-----------------------------------------
VICE PRESIDENT
2
<PAGE>
SIGNATURES OF PARTIES TO THE PARENT GUARANTY-CONTINUED
TRANSITIONAL HOSPITALS CORPORATION, A NEVADA CORPORATION
TRANSITIONAL HOSPITALS CORPORATION, A DELAWARE CORPORATION
COMMUNITY PSYCHIATRIC CENTERS OF CALIFORNIA, A CALIFORNIA CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF LOUISIANA INC., A LOUISIANA CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF TEXAS INC., A TEXAS CORPORATION
THC-SEATTLE, INC., A WASHINGTON CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF INDIANA, INC., AN INDIANA CORPORATION
THC MINNEAPOLIS, INC., A MINNESOTA CORPORATION
J. B. THOMAS HOSPITAL, INC., A MASSACHUSETTS CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF NEVADA, INC., A NEVADA CORPORATION
THC-CHICAGO, INC., AN ILLINOIS CORPORATION
THC-NORTH SHORE, INC., AN ILLINOIS CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF NEW MEXICO, INC., A NEW MEXICO CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF TAMPA, INC., A FLORIDA CORPORATION
THC-HOLLYWOOD, INC., A FLORIDA CORPORATION
THC-HOUSTON, INC., A TEXAS CORPORATION
TRANSITIONAL HOSPITALS CORPORATION OF WISCONSIN, INC., A WISCONSIN CORPORATION
THC-ORANGE COUNTY, INC., A CALIFORNIA CORPORATION
THC-SAN DIEGO, INC., A CALIFORNIA CORPORATION
COMMUNITY PSYCHIATRIC CENTERS PROPERTIES, INCORPORATED, A CALIFORNIA CORPORATION
CPC INVESTMENT CORPORATION, A CALIFORNIA CORPORATION
VENCOR KENTUCKY, INC., A DELAWARE CORPORATION
BY: /s/ RICHARD A. LECHLEITER
-----------------------------------------
RICHARD A. LECHLEITER
VICE PRESIDENT OF FINANCE AND
CORPORATE CONTROLLER, ON BEHALF OF
EACH OF THE ABOVE CORPORATIONS
3
<PAGE>
SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY
LANTANA PARTNERS, LTD.
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
PHILLIPPE ENTERPRISES, INC.
HILLHAVEN PROPERTIES, LTD.
CASTLE GARDENS RETIREMENT CENTER
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
HILLCREST RETIREMENT CENTER, LTD.
BY: FAIRVIEW LIVING CENTERS, INC.,
A GENERAL PARTNER
SANDY RETIREMENT CENTER LIMITED PARTNERSHIP
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
TOPEKA RETIREMENT CENTER, LTD.
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
EVERGREEN WOODS, LTD.
BY: ATRIA COMMUNITIES, INC.,
A GENERAL PARTNER
FAIRVIEW LIVING CENTERS, INC.
TWENTY-NINE HUNDRED ASSOCIATES, LTD.
BY: TWENTY-NINE HUNDRED CORPORATION,
A GENERAL PARTNER
TWENTY-NINE HUNDRED CORPORATION
WOODHAVEN PARTNERS, LTD.
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
TUCSON RETIREMENT CENTER LIMITED
PARTNERSHIP
BY: HILLHAVEN PROPERTIES, LTD.,
A GENERAL PARTNER
BY: /s/ J. TIMOTHY WESLEY
----------------------------------------------------
VICE PRESIDENT
4
<PAGE>
SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY-CONTINUED
ATRIA COMMUNITIES SOUTHEAST, INC.
AMERICAN ELDERSERVE MANAGEMENT, INC.
SOUTHERN CARE, INC.
AMERICAN ELDERSERVE OF ALABAMA, INC.
AMERICAN ELDERSERVE OF TEXAS, INC.
SOUTHEAST ASSISTED LIVING RESIDENCES, INC.
AMERICAN ELDERSERVE OF NORTH CAROLINA, INC.
AMERICAN ELDERSERVE OF FLORIDA, INC.
PLANTATION SOUTH ON CYPRESSWOOD
LIMITED PARTNERSHIP
BY: AMERICAN ELDERSERVE OF TEXAS, INC.
ITS GENERAL PARTNER
PLANTATION SOUTH AT AUBURN PARTNERSHIP
BY: AMERICAN ELDERSERVE OF ALABAMA, INC.
ITS GENERAL PARTNER
BY: /s/ J. TIMOTHY WESLEY
---------------------------------------------------
VICE PRESIDENT
5
<PAGE>
EXHIBIT 10.3
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is entered into and
effective as of the 19th day of August, 1997, by and between ATRIA COMMUNITIES,
INC., a Delaware corporation ("Atria"), and VENCOR, INC., a Delaware corporation
("Vencor").
RECITALS:
A. Atria and Vencor are parties to that certain Administrative Services
Agreement dated August 19, 1996 (the "Services Agreement"), pursuant to which
Atria receives certain services from Vencor.
B. The Services Agreement expires as of this date and the parties desire
to extend the Services Agreement for certain services as provided in this
Agreement.
AGREEMENT:
Now, THEREFORE, the parties hereby agree as follows:
1. SERVICES PROVIDED. Vencor shall provide to Atria the following
services: MIS Support, Payroll and Market Planning, with the level of support
provided for such services consistent with the level of support provided for the
same services under the Services Agreement. Vencor shall not be required to make
available any services to the extent that doing so would unreasonably interfere
with the performance by any employee of Vencor of such employee's duties for
Vencor or otherwise cause an unreasonable burden to Vencor.
2. PAYMENTS. Atria shall pay $17,033 per month to Vencor on the first day
of each month. For any period for which such services would be provided to Atria
on less than a full-month basis, Atria shall pay the appropriate pro rata amount
to Vencor.
3. TERM. The services provided pursuant to this Agreement shall expire at
the close of business on December 31, 1997, unless Atria requests Vencor to
continue providing MIS Support for up to an additional 90 days. If Atria makes
such a request, Vencor shall provide such services at a rate of $TBA per
month. After December 31, 1997, Vencor shall have no obligation to provide
Payroll or Market Planning services.
4. MISCELLANEOUS.
4.1 AMENDMENT. This Agreement may be amended, modified, superseded or
canceled only by a written instrument signed by all of the parties to this
Agreement.
4.2 PATIENT REFERRALS. Neither Atria nor Vencor shall have any obligation
to refer any resident or patients, as the case may be, of either of them or any
other person to Atria or Vencor for the provision of any service or item of any
kind. Atria and Vencor hereby acknowledge that
<PAGE>
the compensation for services provided for in this Agreement are set in advance,
are consistent with the fair market value in arms-length commercial transactions
and are not determined in a manner that takes into account in any way any volume
or value of referrals or business generated between the parties.
4.3 EARLY TERMINATION. If Vencor or Atria shall determine upon advice of
counsel that the continuation of this Agreement will likely be deemed to be a
violation of any applicable Federal or state law regarding fraud and abuse,
referral prohibitions, or any similar matter, either party upon receiving such
advice of counsel may at any time give the other party written notice of such
advice and if, after consultation, the parties have not determined to their
reasonable satisfaction that no such violation exists and the parties have not
amended this Agreement to remove that risk to the other party's reasonable
satisfaction, then either party may terminate this Agreement effective as of the
date sixty (60) days after its initial written notice to the other party.
4.4 CAPTIONS; SECTION REFERENCES. Section titles or captions in this
Agreement are included for purposes of convenience only and shall not be
considered a part of the Agreement in construing or interpreting any of its
provisions. All references in this Agreement to Sections shall refer to Sections
of this Agreement unless the context clearly otherwise requires.
4.5 AGREEMENT NON-ASSIGNABLE; BINDING EFFECT. None of the parties to this
Agreement shall assign any of its rights or obligations under this Agreement,
whether by operation of law or otherwise, without obtaining the prior consent of
the other parties to this Agreement. Subject to the foregoing, all of the
provisions of this Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the parties to this Agreement and their
respective heirs, legal representatives, successors and assigns.
4.6 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Kentucky, without giving effect to any conflict of law rule or principle of such
state.
4.7 ENTIRE AGREEMENT. This Agreement embodies the entire understanding
between the parties hereto with respect to subject matters covered hereby and
supersedes any prior agreement or understanding between the parties with respect
to such matters.
4.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original copy of this
Agreement and all of which, when taken together, shall be deemed to constitute
one and the same agreement.
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
ATRIA COMMUNITIES, INC.
By: /s/ J. TIMOTHY WESLEY
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Title: Chief Financial Officer
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("Atria")
VENCOR, INC.
By: /s/ RICHARD A. LECHLEITER
---------------------------------
Title: Senior Vice President
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("Vencor")
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EXHIBIT 10.5
ATRIA COMMUNITIES, INC.
1996 STOCK OWNERSHIP INCENTIVE PLAN
ARTICLE 1. PURPOSE
The purpose of this 1996 Stock Ownership Incentive Plan ("Plan") is to
advance the interest of Atria Communities, Inc., a Delaware corporation
("Company"), and its subsidiaries by encouraging employees who will largely be
responsible for the long-term success and development of the Company to acquire
and retain an ownership interest in the Company. The Plan is also intended to
provide flexibility to the Company in attracting and retaining such employees
and stimulating their efforts on behalf of the Company.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such terms shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Award" shall mean, individually or collectively, a grant under the
Plan of Options, Restricted Stock or Performance Units.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean, unless otherwise defined in an agreement evidencing
an Award, a felony conviction of a Participant or the failure of a Participant
to contest prosecution for a felony, or a Participant's willful misconduct or
dishonesty, any of which is determined by the Committee to be directly and
materially harmful to the business or reputation of the Company or its
Subsidiaries.
(d) A "Change in Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company ("Voting Securities") by any Person immediately
after which such Person has Beneficial Ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than 25% of the combined
voting power of the Company's then outstanding Voting Securities if Vencor, Inc.
then beneficially owns less than 25% of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A Non-Control
Acquisition shall mean an acquisition by (i) the Company or any Subsidiary, (ii)
an employee benefit plan (or a trust forming a part thereof) maintained by the
Company or any Subsidiary, (iii) Vencor, Inc. or any Subsidiary or (iv) any
Person in connection with a Non-Control Transaction (as hereinafter defined);
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(2) The individuals who, as of December 31, 1996, are members of the
Board ("Incumbent Board"), cease for any reason to constitute at least a
majority of the Board; provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new director was approved by
a vote of at least a majority of the Incumbent Board, such new director shall,
for purposes of the Plan, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened Election Contest (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board ("Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless such is a Non-Control Transaction. For purposes of the Plan, the
term "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company in which:
(i) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least a majority of
the combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least a majority of the members of
the board of directors of the Surviving Corporation; and
(iii) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of 20% or more of the then outstanding Voting Securities) has
Beneficial Ownership of 20% or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities;
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount
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of the outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Person; provided, however, that if a Change in Control would occur
(but for the operation of this sentence) as a result of the acquisition of
Voting Securities by the Company, and after such share acquisition by the
Company the Subject Person becomes the Beneficial Owner of any additional Voting
Securities which increases the percentage of the then outstanding Voting
Securities Beneficially Owner by the Subject Person, then a Change in Control
shall occur.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(f) "Committee" shall mean the committee described in Section 31.
(g) "Disability" shall mean the total disability as determined by the
Committee in accordance with standards and procedures similar to those under the
Company's long-term disability plan, or, if none, a physical or mental infirmity
which the Committee determines impairs the Participant's ability to perform
substantially his or her duties for a period of 180 consecutive days.
(h) "Employee" shall mean an individual who is a full-time employee of the
Company or a Subsidiary.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(j) "Fair Market Value" of the Shares shall mean, as of any applicable
date, the closing sale price of the Shares on the Nasdaq National Market System
or any national or regional stock exchange in which the Shares are traded, or if
no such reported sale of the Shares shall have occurred on such date, on the
next preceding date on which there was such a reported sale. If there shall be
any material alteration in the present system of reporting sale prices of the
Shares, or if the Shares shall no longer be listed on the Nasdaq National Market
System or a national or regional stock exchange, the fair market value of the
Shares as of a particular date shall be determined by such method as shall be
determined by the Committee.
(k) "ISOs" shall have the meaning given such term in Section 61.
(l) "NQSOs" shall have the meaning given such term in Section 61.
(m) "Option" shall mean an option to purchase Shares granted pursuant to
Article 6.
(n) "Option Agreement" shall mean an agreement evidencing the grant of an
Option as described in Section 62.
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(o) "Option Exercise Price" shall mean the purchase price per Share
subject to an Option, which shall not be less than the Fair Market Value of the
Share on the date of grant (110% of Fair Market Value in the case of an ISO
granted to a Ten Percent Shareholder).
(p) "Participant" shall mean any Employee selected by the Committee to
receive an Award under the Plan.
(q) "Performance Goals" shall have the meaning given such term in Section
84.
(r) "Performance Period" shall have the meaning given such term in Section
83.
(s) "Performance Unit" shall mean the right to receive a payment from the
Company upon the achievement of specified Performance Goals as set forth in a
Performance Unit Agreement.
(t) "Performance Unit Agreement" shall mean an agreement evidencing a
Performance Unit Award, as described in Section 82.
(u) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(v) "Plan" shall mean this Atria Communities, Inc. 1996 Stock Ownership
Incentive Plan as the same may be amended from time to time.
(w) "Restriction Period" shall mean the period determined by the Committee
during which the transfer of Shares is limited in some way or Shares are
otherwise restricted or subject to forfeiture as provided in Article 7.
(x) "Restricted Stock" shall mean Shares granted pursuant to Article 7 as
to which the restrictions have not expired.
(y) "Restricted Stock Agreement" shall mean an agreement evidencing a
Restricted Stock Award, as described in Section 72.
(z) "Retirement" shall mean retirement by a Participant in accordance with
the terms of the Company's retirement or pension plans.
(aa) "Shares" shall mean the shares of the Company's common stock, par
value $.10 per share.
(bb) "Subsidiary" shall mean, with respect to any company, any corporation
or other Person of which a majority of its voting power, equity securities, or
equity interest is owned directly or indirectly by such company.
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(cc) "Ten Percent Shareholder" shall mean an Employee who, at the time an
ISO is granted, owns (within the meaning of section 422(b)(6) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
2.2 Gender and Number. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by a Committee
appointed by the Board consisting of two or more directors of the Company or the
entire Board of the Company. The Committee shall meet at such times and places
as it determines and may meet through a telephone conference call. The members
of the Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan,
the Committee shall have full authority to:
(a) select Participants to whom Awards are granted;
(b) determine the size, types and frequency of Awards granted under the
Plan;
(c) determine the terms and conditions of Awards, including any
restrictions or conditions to the Award, which need not be identical;
(d) cancel or modify, with the consent of the Participant, outstanding
Awards and to grant new Awards in substitution therefor;
(e) accelerate the exercisability of any Award, for any reason;
(f) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(g) establish, amend and rescind rules and regulations for the Plan's
administration; and
(h) amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee as provided
in the Plan.
The Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. To the extent permitted by law
and Rule 16b-3 promulgated under the Exchange Act, the Committee may delegate
its authority as identified hereunder.
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3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding upon all
persons, including the Company, its stockholders, Employees, Participants and
their estates and beneficiaries.
