<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ATRIA COMMUNITIES, INC.
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box): / / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state how it was
determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/x/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $96,530
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: 000-21159
- --------------------------------------------------------------------------------
(3) Filing Party: Atria Communities, Inc., Vencor, Inc., and Vencor Holdings,
L.L.C.
- --------------------------------------------------------------------------------
(4) Date Filed: May 21, 1998
- --------------------------------------------------------------------------------
<PAGE>
ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202
July , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(including any adjournment or postponement thereof, the 'Special Meeting') of
Atria Communities, Inc. (the 'Company'), to be held at 9:00 a.m., local time, on
, August , 1998, at the Seelbach Hotel, 500 South Fourth
Avenue, Louisville, Kentucky.
As described in the enclosed Proxy Statement (the 'Proxy Statement'), at
the Special Meeting you will be asked to approve and adopt an Agreement and Plan
of Merger, dated as of April 19, 1998, as amended (the 'Merger Agreement'),
among the Company, Kapson Senior Quarters Corp., a Delaware corporation
('Parent'), and KA Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Kapson ('Merger Sub'), and the Merger (as defined below) and the
transactions contemplated thereby. Pursuant to the Merger Agreement, Merger Sub
will be merged with and into the Company (the 'Merger'), with the Company
continuing as the surviving corporation and becoming a subsidiary of Parent (the
'Surviving Corporation').
Pursuant to the terms of the Merger Agreement, each share of common stock,
par value $.10 per share of the Company (the 'Common Stock'), other than (i)
those shares held by stockholders who perfect their appraisal rights under
applicable Delaware law, (ii) those shares held by the Company (as treasury
stock), Parent or their respective subsidiaries, and (iii) 1,234,568 of the
10,000,000 shares of Common Stock held by Vencor Holdings, L.L.C., a Delaware
limited liability company ('VHLLC') and an indirect wholly owned subsidiary of
Vencor, Inc., a Delaware corporation ('Vencor'), will be converted into the
right to receive $20.25 per share in cash, without interest, at the effective
time (the 'Effective Time') of the Merger. The receipt of cash for Common Stock
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and also may be a taxable transaction under applicable state, local,
foreign and other tax laws. See 'SPECIAL FACTORS--Certain Federal Income Tax
Consequences of the Merger' in the accompanying Proxy Statement. Stockholders
seeking to perfect their appraisal rights must submit written notice of such
intent to demand payment for their shares of Common Stock prior to the vote at
the Special Meeting.
Following the Merger, approximately 88.1% of the outstanding capital stock
of the Surviving Corporation will be beneficially owned by Parent and
approximately 11.9% of the outstanding capital stock of the Surviving
Corporation will be beneficially owned by VHLLC. With the exception of VHLLC and
certain current members of the Company's management who will retain certain
options to purchase shares of the Surviving Corporation (the 'Rollover
Options'), the present holders of Common Stock and options to purchase Common
Stock will no longer have any equity interest in the Company.
Pursuant to the terms of the Merger Agreement, Parent may elect, by written
notice to the Company and Vencor at any time prior to ten calendar days prior to
the Special Meeting, to increase its equity ownership in the Surviving
Corporation up to approximately 90%. See 'SPECIAL FACTORS--Purpose and Structure
of the Merger; Certain Effects of the Merger,' in the accompanying Proxy
Statement. Present holders of the Common Stock may call 1-800- to
determine if Parent has made such an election prior to delivering his, her or
its proxy card.
Parent has entered into agreements (collectively, the 'Support Agreements')
that require Vencor, VHLLC and certain officers and all of the directors of the
Company (the 'Support Group'), who, as of July 22, 1998, beneficially owned an
aggregate of approximately 46.4% of the total issued and outstanding shares of
the Common Stock, to vote all of their shares of Common Stock in favor of the
Merger Agreement and the Merger. See 'INTRODUCTION--Record Date; Voting Rights;
Votes Required for Approval' and 'SPECIAL FACTORS--Interests of Certain Persons
in the Merger' in the accompanying Proxy Statement.
The Company's Board of Directors appointed a Special Committee on February
6, 1998, consisting of three directors of the Company who are not employees of
the Company, Vencor, VHLLC or their respective subsidiaries or affiliates (the
'Special Committee'). The Special Committee has, among other things, reviewed
and considered the proposed Merger and negotiated the terms of the Merger
Agreement with Parent. THE COMPANY'S BOARD OF DIRECTORS ACTING ON THE UNANIMOUS
RECOMMENDATION OF THE
<PAGE>
SPECIAL COMMITTEE, HAS UNANIMOUSLY APPROVED THE MERGER AS BEING IN THE BEST
INTERESTS OF THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, THE
COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE MERGER. See 'SPECIAL FACTORS--Recommendations
of the Special Committee, the Board, Vencor and VHLLC,' '--Opinion of the
Company's and the Special Committee's Financial Advisor' and '--Interests of
Certain Persons in the Merger' in the accompanying Proxy Statement.
Pursuant to the terms of the Merger Agreement, the Board of Directors of
the Company may terminate the Merger Agreement prior to the approval of the
Merger Agreement and the Merger by the stockholders of the Company if the Board
of Directors has received a 'takeover proposal' (as defined in the Merger
Agreement) and the Board of Directors determines that it should nullify or
withdraw its approval of the Merger or the Merger Agreement in order to comply
with its fiduciary duty to the Company's stockholders under applicable law, and
if the Company complies with certain notice and other procedures specified in
the Merger Agreement (including the payment of a termination fee). In
determining whether to accept such a takeover proposal, the Board of Directors
would consider a number of factors, some of which are not foreseeable at the
present time, including the price offered (including the impact thereon of the
termination fee), the certainty of closure of the proposed transaction and the
then current financial condition of the Company. In the event that the Board of
Directors of the Company makes a determination to terminate the Merger Agreement
under such circumstances, the Company will resolicit proxies from the holders of
Common Stock if it is required under Delaware law to obtain stockholder approval
to consummate the transactions contemplated by such 'takeover proposal.'
Attached is a Notice of Special Meeting of Stockholders and a Proxy
Statement containing a discussion of the Merger. We urge you to read this
material carefully. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE. If you attend the Special
Meeting, you may vote in person if you wish, even if you have previously
returned your proxy card.
If the Merger Agreement and the transactions contemplated thereby are
adopted and approved by the holders of the Common Stock and all of the
conditions to each of the parties' obligations to effect the Merger are
satisfied, the Company anticipates that the closing of the Merger will occur
within five business days of such stockholder approval.
YOUR VOTE IS IMPORTANT FOR THE APPROVAL OF THE MERGER. A MAJORITY OF THE
SHARES OF COMMON STOCK HELD BY ALL STOCKHOLDERS MUST BE PRESENT AT THE SPECIAL
MEETING, IN PERSON OR BY PROXY, IN ORDER FOR A QUORUM TO BE PRESENT. DELAWARE
LAW AND THE RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY REQUIRES THE
AFFIRMATIVE APPROVAL OF THE MERGER AGREEMENT BY A MAJORITY OF ALL SHARES OF
COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING. VENCOR, VHLLC AND CERTAIN
OFFICERS AND DIRECTORS OF THE COMPANY (WHO BENEFICIALLY OWN AN AGGREGATE OF
46.4% OF THE CURRENTLY OUTSTANDING COMMON STOCK) HAVE AGREED TO VOTE THEIR
SHARES IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER.
YOUR PROMPT COOPERATION WILL BE GREATLY APPRECIATED.
Sincerely yours,
W. Patrick Mulloy, II
Chief Executive Officer,
President and Director
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>
ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST , 1998
------------------------
To the Stockholders of ATRIA COMMUNITIES, INC.:
The Special Meeting of Stockholders of Atria Communities, Inc. (the
'Company'), will be held on , August , 1998 at the Seelbach
Hotel, 500 South Fourth Avenue, Louisville, Kentucky, at 9:00 a.m. local time,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt: (A) the
Agreement and Plan of Merger, dated as of April 19, 1998, as
amended (the 'Merger Agreement'), among the Company, Kapson Senior
Quarters Corp., a Delaware corporation ('Parent') and KA
Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ('Merger Sub'), pursuant to which, among other
things, (a) Merger Sub will be merged with and into the Company
(the 'Merger'), with the Company continuing as the surviving
corporation (the 'Surviving Corporation') and pursuant to which the
separate existence of Merger Sub will cease, (b) each outstanding
share of the Company's common stock, par value $.10 per share (the
'Common Stock'), except (i) shares of Common Stock held by the
Company (as treasury stock), Parent or their respective
subsidiaries, (ii) 1,234,568 shares (the 'Retained Shares') of the
10,000,000 shares of Common Stock held by Vencor Holdings, L.L.C.
('VHLLC'), a Delaware limited liability company and an indirect
wholly owned subsidiary of Vencor, Inc., a Delaware corporation
('Vencor'), and (iii) shares beneficially owned by persons who
perfect their appraisal rights under applicable Delaware law, will
be converted into the right to receive $20.25 in cash, without
interest, (c) each outstanding share of Common Stock held by the
Company (as treasury stock), Parent or Merger Sub will be canceled
without consideration, (d) each of the Retained Shares held by
VHLLC and each of the other shares of Common Stock held by
subsidiaries of the Company or Parent (excluding Merger Sub) will
be converted into and become one share of Common Stock, par value
$.01 per share, of the Surviving Corporation (the 'Recapitalized
Common Stock'), and (e) each of the 1,000 outstanding shares of
Merger Sub common stock, par value $.01 per share, will be
converted into 9,135.802 shares of Recapitalized Common Stock; and
(B) the Merger and the other transactions contemplated by the
Merger Agreement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is included as Appendix A to the
accompanying Proxy Statement. Only holders of Common Stock of record at the
close of business on July 22, 1998 (the 'Record Date'), will be entitled to
notice of and to vote at the Special Meeting (the 'Voting Shares'). The Special
Meeting may be adjourned from time to time without notice other than
announcement at the Special Meeting, and any business for which notice of the
Special Meeting is hereby given may be transacted at any such adjournment. A
complete list of stockholders entitled to vote at the Special Meeting will be
available for inspection by stockholders of the Company at the offices of the
Company for a period of ten days prior to the Special Meeting.
Parent and Merger Sub have entered into agreements that require Vencor,
VHLLC and certain officers and directors of the Company (collectively, the
'Support Agreements'), who, as of the Record Date, owned an aggregate of
approximately 46.4% of the total Voting Shares, to vote their shares in favor of
the Merger Agreement and the Merger. See 'INTRODUCTION--Record Date; Voting
Rights; Votes Required for Approval' and 'SPECIAL FACTORS--Interest of Certain
Persons in the Merger' in the accompanying Proxy Statement.
The presence at the Special Meeting, in person or by proxy, of a majority
of the Voting Shares held by all stockholders of the Company are necessary for a
quorum to exist at the Special Meeting. If a quorum is present, then, pursuant
to the Delaware General Corporation Law (the 'DGCL') and the Restated
Certificate of Incorporation, approval and adoption of the Merger Agreement
requires the affirmative vote of the holders of a
<PAGE>
majority of the outstanding Voting Shares. See 'INTRODUCTION--Record Date;
Voting Rights; Votes Required for Approval' in the accompanying Proxy Statement.
If the Merger is consummated, holders of Common Stock who do not vote in
favor of the Merger Agreement and the Merger and who perfect their statutory
appraisal rights under Section 262 of the DGCL will have the right to seek
payment for their shares of Common Stock. See 'APPRAISAL RIGHTS' in the
accompanying Proxy Statement for a statement of the rights of dissenting
stockholders and a description of the procedures required to be followed by such
stockholders to obtain appraisal of their shares of Common Stock.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS,
J. TIMOTHY WESLEY
Secretary
Louisville, Kentucky
July , 1998
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING IN PERSON,
PLEASE VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED
PREPAID ENVELOPE AS SOON AS POSSIBLE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF
YOU WISH, WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THE COMPANY'S BOARD OF DIRECTORS, ACTING ON THE UNANIMOUS RECOMMENDATION OF
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS (CONSISTING OF THREE DIRECTORS
OF THE COMPANY WHO ARE NOT EMPLOYEES OF ANY OF THE COMPANY, VENCOR, VHLLC OR
THEIR RESPECTIVE AFFILIATES), UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................................................. 1
Proposal to be Considered at the Special Meeting........................................................ 1
Record Date; Voting Rights; Votes Required for Approval................................................. 2
Proxies; Proxy Solicitation............................................................................. 3
AVAILABLE INFORMATION..................................................................................... 3
SUMMARY................................................................................................... 4
TRANSACTION PARTIES....................................................................................... 11
The Company............................................................................................. 11
Vencor and VHLLC........................................................................................ 11
Parent and Merger Sub................................................................................... 11
SPECIAL FACTORS........................................................................................... 13
Background of the Merger................................................................................ 13
Recommendations of the Special Committee, the Board, Vencor and VHLLC................................... 20
Opinion of the Company's and the Special Committee's Financial Advisor.................................. 23
Purpose and Structure of the Merger; Certain Effects of the Merger...................................... 27
Certain Federal Income Tax Consequences of the Merger................................................... 28
Accounting Treatment of the Merger...................................................................... 29
Plans for the Company After the Merger.................................................................. 29
Interests of Certain Persons in the Merger.............................................................. 30
Litigation Relating to the Merger....................................................................... 34
THE MERGER AGREEMENT...................................................................................... 35
General................................................................................................. 35
Effective Time of the Merger............................................................................ 35
The Surviving Corporation............................................................................... 35
Consideration to be Received by Stockholders of the Company............................................. 35
Company Stock Options................................................................................... 36
Convertible Subordinated Notes.......................................................................... 37
Representations and Warranties.......................................................................... 37
Covenants Relating to Conduct of the Company's Business................................................. 38
Non-Solicitation........................................................................................ 38
Cooperation and Reasonable Efforts...................................................................... 39
Rollover Options........................................................................................ 40
Benefit Plans and Other Arrangements.................................................................... 40
Indemnification......................................................................................... 41
Fees and Expenses....................................................................................... 41
Transfer Taxes.......................................................................................... 42
Headquarters............................................................................................ 42
Conditions to Closing................................................................................... 42
Termination............................................................................................. 43
Amendment............................................................................................... 44
Regulatory Requirements................................................................................. 44
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
APPRAISAL RIGHTS.......................................................................................... 45
Delaware Statutory Appraisal Rights..................................................................... 45
SOURCE OF FUNDS FOR THE MERGER............................................................................ 48
Financing of the Transaction............................................................................ 48
Fees and Expenses....................................................................................... 48
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................................................... 49
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY.................................................. 57
MARKET PRICES FOR THE COMMON STOCK........................................................................ 59
DIVIDENDS................................................................................................. 60
CERTAIN INFORMATION CONCERNING VENCOR AND VHLLC........................................................... 60
Vencor.................................................................................................. 60
VHLLC................................................................................................... 60
General................................................................................................. 60
Certain Transactions.................................................................................... 60
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, VENCOR, VHLLC AND THE SURVIVING CORPORATION............ 63
Information Concerning Directors and Executive Officers of the Company.................................. 63
Information Concerning Directors and Executive Officers of Vencor and VHLLC............................. 64
Information Concerning Directors and Executive Officers of the Surviving Corporation.................... 66
SECURITY OWNERSHIP OF THE COMPANY......................................................................... 67
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS.............................................................. 70
UNDERWRITTEN PUBLIC OFFERINGS............................................................................. 71
TRANSACTION OF OTHER BUSINESS............................................................................. 71
INDEPENDENT AUDITORS...................................................................................... 71
STOCKHOLDER PROPOSALS..................................................................................... 72
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 72
APPENDIX A--Agreement and Plan of Merger, as amended
APPENDIX B--Support Agreement among Parent, Merger Sub, Vencor and a predecessor to VHLLC
APPENDIX C--Support Agreement among Parent, Merger Sub and Certain of the Officers and all of the
Directors of the Company
APPENDIX D--Form of Shareholder and Registration Rights Agreement
APPENDIX E--Section 262 of the Delaware General Corporation Law
APPENDIX F--Opinion of BT Alex. Brown Incorporated
APPENDIX G--Certificate of Incorporation of Surviving Corporation
</TABLE>
ii
<PAGE>
ATRIA COMMUNITIES, INC.
501 SOUTH FOURTH AVENUE
SUITE 140
LOUISVILLE, KENTUCKY 40202
------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST , 1998
INTRODUCTION
The Special Meeting of Stockholders (including any adjournment or
postponement thereof, the 'Special Meeting') of Atria Communities, Inc. (the
'Company') will be held at 9:00 a.m., local time, on , August ,
1998, at the Seelbach Hotel, 500 South Fourth Avenue, Louisville, Kentucky. This
Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of the Company to be used at the Special
Meeting. This Proxy Statement and the attached Notice of Special Meeting of
Stockholders and the proxy card are first being mailed to stockholders of the
Company on or about July , 1998. The date of this Proxy Statement is July ,
1998.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will consider and
vote upon a proposal to approve and adopt (A) an Agreement and Plan of Merger
dated as of April 19, 1998, as amended (the 'Merger Agreement'), among the
Company, Kapson Senior Quarters Corp., a Delaware corporation ('Parent'), and KA
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ('Merger Sub'), and (B) the transactions contemplated thereby. Merger Sub
was organized by Parent solely to facilitate the proposed transaction. See
'TRANSACTION PARTIES.' The Company's largest stockholder is Vencor Holdings,
L.L.C. ('VHLLC'), a Delaware limited liability company and an indirect wholly
owned subsidiary of Vencor, Inc., a Delaware corporation ('Vencor'). VHLLC is
currently the owner of approximately 42.8% of the Company's outstanding common
stock, par value $.10 per share (the 'Common Stock').