3.4 Section 16 Compliance; Bifurcation of Plan. It is the intention of
the Company that the Plan and the administration of the Plan comply in all
respects with Section 16(b) of the Exchange Act and the rules and regulations
promulgated thereunder. If any Plan provision, or any aspect of the
administration of the Plan, is found not to be in compliance with Section 16(b)
of the Exchange Act, the provision or administration shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding
anything in the Plan to the contrary, the Board or the Committee, in its
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are subject to Section 16 of
the Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 43,
the number of Shares reserved for issuance upon the exercise of Awards and the
payment of benefits in connection with Awards is 1,000,000 Shares. Any Shares
issued under the Plan may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares. If and to the extent an Award shall expire
or terminate for any reason without having been exercised in full (including a
cancellation and regrant of an Option), or shall be forfeited, without, in
either case, the Participant having realized any of the economic benefits of a
shareholder (such as the receipt of dividends or other distributions paid on
shares of Restricted Stock), the Shares (including Restricted Stock) associated
with such Awards shall again become available for Awards under the Plan.
4.2 Shares of Restricted Stock Available Under the Plan. Subject to
adjustment as provided in Section 43, the number of Shares which may be the
subject of Awards granted in the form of Restricted Stock is limited to 20% of
the Shares subject to the Plan.
4.3 Adjustments in Authorized Shares and Outstanding Awards. In the event
of a merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, cash dividend, property dividend, share repurchase, share
combination, share exchange, issuance of warrants, rights or debentures, or
other change in the corporate structure of the Company affecting the Shares, the
Committee may substitute or adjust the total number and class of Shares or other
stock or securities which may be issued under the Plan, and the number, class
and/or price of Shares subject to outstanding Awards, as it determines to be
appropriate and equitable to prevent dilution or enlargement of the rights of
Participants and to preserve, without exceeding, the value of any outstanding
Awards; and further provided, that the number of Shares subject to any Award
shall always be a whole number. In the case of ISOs, such adjustments shall be
made in such a manner
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so as not to constitute a "modification" within the meaning of section 424(h)(3)
of the Code and only to the extent otherwise permitted by sections 422 and 424
of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
All Employees of the Company and its Subsidiaries are eligible to receive
Awards under the Plan. In selecting Employees to receive Awards under the Plan,
as well as in determining the number of Shares subject to, and the other terms
and conditions applicable to, each Award, the Committee shall take into
consideration such factors as it deems relevant in promoting the purposes of the
Plan, including the duties of the Employees, their present and potential
contribution to the success of the Company and their anticipated number of years
of active service remaining with the Company or a Subsidiary.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
the Committee may grant Options to Participants at any time and from time to
time, in the form of options which are intended to qualify as incentive stock
options within the meaning of section 422 of the Code ("ISOs"), Options which
are not intended to so qualify ("NQSOs") or a combination thereof. The maximum
number of Shares with respect to which Options may be granted to any Participant
under the Plan shall not exceed 40% of the Shares subject to the Plan.
6.2 Option Agreement. Each Option shall be evidenced by an Option
Agreement that shall specify the Option Exercise Price, the duration of the
Option, the number of Shares to which the Option relates and such other
provisions as the Committee may determine or which are required by the Plan.
The Option Agreement shall also specify whether the Option is intended to be an
ISO or a NQSO and shall include such provisions applicable to the particular
type of Option granted.
6.3 Duration of Options. Each Option shall expire at such time as is
determined by the Committee at the time of grant; provided, however, that no
Option shall be exercised later than the tenth anniversary of its grant (fifth
anniversary in the case of an ISO granted to a Ten Percent Shareholder).
6.4 Exercise of Options. Options shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall approve at
the time of grant, which need not be the same for each grant or for each
Participant. Except as provided in Section 66, however, in no event may any
Option become exercisable within six months of the date of grant in the case of
any Participant subject to Section 16(b) of the Exchange Act. Options shall be
exercised by delivery to the Company of a written notice of exercise, setting
forth the number of Shares with respect to which the Option is to be exercised
and accompanied by full payment of the Option Exercise Price and all applicable
withholding taxes.
6.5 Payment of Option Exercise Price. The Option Exercise Price for
Shares as to which an Option is exercised shall be paid to the Company in full
at the time of exercise either (a)
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in cash in the form of currency or other cash equivalent acceptable to the
Company, (b) by tendering Shares having a Fair Market Value (determined as of
the close of the business day immediately preceding the day on which the Option
is exercised) equal to the Option Exercise Price (provided, however, that in the
case of a Participant subject to Section 16(b) of the Exchange Act, such Shares
have been held by the Participant for at least six months prior to their
tender), (c) any other reasonable consideration that the Committee may deem
appropriate or (d) by a combination of the forms of consideration described in
(a), (b) and (c) of this Section 65. The Committee may permit the cashless
exercise of Options as described in Regulation T promulgated by the Federal
Reserve Board, subject to applicable securities law restrictions, or by any
other means which the Committee determines to be consistent with the Plan's
purpose and applicable law.
6.6 Vesting Upon Change in Control. Upon a Change in Control, any then
outstanding Options held by Participants shall become fully vested and
immediately exercisable. Furthermore, if provided in an Option Agreement, the
Participant shall have the right to sell the Option back to the Company for an
amount generally equal to the excess of the Fair Market Value of the Shares
subject to the Option over the Option Price.
6.7 Termination of Employment. If the employment of a Participant is
terminated for Cause, all then outstanding Options of such Participant, whether
or not exercisable, shall terminate immediately. If the employment of a
Participant is terminated for any reason other than for Cause, death, Disability
or Retirement, to the extent then outstanding Options of such Participant are
exercisable, such Options may be exercised by such Participant or such
Participant's personal representative at any time prior to the expiration date
of the Options or within 90 days after the date of such termination of
employment, whichever is shorter. In the event of the Retirement of a
Participant, to the extent then outstanding Options of such Participant are
exercisable, such Options may be exercised by the Participant (a) in the case of
NQSOs, within two years after the date of Retirement and (b) in the case of
ISOs, within 90 days after Retirement; provided, however, that no such Options
may be exercised on a date subsequent to their expiration. In the event of the
death or Disability of a Participant while employed by the Company or a
Subsidiary, all then outstanding Options of such Participant shall become fully
vested and immediately exercisable, and may be exercised at any time (c) in the
case of NQSOs, within two years after the date of death or determination of
Disability and (d) in the case of ISOs, within one year after the date of death
or determination of Disability; provided however that no such Options may be
exercised on a date subsequent to their expiration. In the event of the death
of a Participant, the Option may be exercised by the person or persons to whom
rights pass by will or by the laws of descent and distribution, or if
appropriate, the legal representative of the deceased Participant's estate. In
the event of the Disability of a Participant, Options may be exercised by the
Participant, or if such Participant is incapable of exercising the Options, by
such Participant's legal representative.
ARTICLE 7. RESTRICTED STOCK
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7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee may grant shares of Restricted Stock to Participants at any
time and from time to time and upon such terms and conditions as it may
determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement which shall specify the Restriction
Period, the number of shares of Restricted Stock granted and such other
provisions as the Committee may determine and which are required by the Plan.
7.3 Non-Transferability of Restricted Stock. Except as provided in this
Article 7, shares of Restricted Stock may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Restriction Period as specified in the Restricted Stock Agreement, or upon
earlier satisfaction of any other conditions determined at the time of grant
specified in the Restricted Stock Agreement. Except as provided in Section 79,
however, in no event may any Restricted Stock become vested in a Participant
subject to Section 16(b) of the Exchange Act prior to six months following the
date of its grant.
7.4 Other Restrictions. The Committee may impose such other restrictions
on any shares of Restricted Stock as it may deem advisable, including, without
limitation, restrictions based upon the achievement of Performance Goals, years
of service and/or restrictions under applicable Federal or state securities
laws. The Committee may provide that any share of Restricted Stock shall be
held (together with a stock power executed in blank by the Participant) in
custody by the Company until any or all restrictions thereon shall have lapsed.
7.5 Forfeiture. The Committee shall determine and set forth in a
Participant's Restricted Stock Agreement such events upon which a Participant's
shares of Restricted Stock shall be forfeitable, which may include, without
limitation, the termination of a Participant's employment during the Restriction
Period or the nonachievement of Performance Goals. Any such forfeited shares of
Restricted Stock shall be immediately returned to the Company by the
Participant, and the Participant shall only receive the amount, if any, paid by
the Participant for such Restricted Stock.
7.6 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 74, each certificate representing shares of Restricted Stock
shall bear the following legend:
"The sale or other transfer of the shares represented by this
Certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in the 1996
Atria Communities, Inc. Stock Ownership Incentive Plan, and in the
related Restricted Stock Agreement. A copy of the Plan and such
Restricted Stock Agreement may be obtained from the Secretary of Atria
Communities, Inc."
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7.7 Lapse of Restrictions Generally. Except as otherwise provided in this
Article 7, shares of Restricted Stock shall become freely transferable by the
Participant and no longer subject to forfeiture after the last day of the
Restriction Period; provided however, that if the restriction relates to the
achievement of a Performance Goal, the Restriction Period shall not end until
the Committee has certified in writing that the Performance Goal has been met.
Once the shares of Restricted Stock are released from their restrictions, the
Participant shall be entitled to have the legend required by Section 76 removed
from the Participant's share certificate, which certificate shall thereafter
represent freely transferable and nonforfeitable Shares free from any and all
restrictions under the Plan.
7.8 Lapse of Restrictions Upon Change in Control. Upon a Change in
Control, any restrictions and other conditions pertaining to then outstanding
shares of Restricted Stock held by Participants, including, but not limited to,
vesting requirements, shall lapse and such Shares shall thereafter be
immediately transferable and nonforfeitable.
7.9 Voting Rights; Dividends and Other Distributions. Unless the
Committee exercises its discretion as provided in Section 710, during the
Restriction Period, Participants holding shares of Restricted Stock may exercise
full voting rights, and shall be entitled to receive all dividends and other
distributions paid, with respect to such Restricted Stock. If any dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions as the shares of Restricted Stock with respect to which they were
paid.
7.10 Treatment of Dividends. At the time shares of Restricted Stock are
granted to a Participant, the Committee may, in its discretion, determine that
the payment of dividends, or a specified portion thereof, declared or paid on
such shares shall be deferred until the lapse of the restrictions with respect
to such shares, in which event such deferred dividends shall be held by the
Company for the account of the Participant. In the event of such deferral,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account during the year at a rate per annum as the Committee,
in its discretion, may determine. Deferred dividends, together with interest
accrued thereon, if any, shall be (a) paid to the Participant upon the lapse of
restrictions on the shares of Restricted Stock as to which the dividends related
or (ii) forfeited to the Company upon the forfeiture of such shares by the
Participant.
7.11 Termination of Employment. If the employment of a Participant is
terminated for any reason other than death or Disability prior to the expiration
of the Restriction Period applicable to any shares of Restricted Stock then held
by the Participant, such shares shall thereupon be forfeited immediately by the
Participant and returned to the Company, and the Participant shall only receive
the amount, if any, paid by the Participant for such Restricted Stock. If the
employment of a Participant is terminated as a result of death or Disability
prior to the expiration of the Restriction Period applicable to any shares of
Restricted Stock then held by the Participant, any restrictions and other
conditions pertaining to such shares then held by the Participant, including,
but not limited to, vesting requirements, shall immediately lapse and such
Shares shall thereafter be immediately transferable and nonforfeitable.
Notwithstanding anything in the Plan to the contrary, except in the case of
Restricted Stock for which a Performance Goal must be achieved, the Committee
may determine, in its sole discretion, in the case of any
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termination of a Participant's employment other than for Cause, that the
restrictions on some or all of the shares of Restricted Stock awarded to a
Participant shall immediately lapse and such Shares shall thereafter be
immediately transferable and nonforfeitable.
ARTICLE 8. PERFORMANCE UNITS
8.1 Grant of Performance Units. The Committee may, from time to time and
upon such terms and conditions as it may determine, grant Performance Units
which will become payable to a Participant upon certification in writing by the
Committee that the Performance Goals related thereto have been achieved.
8.2 Performance Unit Agreement. Each Performance Unit grant shall be
evidenced by a Performance Unit Agreement that shall specify the Performance
Goals, the Performance Period and the number of Performance Units to which it
pertains.
8.3 Performance Period. The period of performance ("Performance Period")
with respect to each Performance Unit shall be such period of time, which shall
not be less than one year, nor more than five years, as determined by the
Committee, for the measurement of the extent to which Performance Goals are
attained.
8.4 Performance Goals. The goals ("Performance Goals") that are to be
achieved with respect to each Performance Unit, or Restricted Stock subject to a
requirement that Performance Goals be achieved, shall be those objectives
established by the Committee as it deems appropriate, and which may be expressed
in terms of (a) earnings per Share, (b) Share price, (c) pre-tax profit, (d) net
earnings, (e) return on equity or assets, (f) revenues or (g) any combination of
the foregoing. Performance Goals may be in respect of the performance of the
Company and its Subsidiaries (which may be on a consolidated basis), a
Subsidiary, a Division or other operating unit of the Company. Performance
Goals may be absolute or relative and may be expressed in terms of a progression
within a specified range. The Performance Goals with respect to a Performance
Period shall be established by the Committee in order to comply with Rule 16b-3
under the Exchange Act and section 162(m) of the Code, as applicable.
8.5 Termination of Employment. If the employment of a Participant shall
terminate prior to the expiration of the Performance Period for any reason other
than for death, Disability or Retirement, the Performance Units then held by the
Participant shall terminate. In the case of termination of employment by reason
of death, Disability or Retirement of a Participant prior to the expiration of
the Performance Period, any then outstanding Performance Units of such
Participant shall be payable in an amount equal to the maximum amount payable
under the Performance Unit multiplied by a percentage equal to the percentage
that would have been earned under the terms of the Performance Unit Agreement
assuming that the rate at which the Performance Goals have been achieved as of
the date of such termination of employment would have continued until the end of
the Performance Period; provided, however, that if no maximum amount payable is
specified in the Performance Unit Agreement, the amount payable shall be such
amount as the Committee shall determine is reasonable.
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8.6 Payment Upon Change in Control. Upon a Change in Control, any then
outstanding Performance Units shall become fully vested and immediately payable
in an amount which is equal to the greater of (a) the maximum amount payable
under the Performance Unit multiplied by a percentage equal to the percentage
that would have been earned under the terms of the Performance Unit Agreement
assuming that the rate at which the Performance Goals have been achieved as of
the date of such Change in Control would have continued until the end of the
Performance Period or (b) the maximum amount payable under the Performance Unit
multiplied by the percentage of the Performance Period completed by the
Participant at the time of the Change in Control; provided, however, that if no
maximum amount payable is specified in the Performance Unit Agreement, the
amount payable shall be such amount as the Committee shall determine is
reasonable.
8.7 Payment of Performance Units. Subject to such terms and conditions as
the Committee may impose, and unless otherwise provided in the Performance Unit
Agreement, Performance Units shall be payable within 90 days following the end
of the Performance Period during which the Participant attained at least the
minimum acceptable level of achievement under the Performance Goals, or 90 days
following a Change in Control, as applicable. The Committee, in its discretion,
may determine at the time of payment required in connection with a Performance
Unit whether such payment shall be made (a) solely in cash, (b) solely in Shares
(valued at the Fair Market Value of the Shares on the date of payment) or (c) a
combination of cash and Shares; provided, however, that if a Performance Unit
becomes payable upon a Change in Control, the Performance Unit shall be paid
solely in cash.
8.8 Designation of Beneficiary. Each Participant may, from time to time,
name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom the right to receive payments under a Performance Unit is
to be paid in case of the Participant's death before receiving any or all such
payments. Each such designation shall revoke all prior designations by the
Participant, shall be in a form prescribed by the Company and shall be effective
only when filed by the Participant in writing with the Committee during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
ARTICLE 9. AMENDMENT, MODIFICATION AND TERMINATION
9.1 Effective Date. The Plan shall become effective upon adoption by the
Board. The Plan shall be rescinded and all Options and shares of Restricted
Stock granted hereunder shall be null and void unless within 12 months from the
date of the adoption of the Plan by the Board it shall have been approved by the
holders of a majority of the outstanding Shares present or represented and
entitled to vote on the Plan at a stockholders' meeting.
9.2 Termination Date. The Plan shall terminate on the earliest to occur
of (a) the tenth anniversary of the adoption of the Plan by the Board, (b) the
date when all Shares available under the Plan shall have been acquired pursuant
to the exercise of Awards and the payment of all benefits in connection with
Performance Unit Awards has been made or (c) such other date as the Board may
determine in accordance with Section 92.
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9.3 Amendment, Modification and Termination. The Board may, at any time,
amend, modify or terminate the Plan. Without the approval of the stockholders
of the Company (as may be required by the Code, Section 16 of the Exchange Act
and the rules promulgated thereunder, any national securities exchange or system
on which the Shares are then listed or reported or a regulatory body having
jurisdiction with respect hereto), however, no such amendment, modification or
termination may:
(a) materially increase the benefits accruing to Participants under the
Plan;
(b) increase the total amount of Shares which may be issued under the
Plan, except as provided in Section 43; or
(c) materially modify the class of Employees eligible to participate in
the Plan.
9.4 Awards Previously Granted. No amendment, modification or termination
of the Plan shall in any manner adversely affect any outstanding Award without
the written consent of the Participant holding such Award.
ARTICLE 10. NON-TRANSFERABILITY
A Participant's rights under the Plan may not be assigned, pledged or
otherwise transferred other than by will or the laws of descent and
distribution, except that upon a Participant's death, the Participant's rights
to payment pursuant to a Performance Unit may be transferred to a beneficiary
designated in accordance with Section 88; provided, however, that in the case of
NQSOs, the Participant may, subject to any restrictions under Section 16(b) of
the Exchange Act, if applicable, transfer the Options to the Participant's
spouse, lineal descendants, trusts for their benefit or a charitable remainder
trust of which Participant or such family members referred to above are a
beneficiary.
ARTICLE 11. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed
as giving any Employee the right to become a Participant, nor shall an Award
under the Plan be construed as giving a Participant any right with respect to
continuance of employment by the Company. The Company expressly reserves the
right to terminate, whether by dismissal, discharge or otherwise, a
Participant's employment at any time, with or without Cause, except as may
otherwise be provided by any written agreement between the Company and the
Participant.
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ARTICLE 12. WITHHOLDING
12.1 Tax Withholding. A Participant shall remit to the Company an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA and Medicare obligation) required by law to be withheld with
respect to any grant, exercise or payment made under or as a result of the Plan.
12.2 Share Withholding. If the Company has a withholding obligation upon
the issuance of Shares under the Plan, a Participant may, subject to the
discretion of the Committee, elect to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair Market
Value on the date the withholding tax is to be determined equal to the amount
required to be withheld under applicable law. Notwithstanding the foregoing,
the Committee may, by the adoption of rules or otherwise, modify the provisions
of this Section 122 or impose such other restrictions or limitations on such
elections as may be necessary to ensure that such elections will be exempt
transactions under Section 16(b) of the Exchange Act.
ARTICLE 13. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each officer or Employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
ARTICLE 14. SUCCESSORS
All obligations of the Company with respect to Awards granted under the
Plan shall be binding on any successor to the Company, whether the existence of
such successor is a result of a direct or indirect purchase, merger,
consolidation or otherwise, of all or substantially all of the business and/or
assets of the Company.
ARTICLE 15. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements
under the Plan, shall be governed by, and construed in accordance with, the laws
of the State of Delaware without regard to its conflict of laws rules.
Furthermore, all the Plan and all Option Agreements relating to ISOs shall be
interpreted so as to qualify as incentive stock options under the Code.
IN WITNESS WHEREOF, this 1996 Stock Ownership Incentive Plan has been
executed by the Company as of the 13th day of June, 1996, being the date the
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Plan was adopted by the Board.
ATRIA COMMUNITIES, INC.
By: /s/ RALPH H. BELLANDE
----------------------------------------
Chief Operating Officer
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ATTEST:
/s/ J. TIMOTHY WESLEY
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Secretary
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EXHIBIT 10.6
ATRIA COMMUNITIES, INC.
NON-EMPLOYEE DIRECTORS
1996 STOCK INCENTIVE PLAN
-------------------------
ARTICLE 1. PURPOSE
The purpose of this 1996 Non-Employee Directors Stock Incentive Plan is to
promote the interests of Atria Communities, Inc., its subsidiaries and
stockholders, by having non-employee directors of the Company acquire a
proprietary interest in the Company. Such investments should increase the
personal interest and the special effort of such persons in providing for the
continued success and progress of the business of the Company and should enhance
the Company's efforts to attract and retain competent non-employee directors.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such terms shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean, unless otherwise defined in an Option Agreement or
Restricted Stock Agreement, a felony conviction of a Non-Employee Director or
the failure of a Non-Employee Director to contest prosecution for a felony, or a
Non-Employee Director's willful misconduct or dishonesty, any of which is
determined by the Committee to be directly and materially harmful to the
business or reputation of the Company or its Subsidiaries.
(c) "Change in Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company ("Voting Securities") by any Person immediately
after which such Person has Beneficial Ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than 25% of the combined
voting power of the Company's then outstanding Voting Securities if Vencor, Inc.
then beneficially owns less than 25% of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A Non-Control
Acquisition shall mean an acquisition by (i) the Company or any Subsidiary, (ii)
an employee benefit plan (or a trust forming a part thereof) maintained by the
Company or any Subsidiary, (iii) Vencor, Inc. or any Subsidiary or (iv) any
Person in connection with a Non-Control Transaction (as hereinafter defined);
(2) The individuals who, as of December 31, 1996, are members of the
Board ("Incumbent Board"), cease for any reason to constitute at least a
majority of the Board; provided,
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however, that if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at least a majority
of the Incumbent Board, such new director shall, for purposes of the Plan, be
considered as a member of the Incumbent Board; provided, further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened Election Contest (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board ("Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(3) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless such is a Non-Control Transaction. For purposes of the Plan, the
term "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company in which:
(i) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least a majority of
the combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least a majority of the members of
the board of directors of the Surviving Corporation; and
(iii) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of 20% or more of the then outstanding Voting Securities) has
Beneficial Ownership of 20% or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities;
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Company which, by reducing the
number of Voting Securities outstanding, increases the
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proportional number of shares Beneficially Owned by the Subject Person;
provided, however, that if a Change in Control would occur (but for the
operation of this sentence) as a result of the acquisition of Voting Securities
by the Company, and after such share acquisition by the Company the Subject
Person becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities Beneficially
Owner by the Subject Person, then a Change in Control shall occur.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(e) "Committee" shall mean the Committee provided for in Section 71.
(f) "Company" shall mean Atria Communities, Inc., a Delaware corporation.
(g) "Disability" shall mean the total disability as determined by the
Committee in accordance with standards and procedures similar to those under the
Company's long-term disability plan, or, if none, a physical or mental infirmity
which the Committee determines impairs the Participant's ability to perform
substantially his or her duties for a period of 180 consecutive days.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(i) "Fair Market Value" of the Shares shall mean, as of any applicable
date, the closing sale price of the Shares on the Nasdaq National Market System
or any national or regional stock exchange in which the Shares are traded, or if
no such reported sale of the Shares shall have occurred on such date, on the
next preceding date on which there was such a reported sale. If there shall be
any material alteration in the present system of reporting sale prices of the
Shares, or if the Shares shall no longer be listed on the Nasdaq National Market
System or a national or regional stock exchange, the fair market value of the
Shares as of a particular date shall be determined by such method as shall be
determined by the Committee.
(j) "Initial Grant Date" shall mean the date the Registration Statement
with respect to the Company's initial public offering becomes effective.
(k) "Non-Employee Director" shall mean a member of the Board who is not an
employee of the Company or any of its subsidiaries.
(l) "Option" shall mean an option granted to an Optionee pursuant to the
Plan.
(m) "Option Agreement" shall mean a written agreement between the Company
and an Optionee evidencing the grant of an Option and containing terms and
conditions concerning the exercise of the Option.
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(n) "Option Price" shall mean the price to be paid for Shares to be
purchased pursuant to the exercise of an Option.
(o) "Optionee" shall mean a Non-Employee Director who has been granted an
Option or the personal representative, heir or legatee of an Optionee who has
the right to exercise the Option upon the death of the Optionee.
(p) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(q) "Plan" shall mean this 1996 Non-Employee Directors Stock Incentive
Plan, as the same may be amended from time to time.
(r) "Restriction Period" shall mean the period during which the transfer
of Shares is limited in some way or Shares are otherwise restricted or subject
to forfeiture as provided in Article 6.
(s) "Restricted Stock" shall mean Shares granted pursuant to Article 6 as
to which the restrictions have not expired.
(t) "Restricted Stock Agreement" shall mean an agreement evidencing a
Restricted Stock award, as described in Section 62.
(u) "Shares" shall mean the shares of the Company's common stock, par
value $.10 per share.
(v) "Subsidiary" shall mean, with respect to any company, any corporation
or other Person of which a majority of its voting power, equity securities or
equity interest is owned directly or indirectly by such company.
2.2 Gender and Number. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
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ARTICLE 3. GRANTING OF OPTIONS
3.1 Initial Grants. Each Non-Employee Director on the Initial Grant Date,
other than the Chairman of the Board of the Company, shall be granted on the
Initial Grant Date an Option to purchase 10,000 Shares. On the Initial Grant
Date, the Chairman of the Board of the Company shall be granted an Option to
purchase 80,000 Shares.
3.2 New Non-Employee Directors Grants. Each new Non-Employee Director who
is elected subsequent to the Initial Grant Date shall automatically be granted
an Option to purchase 10,000 Shares upon the initial date of election to the
Board, provided that the number of Shares available for grant under the Plan is
sufficient to permit such automatic grant.
3.3 Additional Option Grants. On each anniversary of the date of the
grant of an Option to a Non-Employee Director pursuant to the terms of the Plan,
such Non-Employee Director shall automatically be granted an Option to purchase
1,000 Shares provided that (i) such Non-Employee Director shall have continually
served as a director of the Company since the date of such prior Option grant
and (ii) the number of Shares available for grant under the Plan is sufficient
to permit such automatic grant.
3.4 Proportionate Reduction. If as of any date on which there is to be a
grant of Options hereunder there are an insufficient number of Shares available
pursuant to Section 4 to make all of the grants then to be made, each Non-
Employee Director then entitled to be granted an Option shall receive an Option
to purchase a proportionately lesser number of Shares.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
The stock to be offered under the Plan shall be the Shares, which Shares
may be unissued Shares or treasury Shares. Subject to the adjustments provided
for in Section 8, the aggregate number of Shares to be delivered upon exercise
of all Options granted under the Plan plus shares of Restricted Stock issued
under the Plan shall not exceed 250,000 Shares. Shares subject to, but not
delivered under, an Option terminating or expiring for any reason prior to its
exercise in full, and shares of Restricted Stock which are forfeited pursuant to
the terms of the Plan, shall be deemed available for Options to be granted
thereafter during the term of the Plan.
ARTICLE 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted hereunder shall be subject to the following terms and
conditions which shall be set forth in the Option Agreement for all Options to
the extent applicable:
5.1 To Whom Options May Be Granted. Options shall be granted only to Non-
Employee Directors.
5.2 Non-Transferability of Option. The Option shall not be transferable
by the Optionee otherwise than by bequest or the laws of descent and
distribution, and shall be exercisable during
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the Optionee's lifetime only by the Optionee; provided, however, that the
Optionee may, subject to any restrictions under Section 16(b) of the Exchange
Act, transfer the Options to the Optionee's spouse, lineal descendants, trusts
for their benefit or a charitable remainder trust of which Optionee or such
family members are a beneficiary.
5.3 Termination of Option.
(a) If the Optionee ceases to be a director of the Company for any
reason other than death, Disability or removal for Cause, the Option shall
terminate three months after the Optionee ceases to be director of the Company
(unless the Optionee dies during such period), or on the Option's expiration
date, if earlier, and shall be exercisable during such period after the Optionee
ceases to be a director of the Company only with respect to the number of Shares
which the Optionee was entitled to purchase on the day preceding the day on
which the Optionee ceased to be a director.
(b) If the Optionee ceases to be a director of the Company because of
removal for Cause, the Option shall terminate on the date of the Optionee's
removal.
(c) In the event of the Optionee's death or Disability while a
director of the Company, or the Optionee's death within three months after the
Optionee ceases to be a director (other than by reason of removal for Cause),
the Option shall terminate upon the earlier to occur of (A) 12 months after the
date of the Optionee's death or Disability, or (B) the Option's expiration date.
The Option shall be exercisable during such period after the Optionee's death or
Disability with respect to the number of Shares as to which the Option shall
have been exercisable on the date preceding the Optionee's death or Disability,
as the case may be.
5.4 Number of Shares of Common Stock. The number of Shares to which the
Option pertains.
5.5 Exercise Price. The exercise price of the Option, which shall be
equal to 100% of the Fair Market Value of the Shares at the time of the grant of
the Option.
5.6 The Term of Option. The term of the Option, which shall be 10 years.
5.7 Exercisability. The time at which the Option becomes exercisable.
The Option shall be exercisable as follows:
(a) From the date the Option is granted until the first anniversary
thereof, the Option may not be exercised.
---
(b) Beginning on the day following the first anniversary of the date
the Option is granted, the Option may be exercised with respect to one-fourth of
the Shares subject to the Option.
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(c) Beginning on the day following the second anniversary of the date
the Option is granted, the Option may be exercised with respect to an additional
one-fourth of the Shares subject to the Option.
(d) Beginning on the day following the third anniversary of the date
the Option is granted, the Option may be exercised with respect to an additional
one-fourth of the Shares subject to the Option.
(e) Beginning on the day following the fourth anniversary of the date
the Option is granted, the Option may be exercised with respect to all of the
Shares subject to the Option.
Notwithstanding the provisions of this Section 57, upon a Change in Control, the
Optionee shall have the right to exercise the Option in full as to all Shares
subject to the Option.
5.8 Payment of Exercise Price. The Option Price shall be paid in cash at
the time of exercise, except that in lieu of all or part of the cash, the
Optionee may tender to the Company Shares owned by the Optionee having a Fair
Market Value equal to the exercise price, less any cash paid. The Fair Market
Value of such tendered Shares shall be determined as of the close of the
business day immediately preceding the day on which the Option is exercised.
ARTICLE 6. RESTRICTED STOCK
6.1 Grant of Restricted Stock. Each Non-Employee Director on the Initial
Grant Date, other than the Chairman of the Board of the Company, shall be
granted on the Initial Grant Date 5,000 shares of Restricted Stock. On the
Initial Grant Date, the Chairman of the Board of the Company shall be granted
20,000 shares of Restricted Stock.
6.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement which shall specify the Restriction
Period, the number of shares of Restricted Stock granted and such other
provisions as the Committee may determine and which are required by the Plan.
6.3 Restriction Period. Shares of Restricted Stock shall vest one-half on
the first anniversary of the Initial Grant Date, and the remaining one-half on
the second anniversary of the Initial Grant Date.
6.4 Non-Transferability of Restricted Stock. Except as provided in this
Article 6, shares of Restricted Stock may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Restriction Period with respect to such shares.