The Merger Agreement provides for the merger of Merger Sub with and into
the Company (the 'Merger'), with the Company continuing as the surviving
corporation (the 'Surviving Corporation'). Following the Merger, the Company
will be a subsidiary of Parent. Pursuant to the Merger, (i) each outstanding
share of Common Stock (other than (x) shares held by the Company (as treasury
stock), Parent or their respective subsidiaries, (y) 1,234,568 shares (the
'Retained Shares') of the 10,000,000 shares of Common Stock held by VHLLC, and
(z) shares owned by stockholders who do not vote in favor of the Merger
Agreement and the Merger and who perfect their appraisal rights under Section
262 of the Delaware General Corporation Law ('DGCL')) will receive $20.25 per
share in cash, without interest (the 'Merger Consideration'), (ii) each
outstanding share of Common Stock owned by Parent, Merger Sub or held by the
Company (as treasury stock) will be canceled without consideration, (iii) each
of the 1,000 outstanding shares of Merger Sub common stock will be converted
into 9,135.802 shares of common stock of the Surviving Corporation par value
$.01 per share (the 'Recapitalized Common Stock'), and (iv) each of the Retained
Shares held by VHLLC and each of the other shares of Common Stock held by
subsidiaries of the Company or Parent (excluding Merger Sub) will be converted
into and become one share of Recapitalized Common Stock. The closing of the
Merger is conditioned upon the approval of the Merger Agreement and the
transactions contemplated thereby by the stockholders of the Company and certain
other conditions described below under 'THE MERGER AGREEMENT--Conditions to
Closing.' A copy of the Merger Agreement is included as Appendix A to this Proxy
Statement.
The aggregate consideration required in order to consummate the
transactions contemplated by the Merger Agreement is estimated to be
approximately $624.0 million (including payment for the outstanding shares of
Common Stock, the cash-out of certain stock options, the repurchase of certain
convertible subordinated notes and the payment of certain fees and expenses).
See 'SOURCES OF FUNDS OF THE MERGER--Financing of the Transaction.' Pursuant to
the Merger Agreement, Parent, through the Surviving Corporation, will pay $20.25
per share in cash, without interest, for each outstanding share of Common Stock
(other than the Retained Shares).
<PAGE>
On July , 1998, the most recent practicable date before the printing of this
Proxy Statement, the closing price per share for the Common Stock, as reported
by the Nasdaq National Market System, was $ .
Following the Merger, approximately 88.1% of the outstanding Recapitalized
Common Stock will be beneficially owned by Parent and approximately 11.9% of the
outstanding Recapitalized Common Stock will be beneficially owned by VHLLC. With
the exception of VHLLC and certain current members of the Company's management
who will retain certain options to purchase Recapitalized Common Stock (the
'Rollover Options'), the present holders of Common Stock and options to purchase
Common Stock will no longer have any equity interest in the Company. See
'SPECIAL FACTORS--Interests of Certain Persons in the Merger.'
THE COMPANY'S BOARD OF DIRECTORS, ACTING ON THE UNANIMOUS RECOMMENDATION OF
THE SPECIAL COMMITTEE, UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
RECORD DATE; VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Board of Directors of the Company has fixed the close of business on
July 22, 1998 (the 'Record Date'), as the date for the determination of
stockholders entitled to notice of and to vote at the Special Meeting.
Accordingly, only holders of record of shares of Common Stock at the close of
business on that date will be entitled to notice of and to vote at the Special
Meeting (the 'Voting Shares'). At the close of business on the Record Date,
there were 23,385,112 shares of Common Stock (held by 289 stockholders of
record) outstanding and entitled to vote at the Special Meeting.
Each holder of Voting Shares is entitled to cast one vote per share in
person or by proxy at the Special Meeting and any adjournment or postponement
thereof. The presence, in person or by proxy, at the Special Meeting of the
holders of a majority of the Voting Shares entitled to vote at the Special
Meeting are necessary for a quorum to exist at the Special Meeting. Abstentions
and broker non-votes (which occur when shares held by brokers or nominees for
beneficial owners are voted on some matters but not on others) will be counted
as shares present for purposes of determining the presence of a quorum.
Pursuant to the DGCL and the Restated Certificate of Incorporation of the
Company, the Merger Agreement must be approved and adopted by the holders of at
least a majority of the outstanding Voting Shares. The Merger Agreement does not
require the approval of the Merger Agreement and the Merger by the holders of a
majority of the outstanding Voting Shares who are unaffiliated with Vencor. For
purposes of determining whether a proposal has received sufficient votes for
adoption, abstentions and broker non-votes will have the effect of a vote
against the Merger Agreement and the Merger.
Parent and Merger Sub have entered into agreements (collectively, the
'Support Agreements') with predecessors of Vencor and VHLLC and with certain
officers and directors of the Company. Such officers and directors, along with
(i) Vencor, and (ii) VHLLC, are referred to herein as the 'Support Group.' See
'TRANSACTION PARTIES--Vencor and VHLLC' and 'CERTAIN INFORMATION CONCERNING
VENCOR AND VHLLC-- Vencor.' Pursuant to the Support Agreements, each member of
the Support Group has agreed to vote all of his, her or its Voting Shares in
favor of the Merger Agreement and the Merger, such Voting Shares representing,
as of the Record Date, an aggregate of approximately 46.4% of the total
outstanding Voting Shares, and has granted a proxy to affiliates of Parent for
purposes of voting on the Merger Agreement and the transactions contemplated
thereby. A copy of the Support Agreement entered into among Parent, Merger Sub
and certain predecessors to Vencor and VHLLC is included as Appendix B to this
Proxy Statement, and a copy of the Support Agreement entered into between
Parent, Merger Sub and certain of the officers and all of the directors of the
Company is included as Appendix C to this Proxy Statement, and all such copies
are incorporated herein by reference. The discussion of the Support Agreements
contained in this Proxy Statement is qualified in its entirety by reference to
the complete text of such Support Agreements.
Holders of Common Stock who do not want to accept the Merger Consideration,
who do not vote in favor of (or who abstain from voting on) the Merger Agreement
and the Merger, and who perfect their appraisal rights by complying with the
provisions of Section 262 of the DGCL, will have the right to receive cash
payment for the 'fair value' of their Common Stock. Any stockholder
contemplating the exercise of appraisal rights should carefully review Section
262 of the DGCL, particularly the procedural steps required to perfect appraisal
rights, a
2
<PAGE>
description of which is provided herein under 'APPRAISAL RIGHTS.' A stockholder
who fails to comply with such procedural requirements will forfeit such holder's
appraisal rights and, upon consummation of the Merger, such holder's shares of
Common Stock will be converted into the right to receive the Merger
Consideration. See 'APPRAISAL RIGHTS' and Appendix E--'Section 262 of the
Delaware General Corporation Law.'
PROXIES; PROXY SOLICITATION
All Voting Shares represented by properly executed proxies received prior
to or at the Special Meeting and not revoked will be voted in accordance with
the instructions indicated in such proxies. If no instructions are indicated,
such proxies will be voted FOR the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, and in the discretion of
the persons named in the proxy on such other matters as may properly be
presented at the Special Meeting.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, directors, officers and regular employees of
the Company may solicit proxies by telephone, telegram or by personal
interviews. Such persons will receive no additional compensation for such
services. The Company's regularly retained investor relations firm, Corporate
Communications, Inc., may also solicit proxies by telephone and mail. The
Company will reimburse brokers, fiduciaries, custodians and other nominees for
their charges and expenses in forwarding proxy material to the beneficial owners
of Voting Shares.
AVAILABLE INFORMATION
The Company, Vencor and VHLLC have filed with the Securities and Exchange
Commission (the 'Commission'), a Schedule 13E-3 Transaction Statement (including
any amendments thereto, the 'Schedule 13E-3'), under the Securities Exchange Act
of 1934, as amended (the 'Exchange Act'), with respect to the Merger. This Proxy
Statement does not contain all the information set forth in the Schedule 13E-3
and the exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission.
The Schedule 13E-3 and the respective exhibits thereto, as well as such
reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; and at the Commission's Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048, and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as the Company that file electronically with the Commission.
The address of such site is http://www.sec.gov. The Common Stock is traded on
the Nasdaq National Market System and certain of the Company's reports, proxy
materials and other information are available at the offices of the Nasdaq
National Market System, 1735 K Street, N.W., Washington, D.C. 20006.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The following summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is subject to and
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement, including the Appendices hereto.
Stockholders are urged to read carefully the entire Proxy Statement, including
the Appendices.
TRANSACTION PARTIES
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The Company............................... Atria Communities, Inc. (the 'Company') is a Delaware corporation
that provides assisted and independent living services for the
elderly. The Company's principal offices are located at 501 South
Fourth Avenue, Suite 140, Louisville, Kentucky 40202. See
'TRANSACTION PARTIES--The Company' and 'SELECTED HISTORICAL FINANCIAL
INFORMATION OF THE COMPANY.'
Vencor and VHLLC.......................... Vencor, Inc. ('Vencor') is a Delaware corporation that provides a
variety of long-term health care services. Vencor's principal
executive offices are located at 3300 Aegon Center, 400 West Market
Street, Louisville, Kentucky 40202. Vencor Holdings, L.L.C. ('VHLLC')
is a Delaware limited liability company and an indirect wholly owned
subsidiary of Vencor, and at the Record Date owned 10,000,000 shares
of Common Stock (approximately 42.8% of the then outstanding shares
of Common Stock). See 'TRANSACTION PARTIES--Vencor and VHLLC' and
'CERTAIN INFORMATION CONCERNING VENCOR AND VHLLC.'
Parent and Merger Sub..................... Kapson Senior Quarters Corp. ('Parent') is a Delaware corporation
that provides assisted living services in the northeastern region of
the United States, and has owned, managed and/or operated assisted
living facilities since 1972. Parent's principal executive offices
are located at 125 Froehlich Farm Boulevard, Woodbury, New York
11797. KA Acquisition Corp ('Merger Sub'), a Delaware corporation and
a wholly owned subsidiary of Parent, was organized by Parent for the
purpose of effecting the Merger.
Parent is an indirect wholly owned subsidiary of LF Strategic Realty
Investors II, L.P., a Delaware limited partnership (the 'Fund'). The
Fund primarily engages in the business of investing in real estate
related companies, such as Parent, ARV Assisted Living Inc., The
Fortress Group, Inc., The Rubenstein Company, L.P., American
Apartment Communities III, Inc. and FAC Realty Trust.
Lazard Freres Real Estate Investors L.L.C. ('LFREI'), a New York
limited liability company, is the general partner of the Fund.
LFREI's activities consist principally of acting as the general
partner of several real estate limited partnerships that are
affiliated with Lazard Freres & Co. LLC ('Lazard'). Lazard is an
investment bank that provides general investment banking, investment
advisory, financial and other advisory services. See 'TRANSACTION
PARTIES-- Parent and Merger Sub.'
THE SPECIAL MEETING
Time, Place and Date of the Special
Meeting................................. The Special Meeting of Stockholders of the Company will be held at
the Seelbach Hotel, 500 South Fourth Avenue, Louisville, Kentucky, on
, August , 1998, at 9:00 a.m., local time.
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Record Date............................... Holders of record of Common Stock at the close of business on July
22, 1998 (the 'Record Date'), are entitled to notice of and to vote
at the Special Meeting. On such Record Date, there were
shares of Common Stock outstanding (the 'Voting Shares'), with each
such Voting Share entitled to cast one vote with respect to the
Merger Agreement and the Merger at the Special Meeting. See
'INTRODUCTION--Record Date; Voting Rights; Votes Required for
Approval.'
Purpose of the Special Meeting; Quorum;
Vote Required........................... At the Special Meeting, stockholders will consider and vote upon a
proposal to approve and adopt the Merger Agreement, a copy of which
is included as Appendix A to this Proxy Statement, and the
transactions contemplated thereby. See 'INTRODUCTION--Proposal to be
Considered at the Special Meeting.' The presence at the Special
Meeting, in person or by proxy, of a majority of the Voting Shares
held by all stockholders of the Company is necessary for a quorum to
exist at the Special Meeting. Pursuant to the DGCL and the Restated
Certificate of Incorporation of the Company, approval and adoption of
the Merger Agreement requires the affirmative vote of the holders of
a majority of the outstanding Voting Shares. There is no requirement
that the Merger Agreement and the Merger be approved by a majority of
the holders of shares of Common Stock held by persons not affiliated
with Vencor. Members of the Support Group, who, as of the Record Date
beneficially owned an aggregate of approximately 46.4% of the Voting
Shares, have agreed to vote their Voting Shares in favor of the
Merger Agreement and the transactions contemplated thereby.
A stockholder who has given a proxy pursuant to this solicitation may
revoke it at any time prior to the Special Meeting by delivering an
instrument revoking the proxy or a duly executed proxy bearing a
later date. In addition, a stockholder may revoke his or her proxy at
the Special Meeting by giving notice of his or her intention to vote
in person. Failure to return an executed proxy or vote in person at
the Special Meeting or a vote to abstain will constitute, in effect,
a vote against the approval and adoption of the Merger Agreement.
Pursuant to the Merger Agreement, if a majority of the outstanding
shares of Common Stock do not vote in favor of the approval and
adoption of the Merger Agreement, Parent or the Company may terminate
the Merger Agreement. In the event that the Merger Agreement is so
terminated and any person has made an alternative 'takeover proposal'
(as defined in the Merger Agreement) which has not been withdrawn
prior to ten (10) days before the date of the Special Meeting (August
__, 1998), the Company shall pay to Parent upon demand a termination
fee of $18,209,496 (the 'Termination Fee') plus certain expenses. See
'INTRODUCTION-- Record Date; Voting Rights; Votes Required for
Approval' and 'THE MERGER AGREEMENT--Fees and Expenses.'
THE MERGER; SPECIAL FACTORS
Structure of the Merger................... Pursuant to the Merger Agreement, Merger Sub will merge with and into
the Company, with the Company continuing as the Surviving Corporation
and becoming a subsidiary of Parent. Each outstanding share of Common
Stock (except 1,234,568 shares (the 'Retained Shares') of the
10,000,000 shares of Common Stock held by VHLLC) will be converted
into the right to receive $20.25 in cash, without interest. Each of
the 1,000 outstanding shares of common stock, par value $.01 per
share, of Merger Sub will be converted into 9,135.802 shares of
common stock, $.01 par value, of the Surviving Corporation (the
'Recapitalized Common Stock'). Each of the
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Retained Shares held by VHLLC will be converted into one share of
Recapitalized Common Stock. See 'SPECIAL FACTORS--Purpose and
Structure of the Merger; Certain Effects of the Merger,' '--Interests
of Certain Persons in the Merger' and 'THE MERGER AGREEMENT.'
Determination of Special Committee;
Recommendation of Company's Board of
Directors............................... A special committee of the Board of Directors, consisting of three
directors of the Company who are not and have not been employed by or
affiliated with the Company or Vencor (except in their capacity as
directors of the Company), or Parent or Merger Sub, or any of their
subsidiaries or affiliates, and who do not hold and will not acquire
in connection with the Merger Agreement and the transactions
contemplated thereby, any equity interest in Parent or Merger Sub
(the 'Special Committee'), has unanimously determined that the Merger
and Merger Consideration are fair to, and in the best interests of,
the stockholders of the Company and has recommended approval of the
Merger Agreement and the Merger by the Board of Directors and
stockholders of the Company. After considering the recommendation of
the Special Committee, the Board of Directors unanimously approved
the Merger Agreement and the Merger and recommends that stockholders
vote FOR the proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby. See 'SPECIAL FACTORS--
Background of the Merger,' '--Recommendations of the Special
Committee, the Board, Vencor and VHLLC' and '--Interests of Certain
Persons in the Merger.'
Opinion of Financial Advisor to the
Company and the Special
Committee............................... BT Alex. Brown Incorporated ('BT Alex. Brown') has delivered to the
Company's Board of Directors a written opinion dated April 19, 1998,
to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Merger Consideration
was fair, from a financial point of view, to the holders of Common
Stock (other than VHLLC and the holders of Rollover Options, as to
which BT Alex. Brown was not requested to express an opinion). The
full text of the written opinion of BT Alex. Brown dated April 19,
1998, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Appendix F to
this Proxy Statement and should be read carefully in its entirety.
THE OPINION OF BT ALEX. BROWN IS DIRECTED TO THE BOARD OF DIRECTORS
OF THE COMPANY, ADDRESSES ONLY THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE SPECIAL MEETING. See 'SPECIAL FACTORS--Opinion of the
Company's and the Special Committee's Financial Advisor.'
Plans for the Company After the Merger.... After the Merger, the Company will become a subsidiary of Parent,
with Parent owning approximately 88.1% of the outstanding
Recapitalized Common Stock, and VHLLC owning approximately 11.9% of
the outstanding Recapitalized Common Stock. Except as otherwise
described in this Proxy Statement, Parent has advised the Company and
Vencor that it expects that the Company will be operated after the
Merger in a manner substantially the same as its current operations.
See 'SPECIAL FACTORS--Interests of Certain Persons in the Merger' and
'--Plans for the Company After the Merger.'
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Certain Effects of the Merger............. Following the Merger, the present holders of Common Stock (other than
VHLLC, which will own approximately 11.9% of the outstanding
Recapitalized Common Stock immediately after the Effective Time of
the Merger) will no longer have an equity interest in the Company.