6.5 Forfeiture. Shares of Restricted Stock which do not vest prior to the
date the Non-Employee Director ceases to be a director of the Company shall be
forfeited. Any such forfeited shares of Restricted Stock shall be immediately
returned to the Company by the Non-Employee
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Director, and the Non-Employee Director shall not receive any amount with
respect to such Restricted Stock upon such forfeiture.
6.6 Certificate Legend. Each certificate representing shares of
Restricted Stock shall bear the following legend:
"The sale or other transfer of the shares represented by this
Certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in the Atria
Communities, Inc. Non-Employee Directors 1996 Stock Incentive Plan,
and in the related Restricted Stock Agreement. A copy of the Plan and
such Restricted Stock Agreement may be obtained from the Secretary of
Atria Communities, Inc."
6.7 Lapse of Restrictions Generally. Except as otherwise provided in this
Article 6, shares of Restricted Stock shall become freely transferable by the
Participant and no longer subject to forfeiture after the last day of the
Restriction Period. Once the shares of Restricted Stock are released from their
restrictions, the Non-Employee Director shall be entitled to have the legend
required by Section 66 removed from the Non-Employee Director's Share
certificate, which certificate shall thereafter represent freely transferable
and nonforfeitable Shares free from any and all restrictions under the Plan.
6.8 Lapse of Restrictions Upon Change in Control. Upon a Change in
Control, any restrictions and other conditions pertaining to then outstanding
shares of Restricted Stock held by Non-Employee Directors shall lapse and such
Shares shall thereafter be immediately transferable and nonforfeitable.
6.9 Voting Rights; Dividends and Other Distributions. During the
Restriction Period, Non-Employee Directors holding shares of Restricted Stock
may exercise full voting rights, and shall be entitled to receive all dividends
and other distributions paid, with respect to such Restricted Stock. If any
dividends or distributions are paid in Shares, the Shares shall be subject to
the same restrictions as the shares of Restricted Stock with respect to which
they were paid.
6.10 Termination as Director. If a Non-Employee Director ceases to be a
director of the Company for any reason other than death or Disability prior to
the expiration of the Restriction Period applicable to any shares of Restricted
Stock then held by the Non-Employee Director, such shares shall thereupon be
forfeited immediately by the Non-Employee Director and returned to the Company,
and the Non-Employee Director shall not receive any amount with respect to such
Restricted Stock. If a Non-Employee Director ceases to be a director of the
Company as a result of death or Disability prior to the expiration of the
Restriction Period applicable to any shares of Restricted Stock then held by the
Non-Employee Director, all restrictions and other conditions pertaining to such
shares of Restricted Stock shall immediately lapse and such shares of Restricted
Stock shall thereafter be immediately transferable and nonforfeitable.
ARTICLE 7. ADMINISTRATION
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7.1 The Committee. The Plan is designed to operate automatically and not
require any significant administration. To the extent administration is
required, the Plan shall be administered by a Committee appointed by the Board
which shall include two or more directors of the Company or the entire Board of
the Company. The Committee shall meet at such times and places as it determines
and may meet through a telephone conference call. A majority of its members
shall constitute a quorum, and the decision of the majority of those present at
any meeting at which a quorum is present shall constitute the decision of the
Committee. Any decision reduced to writing and signed by a majority of the
members of the Committee shall be fully effective as if it had been made by a
majority at a meeting duly held. No discretion concerning decisions under the
Plan shall be afforded to a person who is not a "disinterested person." All
decisions, determinations and selections made by the Committee pursuant to the
provisions of the Plan shall be final. To the extent required by law and Rule
16b-3 promulgated under the Exchange Act, the Committee may delegate its
authority hereunder.
7.2 Section 16 Compliance. It is the intention of the Company that the
Plan and the administration of the Plan comply in all respects with Section
16(b) of the Exchange Act and the rules and regulations promulgated thereunder.
If any Plan provision, or any aspect of the administration of the Plan, is found
not to be in compliance with Section 16(b) of the Exchange Act, the provision or
administration shall be deemed null and void, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
ARTICLE 8. ADJUSTMENTS UPON CHANGE IN CAPITALIZATION
Notwithstanding the limitations set forth in Section 4, in the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, property divided, share repurchase, share combination,
share exchange, issuance of warrants, rights or debentures or other change in
corporate structure of the Company affecting the Shares, the Committee shall
make an appropriate and equitable adjustment in the maximum number of Shares
available under the Plan or to any one individual and in the number, kind and
Option Price of Shares subject to Options granted under the Plan to prevent
dilution or enlargement of the rights of Non-Employee Directors under the Plan
and outstanding Options.
ARTICLE 9. AMENDMENTS AND DISCONTINUANCE
9.1 In General. Except as provided in Section 92, the Board may
discontinue, amend, modify or terminate the Plan at any time.
9.2 Section 16(b) Compliance. To the extent required to meet the
conditions for exemption from Section 16(b) of the Exchange Act or the
requirements of any national securities exchange or system on which the Shares
are then listed or reported or a regulatory body having jurisdiction with
respect thereto, without the approval of the stockholders of the Company, no
amendment, modification or termination may:
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(a) materially increase the benefits accruing to Non-Employee
Directors under the Plan;
(b) materially increase the total number of Shares which may be
issued under the Plan, except as provided in Section 8; or
(c) materially modify the eligibility requirements to receive an
Option or Restricted Stock under the Plan.
Furthermore, to the extent required to meet the conditions for exemption from
Section 16(b) of the Exchange Act, no amendment which would change the amount,
price or timing of Option grants, other than to comply with changes in the Code
or the Employee Retirement Income Security Act of 1974, as amended (to which the
Plan is not currently subject), or the rules and regulations promulgated
thereunder, shall be made more than once every six months.
9.3 No Effect on Outstanding Options. Any Option which is outstanding
under the Plan at the time of its amendment or termination shall remain in
effect in accordance with its terms and conditions and those of the Plan as in
effect when the Option was granted.
ARTICLE 10. MERGER, CONSOLIDATION, ETC.
10.1 Conversion on Certain Mergers. In the event the Company merges or
consolidates with another corporation, or all or substantially all of the
Company's capital stock or assets are acquired by another corporation, and the
surviving or acquiring corporation issues shares of its stock to the Company's
shareholders in connection with the merger, consolidation or acquisition, the
surviving or acquiring corporation shall adopt the Plan and the following shall
apply:
(a) Upon the exercise of an Option, the Optionee shall, at no
additional cost (other than the Option Price), be entitled to receive, in lieu
of the number of Shares to which such Option is then exercisable, the number and
class of stock or other securities to which the Optionee would have been
entitled pursuant to the terms of the merger, consolidation or acquisition if
immediately prior thereto the Optionee had been the holder of record of a number
of Shares equal to the number of Shares as to which the Option shall then be
exercisable; and
(b) The shares of the surviving or acquiring corporation received in
exchange for shares of Restricted Stock shall be subject to the same restriction
as applied to such Restricted Stock.
10.2 No Conversion on Other Mergers. In the event that the Company
merges or consolidates with another corporation, or all or substantially all of
the Company's capital stock or assets are acquired by another corporation, and
the surviving or acquiring corporation does not issue shares of its stock to the
Company's shareholders in connection with the merger, consolidation or
acquisition, then, notwithstanding any other provision of the Plan to the
contrary, no Option may be exercised after the effective date of the merger,
consolidation or acquisition.
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<PAGE>
ARTICLE 11. EFFECTIVENESS AND TERMINATION OF THE PLAN
11.1 Effective Date. The Plan shall become effective upon adoption by the
Board. The Plan shall be rescinded and all Options and shares of Restricted
Stock granted hereunder shall be null and void unless within 12 months from the
date of the adoption of the Plan by the Board it shall have been approved by the
holders of a majority of the outstanding Shares present or represented and
entitled to vote on the Plan at a stockholders' meeting.
11.2 Termination Date. The Plan shall terminate on the earliest to occur
of (i) the date when all of the Shares available under the Plan shall have been
acquired through the exercise of Options granted under the Plan and the issuance
of Restricted Stock; (ii) 10 years after the date of adoption of the Plan by the
Board; or (iii) such other date as the Board may determine.
ARTICLE 12. NO RIGHT OF REELECTION
Neither the Plan, nor any action taken under the Plan, shall be construed
as conferring upon a Non-Employee Director any right to continue as a director
of the Company, to be renominated by the Board or reelected by the stockholders
of the Company.
ARTICLE 13. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determi nation or interpretation taken or made with respect to the
Plan, and all members of the Board, the Committee and each officer or employee
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company with respect to any such action,
determination or interpretation.
ARTICLE 14. GOVERNING LAW
The provisions of the Plan shall be construed, administered and enforced
according to the laws of the State of Delaware without regard to its conflict of
laws rules.
IN WITNESS WHEREOF, this Non-Employee Directors 1996 Stock Incentive Plan
has been executed by the Company as of the 16th day of June, 1996, being the
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<PAGE>
date the Plan was adopted by the Board.
ATRIA COMMUNITIES, INC.
By: /s/ RALPH H. BALLANDE
--------------------------------------
Title: Chief Operating Officer
-----------------------------------
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<PAGE>
EXHIBIT 10.7
FIRST AMENDMENT TO
ATRIA COMMUNITIES, INC.
NON-EMPLOYEE DIRECTORS 1996 STOCK INCENTIVE PLAN
------------------------------------------------
A. Atria Communities, Inc., a Delaware corporation ("Company"), adopted
the Atria Communities, Inc. Non-Employee Directors 1996 Stock Incentive Plan
("Plan") on June 13, 1996, and the Plan was approved by the sole stockholder of
the Company on June 14, 1996.
B. The Company desires to grant non-employee directors options to
purchase an increased number of shares.
C. The Company desires to increase the number of shares available for
issuance pursuant to the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. AMENDMENT OF 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".
2. CONTINUATION OF BALANCE OF PLAN. Except as amended hereby, the Plan is
unchanged and remains in full force and effect.
3. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of Delaware without regard to its
conflict of laws rules.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been adopted by the Company as of the
16th day of July, 1997.
ATRIA COMMUNITIES, INC.
By: /s/ W. PATRICK MULLOY, II
------------------------------------
Title: Chief Executive Officer
---------------------------------
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<PAGE>
[LOGO AND LETTERHEAD OF ATRIA APPEARS HERE]
EXHIBIT 10.28
March 9, 1998
Mr. George A. Schoepf
Assisted Care Developers
1770 Indian Trail Drive
Suite 400
Norcross, GA 30093
Dear George:
This letter memorializes our agreement to expand the number of sites
covered under our original Development Agreement dated April 1, 1997 from 15 to
25. The 10 new sites will be on the same terms and conditions as the original 15
sites.
Please indicate your acceptance and agreement with the foregoing by
signing below.
ATRIA COMMUNITIES, INC.
By: /s/ W. Patrick Mulloy, II
-------------------------------------
W. Patrick Mulloy, II
President & Chief Executive Officer
ASSISTED CARE DEVELOPERS, L.L.C.
By: /s/ George A. Schoepf
-----------------------
George A. Schoepf
Managing Member
Date: Mar. 10, 1998
----------------
<PAGE>
EXHIBIT 10.29
-----------------------------------------
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
ELDER HEALTHCARE DEVELOPERS, LLC
-----------------------------------------
Effective Date
April 1, 1997
Date of Restatement
November 18, 1997
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. Formation; Name and Organizational Matters............................1
1.1 Formation and Name...............................................1
1.2 Principal Office.................................................1
1.3 Purposes.........................................................1
1.4 Company's Power..................................................1
1.5 Term.............................................................2
2. Grant of Exclusive Development Rights.................................2
3. Capital...............................................................2
3.1 Initial Capital Contributions of Members.........................2
3.2 No Liability of Members..........................................2
3.3 No Interest on Capital Contributions.............................2
3.4 Withdrawal of Capital............................................2
3.5 Capital Account..................................................2
3.6 Borrowing by the Company.........................................3
4. Accounting............................................................4
4.1 Books and Records................................................4
4.2 Fiscal Year......................................................4
4.3 Reports..........................................................4
4.4 Tax Returns......................................................4
4.5 Member's Request for Additional Information......................5
4.6 Revaluation of Company Property..................................5
4.7 Bank Accounts....................................................5
5. Allocation of Net Income and Net Loss.................................5
5.1 Net Income and Net Loss..........................................5
5.2 Allocation of Excess Nonrecourse Liabilities.....................7
5.3 Allocations in Event of Transfer, Admission of New Member, Etc...7
6. Distributive Shares and Federal Income Tax Elections..................7
6.1 Distributive Shares..............................................7
6.2 Elections........................................................7
6.3 Partnership Tax Treatment........................................7
7. Distributions.........................................................8
7.1 Net Cash Flow....................................................8
7.2 Distributions of Net Cash Flow...................................8
7.3 Property Distributions...........................................8
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TABLE OF CONTENTS
SECTION PAGE
7.4 Distributions on Sale of an Assisted Living Facility.............8
8. Management............................................................9
8.1 Management Committee.............................................9
8.2 Day to Day Management...........................................12
8.3 Tax Matters Partner.............................................12
8.4 Standard of Care of Members; Indemnification....................13
8.5 Payments for Services Provided by Members.......................13
8.6 Expenses Deductible.............................................14
8.7 Other Activities................................................14
8.8 Reimbursement of Expenses of Members............................15
9. Dissolution..........................................................15
9.1 Dissolution.....................................................15
9.2 Effective Date of Dissolution...................................15
9.3 Sale of Assets Upon Dissolution.................................15
9.4 Distributions Upon Dissolution..................................15
9.5 No Contribution for Negative Capital Accounts...................16
9.6 Liquidation of a Member's Interest..............................16
10. Withdrawal, Assignment and Addition of Members.......................16
10.1 Assignment of a Member's Interest...............................16
10.2 Voluntary Transfers.............................................16
10.3 Involuntary Transfers...........................................16
10.4 Purchase Price and Terms........................................17
10.5 Substitute Member...............................................18
10.6 Admission of New Member.........................................18
11. General.............................................................18
11.1 Representations, Warranties and Covenants of Members............18
11.2 Power of Attorney...............................................18
11.3 Notices.........................................................19
11.4 Amendment.......................................................20
11.5 Captions; Section References....................................20
11.6 Number and Gender...............................................20
11.7 Severability....................................................20
11.8 Arbitration.....................................................21
11.9 Binding Agreement...............................................21
11.10 Applicable Law.................................................21
11.11 Entire Agreement...............................................21
11.12 Counterparts...................................................22
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<PAGE>
TABLE OF CONTENTS
SECTION PAGE
11.13 No Right of Partition..........................................22
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<PAGE>
EXHIBITS
DESCRIPTION EXHIBIT
Development Agreement................................................... A
Management Agreement.................................................... B
DEFINITIONS
DEFINED TERM SECTION
AAA................................................................. 11.8(a)
Act....................................................................... 1
Affiliates........................................................... 8.7(b)
Agreement.......................................................... Preamble
Assisted Care...................................................... Preamble
Assisted Living Facilities........................................... 1.3(a)
Atria.............................................................. Preamble
Capital Account......................................................... 3.5
Code.................................................................... 3.5
Company................................................................... 1
Company Interest........................................................ 3.5
Computed Value...................................................... 12.7(a)
Contributed Assets................................................... 5.1(g)
Credit Facility......................................................... 3.6
Development Agreement................................................ 1.3(a)
Development Fee.............................................. 8.5(a), 8.5(a)
Effective Date...................................................... 10.4(a)
Facilities' Adjusted Cost............................................ 8.5(a)
Fiscal Year............................................................. 4.2
Involuntary Option.................................................. 10.3(a)
Lender............................................................... 3.6(a)
Management Committee................................................. 8.1(a)
Members............................................................ Preamble
Net Cash Flow........................................................... 7.1
Partnership......................................................... Recital
Percentage Interest.................................................. 5.1(a)
Representatives...................................................... 8.1(b)
Securities Act...................................................... 13.1(e)
TMP.................................................................. 8.3(a)
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<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
ELDER HEALTHCARE DEVELOPERS, LLC
THIS OPERATING AGREEMENT ("Agreement") is made as of the 1st day of April,
1997, by and between (i) ATRIA COMMUNITIES, INC., a Delaware corporation
("Atria"), and (ii) ASSISTED CARE DEVELOPERS, L.L.C., a Georgia limited
liability company ("Assisted Care"), and amended and restated by the parties
this 18th day of November, 1997. The foregoing parties are collectively
referred to herein as "Members" and individually as a "Member." For purposes of
this Agreement, the term "Members" includes all persons then acting in such
capacity in accordance with the terms of this Agreement.
1. FORMATION; NAME AND ORGANIZATIONAL MATTERS.
1.1 FORMATION AND NAME. On March 25 1997, the Members formed a limited
liability company ("Company") pursuant to the provisions of the Georgia Limited
Liability Company Act (Ga. Code Ann. (S)(S) 14-11-100, et. seq.) ("Act"). The
name of the Company shall be ELDER HEALTHCARE DEVELOPERS, LLC.
1.2 PRINCIPAL OFFICE. The Company's principal office shall be at 1770
Indian Trail Road, Norcross, Georgia, 30093, or at such other place as
"Management Committee" (as defined in Section 8.1) shall determine from time to
time. The Management Committee shall maintain the books of the Company at the
principal place of business of Atria or such other place that the Management
Committee deems appropriate. The Company shall designate an agent for service
of process in Georgia in accordance with the provisions of the Act. The Company
shall maintain, at its principal office, those items referred to in Ga. Code
Ann. (S) 14-11-313.
1.3 PURPOSES. The purposes of the Company are as follows:
(a) To purchase real property and design, construct and operate
assisted living facilities, homes for the aged, congregate care homes, personal
care homes or other similar facilities designed to provide assisted living to
the aged in accordance with the terms of this Agreement ("Assisted Living
Facilities") and the terms of the Development Agreement, a copy of which is
attached as Exhibit A (the "Development Agreement");
(b) To acquire, own, use, lease and sell such assets as are
necessary or appropriate for the foregoing; and
(c) To do all other things necessary or desirable in connection
with the foregoing, or otherwise described in this Agreement.
1.4 COMPANY'S POWER. In furtherance of the purposes of the Company as
set forth in Section 1.3, the Company shall have the power to do any and all
things whatsoever necessary, appropriate or advisable in connection with such
purposes, or as otherwise described in this
<PAGE>
Agreement. The Company shall not engage in any business other than as set forth
in Section 13, nor take any action not described in this Agreement.
1.5 TERM. The term of the Company shall commence as of the date of the
filing of Articles of Organization with the Secretary of State's Office, and
shall continue until dissolved in accordance with Section 9.
2. GRANT OF EXCLUSIVE DEVELOPMENT RIGHTS. In connection with the formation
of the Company, Atria shall grant the Company the exclusive right to develop
assisted living facilities in accordance with the provisions of the Development
Agreement attached as Exhibit A.
3. CAPITAL.
3.1 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS. Upon the request of the
Management Committee, each of the Members shall make an initial capital
contribution to the Company in the amount set forth below opposite each of their
respective names:
MEMBER CONTRIBUTION
------ ------------
Atria $ 500.00
Assisted Care $4,500.00
3.2 NO LIABILITY OF MEMBERS. Except as otherwise specifically provided
in the Act, no Member shall have any personal liability for the obligations of
the Company. Except as provided in Sections 3.1 and 3.6, no Member shall be
obligated to contribute funds or loan money to the Company. The Members shall
pay their own costs, including attorneys' fees, associated with the formation of
the Company and the Company shall bear none of those expenses.
3.3 NO INTEREST ON CAPITAL CONTRIBUTIONS. No Member shall be entitled
to interest on any capital contributions made to the Company.
3.4 WITHDRAWAL OF CAPITAL. No Member shall be entitled to withdraw any
part of such Member's capital contributions to the Company, except as provided
in Sections 7 and 9. No Member shall be entitled to demand or receive any
property from the Company other than cash, except as otherwise expressly
provided for herein.
3.5 CAPITAL ACCOUNT. The Company shall establish on its books a capital
account ("Capital Account") for each Member and shall maintain the Capital
Account in accordance with the provisions of Treas. Reg. (S) 1.704-1(b)(2)(iv).
This Agreement shall be so construed; and, accordingly, such Capital Account
shall initially be credited with the initial capital contribution of the Member
and thereafter shall be increased by (a) any cash or the fair market value of
any property contributed by such Member (net of any liabilities assumed by the
Company or to which the contributed property is subject) and (b) the amount of
all net income (whether or not exempt from tax) and gain allocated to such
Member hereunder, and decreased by (a) the amount of all
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<PAGE>
net losses allocated to such Member hereunder (including expenditures described
in section 705(a)(2)(B) of the Internal Revenue Code of 1986, as amended
("Code"), or treated as such an expenditure by reason of Treas. Reg. (S) 1.704-
1(b)(2)(iv)(i)) and (b) the amount of cash, and the fair market value of
property (net of any liabilities assumed by such Member or to which the
distributed property is subject), distributed to such Member pursuant to
Sections 7 and 9. If a Member transfers all or any part of such Member's
interest in the Company ("Company Interest") in accordance with the terms of
this Agreement, the Capital Account of the transferor shall become the Capital
Account of the transferee to the extent of the Company Interest transferred.
3.6 BORROWING BY THE COMPANY.
(a) Unless the Members otherwise agree, the Company shall seek from
Empire Financial Services, Inc. or another financial institution not an
Affiliate of any Member (a "Lender") financing to pay for the (1) acquisition of
real estate, (2) earnest money advance relating to real estate purchase
contracts, (3) pre-development activities, and (4) development and construction
costs of each Assisted Living Facility, including anticipated startup operating
losses, of Assisted Living Facilities of the Company. The Members agree to
provide a guarantee or other collateral acceptable to Lender sufficient to
secure any portion of the indebtedness of the Company. The Members agree that
such obligation shall be joint and several as to a Lender but as between the
Members all liabilities to any Lender shall be allocated among Members (the
"Member's Proportionate Share") in accordance with their respective "Percentage
Interest" (as defined in Section 5.1(a)).
(b) If the Company is unable to obtain financing from a Lender to
cover any operating loss of an Assisted Living Facility managed by Atria, or if
actual losses exceed the anticipated losses, then Atria shall lend such funds to
the Company in accordance with the provisions of this Section 3.6(b), unless the
Members agree to contribute additional capital to the Company to fund such
working capital deficit. Assisted Care shall guarantee the repayment by the
Company of that percentage of funds lent to the Company by Atria that equals
Assisted Care's Percentage Interest, in a form of guarantee reasonably
acceptable to Atria. The source of payment under any such guarantee relating to
loans to cover losses that exceed anticipated losses of an Assisted Living
Facility shall be limited to the value of Assisted Care's interest in that
facility. Funds lent to the Company by Atria shall bear interest at a variable
rate equal to .25% in excess of Atria borrowing rate on it then current credit
facility, as such rate may change from time to time. Interest shall be due and
payable monthly and principal and all accrued but unpaid interest shall be due
in full on the earlier (1) the date such credit facility is due or (2) the date
that the Assisted Living Facility is sold. The Company may pre-pay the
indebtedness to Atria at any time without penalty.
(c) If any Member incurs a liability (a "Paying Member") arising
out of or resulting from any indebtedness of the Company that exceeds the Paying
Member's Proportionate Interest of such indebtedness, the other Member (the
"Contributing Member") shall be obligated to pay, subject to the limitations of
Section 3.6(b) above, to the Paying Member the amount by which the indebtedness
of the Company that was satisfied by the Paying Member exceeds the Paying
Member's Proportionate Share of the such indebtedness. The Contributing Member
hereby agrees to indemnify the Paying Member from all liabilities, losses,
damages , claims costs and expenses
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<PAGE>
(including attorneys' fee) arising out of Contributing Member failure to fulfill
its obligations under the provisions of Section 3.6.
4. ACCOUNTING.
4.1 BOOKS AND RECORDS. The Company shall maintain full and accurate
books of the Company at the Company's principal place of business, or such other
place as the Management Committee shall determine, showing all receipts and
expenditures, assets and liabilities, net income and loss, and all other records
necessary for recording the Company's business and affairs, including those
sufficient to record the allocations and distributions provided for in Sections
5, 7 and 9. Except as otherwise specifically provided herein, such books and
records shall be maintained, and the net income and net loss of the Company
shall be determined, in the same manner as the Company computes its income and
expenses for Federal income tax purposes. Such books and records shall be open
to the inspection and examination by all Members in person or by their duly
authorized representatives at all reasonable times.
4.2 FISCAL YEAR. The fiscal year of the Company shall be the calendar
year ("Fiscal Year").
4.3 REPORTS.
(a) Within 90 days after the close of each Fiscal Year of the
Company, the Company shall furnish to each person who was a Member at any time
during such Fiscal Year all the information relating to the Company that is
necessary for each Member to prepare its Federal and state income or other tax
returns.
(b) Within 90 days after the close of each Fiscal Year of the
Company, the Company shall furnish to each Member a report of the business and
operations of the Company during such Fiscal Year. Such report shall, unless the
Management Committee determines otherwise, contain unaudited financial
statements, which shall include a balance sheet as of the end of such Fiscal
Year, an income or loss statement for such Fiscal Year and such other
information as in the judgment of the Management Committee is reasonably
necessary for the Members to be advised of the results of the Company's
operations.
(c) On or before the 20th day of each month, the Company shall
furnish to each of the Members a report of the Company's operations for the
preceding month. Such report shall contain, at a minimum, a balance sheet as of
the end of such month and an income statement for such month.
4.4 TAX RETURNS. The Company shall prepare, or cause to be prepared,
and timely filed, all Federal, state and local income tax returns and
information returns, if any, which the Company is required to file. All
expenses incurred in connection with such tax returns and information returns,
as well as for the reports referred to in Sections 4.3 and 4.5, shall be
expenses of the Company.
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<PAGE>
4.5 MEMBER'S REQUEST FOR ADDITIONAL INFORMATION. The Company shall
also furnish to any Member such other reports of the Company's operations and
condition as may reasonably be requested by any Member.
4.6 REVALUATION OF COMPANY PROPERTY. If (a) an acquisition of a
Company Interest for more than a de minimis capital contribution occurs, or (b)
a distribution (other than a de minimis distribution) to a Member in
consideration for a Company Interest occurs, the Members may revalue the assets
of the Company at the then fair market value and adjust the Capital Accounts of
the Members in the same manner as provided in Section 7.3 in the case of a
property distribution. If there is a reallocation pursuant to this Section 4.6,
then Capital Accounts shall thereafter be adjusted for allocations of
depreciation (cost recovery) and gain or loss in accordance with the provisions
of Treas. Reg. (S) 1.704-1(b)(2)(iv)(f) and (g), and the Members' distributive
shares of depreciation (cost recovery) and gain or loss computed in accordance
with the principles of section 704(c) of the Code and the regulations
promulgated thereunder using the traditional method (within the meaning of
Treas. Reg. (S) 1.704-3(b)).
4.7 BANK ACCOUNTS. The Company shall deposit all of its funds in its
name into such checking, savings or money market accounts or any combination
thereof or time certificates as designated by the Management Committee.
Withdrawals therefrom shall be made upon such signature or signatures as the
Management Committee may designate. The Company shall not commingle any of its
funds with those of any other person or entity.
5. ALLOCATION OF NET INCOME AND NET LOSS.
5.1 NET INCOME AND NET LOSS.
(a) Except as otherwise provided herein, the net income and net
loss of the Company for each Fiscal Year shall be allocated to the Members in
accordance with their respective Percentage Interests. For purposes of this
Agreement, the term "Percentage Interest" shall mean the percentage which the
Capital Account of a Member bears to the aggregate Capital Accounts of all of
the Members.
(b) Notwithstanding anything herein to the contrary, if a Member
has a deficit balance in such Member's Capital Account (excluding from such
Member's deficit Capital Account any amount which such Member is obligated to
restore in accordance with Treas. Reg. (S) 1.704-1(b)(2)(ii)(c), as well as any
amount such Member is treated as obligated to restore under Treas. Reg. (S)(S)
1.704-2(g)(1) and 1.704-2(i)(5)) and unexpectedly receives an adjustment,
allocation or distribution described in Treas. Reg. (S) 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), then such Member will be allocated items of income and gain in an
amount and manner sufficient to eliminate the deficit balance in such Member's
Capital Account as quickly as possible. If there is an allocation to a Member
pursuant to this Section 5.1(b), then future allocations of net income pursuant
to Section 5.1(a) shall be adjusted so that those Members who were allocated
less income, or a greater amount of loss, by reason of the allocation made
pursuant to this Section 5.1(b), shall be allocated additional net income in an
equal amount. It is the intention of the parties that the
-5-
<PAGE>
provisions of this Section 5.1(b) constitute a "qualified income offset" within
the meaning of Treas. Reg. (S) 1.704-1(b)(2)(ii)(d), and such provisions shall
be so construed.
(c) If there is a net decrease in the Company's Minimum Gain (within the
meaning of Treas. Reg (S) 1.704-2(b)(2)) or Partner Nonrecourse Debt Minimum
Gain (within the meaning of Treas. Reg. (S) 1.704-2(i)(3)) during any Fiscal
Year, each Member shall be allocated, before any other allocations hereunder,
items of income and gain for such Fiscal Year (and subsequent Fiscal Years, if
necessary), in an amount equal to such Member's share (determined in accordance
with Treas. Reg. (S)(S) 1.704-2(g) and 1.704-2(i)(5), as applicable) of the net
decrease in the Company's Minimum Gain or Partner Nonrecourse Debt Minimum Gain,
as applicable, for such Fiscal Year; provided, however, that no such allocation
shall be required if any of the exceptions set forth in Treas Reg. (S) 1.704-
2(f) apply. It is the intention of the parties that this provision constitute a
"minimum gain chargeback" within the meaning of Treas. Reg. (S)(S) 1.704-2(f)
and 1.704-2(i)(4), and this provision shall be so construed.
(d) Notwithstanding anything herein to the contrary, the Company's
partner nonrecourse deductions (within the meaning of Treas. Reg. (S) 1.704-
2(i)(2)) shall be allocated solely to the Member who has the economic risk of
loss with respect to the partner nonrecourse liability related thereto in
accordance with the provisions of Treas. Reg. (S) 1.704-2(i)(1).
(e) Notwithstanding the provisions of Section 7.1, no net losses shall
be allocated to a Member if such allocation would result in such Member having a
deficit balance in such Member's Capital Account (excluding from such Member's
deficit Capital Account any amount such Member is obligated to restore in
accordance with Treas. Reg. (S) 1.704-1(b)(2)(ii)(c), as well as any amount such
Member is treated as obligated to restore under Treas. Reg. (S)(S) 1.704-2(g)(1)
and 1.704-2(i)(5)). In such case, the net loss that would have been allocated to
such Member shall be allocated to the other Members to whom such loss may be
allocated without violation of the provisions of this Section 5.1(e).
(f) Notwithstanding the provisions of Section 7.1, to the extent losses
are allocated to Members by virtue of Section 5.1(e), the net income of the
Company thereafter recognized shall be allocated to such Member until such time
as the net income of the Company allocated to such Member pursuant to this
Section 5.1(f) equals the net losses allocated to such Member pursuant to
Section 5.1(e).