Instead, each such holder of Common Stock will have only the right to
receive the Merger Consideration for each share of Common Stock held
or to seek appraisal rights as described under the caption 'APPRAISAL
RIGHTS.' The Special Committee and the Board of Directors of the
Company has concluded that the purchase price of $20.25 per share of
Common Stock provided for in the Merger Agreement is fair and in the
best interests of the stockholders of the Company. Upon the
consummation of the Merger, however, the current holders of Common
Stock other than VHLLC (with respect to the 1,234,568 Retained
Shares) will neither share in any future earnings or losses of the
Company nor have the risks associated with such earnings or losses
after the Merger. There can be no assurance that the future value of
a share of Recapitalized Common Stock will at any time be greater or
less than $20.25 per share.
Parent has informed the Company that if the Merger is consummated
that it intends to apply to the Commission for the deregistration of
the Common Stock under the Exchange Act and, upon deregistration, (i)
the Company will be relieved of its obligation to file reports, proxy
statements and other information with the Commission, and (ii) the
Common Stock will no longer be quoted on the Nasdaq National Market
System. See 'SPECIAL FACTORS--Purpose and Structure of the Merger;
Certain Effects of the Merger.'
Interests of Certain Persons in the
Merger.................................. Certain executive officers and directors of the Company have
interests in connection with the Merger that are in addition to or
different from the interests of the stockholders of the Company
generally. The Special Committee and the Board of Directors of the
Company were aware of such interests and considered them in addition
to other matters described under 'SPECIAL FACTORS--Recommendations of
the Special Committee, the Board, Vencor and VHLLC.'
In connection with shares of Common Stock and options to purchase
shares of Common Stock held by executive officers and directors of
the Company, each of the executive officers and directors will
receive the same consideration in the Merger received by other
holders of Common Stock and options to purchase Common Stock under
the Merger Agreement, except for options to purchase 232,439, 235,000
and 109,750 shares of Common Stock currently held by W. Patrick
Mulloy, II, President, Chief Executive Officer and a Director of the
Company, Andy L. Schoepf, Chief Operating Officer and a Director of
the Company, and J. Timothy Wesley, Chief Financial Officer, Vice
President of Development and Secretary of the Company, respectively
(the 'Rollover Options'), which will, subject to certain potential
adjustments, become options to purchase shares of Recapitalized
Common Stock as of the Effective Time of the Merger. In addition,
Parent intends to cause the Surviving Corporation to enter into
employment agreements with Messrs. Mulloy, Schoepf and Wesley after
the Effective Time of the Merger. Mr. W. Bruce Lunsford, Chairman of
the Board of the Company, and Mr. R. Gene Smith, a Director of the
Company, also serve as directors and/or officers of Vencor, which is
the indirect parent of the Company's largest stockholder, VHLLC. Mr.
Thomas T. Ladt, a Director of the Company, was an officer of
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Vencor until April 30, 1998, and currently serves as a director and
an officer of Ventas, Inc., an affiliate of Vencor and VHLLC. For a
description of the foregoing and other interests of the executive
officers and directors in connection with the Merger Agreement and
the Merger, see 'SPECIAL FACTORS--Interests of Certain Persons in the
Merger.'
At the Effective Time of the Merger, VHLLC will receive (i) the right
to receive the Merger Consideration in connection with each of
8,765,432 of its 10,000,000 shares of Common Stock, or $177,499,998
in the aggregate, and (ii) one share of Recapitalized Common Stock in
exchange for each of its 1,234,568 remaining shares of Common Stock
('Retained Shares'), or 1,234,568 shares of Recapitalized Common
Stock in the aggregate. The Retained Shares constitute approximately
5.3% of the Voting Shares, but will constitute approximately 11.9% of
the outstanding Recapitalized Common Stock upon the closing of the
Merger. Parent has informed the Company that it currently expects
that the portion of the Merger Consideration that will be funded by
an equity contribution from Parent will be approximately $185.0
million, for which Parent will receive 9,135,802 shares of
Recapitalized Common Stock at $20.25 per share in the Merger.
Pursuant to the Merger Agreement, Parent may elect under certain
circumstances to increase its equity contribution up to $225.0
million by increasing the aggregate number of shares of Recapitalized
Common Stock into which the capital stock of Merger Sub will be
converted upon consummation of the Merger up to 11,111,111 shares in
aggregate at $20.25 per share. See 'SOURCE OF FUNDS FOR THE MERGER'
and 'SPECIAL FACTORS--Interests of Certain Persons in the Merger.'
Each of Parent, VHLLC, Vencor and the holders of the Rollover Options
have agreed to enter into a Shareholders and Registration Rights
Agreement (the 'Shareholders Agreement') as of the Effective Time of
the Merger governing certain aspects of such parties' equity
interests in the Surviving Corporation and the Surviving
Corporation's corporate governance. The Shareholders Agreement
provides that the parties thereto will vote their shares to cause the
election of one member of the Surviving Corporation's Board of
Directors to be designated by Vencor. In addition, the Shareholders
Agreement contains restrictions on transfer, registration rights and
other provisions customarily contained in shareholders agreements of
privately held corporations. See 'SPECIAL FACTORS--Interests of
Certain Persons in the Merger.'
Federal Income Tax Consequences........... The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the 'Code'). See 'SPECIAL
FACTORS--Certain Federal Income Tax Consequences of the Merger.'
Accounting Treatment...................... It is intended that the Merger will be treated as a recapitalization
for accounting purposes. See 'SPECIAL FACTORS--Accounting Treatment
of the Merger.'
THE MERGER AGREEMENT
Effective Time of the Merger.............. The closing of the Merger will occur no later than five business days
after all conditions to the Merger contained in the Merger Agreement
have been satisfied or waived. The Company anticipates that the
Merger will be consummated as promptly as practicable following the
Special Meeting. See 'THE MERGER AGREEMENT--Effective Time of the
Merger.'
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Conditions to Consummation of the
Merger.................................. The respective obligations of the Company, on the one hand, and/or
Parent and Merger Sub, on the other hand, to consummate the Merger
are subject to the satisfaction or waiver at or prior to the
Effective Time of the Merger of the following conditions, among
others: (i) approval and adoption of the Merger Agreement and the
transactions contemplated thereby by a majority of the outstanding
shares of Common Stock at a stockholders meeting; (ii) the
termination or expiration of any waiting period applicable to the
Merger under the Hart-Scott-Rodino Act; (iii) the absence of any
order or injunction preventing the consummation of the Merger, and
the absence of certain suits, actions or proceedings (that have a
reasonable likelihood of success) challenging the Merger or which
otherwise have a material adverse effect on the Company; (iv) the
receipt of all material authorizations, consents, approvals and
permits of governmental authorities required to be obtained by the
Company prior to the Effective Time of the Merger; (v) the material
accuracy of all representations and warranties of the parties to the
Merger Agreement; (vi) the material compliance by all parties with
their obligations under the Merger Agreement; and (vii) the receipt
by the Company of a solvency letter as to the solvency of the
Surviving Corporation. See 'THE MERGER AGREEMENT--Conditions to
Closing.' In the event that the Company waives any material condition
to consummation of the Merger, the Company will resolicit proxies
from the holders of Common Stock.
Termination of the Merger................. The Merger Agreement may be terminated (i) by written consent, (ii)
by either Parent or the Company if the stockholders of the Company
fail to approve and adopt the Merger Agreement at the Special
Meeting, (iii) by either Parent or the Company if the Merger is not
consummated by October 31, 1998, provided, however, that the passage
of such period shall be tolled for any part thereof during which any
party shall be subject to a nonfinal order or decree enjoining or
otherwise prohibiting the consummation of the Merger, (iv) by either
Parent or the Company if a governmental entity issues a final
nonappealable order, decree or ruling, or takes any other action,
permanently prohibiting the consummation of the Merger, (v) by Parent
or the Company if, under certain circumstances, one of its respective
closing conditions under the Merger Agreement is not satisfied, (vi)
by either Parent or the Company upon certain material breaches of the
terms and conditions of the Merger Agreement by the other party,
(vii) by Parent or (under certain circumstances) the Company in the
event the Board of Directors of the Company withdraws or modifies its
approval of the Merger Agreement or the Merger, or (viii) by Parent
if the Board of Directors of the Company fails under certain
circumstances to reaffirm publicly its recommendation to the
Company's stockholders that they approve the Merger Agreement and the
Merger. Certain of the foregoing termination events are subject to
notice and other procedures and requirements described under the
heading 'THE MERGER AGREEMENT--Termination.'
Termination Fee; Fees
and Expenses............................ All fees, costs and expenses incurred by all parties in connection
with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses regardless of
whether or not the Merger is consummated, except as set forth under
the heading 'THE MERGER AGREEMENT--Fees and Expenses.'
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If the Merger is not consummated as a result of certain actions of
the Company or in certain circumstances if any person makes an
alternative 'takeover proposal' (as defined in the Merger Agreement),
the Company shall pay to Parent upon demand the Termination Fee and
any reasonable out-of-pocket expenses incurred by Parent in
connection with the Merger Agreement and the transactions
contemplated thereby. Parent shall reimburse all reasonable
out-of-pocket expenses of the Company upon demand if the Merger
Agreement is terminated by the Company pursuant to Parent's or Merger
Sub's breach or failure to perform in any material respect of any of
its representations, warranties or covenants in the Merger Agreement.
See 'THE MERGER AGREEMENT--Fees and Expenses.'
The Termination Fee provisions of the Merger Agreement may deter
unaffiliated third parties from seeking to acquire the Company at a
price per share higher than $20.25. Termination fee provisions are,
however, customary in transactions of this type, particularly when
the target company has an express contractural right of termination
if its board of directors determines it should withdraw or nullify
its approval or recommendation of the transaction in order accept an
acquisition proposal from a third party if required by its fiduciary
duties under applicable law (as is provided in the Merger Agreement).
Accordingly, during negotiations of the Merger Agreement, the Special
Committee agreed to inclusion of the Termination Fee once it
concluded that the events triggering payment of the Termination Fee
were limited in number and reasonable under the circumstances. See
'THE MERGER AGREEMENT--Termination.'
Appraisal Rights.......................... Holders of Common Stock entitled to vote on approval and adoption of
the Merger Agreement and the transactions contemplated thereby have
the right to dissent from the Merger and, upon consummation of the
Merger and the satisfaction of certain specified procedures and
conditions, to receive the 'fair value' of such holders' shares of
Common Stock in accordance with the applicable provisions of the
DGCL. Stockholders seeking to perfect such rights must submit written
notice of such intent to demand payment for their shares of Common
Stock prior to the vote at the Special Meeting. The procedures to be
followed by dissenting stockholders are summarized under 'APPRAISAL
RIGHTS' and the applicable provisions of the DGCL are reproduced as
Appendix E--'Section 262 of the Delaware General Corporation Law.'
Source of Funds........................... It is estimated that the total funds required to consummate the
transactions contemplated by the Merger Agreement and to pay related
fees and expenses will be approximately $624.0 million. For a
description of the expected sources of such funds, see 'SOURCE OF
FUNDS FOR THE MERGER.' The Merger is not subject to a financing
condition.
Financial Data............................ Certain financial data relating to the Company is set forth herein
under the headings 'UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS' and 'SELECTED HISTORICAL FINANCIAL INFORMATION OF THE
COMPANY.' Additional financial information is incorporated by
reference in this Proxy Statement. See 'INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.'
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TRANSACTION PARTIES
THE COMPANY
Atria Communities, Inc. (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 May 1, 1998, the Company operated 52 assisted and
independent living communities in 19 states with a total of 4,961 units and two
nursing centers with a total of 332 beds. The Company had 46 assisted living
communities under development at May 1, 1998.
The Company was incorporated in Delaware on May 1, 1996, as a wholly owned
subsidiary of Vencor. 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 Common Stock, and the Company assumed certain
liabilities related to such communities. See '--VENCOR AND VHLLC' AND 'CERTAIN
INFORMATION CONCERNING VENCOR AND VHLLC.'
The Company's principal executive offices are located at 501 South Fourth
Avenue, Suite 140, Louisville, Kentucky 40202. The telephone number of the
Company is (502) 719-1600.
VENCOR AND VHLLC
Vencor, Inc., a Delaware corporation ('Vencor'), operates an integrated
network of health care services primarily focusing on the elderly. Vencor is a
successor to the operations of Ventas, Inc., a Delaware corporation ('Ventas'),
pursuant to the terms of a reorganization consummated on April 30, 1998 (the
'Reorganization Date'). Prior to the Reorganization Date, the corporate name of
Ventas was 'Vencor, Inc.' and all of the current operations of Vencor and its
subsidiaries were conducted by Ventas and its subsidiaries. All references in
this Proxy Statement to 'Vencor' with respect to any time period prior to the
Reorganization Date shall be deemed to refer to Ventas unless the context
requires otherwise. Vencor Holdings, L.L.C., an indirect wholly owned subsidiary
of Vencor ('VHLLC'), is a Delaware limited liability company. See 'CERTAIN
INFORMATION CONCERNING VENCOR AND VHLLC--VENCOR.'
On the Reorganization Date, the rights and obligations of Ventas under the
Support Agreement executed as of April 19, 1998, were assigned to Vencor, which
immediately assigned those rights to Vencor Operating, Inc., a Delaware
corporation and a direct wholly owned subsidiary of Vencor ('Vencor Operating').
In turn, Vencor Operating immediately assigned its rights under the Support
Agreement to VHLLC. VHLLC is wholly owned by Vencor Operating.
The business address of Vencor, Vencor Operating and VHLLC is 3300 Aegon
Center, 400 West Market Street, Louisville, Kentucky 40202. The telephone number
of Vencor, Vencor Operating and VHLLC is (502) 596-7300.
PARENT AND MERGER SUB
Kapson Senior Quarters Corp. ('Parent') is a Delaware corporation that
provides assisted living services in the northeastern region of the United
States, and has owned, managed and/or operated assisted living facilities since
1972. At May 1, 1998, Parent, directly or through controlled subsidiaries, owned
(in whole or in part), managed and/or operated 23 assisted living facilities
with an aggregate of 2,557 units located in New York, New Jersey, Connecticut,
Pennsylvania and California. In addition, as of May 1, 1998, Parent had under
construction or pre-construction development a total of 27 assisted living
facilities with an expected aggregate of 3,208 units in its current markets as
well as in North Carolina, South Carolina and Virginia. Parent's principal
executive offices are located at 125 Froehlich Farm Boulevard, Woodbury, New
York 11797. KA Acquisition Corp. ('Merger Sub'), a Delaware corporation and a
wholly owned subsidiary of Parent, was organized by Parent for the purpose of
effecting the Merger.
In April 1998, Parent was acquired by LF Strategic Realty Investors II,
L.P., a Delaware limited partnership (the 'Fund'). The Fund, a limited
partnership comprised of institutional investors, has commitments from its
partners to provide the Fund with aggregate capital contributions of
approximately $1.5 billion, of which
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approximately $800 million has been invested or committed to investment and
approximately $700 million remains uncommitted. The Fund primarily engages in
the business of investing in real estate related companies, such as Parent, ARV
Assisted Living Inc., The Fortress Group, Inc., The Rubenstein Company, L.P.,
American Apartment Communities III, Inc. and FAC Realty Trust.
Lazard Freres Real Estate Investors L.L.C., a New York limited liability
company ('LFREI'), is the general partner of the Fund. LFREI's activities
consist principally of acting as the general partner of several real estate
limited partnerships that are affiliated with Lazard Freres & Co. LLC
('Lazard'). Lazard is an investment bank that provides general investment
banking, investment advisory, financial and other advisory services. LFREI,
through the partnerships for which it acts as a general partner, manages
approximately $3.0 billion in capital targeting equity and debt investments.
Since LFREI began operations in 1991, it has committed on behalf of the
partnerships for which it acts as a general partner an aggregate of $1.5 billion
in 11 equity transactions and $0.4 billion in 13 mezzanine debt and commercial
mortgage-backed securities transactions.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
W. Bruce Lunsford, Chief Executive Officer, President and Chairman of the
Board of Vencor, and Chairman of the Board of the Company, first informed W.
Patrick Mulloy, II, Chief Executive Officer, President and a Director of the
Company, that Vencor was considering the potential sale of the 10,000,000 shares
of Common Stock currently owned by VHLLC (the 'Vencor Shares'), in November
1997. During such conversation, Mr. Lunsford informed Mr. Mulloy that Vencor was
considering a variety of alternatives in connection with a potential
restructuring. Mr. Lunsford also explicitly stated that no decision with respect
to the Vencor Shares had been made at that time. Messrs. Lunsford and Mulloy did
not discuss a possible sale of the Vencor Shares again until January 2, 1998.
In December 1997, Vencor decided to seek a purchaser for the Vencor Shares
in order to generate cash to pay down indebtedness. On January 2, 1998, Mr.
Lunsford informed Mr. Mulloy of Vencor's decision to sell the Vencor Shares.
During January 1998, Mr. Mulloy met with representatives of BT Alex. Brown
Incorporated ('BT Alex. Brown') and with Mr. Lunsford to discuss potential
alternatives involving a sale of the Vencor Shares. In addition, in January
1998, Alston & Bird LLP ('Alston & Bird') was engaged to advise the Board of
Directors of the Company in connection with any proposed transaction involving
the Vencor Shares.
On February 1, 1998, Vencor publicly announced that it contemplated
engaging in a restructuring of its business. On February 2, 1998, the Company
announced that Vencor would be seeking a strategic investor to purchase the
Vencor Shares as part of Vencor's proposed restructuring. At that time, the
Company was interested in locating a suitable strategic investor and providing
for an orderly disposition of the Vencor Shares, and was not seeking any
transaction involving a sale of the Company.
In order to assist in an orderly marketing of the Vencor Shares, between
February 2, 1998 and February 13, 1998, meetings were held between potential
purchasers of the Vencor Shares and Mr. Mulloy and J. Timothy Wesley, Chief
Financial Officer, Vice President of Development and Secretary of the Company,
in New York and Boston. During this period, Messrs. Mulloy and Wesley and
representatives of BT Alex. Brown met with 27 potential purchasers of the Vencor
Shares.