(g) For Federal state and local income tax purposes only, with respect
to any assets contributed by a Member to the Company ("Contributed Assets")
which have an agreed fair market value on the date of their contribution which
differs from the Member's adjusted basis therefor as of the date of
contribution, the allocation of depreciation and gain or loss with respect to
such Contributed Assets shall be determined in accordance with the provisions of
section 704(c) of the Code and the regulations promulgated thereunder using the
traditional method within the meaning of Treas. Reg. (S) 1.704-3(b). For
purposes of this Agreement, an asset shall be deemed a Contributed Asset if it
has a basis determined, in whole or in part, by reference to the basis of a
Contributed Asset (including an asset previously deemed to be a Contributed
Asset pursuant to this sentence). Notwithstanding the foregoing, if the gain
from the sale of any Contributed Asset
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is being reported on the installment method for income tax purposes, then the
total amount of gain which is to be recognized by each of the Members in
accordance with the above provision in all taxable years shall be computed and
the amount of gain to be recognized by each of the Members in each year shall be
in proportion to the total gain to be recognized by each of the Members in all
taxable years.
5.2 ALLOCATION OF EXCESS NONRECOURSE LIABILITIES. For purposes of
section 752 of the Code and the regulations thereunder, the excess nonrecourse
liabilities of the Partnership (within the meaning of Treas. Reg. (S) 1.752-
3(a)(3)), if any, shall be allocated to the Members in accordance with their
respective Percentage Interests.
5.3 ALLOCATIONS IN EVENT OF TRANSFER, ADMISSION OF NEW MEMBER, ETC. In
the event of the transfer of all or any part of a Member's Company Interest (in
accordance with the provisions of this Agreement) at any time other than at the
end of a Fiscal Year, the admission of a new Member or disproportionate capital
contributions, the transferring Member's, new Member's and Members' shares of
the Company's income, gain, loss, deductions and credits allocable to such
Company Interest, as computed both for accounting purposes and for Federal
income tax purposes, shall be allocated between the transferor Member and the
transferee(s), the new Member and the other Members or among the Members, as the
case may be, in the same ratio as the number of days in such Fiscal Year before
and after the date of such transfer, admission or disproportionate capital
contributions; provided, however, that the Management Committee shall have the
option to treat the periods before and after the date of such transfer,
admission or disproportionate capital contributions as separate Fiscal Years and
allocate the Company's net income, gain, net loss, deductions and credits for
each of such deemed separate Fiscal Years in accordance with the Members'
respective interests in the Company for such deemed separate Fiscal Years.
6. DISTRIBUTIVE SHARES AND FEDERAL INCOME TAX ELECTIONS.
6.1 DISTRIBUTIVE SHARES. For purposes of Subchapter K of the Code, the
distributive shares of the Members of each item of Company taxable income,
gains, losses, deductions or credits for any Fiscal Year shall be in the same
proportions as their respective shares of the net income or net loss of the
Company allocated to them pursuant to Section 5.1. Notwithstanding the forego
ing, to the extent not inconsistent with the allocation of gain provided for in
Section 5.1, gain recognized by the Company which represents ordinary income by
reason of recapture of depreciation or cost recovery deductions for Federal
income tax purposes shall be allocated to the Member (or the Member's successor-
in-interest) to whom such depreciation or cost recovery deduction to which such
recapture relates was allocated.
6.2 ELECTIONS. The election permitted to be made by section 754 of the
Code, and any other elections required or permitted to be made by the Company
under the Code, shall be made in such a manner as shall be determined by the
Management Committee.
6.3 PARTNERSHIP TAX TREATMENT. It is the intention of the Members that
the Company be treated as a partnership for Federal, state and local income tax
purposes, and the Members shall not take any position or make any election, in a
tax return or otherwise, inconsistent with such
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treatment. The Members shall cause the Company to file the appropriate forms
with the Internal Revenue Service to elect partnership status.
7. DISTRIBUTIONS.
7.1 NET CASH FLOW. For purposes of this Agreement, the term "Net Cash
Flow" for any period shall mean the excess, if any, of (A) the sum of (i) all
gross receipts from any sources for such period, other than from capital
contributions, plus (ii) any funds released by the Management Committee from
previously established reserves (referred to in (B)(ii) below), over (B) the sum
of (i) all cash expenditures of the Company for such period not funded by
capital contributions or paid out of previously established reserves (referred
to in (B)(ii) below) plus (ii) a reasonable reserve for future expenditures as
determined by the Management Committee.
7.2 DISTRIBUTIONS OF NET CASH FLOW. Except as otherwise required by
Section 7.4, the Net Cash Flow of the Company for each Fiscal Year (other than
Net Cash Flow arising in connection with the liquidation of the Company, which
Net Cash Flow shall be distributed as provided in Section 9.4) shall be
distributed at such time or times as shall be determined by the Management
Committee. All such distributions shall be made to the Members in accordance
with their respective Percentage Interests as of the close of the period with
respect to which the distribution is being made.
7.3 PROPERTY DISTRIBUTIONS. If any property of the Company other than
cash is distributed by the Company to a Member (in connection with the
liquidation of the Company or otherwise), the fair market value of such property
shall be used for purposes of determining the amount of such distribution. The
difference, if any, of such fair market value over (or under) the value at which
such property is carried on the books of the Company shall be credited or
charged to the Capital Accounts of the Members in accordance with the ratio in
which the Members share in the gain and loss of the Company pursuant to Section
5.1. The fair market value of the property distributed shall be agreed to by
the Management Committee and the distributee Member in good faith. If any such
property distribution is made other than in exchange for a Company Interest,
such distribution shall be made in the same manner as Net Cash Flow is
distributed.
7.4 DISTRIBUTIONS ON SALE OF AN ASSISTED LIVING FACILITY. Upon the sale
of any Assisted Living Facility by the Company, the proceeds from such sale
shall be distributed within 30 days of the date of such sale as follows:
(a) first, to the payment and discharge of all the Company's debts
and liabilities advanced by Atria or lenders pursuant to the Credit Facility as
such indebtedness relates to the Assisted Living Facility that was sold by the
Company; and
(b) second, to the Members in accordance with their respective
Capital Accounts.
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8. MANAGEMENT.
8.1 MANAGEMENT COMMITTEE.
(a) Except as otherwise expressly provided herein, the business of
the Company shall be managed by the Members by means of a management committee
composed of the persons designated pursuant to Section 8.1(b) ("Management
Committee"). Except as otherwise expressly provided herein, no act shall be
taken, sum expended, decision made or obligation incurred by the Company, unless
such matter has been approved by the Management Committee.
(b) The regular members of the Management Committee
("Representatives") shall consist of one representative of each Member. Each
Member shall designate from time to time its one Representative by notice to the
Company. By like notice, each Member may designate alternative Representative to
act in the absence of its regular Representative. The Representative appointed
by each Member shall cast one vote on each matter brought before the Management
Committee. The Management Committee shall act only upon the unanimous vote of
its Representatives. Each Member shall have the power and authority to remove
the Representative or alternate Representative appointed by it by delivering
written notice of such removal to the Company and the other Member. Vacancies on
the Management Committee shall be filled by the Member which appointed the
Representative or alternate Representative previously holding the position which
is then vacant.
(c) The Management Committee shall meet quarterly, unless the
Management Committee decides otherwise. Meetings of the Management Committee
shall also be held upon call therefor by any Representative. Two Representatives
shall constitute a quorum of the Management Committee provided that a
Representative or alternate Representative of each Member shall be one of those
present in order to constitute a quorum. Unless waived by all of the
Representatives, the calling of a meeting of the Management Committee shall
require a minimum of two days' prior notice, except for a regular meeting date
set by the Management Committee, which shall not require any prior notice to the
Representatives. The Management Committee may meet by telephonic conference in
which each participating Representative can hear all other participating
Representatives. Unless the Management Committee decides otherwise, it shall
meet at the principal office of the Company. With advance notice to the
Representative representing the other Member, either Member may invite to any
meeting of the Management Committee any person having an equity interest in the
Member or any legal counsel, consultant or other agent of such Member, provided
that no persons other than the Representatives or alternate Representatives
shall be entitled to vote with respect to any proceedings of the Management
Committee. In addition to actions at formal meetings, the Representative or
alternate Representative representing a Member may rely on written consents and
approvals given by the Representative or alternate Representative representing
the other Member. Representatives and alternate Representatives shall not
receive any compensation or other remuneration from the Company for their
services to the Company as members of the Management Committee. Upon either
Member's ceasing to be a Member of the Company, such Member shall cause the
Representative and alternate Representative appointed by it to resign from the
Management Committee.
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(d) The Management Committee shall have all authority to govern and
direct the affairs of the Company, except as otherwise expressly set forth in
this Agreement. Any action taken by the Company in compliance with the
direction of the Management Committee shall be binding upon the Company and each
Member. The Management Committee is hereby authorized to adopt rules concerning
the conduct of the affairs of the Management Committee and the Company. The
Development Agreement and the Management Agreement, copies of which are attached
as Exhibits to this Agreement, are hereby expressly approved by all Members.
(e) The Management Committee shall have the exclusive power and
authority to do the following:
(1) To approve an annual business plan for the operation of the
Company, annual operating budgets and any material changes from the annual
operating budget or annual business plan, including the amount of any
reserves;
(2) To approve any acquisition of any real property;
(3) To authorize the Company to enter into any contract, agreement
or other arrangement involving the obligation to incur any expense, or the
right to receive any benefit, in excess of $10,000, where such contract,
agreement or arrangement is not directly related to (A) the acquisition of
property, (B) site work related to the due diligence review of any real
property, or (C) the design or construction of an Assisted Living Facility,
where all of the foregoing have been previously approved by the Management
Committee;
(4) To determine whether to commence any legal action and to settle
or otherwise resolve any legal action or claim;
(5) To borrow funds, and to determine the terms of such borrowing
and whether liens, mortgages or other encumbrances can be placed upon the
Company's property in con nection with such borrowing;
(6) To require additional capital contributions other than those
provided for in the approved annual business plan of the Company or in an
approved annual budget.
(7) To purchase or sell of any property having a cost or sales
price in any one transaction of more than $5,000 unless such property is
purchased in connection with the construction of facility pursuant to which
construction plan and designs have been previously approved by the Management
Committee;
(8) To decide to provide any new services or to expand to
additional territory;
(9) To hire or terminate any management employee;
(10) To decide to make any capital improvement in the Company's
existing facilities;
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(11) To approve any and all general construction contracts and
architectural contracts or agreements and all plans and specifications and
drawings for any development or construction of each facility that the Company
undertakes to construct;
(12) To approve any contract or agreement, plan specifications or
drawing related to any restoration, renovation or remodeling of any existing
facility of the Company;
(13) To approve any additions, amendments or change orders to any
existing contract related to the construction of a facility where such change
or series of changes would result in an increase in expenditures for a
facility under construction in excess of $50,000;
(14) To approve any agreements or understandings with real estate
brokers, sales persons or agents not expressly set forth in the agreement for
the purchase of real property;
(15) To approve the type and amount of any insurance to be obtained
by the Company;
(16) To approve the execution of any management contracts and
similar agreements;
(17) To settle any claims for insurance proceeds if the loss
thereunder exceeds $5,000;
(18) To settle any claims for payment of awards or damages arising
out of the exercise of eminent domain by any utility or governmental
authority;
(19) To obligate the Company, as a surety, guarantor or
accommodation party, to any obligation;
(20) To lend funds of the Company to a third person or extend to any
person credit on behalf of the Company other than to employees as an advance
of out-of-pocket expenses to be incurred in the ordinary course of business;
(21) To approve salary, raises, bonuses, awards, dinners, travel and
entertainment or other actions which are a direct benefit to the employees of
a Member or an affiliate of either of them, pertaining directly to the
business of the Company unless specifically set forth in an approved annual
budget;
(22) To commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to the Company under
the Federal Bankruptcy Code or under any similar bankruptcy, insolvency or
other law or to consent to any such relief;
(23) To hire any employee of the Company unless specifically set
forth in an annual or individual facility budget approved by the Management
Committee;
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(24) To make any other decision or to take any other action
requiring the approval of a Member under the express provisions of this
Agreement; and
(25) To enter into any agreement or incur any obligation on behalf
of the Company or to take any action with respect to the Company which would
be considered by reasonably prudent persons to be out of the normal day-to-day
management of the Company.
8.2 DAY TO DAY MANAGEMENT.
(a) Assisted Care shall be responsible for locating sites for the
development of the Company's facilities, and shall provide oversight of
architectural design, design engineering, construction and such other services
relating to the design and construction of each Assisted Living Facility.
Assisted Care shall be responsible for obtaining all zoning changes, conditional
use permits and other authorizations necessary or required to operate the
Company's Assisted Living Facilities. After obtaining approval of the
development sites by the Management Committee, the Company shall have the
authority to enter into real estate purchase contracts, which contracts shall be
executed by Assisted Care on the Company's behalf.
(b) Atria shall be responsible for the operation of the Company of
each of the Assisted Living Facilities once such facility has been constructed
and a certificate of occupancy issued by the appropriate authorities. Atria
shall have the right to designate one or more persons who have the
responsibility and authority to direct the day-to-day control and management of
each Assisted Living Facility of the Company. The rights and responsibilities of
Atria as manager of each facility shall be as set forth in the Management
Agreement, a copy of which is attached as Exhibit B to this Agreement.
(c) Subject always to Section 8.1(e) hereof and the other
limitations of this Agreement, the Members, and those persons authorized to act
on their behalf regarding the business and affairs of the Company, shall have
the right, power and authority, on behalf of the Company, to execute any
document or take any action consistent with their respective responsibilities
described in this Section 8.2, including entering into such agreements with
professionals such as attorneys and other providers of services that the Company
may need to accomplish its objectives. Notwithstanding anything herein to the
contrary, neither of the Members, nor any of those persons authorized to act on
their behalf regarding the business and affairs of the Company, may take any
act, expend any sum, make any decision or incur any obligation on behalf of the
Company with respect to any of the matters set forth in Section 8.1(e) without
the prior approval of the Management Committee. Neither Member shall be deemed a
"Manager," as that term is defined in the Act.
8.3 TAX MATTERS PARTNER.
(a) The tax matters partner ("TMP") for the Company shall be Atria.
The TMP shall have such authority as is granted a TMP under the Code.
(b) The TMP shall employ experienced tax counsel to represent the
Company in con nection with any audit or investigation of the Company by the
Internal Revenue Service and in
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connection with all subsequent administrative and judicial proceedings arising
out of such audit. The reasonable fees and expenses of such counsel, as well as
all other reasonable and direct expenses incurred by the TMP in serving as the
TMP, shall be a Company expense and shall be paid by the Company.
(c) The Company shall indemnify and hold harmless the TMP against
judgments, fines, amounts paid in settlement and expenses (including attorneys'
fees) reasonably incurred by the TMP in any civil, criminal or investigative
proceeding in which the TMP is involved or threatened to be involved by reason
of it being the TMP, provided that the TMP acted in good faith, within what the
TMP reasonably believed to be the scope of the TMP's authority and for a purpose
which the TMP reasonably believed to be in the best interests of the Company or
the Members. The TMP shall not be indemnified under this provision against any
liability to the Company or its Members to which the TMP would otherwise be
subject by reason of willful misconduct or gross negligence in his duties
involved in acting as TMP.
(d) Nothing herein shall constitute an election to be subject to
the partnership level audit procedures of section 6221 et seq. of the Code.