At a meeting of the Board of Directors of the Company held on February 6,
1998, at which all directors, Mr. Wesley and representatives of Alston & Bird
and BT Alex. Brown were present, on the advice of Alston & Bird, the Board of
Directors created a Special Committee of the Independent Directors of the Board
of Directors (the 'Special Committee'). The Special Committee was comprised of
William C. Ballard, Jr., as Chairman, Peter J. Grua and Sandra Harden Austin,
none of whom are officers or employees of the Company, VHLLC, Vencor or their
respective subsidiaries or affiliates. The purpose of the Special Committee was
to consider, evaluate and authorize the Company's participation in any proposed
transaction with a potential purchaser of the Vencor Shares.
At a special meeting of Board of Directors of the Company held on February
12, 1998, at which all of the directors, Mr. Wesley and representatives of
Alston & Bird and BT Alex. Brown were present, representatives of BT Alex. Brown
updated the Board of Directors regarding the discussions to date with potential
purchasers of the Vencor Shares. In addition, the Board of Directors adopted
resolutions empowering the Special Committee to take all such actions as, in the
reasonable judgment of the Special Committee, were necessary and advisable in
connection with a possible transaction involving, solely or as part of any other
transaction, the Vencor Shares. The Special Committee was also empowered by the
Board of Directors to engage such counsel and financial advisors as the Special
Committee deemed appropriate.
Another Special Committee meeting was held on February 15, 1998, at which
all of its members were present, as well as representatives of Alston & Bird and
BT Alex. Brown, which the Special Committee selected as its legal and financial
advisors, respectively. At the meeting, representatives of Alston & Bird and
members of the Special Committee discussed the potential for a change in control
of the Company to occur in connection with a sale of the Vencor Shares. In
particular, the Special Committee was concerned that a third party could gain
control of the Company by acquiring the Vencor Shares and executing a limited
number of open market
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purchases of Common Stock without the Board of Directors being able to negotiate
adequate protections on behalf of the Company's stockholders. To avoid abusive
takeover tactics and to ensure that the Company's Board of Directors was
involved in any discussions regarding a change in control of the Company, the
Special Committee adopted and approved the Shareholder Protection Rights
Agreement dated as of February 15, 1998 (as amended, the 'Rights Agreement'),
between the Company and National City Bank and declared a dividend of one right
payable February 28, 1998, for each share of Common Stock held of record at the
close of business on February 28, 1998. The Rights Agreement did not prohibit
Vencor from selling all of the Vencor Shares to a single purchaser, provided
that such purchaser did not acquire any additional shares of Common Stock.
Pursuant to the Rights Agreement, one preferred stock purchase right was
distributed as a dividend on each outstanding share of Common Stock that
entitled holders of each share of Common Stock to purchase one one-hundredth of
a share of a new series of junior participating preferred stock of the Company
at an exercise price of $100. The rights will be exercisable only if a person or
group makes, or announces an intention to make an, acquisition of 15% or more of
the Common Stock, and, if triggered, then each right not owned by such person or
group entitles the holder thereof to purchase, at the right's then current
exercise price, a number of shares of Common Stock having a value of twice the
right's exercise price. In addition, if, following an event that triggers the
rights, the Company is involved in a merger or business combination transaction
with another person or group in which the Company is not the surviving
corporation, each right that has not previously been exercised will entitle the
holder thereof to purchase, at the right's then-current exercise price, common
shares of such other person having a value of twice the right's exercise price.
The terms of the Rights Agreement are described in more detail in the Company's
Current Report on Form 8-K dated February 15, 1998, as amended by the Company's
Current Report on Form 8K/A filed on February 25, 1998. See 'INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE.'
The Special Committee also met on February 16, 1998. This meeting was
attended by Mr. Grua and Ms. Austin, together with representatives of the
Special Committee's legal and financial advisors. Mr. Mulloy also attended the
meeting at the request of the Special Committee because of his participation in
the meetings held earlier in February with potential purchasers in Boston and
New York. BT Alex. Brown and Mr. Mulloy updated the Special Committee regarding
the discussions held to date with potential purchasers of the Vencor Shares. At
this time, the Special Committee was informed that certain parties had expressed
interest in acquiring all of the outstanding equity of the Company. The Special
Committee reaffirmed that no decision had been made to sell the Company and that
discussions should continue regarding a sale of the Vencor Shares.
On February 20, 1998, at a special meeting of the Board of Directors of the
Company attended by all of the directors, together with Mr. Wesley and
representatives of Alston & Bird, BT Alex. Brown and Vencor, Mr. Ballard updated
members of the Board of Directors generally about efforts to market the Vencor
Shares. Mr. Lunsford asked several technical questions about the Rights
Agreement, including whether officers of Vencor could inadvertently trigger the
Rights Agreement as affiliates of Vencor. After a general discussion, the Board
of Directors recommended that the Special Committee consider a clarifying
amendment to the Rights Agreement to avoid an inadvertent triggering of the
rights. After representatives of Vencor who were not directors of the Company
were excused, representatives of BT Alex. Brown provided a review of discussions
with potential purchasers of the Vencor Shares and also discussed with the Board
of Directors four alternatives in connection with a potential sale of such
shares: (i) do nothing; (ii) cooperate with and assist Vencor in a sale, or
underwritten public offering, of the Vencor Shares; (iii) redeem the Vencor
Shares; or (iv) explore a transaction involving the entire Company.
Also on February 20, 1998, a meeting of the Special Committee was held and
attended by all members of the Special Committee, as well as representatives of
the Special Committee's legal and financial advisors. Upon advice of counsel,
the Special Committee agreed to adopt certain technical amendments to the Rights
Agreement. The Special Committee then discussed various alternatives involving
the sale of the Vencor Shares and the desirability of an orderly transaction.
Mr. Ballard then instructed BT Alex. Brown to contact the potential investors
approached between February 2, 1998 and February 13, 1998 to solicit indications
of interests only for a sale of the Vencor Shares. The Special Committee did not
pursue a redemption of the Vencor Shares because of, among other things, the
costs associated with raising the funds necessary to purchase such a large block
of shares of Common Stock.
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Following the Special Committee meeting on February 20, 1998, indications
of interest were sought from the various potential purchasers of the Vencor
Shares approached between February 2, 1998 and February 13, 1998. One informal
indication of interest in purchasing the Vencor Shares was received. However,
between February 20 and 23, 1998, five informal indications of interest in an
enterprise transaction were received.
The Special Committee next met on February 24, 1998, with all members of
the Special Committee and representatives of the Special Committee's legal and
financial advisors in attendance. At the invitation of the Special Committee,
Messrs. Mulloy and Wesley, and Andy L. Schoepf, Chief Operating Officer, and a
Director, of the Company, were also in attendance to discuss the Company's
future as an independent company. BT Alex. Brown updated the Special Committee
as to the indications of interest received in respect of the Vencor Shares,
including two proposals from potential purchasers that indicated both the
financial capacity and level of interest necessary to consummate an enterprise
transaction with the Company. Lazard Freres Real Estate Investors, L.L.C.
('LFREI') made a preliminary offer of $23.50 per share for an enterprise
transaction, and had been the sole party to submit an offer to purchase just the
Vencor Shares at $21.50 per share. The other preliminary proposal was orally
submitted by an affiliate of another nationally recognized investment banking
firm (the 'Second Bidder'). The Second Bidder's oral proposal was for the
purchase of all of the outstanding shares of Common Stock at a purchase price of
$22.00 to $23.00 per share in cash.
The Special Committee discussed the LFREI and the Second Bidder proposals
with members of management who had met with representatives of both parties. The
Special Committee also discussed with management the Company's future as an
independent company. Members of management of the Company were then excused and
members of the Special Committee continued their discussion of possible
alternatives. In particular it was noted that only LFREI had submitted an offer
to purchase the Vencor Shares in a stand-alone transaction, and that such
proposal was potentially unfavorable to the Company's public stockholders
because it (i) contemplated a future merger of the Company through which the
remaining shares of Common Stock would be acquired by LFREI on terms to be
determined in the future, and (ii) would require the Company to grant LFREI
certain contractual protections, such as mandatory seats on the Company's Board
of Directors and certain antidilution protections. In addition, it was noted
that the current per share trading price of the Common Stock reflected the high
price/earnings multiples for the assisted living industry. Members of the
Special Committee expressed concern that such price/earnings multiples might not
be sustainable in the future. Based on those concerns, and the continuing
concern that Vencor could proceed to transfer the Vencor Shares to a potentially
hostile bidder, the Special Committee unanimously agreed that it should explore
an enterprise transaction (although it expressly did not make any decision at
that time as to whether any such transaction was in the best interest of the
stockholders of the Company). Based upon its earlier discussions with management
and its financial advisor, and LFREI's proposed per share price, the Special
Committee unanimously determined to pursue exclusive negotiations with LFREI for
a period of two weeks and to provide LFREI the opportunity to conduct due
diligence regarding the Company. The Special Committee also authorized its legal
and financial advisors to negotiate with LFREI and its counsel and present a
potential transaction to the Special Committee for its consideration.
On February 25, 1998, the Company issued a press release stating that it
had received several informal proposals regarding a possible business
combination with per share prices in the low $20s, and that the Special
Committee had been formed to consider strategic alternatives for the Company.
On February 27, 1998, LFREI and the Company executed an exclusivity
agreement in accordance with terms approved by the Special Committee. Between
February 27, 1998 and March 12, 1998, representatives of LFREI engaged in due
diligence on the Company in Louisville, Kentucky. On March 3, 1998, Cravath,
Swaine & Moore, counsel to LFREI, provided an initial draft of a merger
agreement to the Company and Alston & Bird. Such merger agreement contemplated a
cash tender offer for at least a majority of the outstanding the Common Stock to
be followed by a merger of the Company such that all remaining minority
stockholders of the Company would receive the same price per share for their
shares of Common Stock. Alston & Bird forwarded the draft merger agreement to
Vencor and its counsel for review.
During the week of March 2, 1998, representatives of LFREI engaged in
conversations with certain members of management of the Company, including
Messrs. Mulloy, Wesley and Schoepf, regarding their potential employment by the
Company upon the consummation of a purchase of the Company by LFREI or one
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of its affiliates. In addition, on March 5, 1998, the members of the Special
Committee, Mr. Mulloy, and representatives of BT Alex. Brown and LFREI met and
discussed LFREI's and Lazard's history and future plans for the Company. At such
meeting, LFREI informed the Special Committee that it intended to retain Messrs.
Mulloy, Wesley and Schoepf as officers of the Company after the closing of any
transaction involving the Company and LFREI and its affiliates. The terms and
conditions of the proposed employment arrangements for Messrs. Mulloy, Schoepf
and Wesley are set forth in this Proxy Statement under the heading '--Interests
of Certain Persons in the Merger.' The Special Committee was aware of the
arrangements relating to the continued employment of these officers by the
Surviving Corporation after the closing of the Merger and considered these
potential conflicts of interest of Messrs. Mulloy, Schoepf and Wesley when the
Special Committee voted to recommend approval of the Merger and Merger
Agreement. See 'Recommendations of the Special Committee, Board, Vencor and
VHLLC--The Special Committee' and '--Interests of Certain Persons in the
Merger.'
Only limited negotiations between the parties occurred at this time,
however, because by March 6, 1998, representatives of LFREI had informed
management of the Company and the Special Committee's legal and financial
advisors that based on certain due diligence matters (including concerns
regarding (i) the Company's current infrastructure and capital expenditure level
given the Company's growth plans, and (ii) the time periods required to achieve
desired occupancy levels in the Company's new communities), it would no longer
pay $23.50 per share of Common Stock. In addition, representatives of LFREI
stated that LFREI wanted to consider transaction structures other than the cash
tender offer/merger structure, such as a leveraged recapitalization.
During the week of March 9, 1998, representatives of LFREI and the Special
Committee's legal and financial advisors discussed alternative transaction
structures. On March 11, 1998, representatives of LFREI proposed that a
potential transaction involving LFREI and the Company be structured as a
recapitalization of the Company pursuant to a reverse triangular merger whereby
Vencor and its affiliates would retain approximately 10% of the equity of the
Company. This recapitalization structure is reflected in the Merger Agreement
being presented for the approval and adoption of the stockholders of the Company
in this Proxy Statement. See '--Purpose and Structure of the Merger; Certain
Effects of the Merger' and '-- Accounting Treatment of the Merger.' However, in
addition to suggesting a restructuring of the transaction, representatives of
LFREI indicated that LFREI was no longer able to offer more than $21.00 per
share of Common Stock.
On Friday March 13, 1998, the Special Committee held a meeting attended by
all members of the Special Committee and the Special Committee's legal and
financial advisors. Representatives of Alston & Bird and BT Alex. Brown updated
the Special Committee on the negotiations with LFREI. In addition, the Special
Committee discussed the Company's receipt, on February 27, 1998, of an
unsolicited written offer from the Second Bidder in which it offered to acquire
all of the outstanding equity of the Company for at least $24.00 per share in
cash. The Special Committee unanimously determined that, because of the LFREI
price reduction and in light of the Second Bidder's written offer, the Special
Committee should pursue discussions with the Second Bidder before making any
final decision about an enterprise transaction. Accordingly, the Special
Committee instructed BT Alex. Brown to contact all parties that previously had
expressed interest in an enterprise transaction and inquire whether they were
still interested and, if so, at what price. Also, representatives of Alston &
Bird were authorized to continue to attempt to finalize documentation with
Cravath, Swaine & Moore in connection with LFREI's revised proposal; however,
the Special Committee requested that provisions be added to such documentation
to allow a 'market check' of the lower price per share offered by LFREI by
allowing the Company to terminate the agreement with LFREI without payment of
any termination fee if the Special Committee or the Board of Directors of the
Company received another proposal that the Special Committee or the Board of
Directors determined it was required to accept pursuant to its fiduciary duties
under applicable law.
On March 17, 1998, the Special Committee's legal and financial advisors,
LFREI and Cravath, Swaine & Moore, along with Mr. Ballard, participated in a
conference call regarding the status of current drafts of the proposed
definitive merger documents. During that call and a later call the same day
between representatives of Alston & Bird and Cravath, Swaine & Moore, several
issues were resolved, including issues involving the Company's ability to engage
in a 'market check' of LFREI's current offer.
Also on March 17, 1998, three additional indications of interest for an
enterprise transaction involving the Company were received. The Second Bidder
submitted a letter indicating that it would be able to 'deliver both a higher
price and a greater assurance of completing the transaction' than other bidders.
The Company also
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received an indication of interest from a privately held assisted living company
with a price per share of Common Stock of $20.00 to $22.00 (contingent on
financing). Finally, an indication of interest was received from another
assisted living company for a price of up to $22.50 per share in cash (the
'Third Bidder').
The Special Committee held a meeting on March 18, 1998, attended by all
members of the Special Committee and the Special Committee's legal and financial
advisors. At the meeting, representatives of BT Alex. Brown reviewed the three
proposals that had been received and informed the Special Committee that in oral
discussions the Second Bidder indicated that its current bid price was $22.00 to
$24.00 per share in cash. After discussion, the Special Committee determined not
to pursue the indication of interest from the privately held assisted living
company with a price per share of $20.00 to $22.00, primarily because of its
financing contingency. At this point during the meeting, the Special Committee
contacted a representative of the Second Bidder to discuss various aspects of a
potential transaction between the Company and the Second Bidder. During this
call, a representative of the Second Bidder confirmed that its current bid
(subject to due diligence and negotiation of a final agreement) was $22.00 to
$24.00 per share of Common Stock in cash, without any financing contingency.
After the telephone call with the Second Bidder, the Special Committee
unanimously determined that, subject to receiving a written indication of
interest from the Second Bidder at $22.00 to $24.00 per share of Common Stock in
cash without a financing contingency, representatives of the Special Committee
should attempt to negotiate a potential transaction with the Second Bidder
involving all of the equity of the Company instead of pursuing an agreement with
LFREI with a 'market out' provision. In addition, the Special Committee
authorized the officers of the Company to enter into an agreement with the
Second Bidder with terms providing that the Company would not execute a
definitive agreement with any other party, or agree to reimburse any third
party's expenses, for a period of two weeks. This agreement with the Second
Bidder did not prohibit the Company from simultaneously conducting discussions
with other interested parties. Finally, the Special Committee also authorized
its representatives to negotiate with the Third Bidder (and give such bidder due
diligence access to the Company).
Later on March 18, 1998, the Second Bidder submitted a written expression
of interest stating its then current bid of $22.00 to $24.00 per share of Common
Stock in cash. In addition, on March 19, 1998, the Company executed an agreement
with the Second Bidder in which the Company agreed that it would not execute a
definitive agreement with any third party or agree to pay any other party's
expenses for two weeks.
Between March 22, 1998 and April 5, 1998, both the Second Bidder and Third
Bidder conducted due diligence on the Company in Louisville, Kentucky. In
addition, Alston & Bird provided draft merger agreements to both the Second
Bidder and the Third Bidder. Copies of such agreements were also provided to
Vencor and its counsel for review.
On April 7, 1998, the Second Bidder and the Third Bidder submitted updated
indications of interest. The Second Bidder renewed its indication of interest to
purchase the entire outstanding equity of the Company in a tender offer/merger
transaction, but at a purchase price per share of Common Stock of $19.00 in cash
without any financing contingency. The Third Bidder indicated that it was
interested only in purchasing the Vencor Shares at a purchase price between
$20.00 and $21.00 in cash, subject to numerous contingencies including a
financing contingency and additional ancillary agreements involving the Company.
Also on April 7, 1998, representatives of LFREI indicated to representatives of
BT Alex. Brown that LFREI still might be interested in an enterprise transaction
with the Company at a price per share between $20.00 and $21.00.
On April 8, 1998, the Special Committee held a meeting attended by all
members of the Special Committee and representatives of the Special Committee's
legal and financial advisors. The Special Committee reviewed with BT Alex. Brown
the indications of interest received from the Second Bidder and the Third
Bidder. Disappointed by the Second Bidder's significant reduction in purchase
price per share, the members of the Special Committee engaged in extensive
discussions regarding the consequences and benefits of not pursuing a
transaction. The Special Committee also considered alternatives that Vencor
would likely pursue if the Special Committee did not pursue any transaction at
that time. In particular, the Special Committee discussed the possibility that
Vencor (i) would transfer the Vencor Shares in a transaction not approved by the
Special Committee or the Company's Board of Directors, or (ii) would seek the
Company's assistance in a public offering of all of the Vencor Shares. At this
point in the meeting, the Special Committee telephoned Messrs.
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Mulloy and Wesley to discuss the recent bids and the Company's future prospects.
In particular, the Special Committee questioned members of management regarding
the current trading value of the Common Stock. Management agreed with the
Special Committee that the high price/earnings multiples of the Company and
other companies in the assisted living industry were high and might not be
sustainable over the long term. Messrs. Mulloy and Wesley were then excused from
the meeting. After more discussion, the Special Committee instructed
representatives of BT Alex. Brown to contact LFREI and the Second Bidder
(without disclosing the prices bid by either party) to inform them that the
Special Committee was prepared to make a final decision as to whether or not to
proceed with a transaction and wanted to determine the final price of each
bidder. The Special Committee also determined that it would not pursue any
transaction with the Third Bidder because of the Special Committee's uncertainty
that a transaction could be consummated with the Third Bidder as a result of
financing and other contingencies contained in its indication of interest.
Later on April 8, 1998, BT Alex. Brown contacted representatives of both
LFREI and the Second Bidder as requested by the Special Committee. The Second
Bidder indicated that it was not prepared to increase its bid of $19.00 per
share in cash at that time. LFREI indicated that it still might be interested in
pursuing a transaction with the Company at a purchase price per share of Common
Stock of $20.00 in cash if it could be structured as a recapitalization under
generally accepted accounting principles.
On April 9, 1998, the Special Committee held a meeting attended by all
members of the Special Committee and representatives of the Special Committee's
legal and financial advisors. The Special Committee reviewed with BT Alex. Brown
the further indications of interest that had been received from LFREI and the
Second Bidder. The Special Committee again discussed the possibility of not
pursuing any transaction. The Special Committee considered the possibility of a
secondary public offering by the Company of the Vencor Shares. Because of the
large number of Vencor Shares, the Special Committee was concerned that any such
public offering would be at a price below the market value of such shares and
would likely reduce the price per share of Common Stock for all of the Company's
stockholders. The members of the Special Committee rejected the option of not
pursuing a transaction because of concerns that Vencor might proceed to dispose
of the Vencor Shares to a single hostile purchaser. See '--Recommendations of
the Special Committee, the Board and Vencor.' Thereafter, the Special Committee
authorized its representatives to negotiate a final transaction with LFREI for
the sale of all of the equity of the Company. Later on April 9, 1998,
representatives of LFREI informed representatives of BT Alex. Brown that LFREI
would be willing to pay $20.25 per share of Common Stock in cash in connection
with a recapitalization transaction involving all the outstanding equity
securities of the Company, except for the Retained Shares.
Between April 9, 1998 and April 13, 1998, representatives of the Special
Committee's legal and financial advisors negotiated with representatives of
LFREI and substantially finalized a draft merger agreement. In addition,
representatives of LFREI negotiated directly with representatives of Vencor
regarding the terms of the Merger Agreement, Support Agreement to be executed by
Vencor and Registration Rights and Shareholders Agreement (the 'Shareholders
Agreement') providing for certain aspects of corporate governance of the
Surviving Corporation, and for certain restrictions on the transfer of equity
interests in the Surviving Corporation. See '-- Interests of Certain Persons in
the Merger.' On April 13, 1998, a meeting of the Special Committee was held at
which all members of the Special Committee were in attendance, as well as
representatives of the Special Committee's legal and financial advisors.
Representatives of Alston & Bird outlined the terms and conditions of the draft
Merger Agreement and representatives of BT Alex. Brown discussed the valuation
methodologies utilized by BT Alex. Brown in connection with its evaluation of
the Merger Consideration. After discussion, the Special Committee then
unanimously agreed to recommend to the Board of Directors that it approve and
adopt the Merger and draft version of the Merger Agreement.
The Special Committee was initially created to evaluate the Company's
potential involvement in any proposed transaction with a purchaser of the Vencor
Shares. As discussed above, the Special Committee's consideration of an
enterprise transaction (i.e., the Merger), as opposed to a sale of the Vencor
Shares, at its April 13th meeting (and at its later April 19th meeting) was the
result of (i) the absence of any bidders submitting indications of interest in
purchasing just the Vencor Shares that were not conditioned on the Company
granting contractual protections to the potential purchaser that were to the
detriment of the public stockholders of the Company (despite lengthy attempts to
solicit such indications of interest), and (ii) the Special Committee's concern
and belief that if it did not approve an enterprise transaction, Vencor would
proceed to sell the Vencor
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Shares to a single, potentially hostile, purchaser in a transaction not approved
by the Special Committee or the Board of Directors of the Company. For a more
complete discussion of the material factors considered by the Special Committee
in reaching its conclusion to recommend the Merger Agreement and the Merger, see
'-- Recommendation of the Special Committee, the Board, Vencor and VHLLC.'
Later on April 13, 1998, the full Board of Directors met to consider the
recommendation of the Special Committee. All members of the Board of Directors
were in attendance except Mr. Thomas T. Ladt. The Special Committee's legal and
financial advisors were also in attendance. Representatives of Alston & Bird
reviewed the terms of the draft Merger Agreement submitted to the Board of
Directors and representatives of BT Alex. Brown reviewed the financial analyses
performed by BT Alex. Brown in connection with its evaluation of the Merger
Consideration and rendered to the Board of Directors an oral opinion to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration was fair from a
financial point of view to the holders of Common Stock (other than the holders
of the Vencor Shares and Rollover Options, as to which BT Alex. Brown was not
requested to render an opinion). After discussion of the terms and conditions of
the proposed Merger, all of the members of the Board of Directors present at the
meeting, including Messrs. Mulloy and Schoepf both of whom had interests in the
transactions which were in addition to or different from those of the
stockholders of the Company generally as set forth under the heading
'--Interests of Certain Persons in the Merger,' adopted resolutions approving
the Merger Agreement and the Merger as fair and in the best interests of the
stockholders of the Company.
The Board of Directors of Vencor approved the terms of the Merger Agreement
and Support Agreement to be executed by Vencor and an affiliate and the form of
Shareholders Agreement pursuant to a unanimous written consent resolution dated
as of April 14, 1998.
On April 14, 1998, however, representatives of LFREI approached the Special
Committee's legal and financial advisors and informed them that LFREI desired to
discuss alternative recapitalization structures. LFREI proposed a restructure of
the Merger Agreement to provide that the public stockholders of the Company, at
the election of Parent, would receive approximately $10 million to $15 million
of their aggregate consideration in the form of shares of Recapitalized Common
Stock. LFREI proposed alternative recapitalization structures in an effort to
reach an agreement with Vencor regarding the number of shares of Recapitalized
Common Stock to be received by Vencor at the Effective Time of the Merger and to
increase the likelihood that the transaction would qualify for recapitalization
accounting treatment. Representatives of the Special Committee's legal and
financial advisors informed representatives of LFREI that such a change in
consideration was material and would have to be reapproved by the Special
Committee and resubmitted to the Board of Directors of the Company.
On April 14, 1998, all of the members of the Special Committee attended a
special meeting to consider LFREI's new proposal. Such meeting was also attended
by representatives of the Special Committee's legal and financial advisors. At
the invitation of the Special Committee, Messrs. Mulloy, Wesley and Schoepf were
also in attendance to discuss the Company's future as an independent company and
the effect of LFREI's new proposal on the consideration to be received by the
Company's stockholders. At the meeting, the members of the Special Committee
expressed concern that shares of Recapitalized Common Stock received by the
public stockholders would be difficult to transfer and would represent a
reduction in purchase price from the $20.25 per share in cash to which all
parties previously agreed. Accordingly, after excusing members of management
from the meeting, the Special Committee instructed representatives of BT Alex.
Brown to inform LFREI that the Special Committee would not recommend any
transaction with Parent that required any public stockholder to receive any
shares of Recapitalized Common Stock instead of cash.
On April 15, 1998, LFREI proposed an alternative structure that would
require Vencor to double the number of Retained Shares contemplated by the
current Merger Agreement. However, Vencor declined to increase the number of
Retained Shares beyond 1,234,568.
Finally, on April 16 and 17, 1998, representatives of LFREI agreed that
none of the public stockholders of the Company would be required to receive any
shares of Recapitalized Common Stock in the Merger; provided, that prior to the
distribution of this Proxy Statement, Parent could, in its discretion, require
the Merger Agreement to be restructured such that the public stockholders were
given the option to elect to receive shares of Recapitalized Common Stock
(valued at $20.25 per share) as part of their Merger Consideration. In no event,
however, would any public stockholder be required to elect to receive any shares
of Recapitalized Common Stock.
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From April 16, 1998 to April 19, 1998, representatives of Vencor, the
Company and LFREI finalized the terms of the Merger Agreement, Support
Agreements and Shareholders Agreement. On April 19, 1998, all of the members of
the Special Committee met with representatives of the Special Committee's legal
and financial advisors in a special meeting of the Special Committee, and, after
discussion, the Special Committee recommended to the Board of Directors of the
Company the approval and adoption of the Merger and the Merger Agreement.
Immediately following such meeting of the Special Committee, the full Board of
Directors of the Company met to consider the Special Committee's recommendation.
All of the members of the Board of Directors of the Company were in attendance
except for Mr. Thomas Ladt. Representatives of Alston & Bird and BT Alex. Brown
were also in attendance. At this meeting, representatives of Alston & Bird
outlined the terms and conditions of the Merger Agreement and representatives of
BT Alex. Brown updated the Board of Directors with respect to the financial
analyses performed by BT Alex. Brown in connection with its evaluation of the
Merger Consideration and confirmed that, as of such date and based upon and
subject to certain matters discussed with the Board of Directors, the Merger
Consideration was fair, from a financial point of view, to the holders of Common
Stock (other than holders of the Vencor Shares and Rollover Options, as to which
BT Alex. Brown was not requested to express an opinion). See '--Opinion of the
Company's and the Special Committee's Financial Advisor.' After such
presentations, and after further discussion, all of the members of the Board of
Directors of the Company present at the meeting, including Messrs. Mulloy and
Schoepf both of whom had interests in the transactions which were in addition to
or different from those of the stockholders of the Company generally as set
forth under the heading '--Interests of Certain Persons in the Merger,' approved
the Merger and the Merger Agreement and determined that the transactions
contemplated by the Merger Agreement were in the best interests, and fair to,
the stockholders of the Company and resolved to recommend the Merger and the
Merger Agreement to the stockholders of the Company. In addition, the Board of
Directors amended the Rights Agreement such that the Merger Agreement and
transactions contemplated thereby would not trigger any provisions of the Rights
Agreement. After such meeting, the Merger Agreement and the Support Agreements
were executed. The Company and Parent issued a press release regarding the
execution of the Merger Agreement on the morning of April 20, 1998. All of the
members of the Board of Directors later executed written consent resolutions
approving the Merger Agreement and the Merger as of April 19, 1998.
The Company, Parent and Merger Sub entered into an amendment to the Merger
Agreement on May 19, 1998 (the 'Amendment'). The Amendment provided, among other
things, that Parent may elect, by written notice to the Company and Vencor at
any time prior to ten calendar days prior to the Special Meeting, to increase
its equity contribution from $185.0 million up to $225.0 million by increasing
the aggregate number of shares of Recapitalized Common Stock into which the
capital stock of Merger Sub will be converted upon consummation of the Merger
from 9,135,802 up to 11,111,111. See 'SPECIAL FACTORS--Purpose and Structure of
the Merger; Certain Effects of the Merger' and '--Interests of Certain Persons
in the Merger.' The terms of the Amendment are included in Appendix A to this
Proxy Statement and are incorporated herein by this reference.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE, THE BOARD, VENCOR AND VHLLC
The Special Committee. In February 1998, the Company's Board of Directors
created the Special Committee, which consists of three of the Company's
directors who are not employed by or affiliated with the Company, Parent, Vencor
or any of their subsidiaries or affiliates (except in their capacity as
directors of the Company), to consider, evaluate and authorize the Company's
participation in any proposed transaction involving, solely or as part of any
other transaction, the sale of the Vencor Shares. At a meeting of the Special
Committee on April 19, 1998, the Special Committee approved the Merger price of
$20.25 in cash per share. On April 19, 1998, the Special Committee determined
that the Merger and the Merger Consideration are fair to, and in the best
interests of, the stockholders and recommended to the Board of Directors that it
approve the Merger Agreement. Based on the recommendation of the Special
Committee and the factors considered by the Special Committee arriving at such
recommendation, and after receiving the written opinion of BT Alex. Brown (See
'--Opinion of the Company's and the Special Committee's Financial Advisor'), the
Board of Directors of the Company:
(i) unanimously determined that the Merger is fair to, and in the
best interests of, the stockholders;
(ii) unanimously approved and adopted the Merger Agreement and the
Merger and authorized the execution, delivery and performance
thereof by the Company; and
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(iii) unanimously resolved to recommend that the stockholders of the
Company approve the Merger Agreement and the transactions
contemplated thereby.
The Board of Directors of the Company believes that the terms of the Merger
Agreement are fair to, and in the best interests of, the Company and the
stockholders. In reaching its conclusion, the Board of Directors of the Company
adopted the recommendation of the Special Committee as set forth below. See
'--Interests of Certain Persons in the Merger.'
The Special Committee, in reaching its conclusion that the Merger is fair
to, and in the best interests of, the stockholders, and in determining to
recommend approval of the Merger Agreement and the Merger to the Board of
Directors of the Company, the following material factors:
1. The Special Committee's belief that if the Company did not engage in an
enterprise transaction, Vencor would cause the Vencor Shares to be sold to a
single purchaser in a transaction not approved by the Special Committee or the
Company's Board of Directors. The Special Committee believed that any such sale
could have been detrimental to the interests of the stockholders of the Company
because it could have resulted in a decline in market price of the Common Stock
if (i) the market reacted adversely to the replacement of the founding
stockholder of the Company with a hostile or less cooperative stockholder, or
(ii) the purchaser, through use of the significant voting power of the Vencor
Shares, caused the election of its director representatives and generally
attempted to assert control over the Company.
2. The Special Committee's belief that (i) based on discussions with 27
potential purchasers, including discussions with five parties willing to submit
indications of interest to the Company, (a) the only two indications of interest
the Company had received with respect to purchasing just the Vencor Shares would
have required the Company to grant contractual protections to the purchasers to
the detriment of the Company's public stockholders, and (b) LFREI and Parent
were willing to pay the highest price per share to the public stockholders of
the Company of any potential purchaser of the Company in an enterprise
transaction, and (ii) based on the Special Committee's substantial negotiations
with LFREI and Parent in an attempt to obtain the highest possible price for the
Common Stock, the Merger Consideration represented the highest price that LFREI
and Parent would be willing to pay in acquiring the Common Stock held by the
stockholders of the Company.
3. The Special Committee's knowledge of the business, financial condition,
results of operations and prospects of the Company. The members of the Special
Committee were generally familiar with and knowledgeable about the Company's
affairs, including the present and possible future economic and competitive
environment in which the Company operates its assisted living facility business.
The Special Committee also noted that the Company's status as a publicly held
company imposed additional regulatory burdens and expenses on the Company, as
well as potential liability associated with public disclosure requirements
applicable to publicly held companies generally.
4. The historical trading prices of the Common Stock and the high
price/earnings ratio of the Common Stock reflected in a $20.25 per share
purchase price.
5. The financial presentations of BT Alex. Brown to the Special Committee
on April 13, 1998 and April 19, 1998 and to the full Board of Directors of the
Company on April 13, 1998 and April 19, 1998 and the written opinion of BT Alex.
Brown dated April 19, 1998 to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated therein, the Merger
Consideration was fair, from a financial point of view, to the holders of Common
Stock (other than the holders of the Vencor Shares and Rollover Options, as to
which BT Alex. Brown was not requested to express an opinion). See '--Opinion of
the Company's and the Special Committee's Financial Advisor.'
6. The terms of the Merger Agreement, including without limitation, the
amount and form of consideration; the nature of the parties' representations,
warranties, covenants and agreements; and the conditions to the obligations of
Parent and the Company. The Special Committee also viewed favorably the fact
that the Merger Agreement contained a limited number of conditions to
consummation of the Merger, thus making consummation of the transaction more
likely than one in the which the agreement imposed more significant conditions
to consummation.
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In addition to the foregoing, the Special Committee considered the
following negative factors of the Merger Agreement and Merger:
1. At times, the Common Stock has traded above the amount of the Merger
Consideration. See 'THE MERGER AGREEMENT--Market Prices for the Common Stock.'
In particular, after the announcement of Vencor's intent to sell the Vencor
Shares on February 2, 1998, the price per share of Common Stock rose as high as
$22.00, reflecting the market's speculation about possible transactions
involving the Company. The Special Committee was concerned, however, that the
high price/earnings ratios of the Company and of competitors in the assisted
living industry might not be sustainable in the future. The market price of the
Common Stock has declined from the $19.75 per share price on April 17, 1998 (the
last trading date before the announcement of the Merger) to $ on July
, 1998.