8.4 STANDARD OF CARE OF MEMBERS; INDEMNIFICATION.
(a) The Members, their Representatives, officers, directors,
shareholders and employees, shall not be liable, responsible or accountable in
damages to any Member or the Company for any act or omission on behalf of the
Company performed or omitted by them in good faith and in a manner reasonably
believed by them to be within the scope of the authority granted to the Member
or Representative by this Agreement and in the best interests of the Company,
unless they have been guilty of gross negligence or willful misconduct in taking
or omitting to take such acts.
(b) The Company shall indemnify the Members and their
Representatives, officers, directors, shareholders and employees for, and hold
them harmless from, any liability, loss, damage or expense (including attorneys'
fees) incurred by them by reason of any act or omission so performed or omitted
by them (and not involving gross negligence or willful misconduct).
8.5 PAYMENTS FOR SERVICES PROVIDED BY MEMBERS.
(a) In connection with the services provided by Assisted Care
pursuant to Section 82, the Company shall pay Assisted Care a development fee
(the "Development Fee") equal to five percent of the "Facilities' Adjusted Cost"
(as defined herein). In no event will the Development Fee for any facility be
less than $175,000 nor more than $250,000. The Company shall pay the development
fee in three installments with the first installment being due at the closing of
the purchase of the land for such facility, the second installment being due at
the rough-in inspection approval for such a facility, and the final installment
upon the receipt of a Certificate of Occupancy for that facility. For the
purposes of this Agreement, the term "Facilities' Adjusted Cost" shall be the
cost of all expenses incurred by the Company in connection with the acquisition
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of the land, construction of the facility and all other reasonable expenses
incurred by the Company in completing the facility and obtaining a Certificate
of Occupancy.
(b) In connection with the Management Services provided by Atria,
pursuant to the terms of the Management Agreement, the Company shall pay Atria a
monthly fee equal to five percent of the collected revenues for that month. The
calculation of the fee and the method of payment shall be as set forth in the
Management Agreement.
8.6 EXPENSES DEDUCTIBLE. Members intend that all payments made to them
in accordance with the provisions of Section 8.5 be considered as occurring
between the Company and one who is not a partner within the meaning of section
707(a) of the Code, deductible in arriving at the taxable income or loss of the
Company and in arriving at the net income or net loss of the Company for book
purposes (unless required to be capitalized).
8.7 OTHER ACTIVITIES.
(a) Each of the Members shall devote such of its time to the
affairs of the Company's business as it shall deem necessary. The Members may
engage in, or possess an interest in, other business ventures of any nature and
description, independently or with others. Neither the Company, nor any Member,
shall have any rights by virtue of this Agreement in and to such independent
ventures, or to the income or profits derived therefrom. Except as required by
the Development Agreement, no Member shall be obligated to present any
particular business opportunity of a character which, if presented to the
Company, could be taken by the Company and each Member and their Affiliates
shall have the right to take for their own account, or to recommend to others,
any such particular business opportunity.
(b) Assisted Care acknowledges that Atria is engaged in its own
business and that it will not devote its full time or attention to the business
of the Company. Nothing herein shall prohibit Atria from continuing to conduct
or expand its existing business. For purposes of this Agreement, the term
"Affiliate" shall mean any person, corporation, partnership, limited liability
company, trust or other entity controlling (directly or indirectly), controlled
by, or under common control with, a Member.
(c) Merely because the Members or their Affiliates are directly or
indirectly interested in or connected with any person, firm or corporation
employed by the Company to render or perform a service, or to or from whom the
Company may purchase, sell or lease property, shall not prohibit the Company
from employing such person, firm or corporation or from otherwise dealing with
him or it, and neither the Company, nor any of the Members, shall have any
rights in or to any income or profits derived therefrom. All such dealings with
the Members or their Affiliates will be on terms which are competitive and
comparable with amounts charged by independent third parties and approved in
advance by the Management Committee.
(d) No Member or Affiliate of a Member shall employ or attempt to
employ any employee of the other Member during the term of this Agreement,
unless such employee's term of employment with the other Member shall have been
terminated for one year.
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8.8 REIMBURSEMENT OF EXPENSES OF MEMBERS. Except as otherwise required
by Section 8.5, the Company shall not reimburse a Member for any expenses which
a Member incurs in performing services on behalf of the Company.
9. DISSOLUTION.
9.1 DISSOLUTION. Notwithstanding anything in the Act to the contrary,
the Company shall dissolve upon, but not before, the first to occur of the
following:
(1) The unanimous decision of the Members to dissolve the Company.
(2) The sale of all, or substantially all, of the Company's assets
and the collection and/or sale of any evidences of indebtedness received in
connection therewith.
9.2 EFFECTIVE DATE OF DISSOLUTION. Dissolution of the Company shall be
effective upon the date on which the event giving rise to the dissolution
occurs, but the Company shall not terminate until the assets of the Company
shall have been distributed as provided in Section 9.4. Notwithstanding
dissolution of the Company, prior to the liquidation and termination of the
Company, the business of the Company and the affairs of the Members, as such,
shall continue to be governed by this Agreement.
9.3 SALE OF ASSETS UPON DISSOLUTION. Following the dissolution of the
Company, the Company shall be wound up and the Management Committee shall
determine whether the assets of the Company are to be sold or whether some or
all of such assets are to be distributed to the Members in kind in liquidation
of the Company.
9.4 DISTRIBUTIONS UPON DISSOLUTION. Upon the dissolution of the
Company, the properties of the Company to be sold shall be liquidated in orderly
fashion and the proceeds thereof, and the property to be distributed in kind,
shall be distributed on or before the later to occur of (i) the close of the
Company's taxable year, or (ii) 90 days following the date of such dissolution,
as follows:
(a) First, to the payment and discharge of all of the Company's
debts and liabilities, to the necessary expenses of liquidation and to the
establishment of any cash reserves which the Management Committee determines to
create for unmatured and/or contingent liabilities or obligations of the
Company.
(b) Second, to the Members, in accordance with their respective
Capital Accounts; provided, however, that if the Management Committee
establishes any reserves in accordance with the provisions of Section 9.4, then
the distributions pursuant to this Section 9.4(b) (including distributions of
such reserve) shall be pro rata in accordance with the balances of the Members'
Capital Accounts.
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9.5 NO CONTRIBUTION FOR NEGATIVE CAPITAL ACCOUNTS. No Member shall be
required to contribute any property to the Company or any third party by reason
of having a negative Capital Account.
9.6 LIQUIDATION OF A MEMBER'S INTEREST. If a Member's Company Interest
is to be liquidated by agreement between the Company and such Member (the
Company being under no obligation to do so), the Member shall be entitled to
receive in liquidation an amount equal to the amount of such Member's Capital
Account at such time. For purposes of determining the Capital Account of such
Member, (i) the net income or net loss of the Company to the date of liquidation
shall be allocated to such Member and (ii) if the Management Committee
determines to revalue the assets of the Company in accordance with Section 4.6,
the Members' Capital Accounts shall be adjusted as provided in Section 4.6.
10. WITHDRAWAL, ASSIGNMENT AND ADDITION OF MEMBERS.
10.1 ASSIGNMENT OF A MEMBER'S INTEREST. The Members may not sell,
assign, transfer, pledge, hypothecate, encumber or otherwise dispose of their
Company Interest, nor withdraw from the Company, except as provided in this
Section 10. Any purported transfer which is not in compliance with the
provisions of this Section 10 shall be null and void ab initio and the Member
purporting to make such transfer shall for all purposes hereof remain a Member.
10.2 VOLUNTARY TRANSFERS. No Member shall be entitled to voluntarily
transfer all or any portion of such Member's Company Interest without the prior
written consent of all of the Members. Even if all of the Members consent to
any such transfer, the transferee of the Company Interest shall not become a
substitute Member unless the requirements of Section 10.5 are met, but the
transferee shall nevertheless be subject to the restrictive provisions of this
Agreement. For all purposes of this Agreement, a transferee who is not admitted
as a substitute Member shall only be entitled to receive the distributions to
which the assignor would have been entitled with respect to the Company Interest
assigned.
10.3 INVOLUNTARY TRANSFERS.
(a) If any Member's Company Interest is sought to be transferred by
any involuntary means (other than death or adjudication of incompetency or
insanity), including, attachment, garnishment, execution, levy, bankruptcy,
seizure or transfer in connection with a divorce or marital property settlement,
then the other Members shall have the option ("Involuntary Option") to purchase
all or any portion of the Company Interest sought to be involuntarily
transferred at the price and upon the terms and conditions set forth in Section
10.4. If there is more than one other Member, then each of the other Members
shall have the right to purchase in accordance with their respective Percentage
Interests among themselves, or in such other percentages as they shall
unanimously agree. If not all of the other Members exercise their Involuntary
Options, those other Members exercising their Involuntary Options shall be
entitled to purchase the balance in accordance with their Percentage Interests
among themselves, or in such other percentages as they shall unanimously agree.
If there is only one other Member, such other Member may assign such Member's
rights under the Involuntary Option to a third party if the Member so desires.
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(b) The Involuntary Option period shall commence upon receipt by
the other Members of actual notice of the attempted involuntary transfer and
terminate, unless exercised, 60 days thereafter, unless sooner terminated by
written refusal of the other Members. An election to exercise any Involuntary
Option shall be made in writing and transmitted to the Member whose Company
Interest is sought to be involuntarily transferred.
(c) Upon the failure or neglect of the other Members to purchase
all of the Company Interest sought to be involuntarily transferred in accordance
with this Section 10.3, the unpurchased Company Interest may be involuntarily
transferred, but such transferee may not become a substitute Member unless the
conditions of Section 10.5 have been satisfied.
(d) If, notwithstanding the provisions of this Section 10.3, any
Company Interest is effectively transferred by involuntary means without
compliance with the provisions of Section 10.3, then the Involuntary Option
shall be to purchase such Company Interest from the transferee(s).
10.4 PURCHASE PRICE AND TERMS.
(a) The purchase price for all of a Member's Company Interest to be
purchased pursuant to the exercise of the Involuntary Option shall be the
Capital Account of such Member as of the close of the month following the
exercise of the Involuntary Option ("Effective Date"), prorated if less than all
of a Member's Company Interest is to be purchased; provided, however, that if
the Member has a zero or negative Capital Account, the purchase price for the
Member's entire Company Interest shall be one dollar. Such Capital Account shall
be adjusted to reflect the profit or loss of the Company through the Effective
Date and contributions by, and distributions to, the Member since the close of
the Company's last Fiscal Year to the extent such adjustments have not already
been reflected in the Capital Account of the Member on the books of the Company.
(b) The purchase price shall, at the option of the purchaser, be
paid either by cashier's or certified check on the closing date.
(c) The closing date shall occur within 30 days following the
exercise of the Involuntary Option. At the closing, the selling Member shall
execute such instruments of assign ment as shall be requested by the purchaser
conveying the Member's interest in the Company Interest purchased free and clear
of all liens and encumbrances whatsoever. If the selling Member fails to execute
such document, the Management Committee may do so pursuant to the power of
attorney granted in Section 11.2.
10. SUBSTITUTE MEMBER. Except as otherwise provided herein, no assignee
of a Member's Company Interest shall have the right to become a substitute
Member unless all of the following conditions are satisfied:
(a) except in the case of death or adjudication of incompetency or
insanity, the fully executed and acknowledged written instrument of assignment
has been filed with the Company
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setting forth the intention of the assignor that the assignee become a
substitute Member in place of the assignor with respect to the Company Interest
assigned;
(b) the assignor and assignee execute and acknowledge such other
instruments as the Management Committee deems necessary or desirable to effect
such admission, including, but not limited to, the written acceptance and
adoption by the assignee of the provisions of this Agreement; and
(c) the Management Committee has consented to the assignment and
substitution which shall be in the Management Committee's sole and absolute
discretion.
10. ADMISSION OF NEW MEMBER. No new Member may be admitted to the
Company without the consent of a majority-in-interest of the Members (based upon
Percentage Interests). For purposes of this Section 10.6, a substitute Member
shall not be considered a new Member.
11. GENERAL.
11.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF MEMBERS. Each of the
Members hereby represents and warrants to, and agrees with, the Company that:
(a) The Member has the full right, power and authority to execute,
deliver and perform the terms of this Agreement.
(b) This Agreement has been duly executed and delivered on behalf
of the Member and constitutes the valid and binding obligation of the Member in
accordance with its terms.
(c) The Member is not subject to any restriction or agreement which
prohibits or would be violated by the execution hereof or the consummation of
the transactions contemplated herein or pursuant to which the consent of any
third person, firm or corporation is required in order to give effect to the
transactions contemplated herein.
11. POWER OF ATTORNEY.
(a) Each Member, as well as persons who subsequently become
Members, hereby irre vocably constitutes and appoints the Other Members, with
full power of substitution, as such Member's true and lawful attorneys-in-fact,
with full power and authority, in such Member's name, place and stead, to make,
execute, consent to, swear to, acknowledge, record and file with respect to the
Company, the following:
(1) Any certificate or other instrument which may be required
to be filed by the Company or the Members under the laws of any state, or any
other jurisdiction in which the Company is conducting, or proposes to conduct,
business.
(2) Any and all amendments or modifications of the instruments
described in Section 11.2(a).
-18-
<PAGE>
(3) All instruments of assignment as contemplated in Section
104 if the seller Member fails to do so.
(4) All such other instruments as such attorney-in-fact may
deem necessary or desirable in order to carry out the provisions of this
Agreement in accordance with its terms.
(b) The powers of attorney hereby granted to the Members are a
special power of attorney coupled with an interest, is irrevocable and shall
survive the death, bankruptcy or adjudi cation of incompetency or insanity, of
the Member granting it. The Power of Attorney hereby granted may be exercised on
behalf of the Members by referencing all of the Members on whose behalf a
document is being executed, and with a single signature as attorney-in-fact for
all of them.
(c) Each of the Members hereby agrees to execute and deliver to the
Management Committee within five days after receipt of the Management
Committee's written request therefor, such other and further powers of attorney
and other instruments which the Management Committee, in its sole discretion,
deems necessary or desirable to comply with any laws, rules or regulations
relating to the formation of the Company, or the conduct of business by the
Company.
11.3 NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed delivered (a) on the date of personal delivery or
transmission by telegram or facsimile transmis sion, or (b) on the first
business day after the date of delivery to a nationally recognized overnight
courier service, or (c) on the third business day following the date of deposit
in the United States mail, postage prepaid, by registered or certified mail,
return receipt requested, in each case, addressed as follows, or to such other
address, person or entity as either party shall designate by notice to the other
in accordance herewith:
If to Atria: Atria Communities, Inc.
515 West Market Street, Suite 200
Louisville, Kentucky 40202
Attn: J. Timothy Wesley,
Chief Financial Officer
FAX: (502) 596-4160
With copy to: Carmin D. Grandinetti
Greenebaum Doll & McDonald, pllc
3300 National City Tower
Louisville, Kentucky 40202-3197
FAX: (502) 587-3695
-19-
<PAGE>
If to Assisted Care: George Schoepf
Assisted Care Developers, l.l.c.
1770 Indian Trail Road, Suite 400
Duluth, Georgia 30093
FAX: (770) 935-5830
With copy to: Michael Smith , Esq.
Gambrell & Stolz, L.L.P.
Suite 4300, One Peachtree Center
303 Peachtree Street
Atlanta, Georgia 30308
FAX:(404) 221-6501
11.4 AMENDMENT. Except as provided in Section 14.2(a), this Agreement
may be modified or amended from time to time only upon the written consent of
all Members.