2. The Merger Agreement contains provisions requiring the Company to pay
Parent a termination fee of $18,209,496 (the 'Termination Fee'), plus expenses
if the Merger is not consummated as a result of certain actions of the Company
or in certain circumstances if any person makes a 'takeover proposal' (as
defined in the Merger Agreement). See 'THE MERGER AGREEMENT--Fees and Expenses.'
The Termination Fee provisions of the Merger Agreement may deter unaffiliated
third parties from seeking to acquire the Company at a price per share higher
than $20.25. Termination fee provisions are, however, customary in transactions
of this type, particularly when the target company has an express contractual
termination right if its board of directors, acting in accordance with its
fiduciary obligations under applicable law, determines it should withdraw or
nullify its approval or recommendation of the transaction in order to accept an
acquisition proposal from a third party (as is provided in the Merger
Agreement). Accordingly, during negotiations of the Merger Agreement, the
Special Committee agreed to inclusion of the Termination Fee once it concluded
that the events triggering payment of the Termination Fee were limited in number
and reasonable under the circumstances. See 'THE MERGER AGREEMENT--Termination.'
3. After the Effective Time of the Merger, the current public stockholders
of the Company will no longer participate in the future earnings and growth of
the Company.
In view of the number and disparate nature of the factors considered by the
Special Committee, the Special Committee did not assign relative weight to the
factors considered in reaching its conclusions. Instead, the Special Committee
made qualitative judgments as to the significance and relevance of each factor.
In considering the Merger and Merger Agreement, the Special Committee took
note of the treatment of Vencor and VHLLC under the Merger Agreement, and, in
particular, VHLLC's receipt of 1,234,568 shares of Recapitalized Common Stock
(on a one for one basis) in exchange for 1,234,568 shares of Common Stock as of
the Effective Time of the Merger. Initially, LFREI had offered to purchase all
of the shares of Common Stock outstanding (including the 10,000,000 Vencor
Shares); however, when LFREI restructured its offer to purchase the Company as a
recapitalization, LFREI required VHLLC to forego the Merger Consideration with
respect to some of its shares of Common Stock and convert those shares on a one
for one basis into shares of Recapitalized Common Stock.
The Special Committee took special note of this treatment when LFREI and
Parent requested on April 14, 1998 that the Merger be restructured to require,
at Parent's election, that the public stockholders of the Company accept $10.0
million to $15.0 million of the aggregate consideration in the Merger in the
form of shares of Recapitalized Common Stock to be valued at $20.25 per share.
The Special Committee concluded that the value of a share of Recapitalized
Common Stock would be less than $20.25 per share in cash because of Parent's
significant equity ownership in the Surviving Corporation, the likelihood that
the capital structure of the Surviving Corporation would be significantly
altered as a result of LFREI's and Parent's financing of the payment obligations
under the Merger Agreement, and the limited volume of trading that would likely
occur in such shares. For the same reasons, the Special Committee concluded that
VHLLC's receipt of an aggregate of 1,234,568 shares of Recapitalized Common
Stock in exchange for the 1,234,568 Retained Shares as part of the Merger is
fair to the other stockholders of the Company.
In considering the Merger and Merger Agreement, the Special Committee also
took note of the treatment of Messrs. Mulloy, Schoepf and Wesley under the terms
of the Merger Agreement. See '--Interests of Certain Persons in the Merger.'
Based on discussions with its advisors, the Special Committee concluded that the
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compensation to be paid such members of management in connection with the Merger
did not adversely affect to any significant extent the Special Committee's
negotiation with LFREI of the amount of the Merger Consideration.
The Members of the Special Committee (as well as the other directors of the
Company) are indemnified by the Company under the Company's Restated Certificate
of Incorporation and the applicable provisions of the DGCL, and are exculpated
from certain liabilities under the Company's Restated Certificate of
Incorporation, with respect to their actions in connection with the Merger. The
members of the Special Committee are also covered by directors and officers
liability insurance maintained by the Company.
The Board of Directors. The Board of Directors of the Company has
unanimously concluded that the Merger and the Merger Consideration are fair to
the stockholders and unanimously recommends that the stockholders vote in favor
of the Merger Agreement and the transactions contemplated thereby based upon the
conclusions of the Special Committee and the factors referred to above as having
been taken into account by the Special Committee. In view of the wide variety of
factors considered in connection with its evaluation of the Merger and the
Merger Consideration, the Board of Directors did not find it practicable to
assign relative weight to the factors considered in reaching its decision and,
therefore, the Board of Directors did not quantify or otherwise attach relative
weight to the specific factors considered by the Board.
Vencor and VHLLC. The Board of Directors of each of Vencor and VHLLC
determined that the Merger Consideration was fair to Vencor and VHLLC as
evidenced by their execution of a Support Agreement and their acceptance of the
Merger Consideration as consideration for each of 8,765,432 of the Vencor
Shares. In addition, the Board of Directors of each of Vencor and VHLLC believes
that the Merger and the Merger Consideration are fair to, and in the best
interests of, the other stockholders of the Company. In reaching their
conclusions, the Board of Directors of each of Vencor and VHLLC have adopted the
conclusions and analyses of the Special Committee and further relied upon the
following facts: (i) the fact that the Special Committee consisted solely of
independent directors and was appointed to represent the interests of the
stockholders, (ii) the fact that the Special Committee was advised by
independent financial and legal advisors, (iii) the fact that the Board of
Directors of the Company, acting upon unanimous recommendation of the Special
Committee, and the Special Committee, based on the factors considered by the
Special Committee set forth above, concluded that the Merger and the Merger
Consideration are fair to and in the best interests of the Company and the
Company's stockholders and (iv) the fact that the Board of Directors of the
Company (through the Special Committee), with independent financial and legal
advisors, negotiated the terms of the Merger and the Merger Agreement on an
arm's length basis over a period of time. The Board of Directors of each of
Vencor and VHLLC did not find it practicable to, and did not, assign relative
weights to the individual factors discussed above in reaching their conclusions
as to fairness. See '--Interests of Certain Persons in the Merger.'
OPINION OF THE COMPANY'S AND THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR
The Company engaged BT Alex. Brown to act as its exclusive financial
advisor in connection with the Merger. On April 19, 1998, at a meeting of the
Company's Board of Directors held to evaluate the proposed Merger, BT Alex.
Brown rendered to the Board of Directors an oral opinion (which opinion was
subsequently confirmed by delivery of a written opinion dated April 19, 1998) to
the effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the Merger Consideration was fair, from a financial
point of view, to the holders of Common Stock (other than holders of the Vencor
Shares and Rollover Options, as to which BT Alex. Brown was not requested to
express an opinion).
The full text of the written opinion of BT Alex. Brown dated April 19,
1998, which sets forth the assumptions made, matters considered and limitations
of the review undertaken, is attached as Appendix F to this Proxy Statement and
is incorporated herein by reference. BT ALEX. BROWN'S OPINION IS DIRECTED TO THE
COMPANY'S BOARD OF DIRECTORS, ADDRESSES ONLY THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING. The summary of the opinion of BT Alex. Brown in this Proxy
Statement is qualified in its entirety by reference to and should be read in
conjunction with the full text of such opinion.
In connection with its opinion, BT Alex. Brown reviewed and analyzed
certain publicly available financial information and other information
concerning the Company and certain internal analyses and other information
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furnished to BT Alex. Brown by the Company. BT Alex. Brown also held discussions
with members of the senior management of the Company and representatives of
LFREI regarding the business and prospects of the Company. In addition, BT Alex.
Brown (i) reviewed the reported prices and trading activity for the Common
Stock, (ii) compared certain financial and stock market information for the
Company with similar information for certain other publicly traded companies,
(iii) reviewed the financial terms of certain recent business combinations which
BT Alex. Brown deemed comparable in whole or in part, (iv) reviewed the terms of
the Merger Agreement (prior to its amendment), and (v) performed such other
studies and analyses and considered such other factors as BT Alex. Brown deemed
appropriate.
As described in its opinion, BT Alex. Brown assumed and relied upon,
without independent verification, the accuracy, completeness and fairness of the
information furnished to or otherwise reviewed by or discussed with BT Alex.
Brown for purposes of its opinion. With respect to the information relating to
the prospects of the Company, BT Alex. Brown assumed that such information
reflected the best currently available judgments and estimates of the management
of the Company as to the likely future financial performance of the Company. In
addition, BT Alex. Brown did not make nor was it provided with an independent
evaluation or appraisal of the assets or liabilities of the Company. BT Alex.
Brown's opinion was based on market, economic and other conditions as they
existed and could be evaluated as of the date of its opinion. Although BT Alex.
Brown evaluated the Merger Consideration from a financial point of view, the
type and amount of consideration payable in the Merger was determined through
negotiation between the Special Committee and LFREI. No other limitations were
imposed by the Company upon BT Alex. Brown with respect to the investigations
made or the procedures followed by it in rendering its opinion.
The following is a summary of the material analyses performed and factors
considered by BT Alex. Brown in connection with its opinion to the Company's
Board of Directors dated April 19, 1998:
Analysis of Recent Mergers and Acquisitions. BT Alex. Brown reviewed the
purchase price and implied transaction multiples in the following four selected
merger and acquisition transactions announced in the assisted living health care
industry (target/acquiror): Sterling House Corporation/Alternative Living
Services, Inc.; Kapson Senior Quarters Corp./Prometheus Senior Quarters, LLC;
Integrated Living Communities, Inc./Whitehall Street Real Estate Investors, LLC;
and ARV Assisted Living, Inc./Prometheus Assisted Living LLC (the 'Selected
Transactions'). All multiples were based on publicly available information at
the time of announcement of such transactions. Applying (i) implied equity
market value multiples for the Selected Transactions of latest 12 months,
one-year and two-year forward net income of 45.0x, 28.3x to 47.2x (with a mean
of 37.7x) and 22.0x, respectively, (ii) implied adjusted equity market value
multiples for the Selected Transactions of latest 12 months revenues and
earnings before interest, taxes, depreciation, amortization and rents
('EBITDAR') of 4.0x to 9.0x (with a mean of 6.2x) and 14.9x to 46.3x (with a
mean of 32.5x), respectively, and (iii) an implied reference range for owned,
leased and managed beds or units ('Beds') for the Selected Transactions of
approximately $47,600 to $113,400 per Bed (with a mean of $72,000) to
corresponding financial data for the Company resulted in an implied equity
reference range for the Company of approximately $7.53 to $35.61 per share, as
compared to the Merger Consideration of $20.25 per share.
Discounted Cash Flow Analysis. BT Alex. Brown performed a discounted cash
flow analysis of the Company to estimate the present value of the stand-alone,
unlevered, after-tax free cash flows that the Company could generate over the
period March 31, 1998 through December 31, 2002, based on internal estimates of
the management of the Company. The stand-alone discounted cash flow analysis of
the Company was determined by (i) adding (x) the present value at March 31, 1998
of the projected free cash flows of the Company over the fiscal years 1998
through 2002 and (y) the present value at March 31, 1998 of the estimated
terminal values of the Company in fiscal year 2002 and (ii) subtracting the
current net debt and capitalized leases of the Company at March 31, 1998. The
range of estimated terminal values for the Company was calculated by applying
terminal value multiples ranging from 10.0x to 12.0x to the projected fiscal
year 2002 EBITDAR of the Company. The cash flows and terminal values of the
Company were discounted to present value using discount rates ranging from 12.5%
to 17.5%. This analysis yielded an implied equity reference range for the
Company of approximately $12.64 to $25.25 per share, as compared to the Merger
Consideration of $20.25 per share.
Analysis of Selected Public Companies. BT Alex. Brown compared certain
financial and stock market information for the following selected publicly held
companies in the assisted living health care industry:
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American Retirement Corporation; Alternative Living Services, Inc.; Assisted
Living Concepts, Inc.; ARV Assisted Living, Inc.; Brookdale Living Communities,
Inc.; Emeritus Corporation; CareMatrix Corporation; and Sunrise Assisted Living,
Inc. (the 'Selected Companies'). BT Alex. Brown calculated implied equity market
values as a multiple of estimated calendar years 1998 and 1999 net income, and
implied adjusted market values (equity market value, plus debt, capitalized
leases and rents, less cash) as multiples of latest 12 months revenues and
EBITDAR, and compared implied per Bed values of the Selected Companies and the
Company. All multiples were based on closing stock prices on April 17, 1998. Net
income estimates for the Selected Companies were based on analysts' estimates as
reported by I/B/E/S, a market research database, and net income estimates for
the Company were based on internal estimates of the management of the Company.
Applying (i) implied equity market value multiples for the Selected Companies of
estimated calendar 1998 and 1999 net income of 29.5x to 44.7x (with a mean of
36.1x) and 21.9x to 30.9x (with a mean of 25.2x), respectively, (ii) implied
adjusted equity market value multiples for the Selected Companies of latest 12
months revenues and EBITDAR of 4.8x to 13.8x (with a mean of 8.1x) and 16.7x to
60.4x (with a mean of 31.0x), respectively, and (iii) an implied per Bed
reference range for the Selected Companies of approximately $55,900 to $215,900
(with a mean of $120,100) to corresponding financial data for the Company
resulted in an implied equity reference range for the Company of approximately
$9.41 to $46.98 per share, as compared to the Merger Consideration of $20.25 per
share.
Premiums Analysis. BT Alex. Brown compared the implied premium payable in
the Merger with the premiums paid in selected transactions. For purposes of such
analysis, BT Alex. Brown analyzed, among other things, the (i) premiums paid in
approximately 115 transactions having transaction values of between $400 million
and $800 million which indicated a range of premiums, based on the target
company's stock price one day and one month prior to public announcement of the
transaction, of approximately (10.3)% to 80.0% (with a mean of 25.0%) and (9.1)%
to 98.4% (with a mean of 38.8%), respectively, (ii) premiums paid in 18 health
care transactions having transaction values of between $400 million and $800
million which indicated a range of premiums, based on the target company's stock
price one day and one month prior to public announcement of the transaction, of
approximately (10.3)% to 64.9% (with a mean of 21.1%) and (9.1)% to 87.2% (with
a mean of 35.9%), respectively, (iii) premiums paid in approximately eight
health care services transactions having transaction values of between $400
million and $800 million which indicated a range of premiums, based on the
target company's stock price one day and one month prior to public announcement
of the transaction, of approximately 4.0% to 64.9% (with a mean of 28.4%) and
16.0% to 87.2% (with a mean of 42.0%), respectively, and (iv) premiums paid in
approximately four assisted living transactions which indicated a range of
premiums, based on the target company's stock price one day and one month prior
to public announcement of the transaction, of approximately 9.4% to 30.3% (with
a mean of 22.4%) and 23.1% to 67.3% (with a mean of 40.3%), respectively. The
premiums payable in the Merger based on the closing prices of Common Stock (i)
one day and one month prior to public announcement on February 2, 1998 of
Vencor's intention to sell its equity interest in the Company were approximately
11.7% and 15.7%, respectively, (ii) one day and one month prior to public
announcement by the Company on February 25, 1998 that it had received several
business combination proposals were approximately (3.0)% and 17.8%,
respectively, and (iii) one day and one month prior to public announcement of
the Merger on April 20, 1998 were approximately 2.5% and (4.1)%, respectively.
Other Factors. In rendering its opinion, BT Alex. Brown also reviewed and
considered, among other things: (i) indications of interests from third parties
other than LFREI and Parent; (ii) historical and projected financial data for
the Company; (iii) historical market prices and trading volumes for the Common
Stock; (iv) the relationship between movements in Common Stock, movements in the
Selected Companies and movements in the S&P 500 Index; and (v) selected
analysts' reports on the Company, including EPS and growth rate estimates of
such analysts for the Company.
The summary set forth above does not purport to be a complete description
of the opinion of BT Alex. Brown to the Board of Directors of the Company or the
financial analyses performed and factors considered by BT Alex. Brown in
connection with its opinion. Copies of BT Alex. Brown's written presentations to
the Board of Directors of the Company dated April 13, 1998 and April 19, 1998
with respect to its opinion have been filed as exhibits to the Schedule 13E-3
and will be available for inspection and copying at the principal executive
offices of the Company during regular business hours by any interested
stockholder of the Company or
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representative of such stockholder who has been designated in writing and may be
inspected, copied and obtained by mail, from the Commission. The preparation of
a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. BT Alex. Brown's opinion was not based on any single factor or
analysis, nor did BT Alex. Brown attribute particular weight to individual
factors or analyses. Rather, BT Alex. Brown believed that the totality of the
factors considered and analyses performed by BT Alex. Brown in connection with
its opinion operated collectively to support its determination as to the
fairness of the Merger Consideration from a financial point of view.
Accordingly, BT Alex. Brown believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or selecting portions of the above summary,
without considering all factors and analyses, could create a misleading or
incomplete view of the processes underlying such analyses and opinion. In
performing its analyses, BT Alex. Brown made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company. No company, transaction or business used in such analyses as a
comparison is identical to the Company or the proposed Merger, nor is an
evaluation of the results of such analyses entirely mathematical; rather, such
analyses involve complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the companies, business segments or
transactions being analyzed. The estimates contained in such analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. BT Alex. Brown's opinion and financial analyses were
only one of many factors considered by the Company's Board of Directors in its
evaluation of the proposed Merger and should not be viewed as determinative of
the views of the Board of Directors or management of the Company with respect to
the Merger Consideration or the Merger.
BT Alex. Brown is an internationally recognized investment banking firm
and, as a customary part of its investment banking business, is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
estate, corporate and other purposes. The Company selected BT Alex. Brown based
on BT Alex. Brown's reputation, expertise and familiarity with the Company and
its business. BT Alex. Brown previously acted as lead managing underwriter and
as lead placement agent in connection with various financings relating to the
securities of the Company, for which services BT Alex. Brown has received
compensation. With the consent of the Board of Directors, BT Alex. Brown and/or
affiliates thereof may participate in the financing of the Merger, for which
services BT Alex. Brown would receive compensation. As of the date hereof, the
Fund is in discussions with several lenders with respect to the debt financing
for the Merger. See 'SOURCE OF FUNDS FOR THE MERGER.' BT Alex. Brown maintains a
market in the Common Stock and regularly publishes research reports regarding
the health care industry and the businesses and securities of the Company and
other publicly owned companies in the health care industry. In the ordinary
course of business, BT Alex. Brown may actively trade the securities of the
Company for its own account and the account of its customers and, accordingly,
may at any time hold a long or short position in securities of the Company.
Pursuant to the terms of BT Alex. Brown's engagement, the Company has
agreed to pay BT Alex. Brown for its services in connection with the Merger (i)
an opinion fee of approximately $1,658,332 which fee was payable upon the
delivery by BT Alex. Brown of its opinion and (ii) a transaction fee, payable
upon consummation of the Merger, equal to 0.85% of the total consideration
(including liabilities assumed) payable in the Merger, against which the opinion
fee will be credited. Pursuant to the terms of BT Alex. Brown's engagement, it
is currently anticipated that the aggregate financial advisory fee payable to BT
Alex. Brown will be approximately $6,635,000. The fees payable to BT Alex. Brown
were negotiated at arm's length between the Company and BT Alex. Brown based
upon fees payable in comparable financial advisory engagements. In addition, the
Company has agreed to reimburse BT Alex. Brown for its reasonable out-of-pocket
expenses, including reasonable fees and disbursements of counsel, and to
indemnify BT Alex. Brown and certain related parties against certain
liabilities, including certain liabilities under the federal securities laws,
relating to, or arising out of, its engagement.
26
<PAGE>
PURPOSE AND STRUCTURE OF THE MERGER; CERTAIN EFFECTS OF THE MERGER
The Merger has been structured so as to enable Parent to acquire the
controlling equity interest in the Company while maximizing stockholder value
for the Company's stockholders. The Merger will terminate all equity interests
in the Company of the holders of Common Stock and options to purchase Common
Stock, other than (i) the Rollover Options of certain members of management, and
(ii) the Retained Shares held by VHLLC which will convert on a one-for-one basis
into an aggregate of 1,234,568 shares of Recapitalized Common Stock. See
'--Interests of Certain Persons in the Merger.' Accordingly, the holders of
Common Stock and options to purchase Common Stock, (other than management with
respect to the Rollover Options and VHLLC with respect to its shares of
Recapitalized Common Stock) will share in neither future earnings and growth of
the Company nor the risks associated with achieving such earnings and growth
following the Merger. The Merger will enable the Company's stockholders to
receive a cash payment of $20.25 per share of Common Stock pursuant to a
transaction which has been determined by the Special Committee and the Board of
Directors of the Company, as discussed above, to be fair to such stockholders,
or to seek appraisal rights as described under 'APPRAISAL RIGHTS.' The Merger
Consideration was the result of arms' length, good faith negotiations between
representatives of LFREI, Parent and the Special Committee and their respective
advisors following a proposal by LFREI. See '--Background of the Merger' and
'--Opinion of the Company's and the Special Committee's Financial Advisor.'
Following the Merger, Parent, VHLLC and the Company's current management will be
the primary beneficiaries of any future earnings and growth of the Company and
will have the ability to benefit from any corporate opportunities that may be
pursued by the Company in the future.
Pursuant to the Merger Agreement, upon consummation of the Merger, Merger
Sub will merge with and into the Company, with the Company continuing as the
Surviving Corporation. Pursuant to the Merger Agreement, each outstanding share
of Common Stock (except those shares of Common Stock (i) held by the Company (as
treasury stock), Parent, or their respective subsidiaries, (ii) held by VHLLC as
Retained Shares or (iii) held by stockholders who perfect their appraisal rights
under the DGCL) will be converted into the right to receive $20.25 in cash,
without interest. The Company does not hold any shares of Common Stock as
treasury stock. In addition, neither Parent nor Merger Sub, nor any subsidiaries
of the Company or Parent hold any outstanding shares of Common Stock. LFREI and
its affiliates are subject to the terms of certain standstill provisions
contained in a confidentiality agreement executed by the Company and LFREI that
prevent Parent and its subsidiaries from acquiring shares of Common Stock except
as contemplated by the Merger Agreement. Each of the 1,000 outstanding shares of
Merger Sub common stock (all of which shares are beneficially owned by Parent)
will be converted into 9,135.802 shares of Recapitalized Common Stock, or
9,135,802 shares in the aggregate. Each Retained Share will be converted into
one share of Recapitalized Common Stock. Immediately after the Effective Time of
the Merger, approximately 88.1% of the then outstanding Recapitalized Common
Stock will be beneficially owned by Parent and approximately 11.9% of the then
outstanding Recapitalized Common Stock will be beneficially owned by Vencor.
Pursuant to the Merger Agreement, Parent may elect, by written notice to
the Company and Vencor at any time prior to ten calendar days prior to the
Special Meeting, to increase its equity combination up to $225.0 million by
increasing the aggregate number of shares of Recapitalized Common Stock into
which the capital stock of Merger Sub will be converted upon consummation of the
Merger up to 11,111,111; provided, however, that regardless of the number of
shares of Recapitalized Common Stock to be received by Parent in the Merger, the
portion of the Merger Consideration that is funded by an equity contribution
from Parent shall be $20.25 per share of Recapitalized Common Stock to be
received by Parent in the Merger. See 'SOURCE OF FUNDS FOR THE MERGER.' In the
event that Parent elects to receive 11,111,111 shares of Recapitalized Common
Stock, immediately after the Effective Time of the Merger, Parent will own
approximately 90% of the outstanding shares of Recapitalized Common Stock, and
VHLLC will own approximately 10% of the outstanding shares of Recapitalized
Common Stock.
Pursuant to the DGCL and the Restated Certificate of Incorporation of the
Company, approval and adoption of the Merger Agreement and the transactions
contemplated thereby requires the approval of the Board of Directors of each of
the Company, Parent and Merger Sub, and all of such Boards have granted such
approvals. Also pursuant to the DGCL, approval of the Merger Agreement requires
the affirmative vote of the holders of a majority of the outstanding Voting
Shares. As of the Record Date, the Support Group beneficially owned an aggregate
of 10,860,327 Voting Shares (representing approximately 46.4% of the Voting
Shares outstanding),
27
<PAGE>
and each member of the Support Group has agreed to vote all of such shares in
favor of the Merger Agreement. The Merger Agreement does not require the
approval of at least the majority of the unaffiliated holders of Common Stock in
order to approve the Merger Agreement and the Merger. See 'INTRODUCTION--Record
Date; Voting Rights; Votes Required for Approval.' Accordingly, only
approximately 3.6% of the Voting Shares in addition to the Voting Shares held by
the Support Group need to vote in favor of the Merger Agreement and the
transactions contemplated thereby for their approval.
Holders of Common Stock who do not want to accept the Merger Consideration
of $20.25 per share in cash, who do not vote in favor of (or who abstain from
voting on) the Merger Agreement and who perfect their appraisal rights by
complying with the provisions of Section 262 of the DGCL, will have the right to
receive cash payment for the 'fair value' of their Common Stock. Any stockholder
contemplating the exercise of appraisal rights should carefully review Section
262 of the DGCL, particularly the procedural steps required to perfect appraisal
rights, a description of which is provided herein under 'APPRAISAL RIGHTS.' A
stockholder who fails to comply with such procedural requirements will forfeit
such holder's appraisal rights and, upon consummation of the Merger, such
holder's shares of Common Stock will be converted into the right to receive the
Merger Consideration of $20.25 per share in cash. See 'APPRAISAL RIGHTS' and
Appendix E--'Section 262 of the Delaware General Corporation Law.'
The Company will, as a result of the Merger, become a subsidiary of Parent
and there will cease to be any public market for the Common Stock. Upon such
event, the Surviving Corporation is expected to apply to the Commission for the
deregistration of the Common Stock under the Exchange Act and, upon
deregistration, the Surviving Corporation will be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the Exchange
Act; its officers, directors and beneficial owners of more than 10% of the
Common Stock will be relieved of the reporting requirements and restrictions on
insider trading under Section 16 of the Exchange Act; and the Common Stock will
cease to be quoted on the Nasdaq National Market System. Further, the Company
will no longer be subject to the periodic reporting requirements of the Exchange
Act, and will not be required to file, among other things, quarterly reports on
Form 10-Q and annual reports on Form 10-K. Accordingly, substantially less
information will be required to be made publicly available about the Surviving
Corporation than is currently the case with respect to the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger will not be treated as a merger for U.S. federal income tax
purposes. Except to the extent that Parent provides cash to pay Merger
Consideration for any shares of Common Stock (as discussed below), the Merger
will be taxable for the Company's stockholders (excluding VHLLC in connection
with the Retained Shares) under the Internal Revenue Code of 1986, as amended
(the 'Code'), for federal income tax purposes as a redemption by the Company of
its Common Stock to the extent of any cash provided by the Company, subject to
the provisions and limitations of Section 302 of the Code. To the extent such
redemption is treated as a sale or exchange under Section 302 of the Code with
respect to a stockholder, the stockholder generally will recognize either
capital gain or loss in an amount equal to the difference between the
stockholder's adjusted tax basis in such stockholder's Common Stock and the
amount of cash received in exchange therefor.
Under Section 302 of the Code, a redemption of Common Stock pursuant to the
Merger will, as a general rule, be treated as a sale or exchange if such
redemption results in a 'complete redemption' of the stockholder's interest in
the Company. This will likely be true for almost all of the stockholders
because, as a result of the Merger, they will no longer hold any interest in the
Company. In determining whether there is a complete redemption, however,
stockholders must take into account not only the Common Stock they actually own,
but also any Common Stock they are deemed to own under the constructive
ownership rules set forth in Section 318 of the Code. Under these rules, any
stockholder of the Company who is related to the equity holders of Parent or
VHLLC, or who is otherwise considered to own equity of Parent or VHLLC, may be
deemed to constructively own the Recapitalized Common Stock that is owned by
Parent or VHLLC following the Merger. Such persons should consult their tax
advisors regarding the federal income tax effect of the Merger.
To the extent any cash to pay the Merger Consideration for any share of
Common Stock is provided by Parent, a stockholder of the Company (excluding
VHLLC in connection with the Retained Shares) will be treated for federal income
tax purposes as if the stockholder sold such stockholder's Common Stock to
Parent in a
28
<PAGE>
taxable exchange and will generally recognize capital gain or loss in an amount
equal to the difference between the stockholder's adjusted tax basis in such
stockholder's Common Stock and the amount of cash received in exchange therefor.
Any dissenting stockholder who objects to the Merger and perfects such
stockholder's rights of appraisal under the DGCL generally will recognize either
capital gain or loss in an amount equal to the difference between the
stockholder's adjusted tax basis in such stockholder's Common Stock and the
amount of cash received in exchange therefor, subject to the provisions and
limitations of Section 302 of the Code.
In general, the maximum rate of tax on net capital gain recognized by
individuals, trusts and estates from the sale or exchange of capital assets held
for more than 18 months is 20% (as compared with a maximum rate of 39.6% on
ordinary income). For 15% bracket taxpayers, the maximum rate on net capital
gains is ten percent. The maximum rate of capital gains tax for capital assets
held more than one year but not more than 18 months is 28%. Corporate
stockholders generally are subject to tax at a maximum rate of 35% on both
capital gains and ordinary income. The distinction between capital gain and
ordinary income may be relevant for certain other purposes, including a
taxpayer's ability to utilize capital loss carryovers to offset any gain
recognized.
The foregoing discussion is based on current law and only applies to
stockholders who hold their Common Stock as a capital asset within the meaning
of Section 1221 of the Code. It does not purport to consider all aspects of U.S.
federal income taxation that may be relevant to particular stockholders, some of
whom may be subject to special rules not discussed (including, but not limited
to, tax-exempt entities, financial institutions, insurance companies, broker
dealers, persons that hold Common Stock as part of a 'straddle,' or 'conversion
transaction'), and the foregoing discussion may not be applicable to
stockholders who acquired their Common Stock pursuant to the exercise of options
or other compensation arrangements or who are not citizens or residents of the
U.S. The foregoing description is not binding on the Internal Revenue Service
('IRS'), and no ruling from the IRS has been sought or will be sought with
respect to such tax consequences. In addition, the foregoing discussion does not
consider the effect of any applicable foreign, state, local or other tax laws.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER IS BASED ON EXISTING TAX LAW AS OF THE DATE OF THIS PROXY STATEMENT,
WHICH MAY DIFFER ON THE DATE OF THE EFFECTIVE TIME OF THE MERGER. EACH
STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
It is intended that the Merger will be treated as a recapitalization for
accounting and financial reporting purposes. Accordingly, the historical basis
of the Company's assets and liabilities will not be impacted by the Merger.
PLANS FOR THE COMPANY AFTER THE MERGER
Pursuant to the Merger Agreement, the Restated Certificate of Incorporation
of the Company, as in effect immediately prior to the Effective Time of the
Merger, shall be amended as of the Effective Time of the Merger as provided in
the Merger Agreement. The By-laws of Merger Sub in effect at the Effective Time
of the Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law. See Appendix G
"Certificate of Incorporation of Surviving Corporation."
Concurrently with the consummation of the Merger, Parent, Vencor, VHLLC and
certain executive officers of the Company will enter into a Shareholders and
Registration Rights Agreement, pursuant to which Vencor will have the right to
designate one member of the Board of Directors of the Company and Parent will
have the right to designate the remaining directors. See '--Interests of Certain
Persons in the Merger.'
Pursuant to the terms of the Merger Agreement, the directors of Merger Sub
at the Effective Time of the Merger shall serve as the directors of the
Surviving Corporation, and the officers of the Company at the Effective Time of
the Merger shall serve as the officers of the Surviving Corporation after the
Merger. See 'DIRECTORS AND
29
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY, VENCOR, VHLLC AND THE SURVIVING
CORPORATION--Information Concerning Directors and Executive Officers of the
Surviving Corporation.'
Except as otherwise described in this Proxy Statement, Parent has advised
the Company and Vencor that it expects that the Company will be operated after
the Merger in a manner substantially the same as its current operations.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Vencor; Ownership of Surviving Corporation; Shareholders Agreement. At the
Effective Time of the Merger, VHLLC will receive (i) the right to receive the
Merger Consideration in connection with each of 8,765,432 of its 10,000,000
shares of Common Stock, or $177,499,998 in the aggregate, and (ii) one share of
Recapitalized Common Stock in exchange for each of its 1,234,568 Retained
Shares, or 1,234,568 shares of Recapitalized Common Stock in the aggregate. The
Retained Shares constitute approximately 5.3% of the Voting Shares, but will
constitute approximately 11.9% of the outstanding Recapitalized Common Stock
upon the closing of the Merger. Parent has informed the Company that it
currently expects that the portion of the Merger Consideration that will be
funded by an equity contribution from Parent will be approximately $185.0
million, for which Parent will receive 9,135,802 shares of Recapitalized Common
Stock at $20.25 per share in the Merger. Pursuant to the Merger Agreement,
Parent may elect, by written notice to the Company and Vencor at any time prior
to ten calendar days prior to the Special Meeting, to increase its equity
combination up to $225.0 million by increasing the aggregate number of shares
into which the capital stock of Merger Sub will be converted upon consummation
of the Merger to up to 11,111,111; provided, however, that, regardless of the
number of shares of Recapitalized Common Stock to be received by Parent in the
Merger, the portion of the Merger Consideration that is funded by an equity
contribution from Parent shall not be less than $20.25 per share of
Recapitalized Common Stock to be received by Parent in the Merger. See 'SOURCE
OF FUNDS FOR THE MERGER.'
Immediately after the consummation of the Merger, Parent will own 9,135,802
shares of Recapitalized Common Stock (approximately 88.1% of the total
outstanding), and VHLLC will own 1,234,568 shares of Recapitalized Common Stock
(the remaining approximately 11.9% of the total outstanding). In the event that
Parent elects to receive 11,111,111 shares of Recapitalized Common Stock, after
the Effective Time of the Merger, Parent would own approximately 90% of the
outstanding shares of Recapitalized Common Stock, and VHLLC would own
approximately 10% of the outstanding shares of Recapitalized Common Stock.
Certain options to purchase shares of Common Stock held by Messrs. Mulloy,
Schoepf, and Wesley (the 'Rollover Options') will be converted, as of the
Effective Time of the Merger, into options to purchase shares of Recapitalized
Common Stock. The Rollover Options consist of options to purchase 232,439,
235,000 and 109,750 shares of Common Stock held by Messrs. Mulloy, Schoepf and
Wesley, respectively. All of the Rollover Options were originally granted under
the Atria Communities, Inc. 1996 Stock Ownership Incentive Plan as part of such
officers' compensation. Pursuant to their original terms, upon consummation of
the Merger the vesting schedule of these options would have been accelerated and
each such option would have been cashed out for an amount equal to (i) the
excess (if any) of the Merger Consideration over the applicable exercise price
per share of such option, multiplied by (ii) the number of shares of Common
Stock subject to such option. Parent and LFREI, in connection with negotiating
the Merger Agreement, required that these officers 'rollover' a certain number
of their previously existing stock options and forego the cashout payments to
which they would otherwise be entitled with respect to such options in order to
induce them to continue to work for the advancement of the Surviving
Corporation's interests after the Effective Time of the Merger.