11.5 CAPTIONS; SECTION REFERENCES. Section titles or captions contained
in this Agreement are inserted only as a matter of convenience and reference,
and in no way define, limit, extend or describe the scope of this Agreement, or
the intent of any provision hereof. All references herein to Sections shall
refer to Sections of this Agreement unless the context clearly requires
otherwise.
11.6 NUMBER AND GENDER. Unless the context otherwise requires, when used
herein, the singular shall include the plural, the plural shall include the
singular, and all nouns, pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, as the identity of the person or
persons may require.
11.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, entity or circumstances, shall be invalid or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to other persons, entities or circumstances, shall
not be affected thereby and shall be enforced to the greatest extent permitted
by law.
11.8 ARBITRATION.
(a) If the Members are unable to agree on any matter under this
Agreement, the unresolved matter shall be resolved by arbitration if a request
for arbitration, as provided herein, is given. Either Member may initiate
Arbitration by making a demand on the other Member and simultaneously filing
copies of the demand, together with the required fees, with the Nashville,
Tennessee, office of the American Arbitration Association ("AAA"). Within 15
days of meeting with the AAA, each Member shall designate one arbitrator. These
two arbitrators shall, within 15 days after their appointment, select a third
arbitrator. If the first two arbitrators are unable to agree upon the third
arbitrator, then the arbitrators shall apply to the AAA to designate and appoint
a person as the third arbitrator. If the Member upon whom the original
arbitration demand was served fails to designate its arbitrator within the 15-
day period, the arbitrator designated by the
-20-
<PAGE>
Member requesting arbitration shall act as the sole arbitrator and shall be
deemed to be the single, mutually approved arbitrator to resolve the matter.
(b) The place of arbitration shall be in Nashville, Tennessee.
Arbitration shall be conducted under the auspices of the AAA. The AAA Rules
shall govern all proceedings unless otherwise provided herein. In case of
conflict between the AAA Rules and this Agreement, the provisions of this
Agreement shall govern.
(c) The Members shall have the right of discovery in accordance
with the Federal Rules of Civil Procedure except that discovery may commence
immediately upon the service of the demand for arbitration. A Member's
unreasonable refusal to cooperate in discovery shall be deemed to be refusal to
proceed with arbitration and, until the arbitration panel is complete, the
Members may enforce their rights (including the right of discovery) in the
courts. Such enforcement in the courts shall not constitute a waiver of a
Member's right to arbitration. Upon the completion of the appointment of the
arbitration panel, the arbitrators shall have the power to enforce the Members'
discovery rights.
(d) The Members expressly covenant and agree to be bound by the
decision of the arbitration panel and accept any such decision as the final
determination of the matter in dispute. A judgment of any court related to this
arbitration in the neutral location may be entered upon any award made pursuant
to this Section 118.
11.9 BINDING AGREEMENT. Except as otherwise provided herein, this
Agreement shall be binding upon, and inure to the benefit of, the Members
hereto, and their respective executors, administrators, heirs, successors and
assigns.
11.10 APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Georgia without regard to its
conflict of laws rules.
11.11 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Members hereto with respect to the subject matter hereof.
11.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and all such counterparts shall, for all purposes, constitute one
agreement, binding upon the Members, notwithstanding that all Members are not
signatory to the same counterpart.
11.13 NO RIGHT OF PARTITION. The Members hereby agree that the Company's
properties are not, and will not be, suitable for partition. Accordingly, each
of the Members hereby irrevocably waives any and all rights which such Member
may have to maintain an action for partition of any of the Company's properties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date and year first above written.
-21-
<PAGE>
ATRIA COMMUNITIES, INC.
By: /s/ J. Timothy Wesley
-------------------------------------
Title: Chief Financial Officer and
----------------------------------
Vice President of Development
----------------------------------------
("Atria")
ASSISTED CARE DEVELOPERS, L.L.C.
By: /s/ George A. Schoepf
--------------------------------------
Title: President
-----------------------------------
("Assisted Care")
-22-
<PAGE>
EXHIBIT 10.30
FIRST AMENDMENT TO THE AMENDED AND RESTATED OPERATING AGREEMENT
OF ELDER HEALTHCARE DEVELOPERS, LLC
THIS FIRST AMENDMENT TO THE AMENDED AND RESTATED OPERATING AGREEMENT OF ELDER
HEALTHCARE DEVELOPERS, LLC ("Amendment") is made and entered into as of February
18, 1998, by and between ATRIA COMMUNITIES, INC., a Delaware corporation
("Atria"), and ASSISTED CARE DEVELOPERS, L.L.C., a Georgia limited liability
company ("Assisted Care").
RECITALS:
A. Atria and Assisted Care entered into an Operating Agreement ("Operating
Agreement") of Elder Healthcare Developers, LLC ("Company") dated as of April 1,
1997, and amended and restated by the parties on November 18, 1997.
B. The parties desire to amend the Operating Agreement pursuant to the terms
of this Amendment.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. AMENDMENTS TO THE OPERATING AGREEMENT.
1.1 AMENDMENTS TO SECTION 8.2. Sections 8.2(a) and 8.2(b) of the
Operating Agreement are hereby amended to read in their entirety as follows:
(a) Assisted Care shall be responsible for (1) locating sites for the
development of the Company's facilities; (2) after obtaining approval of
the development sites by the Management Committee, negotiating and
executing the real estate purchase contracts on the Company's behalf;
(3) conducting the due diligence investigation of the each site to be
acquired by the Company; (4) closing the purchase of the real estate on
the Company's behalf, and (5) obtaining all zoning changes, conditional
use permits and other authorizations necessary or required to begin the
construc tion of the Company's Assisted Living Facilities and otherwise
preparing the site for construction.
(b) Atria shall be responsible for (1) providing certain "pre-opening
services" relating to obtaining demographic information on markets in
which the Company intends to develop Facilities, the design and
construction of the Company's Assisted Living Facilities, licensing the
facility for operation, obtaining financing from lenders, and the
recruiting, hiring and training of the facility's administrators, all in
accordance with the provisions of the form of the Pre-Opening Services
Agreement attached to this Agreement as Exhibit C; and (2) managing the
operation of each of the Assisted Living Facilities once such facility
has been constructed and a certificate of occupancy issued by the
appropriate authorities. Atria shall have the right to designate one or
more persons who have the
<PAGE>
responsibility and authority to direct the day-to-day control and
management of each Assisted Living Facility of the Company. The rights
and responsibilities of Atria as manager of each facility shall be as
set forth in the Management Agreement, a copy of which is attached as
Exhibit B to this Agreement.
1.2 AMENDMENTS TO SECTION 8.5.
(a) Sections 8.5(b) of the Operating Agreement is hereby amended to
read in its entirety as follows:
(b) In connection with the Management Services provided by Atria
pursuant to the terms of the Management Agreement, the Company shall
pay Atria a monthly fee equal to the greater of (1) five percent of
the collected revenues for that month, or (2) $5,000. The calculation
of the fee and the method of payment shall be as set forth in the
Management Agreement.
(b) Section 8.5 to the Operating Agreement is hereby further amended
by adding an additional subsection (c) to Section 8.5, which subsection reads in
its entirety as follows:
(c) In connection with the pre-opening services provided by
Atria pursuant to the terms of the Pre-Opening Services Agreement, the
Company shall pay Atria the fees set forth in the Pre-Opening Services
Agreement. Where the fee amount in such Agreement is not expressly set
forth, Assisted Care and Atria shall negotiate the fees on a project
by project basis. If the two Members are unable to agree on such fees
the fee shall be determined by Atria with such amounts to be no
greater than fees obtainable from independent third parties for
comparable services.
2. AMENDMENT TO MANAGEMENT AGREEMENT. Attached as Exhibit B is the revised
Management Agreement, as amended by correspondence between the parties, to
reflect the changes to the monthly fee payable to Atria for managing the
Company's Assisted Living Facilities. The amended Management Agreement
supersedes the Management Agreement attached to the Operating Agreement in its
entirety.
3. NO AMENDMENT TO BALANCE OF OPERATING AGREEMENT. All other provisions
of the Operating Agreement remain unaffected and unchanged by this Amendment.
4. MISCELLANEOUS PROVISIONS.
4.1 BINDING AGREEMENT. Except as otherwise provided herein, this
Amendment shall be binding upon, and inure to the benefit of, the parties
hereto, and their respective successors and assigns.
-2-
<PAGE>
4.2 ENTIRE AGREEMENT. This Amendment contains the entire agreement
between the parties hereto with respect to the subject matter hereof. No
variations, modifications or changes hereof shall be binding upon any Member
unless set forth in a document duly executed by such Member.
4.3 COUNTERPARTS. This Amendment may be signed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first written above.
ATRIA COMMUNITIES, INC.
By: /s/ J. TIMOTHY WESLEY
------------------------------------
Title: Chief Financial Officer
---------------------------------
("Atria")
ASSISTED CARE DEVELOPERS, L.L.C.
By: /s/ GEORGE A. SCHOEPF
------------------------------------
Title: President
---------------------------------
("Assisted Care")
-3-
<PAGE>
EXHIBIT 10.31
SECOND AMENDMENT TO THE AMENDED AND RESTATED OPERATING AGREEMENT
OF ELDER HEALTHCARE DEVELOPERS, LLC
THIS SECOND AMENDMENT TO THE AMENDED AND RESTATED OPERATING AGREEMENT OF ELDER
HEALTHCARE DEVELOPERS, LLC ("Amendment") is made and entered into as of February
26, 1998, by and between ATRIA COMMUNITIES, INC., a Delaware corporation
("Atria"), and ASSISTED CARE DEVELOPERS, L.L.C., a Georgia limited liability
company ("Assisted Care").
RECITALS:
A. Atria and Assisted Care entered into an Operating Agreement ("Operating
Agreement") for Elder Healthcare Developers, LLC ("Company"), dated as of April
1, 1997, which was amended and restated by the parties on November 18, 1997, and
amended again by the First Amendment to the Amended and Restated Operating
Agreement of Elder Healthcare Developers, LLC., dated February 18, 1998.
B. The parties desire to amend the Operating Agreement pursuant to the terms
of this Amendment.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. AMENDMENTS TO SECTION 8.5. Sections 8.5(a)of the Operating Agreement is
hereby amended to read in its entirety as follows:
8.5 PAYMENTS FOR SERVICES PROVIDED BY MEMBERS
(a) (1) In connection with the services provided by Assisted Care
pursuant to Section 8.2(a) the Company shall pay Assisted Care a development
fee (the "Development Fee") equal to five percent of the facility's "Adjusted
Cost" (as defined herein). In no event shall the Development Fee for any
facility be less than $175,000 nor more than $250,000 unless the facility
consists of at least one assisted living facility and one independent living
facility located on one campus (a "Multi-Facility Campus"). If the Facility
constitutes a Multi-Facilities Campus and the Facility's Adjusted Cost for
the entire Multi-Facility Campus is more than $5,000,000, then the
Development Fee shall be five percent of the Adjusted Cost of each facility
constituting the Mult-Facilitiy Campus, provided that the Development Fee
payable for any facility included in the Multi-Facility Campus shall not
exceed $250,000. For Example, if a Multi-Facility Campus consisted of one
assisted living facility whose Adjusted Cost was $7,000,000 and one
independent living facility whose Adjusted Cost was $3,250,000, then the
Development Fee due Assisted Care will be the sum of $250,000 for the
Assisted Living Facility plus $162,500 for the Independent Living Facility.
DRAFT
FEBRUARY 25, 1998
<PAGE>
(a)(2) The Company shall pay the development fee in three installments
with the first installment being due at the closing of the purchase of the
land for such facility, the second installment being due at the rough-in
inspection approval for such a facility, and the final installment upon the
receipt of a Certificate of Occupancy for that facility. For the purposes of
this Agreement, the term "Adjusted Cost" shall be the cost of all expenses
incurred by the Company in connection with the acquisition of the land,
construction of the facility and all other reasonable expenses incurred by
the Company in completing the facility and obtaining a Certificate of
Occupancy.
2. NO AMENDMENT TO BALANCE OF OPERATING AGREEMENT. All other provisions of
the Operating Agreement remain unaffected and unchanged by this Amendment.
3. MISCELLANEOUS PROVISIONS.
3.1 BINDING AGREEMENT. Except as otherwise provided herein, this
Amendment shall be binding upon, and inure to the benefit of, the parties
hereto, and their respective successors and assigns.
3.2 ENTIRE AGREEMENT. This Amendment contains the entire agreement
between the parties hereto with respect to the subject matter hereof. No
variations, modifications or changes hereof shall be binding upon any Member
unless set forth in a document duly executed by such Member.
3.3 COUNTERPARTS. This Amendment may be signed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first written above.
ATRIA COMMUNITIES, INC.
By: /s/ J. TIMOTHY WESLEY
------------------------------------
Title: Chief Financial Officer
---------------------------------
("Atria")
ASSISTED CARE DEVELOPERS, L.L.C.
By: /s/ GEORGE A. SCHEOPF
------------------------------------
Title: President
---------------------------------
("Assisted Care")
DRAFT
FEBRUARY 25, 1998
-2-
<PAGE>
EXHIBIT 21
Subsidiaries of Atria Communities, Inc., a Delaware corporation
---------------------------------------------------------------
Hillhaven Properties, Ltd., an Oregon corporation
Atria Health Centers, Inc., a Delaware corporation
Atrium at Buckhead, LLC, a Georgia limited liability company
Atria St. Matthews, LLC, a Kentucky limited liability company
Atria Stoneybrook, LLC, a Kentucky limited liability company
Atria Springdale, LLC, a Kentucky limited liability company
Atrium at Weston Court, LLC, a Tennessee limited liability company
Atrium at Weston Place, LLC, a Tennessee limited liability company
Elder Healthcare Developers, LLC, a Georgia limited liability company
Atria Cordova, LP, a Tennessee limited partnership
Atria Riverdale, LP, a Tennessee limited partnership
Woodhaven Partnership Ltd., a Florida limited partnership
Cornerstone Care, L.L.C., a Kentucky limited liability company
Atria Highland Crossing, LLC, a Kentucky limited liability company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-16543) pertaining to the Atria Communities, Inc. 1996 Stock
Ownership Incentive Plan, in the Registration Statement (Form S-8 No. 333-
16545) pertaining to the Atria Communities, Inc. Nonemployee Directors 1996
Stock Incentive Plan, and in the Registration Statement (Form S-8 No. 333-
34093) pertaining to the Atria Communities, Inc. Vencor Employees' Stock
Option Agreements, of our report dated February 11, 1998 with respect to the
consolidated financial statements of Atria Communities, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Atria Communities,
Inc.'s condensed consolidated financial statements for the twelve months ended
December 31, 1997 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 152,724
<SECURITIES> 35,570
<RECEIVABLES> 982
<ALLOWANCES> (239)
<INVENTORY> 225
<CURRENT-ASSETS> 194,761
<PP&E> 282,017
<DEPRECIATION> (33,754)
<TOTAL-ASSETS> 475,463
<CURRENT-LIABILITIES> 14,100
<BONDS> 255,855
0
0
<COMMON> 2,338
<OTHER-SE> 190,501
<TOTAL-LIABILITY-AND-EQUITY> 475,463
<SALES> 0
<TOTAL-REVENUES> 68,878
<CGS> 0
<TOTAL-COSTS> 35,099
<OTHER-EXPENSES> 13,654
<LOSS-PROVISION> 98
<INTEREST-EXPENSE> 5,409
<INCOME-PRETAX> 11,798
<INCOME-TAX> 4,413
<INCOME-CONTINUING> 7,385
<DISCONTINUED> 0
<EXTRAORDINARY> (199)
<CHANGES> 0
<NET-INCOME> 7,186
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