Pursuant to the terms of the Merger Agreement, the Board of Directors of
the Surviving Corporation shall equitably adjust the number of shares of
Recapitalized Common Stock and the exercise price with respect to the Rollover
Options after the Effective Time of the Merger in a manner that preserves the
aggregate spread with respect to each Rollover Option. Under the terms of the
Merger Agreement, the aggregate 'spread' with respect to each Rollover Option
immediately prior to the Effective Time of the Merger shall be equal to the
product of (x) the number of shares of Common Stock covered by such Rollover
Option and (y) the excess of the Merger Consideration over the exercise price of
such Rollover Option. Based on the foregoing formula, the aggregate spread for
Messrs. Mulloy, Schoepf and Wesley immediately prior to the Effective Time of
the Merger will be $1,250,000, $1,140,625 and $500,000, respectively.
30
<PAGE>
The Merger Agreement also provides that the aggregate 'spread' with respect
to each Rollover Option immediately following the Effective Time of the Merger
shall be equal to the product of (x) the number of shares of Recapitalized
Common Stock covered by such Rollover Option and (y) the excess of the fair
market value of one share of Recapitalized Common Stock over the exercise price
of the Rollover Option. The fair market value of a share of Recapitalized Common
Stock shall be determined by the Board of Directors of the Surviving Corporation
in good faith, provided that if Parent purchases any shares of Recapitalized
Common Stock at or immediately after the Effective Time of the Merger, such fair
market value shall be deemed to be equal to the price per share paid by Parent.
Parent, pursuant to its financing of the Merger, will purchase shares of
Recapitalized Common Stock at $20.25 per share as of the Effective Time of the
Merger. See 'MERGER AGREEMENT--Rollover Options' and 'SOURCE OF FUNDS FOR THE
MERGER.'
Each of Parent, VHLLC, Vencor and the holders of the Rollover Options (the
'Management Stockholders') have agreed to enter into a Shareholders and
Registration Rights Agreement (the 'Shareholders Agreement'). The following
discussion of the Shareholders Agreement is qualified in its entirety by
reference to the complete text of the form of Shareholders Agreement to be
executed as of the Effective Time of the Merger, which is included in this Proxy
Statement as Appendix D and is incorporated herein by reference.
The Shareholders Agreement provides certain rights and restrictions with
respect to certain of the equity securities of the Surviving Corporation owned
by Parent, Vencor, VHLLC and the Management Stockholders (collectively, the
'Surviving Corporation Stockholders'). The Surviving Corporation Stockholders
have agreed to vote their shares of Recapitalized Common Stock to cause one
member of the Board of Directors of the Surviving Corporation to be designated
by Vencor who is reasonably acceptable to Parent. Parent has agreed to not to
cause the Surviving Corporation to engage in any business other than the
Custodial Care/Healthcare Business (as defined in the Shareholders Agreement)
and not to merge or consolidate with any entity not in the Custodial
Care/Healthcare Business without the consent of VHLLC, subject to certain buyout
options of Parent.
The Surviving Corporation Stockholders have granted a right of first
refusal to Parent with respect to any shares of Recapitalized Common Stock held
by them. The Shareholders Agreement grants to Vencor, VHLLC and the Management
Stockholders certain 'tag-along' rights, allowing such Surviving Corporation
Stockholders to participate in certain of Parent's sales of Recapitalized Common
Stock, and grants to the Parent certain 'drag-along' rights, requiring such
Surviving Corporation Stockholders to participate in certain of the Parent's
sales of Recapitalized Common Stock. The Shareholders Agreement also provides
VHLLC with demand registration rights and provides all of the Surviving
Corporation Stockholders with certain piggy back registration rights. Pursuant
to the Shareholders Agreement, Vencor will agree to continue to provide the
Company the same administrative and support services relating to employee
benefits as are currently being provided through December 31, 1998, unless the
Company elects to terminate such services prior to such date.
Merger Consideration; Options and Restricted Shares. As of the Record
Date, and excluding the 10,000,000 shares of Common Stock held of record by
VHLLC, directors and executive officers of the Company owned of record 860,327
shares of Common Stock. Each share of Common Stock held by such directors and
executive officers at the Effective Time of the Merger will be converted into
the right to receive the Merger Consideration on the same terms as any other
stockholder of the Company. See 'SECURITY OWNERSHIP OF THE COMPANY.'
As of the Record Date, certain of the shares of Common Stock owned by the
directors and executive officers of the Company were issued as restricted stock
awards pursuant to the Atria Communities, Inc. 1996 Stock Ownership Incentive
Plan and the Atria Communities, Inc. Non-Employee Directors 1996 Stock Incentive
Plan (collectively, as amended, the 'Plans'). Pursuant to the terms of the Plans
and the applicable restricted stock award agreements, as amended, such shares
will vest automatically at the Effective Time of the Merger. The following table
sets forth information as of the Record Date, with respect to shares of
restricted stock held by
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<PAGE>
each director and executive officer of the Company and the aggregate
consideration to be received by each officer and director for such restricted
shares in the Merger:
RESTRICTED SHARES OF COMMON STOCK
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR NUMBER OF RESTRICTED AGGREGATE CONSIDERATION TO BE
EXECUTIVE OFFICER SHARES RECEIVED FOR RESTRICTED SHARES
- --------------------------------------------------------------- -------------------- ------------------------------
<S> <C> <C>
W. Patrick Mulloy, II.......................................... 15,000 $303,750
W. Bruce Lunsford.............................................. 10,000 202,500
Sandra Harden Austin........................................... 2,500 50,625
William C. Ballard Jr.......................................... 2,500 50,625
Peter J. Grua.................................................. 2,500 50,625
Thomas T. Ladt................................................. 2,500 50,625
R. Gene Smith.................................................. 2,500 50,625
J. Timothy Wesley.............................................. 2,500 50,625
</TABLE>
Also, as of Record Date and excluding the Rollover Options, directors and
executive officers of the Company held options to purchase an aggregate of
132,500 shares of Common Stock issuable pursuant to options that were then
immediately exercisable. In addition, as of the Record Date and excluding the
Rollover Options, the directors and the executive officers of the Company held
additional options to purchase an aggregate of 425,311 shares of Common Stock
issuable pursuant to options that will accelerate and automatically vest and
become exercisable at the Effective Time of the Merger pursuant to their terms
and the term of the Plans. Pursuant to the terms of the Merger Agreement and the
Plans and relevant option agreements, each such person will be entitled to
receive from the Company as of the Effective Time of the Merger an amount of
cash for each such option (excluding the Rollover Options) equal to the
difference between $20.25 and the applicable option exercise price, on the same
terms and conditions as any other option holder of the Company. See 'THE MERGER
AGREEMENT--Company Stock Options.' The following table sets forth information as
of the Record Date, with respect to the number of vested and unvested stock
options held by each director and executive officer of the Company and the
aggregate consideration to be received by each executive officer and director
for vested and unvested stock options in of the Merger:
STOCK OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
SHARES CONSIDERATION CONSIDERATION AGGREGATE
NUMBER SUBJECT WEIGHTED AVERAGE TO BE TO BE CONSIDERATION
OF SHARES TO EXERCISE PRICE OF RECEIVED RECEIVED FOR TO BE
NAME OF DIRECTOR OR SUBJECT TO UNVESTED VESTED AND UNVESTED FOR VESTED UNVESTED RECEIVED FOR
EXECUTIVE OFFICER VESTED OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS
- --------------------------- -------------- --------- ------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Patrick Mulloy, II...... 80,000 187,561 (1) $ 12.27 $ 820,000 $ 1,922,500 $ 2,742,500
J. Timothy Wesley.......... 20,000 105,250 (2) 14.06 205,000 749,375 954,375
W. Bruce Lunsford.......... 20,000 70,000 10.58 205,000 665,000 870,000
Sandra Harden Austin....... 2,500 12,500 11.75 25,625 101,875 127,500
William C. Ballard Jr...... 2,500 12,500 11.75 25,625 101,875 127,500
Peter J. Grua.............. 2,500 12,500 11.75 25,625 101,875 127,500
Thomas T. Ladt............. 2,500 12,500 11.75 25,625 101,875 127,500
R. Gene Smith.............. 2,500 12,500 11.75 25,625 101,875 127,500
Andy L. Schoepf............ - (3) - (3) - - - -
</TABLE>
- ------------------
(1) Does not include unvested options to purchase 232,439 shares of Common Stock
that will convert into options to purchase shares of Recapitalized Common
Stock at the Effective Time of the Merger. See 'THE MERGER
AGREEMENT--Rollover Options.'
(2) Does not include unvested options to purchase 109,750 shares of Common Stock
that will convert into options to purchase shares of Recapitalized Common
Stock at the Effective Time of the Merger. See 'THE MERGER
AGREEMENT--Rollover Options.'
(3) Does not include unvested options to purchase 228,750 shares of Common
Stock, and vested options to purchase 6,250 shares of Common Stock, that
will convert into options to purchase shares of Recapitalized Common Stock
at the Effective Time of the Merger. See 'THE MERGER AGREEMENT--Rollover
Options.'
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Indemnification of Directors and Officers. Parent has agreed that all
rights to indemnification arising at or prior to the effectiveness of the Merger
in favor of the directors or officers of the Company (including the members of
the Special Committee) as provided in the Company's Restated Certificate of
Incorporation and By-laws, as in effect on the date of the Merger Agreement, and
director and officer liability insurance currently in effect and covering
directors and officers of the Company, will, for a period of not less than six
years, survive the Merger and continue in full force and effect. See 'THE MERGER
AGREEMENT--Indemnification.'
Fees to Members of the Special Committee. As compensation for service on
the Special Committee, each member of the Special Committee will receive from
the Company $250 for each meeting of the Special Committee attended by such
member. Such compensation is in addition to the compensation payable to all
directors of the Company and is the compensation received by any member of any
committee of the Company's Board of Directors for attendance at committee
meetings.
Proposed Employment Agreements. Parent has advised the Company that, upon
the consummation of the Merger, it proposes to cause the Surviving Corporation
to enter into Employment Agreements (the 'Proposed Employment Agreements') with
each of the following executive officers of the Company (the 'Executives'): (1)
W. Patrick Mulloy, II, as Chief Executive Officer and President; (2) Andy L.
Schoepf, as Chief Operating Officer; and (3) J. Timothy Wesley, as Chief
Financial Officer, Vice President of Development and Secretary. The annual base
salary under the Proposed Employment Agreements of Messrs. Mulloy, Schoepf and
Wesley will be $310,000, $275,000 and $200,000, respectively.
Each of the Executives will be entitled to receive a target bonus, based
upon the Surviving Corporation's achievement of certain operating and/or
financial goals, equal to a specified percentage of each Executive's then
current annual base salary (up to 60% in the case of Mr. Mulloy, up to 50% in
the case of Mr. Schoepf, and up to 45% in the case of Mr. Wesley). In addition,
each Executive will be entitled to receive a transition incentive bonus. The
amount of the transition incentive bonus payable to each Executive will be
determined at the Effective Time of the Merger and will be payable six months
after the Effective Time of the Merger so long as the Executive does not
voluntarily terminate his employment with the Surviving Corporation within such
six month period. The Executives will also participate in the Surviving
Corporation's proposed Equity Participation Plan described below.
The Surviving Corporation will provide the Executives with term life
insurance for the benefit of their heirs with a policy coverage of four times
the Executive's annual cash compensation, which will include base salary and
target bonus. In addition, each of the Executives will be eligible to
participate in all benefit plans and receive all fringe benefits available
generally to other executives of the Surviving Corporation and its affiliate
companies, including medical and disability insurance coverage, to the extent
that each Executive's individual arrangements are not intended to replace such
plans and benefits.
The initial term of each Proposed Employment Agreement will be for three
years commencing at the Effective Time of the Merger, which term will be
automatically extended for an additional year at the end of the second year and
on each anniversary date thereof, unless either party gives written notice at
least 90 days prior to the renewal date. If an Executive's employment with the
Surviving Corporation is terminated (i) by the Surviving Corporation other than
for Cause (as defined in the Proposed Employment Agreements), death or
disability or (ii) by the Executive with Good Reason (as defined in the Proposed
Employment Agreements), the Proposed Employment Agreement will provide that the
Surviving Corporation will pay to the Executive within ten days after the date
of termination, an amount equal to three times the sum of the Executive's annual
base salary and the average annual bonus paid to the Executive during the term
of his Proposed Employment Agreement. In addition, the Surviving Corporation
will continue such Executive's benefits for the remainder of the term under the
Proposed Employment Agreement to the extent permissible under law. Upon
termination of the Executive's employment for any reason, the Executive shall
receive a cash payment equal to the fair market value of the shares of
Recapitalized Common Stock received in connection with all vested Rollover
Options on the date of termination minus the exercise price of such vested
Rollover Options. Upon termination of the Executive's employment for any reason
and subsequent vesting of any unvested Rollover Options, the Executive shall
receive a cash payment equal to the fair market value of the shares of
Recapitalized Common Stock received in connection with vesting Rollover Option
on such date minus the exercise price of such vesting Rollover Option. The
Surviving Corporation shall indemnify each Executive and make him whole on an
after-tax basis for the
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effects of any excise tax imposed on such Executive under Section 4999 of the
Code in connection with the Merger or a change in control of the Surviving
Corporation or Parent.
Pursuant to non-competition covenants to be contained in the Proposed
Employment Agreements, each of the Executives will agree that he will not,
during the term of his employment, directly or indirectly, engage or participate
in the business of developing, owning, managing or operating any assisted
living, independent living, skilled nursing or continuing care retirement
facility (a 'Competitive Business') within the United States; provided, however,
that, if the Executive's employment with the Surviving Corporation is terminated
by the Surviving Corporation without Cause or by the Executive with Good Reason,
the foregoing restriction will extend for a period of one year after the date of
termination.
Proposed Equity Participation Plan.
Parent has advised the Company that, upon the consummation of the Merger,
it proposes to cause the Surviving Corporation to adopt an Equity Participation
Plan (the 'Equity Plan'). The initial participants in the Equity Plan will be
Messrs. Mulloy, Schoepf and Wesley. The Equity Plan will provide an incentive
for management employees to maximize the annualized internal rate of return
('IRR') on Parent's investment in Recapitalized Common Stock that would be
realized upon a sale of the Surviving Corporation or an initial public offering
of the Surviving Corporation's capital stock (a 'Realization Event').
The amount of the awards payable under the Equity Plan will represent a
percentage of the amounts realized above certain IRR thresholds upon the
occurrence of a Realization Event. For an IRR of 15% or less, no award payments
will be made. The aggregate award amounts will be: (i) 10% of the amount
realized in excess of an IRR of 15% to 20%, plus (ii) 15% of the amount realized
in excess of an IRR of 20% to 25%, plus (iii) 20% of the amount realized in
excess of an IRR above 25%. It is currently contemplated that the aggregate
awards will be allocated as follows: Mr. Mulloy 37.5%, Mr. Schoepf 37.5% and Mr.
Wesley 25%.
The Executives and the Parent have informed the Company that they intend to
negotiate in good faith the percentage of awards under the Equity Plan that will
be paid in cash versus shares of Recapitalized Common Stock (or shares of any
successor to the Surviving Corporation). Parent and the Executives have agreed
that the Equity Plan will include provisions for the vesting and payment of
awards upon the death, disability or termination of employment of the
participant without Cause or for Good Reason (as defined in the Proposed
Employment Agreements). Notwithstanding the foregoing, Parent and the Executives
have agreed that in all events and under all circumstances at least one-half of
the awards earned under the Equity Plan will become vested upon the occurrence
of the Realization Event, with the remaining one-half to become vested in equal
installments on the first and second anniversaries of the Realization Event
unless the Executive terminates his employment voluntarily or is terminated for
Cause prior to such dates.
LITIGATION RELATING TO THE MERGER
On May 12, 1998, ARV, Assisted Living, Inc. ('ARV') commenced litigation
against Parent, LFREI and the Company seeking, among other things, to enjoin
LFREI from acquiring the Company through Parent. ARV alleges that pursuant to
certain contractual arrangements between ARV and LFREI, ARV has certain rights
with respect to the acquisition of Atria by LFREI and Parent, including the
right to consent to the Merger. The ARV complaint alleges that Atria is named as
a defendant 'solely because it is arguably a necessary party to any action
seeking to enjoin consummation of agreements to which it is a party.' After
expedited discovery, the Superior Court of Orange County, California, on June
25, 1998, ruled that pending the outcome of a trial set to commence on August 3,
1998, Parent and LFREI should be preliminarily enjoined from closing the Merger.
The Court, however, specifically declined to enjoin the parties from taking all
other steps necessary in preparation for consummation of the Merger. Therefore,
pending the outcome of the trial on the merits, the parties intend to proceed
toward satisfying the various conditions to closing the Merger, including
holding the Special Meeting. The Company, LFREI and Parent believe that the
allegations contained in the ARV complaint are without merit and intend to
defend vigorously against them. However, the lawsuit is in its early stages and
there can be no assurance that this litigation will ultimately be resolved on
terms that will permit the parties to close the Merger.
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THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides for the merger of Merger Sub with and into
the Company. The Company will continue as the Surviving Corporation of the
Merger and, as a result of the Merger, Parent will own approximately 88.1% of
the outstanding Recapitalized Common Stock and VHLLC will own the remaining
approximately 11.9% of such outstanding Recapitalized Common Stock. See 'SPECIAL
FACTORS--Interests of Certain Persons in the Merger.' In the Merger, the
stockholders of the Company will receive the Merger Consideration, as described
below. See 'SPECIAL FACTORS--Purpose and Structure of the Merger; Certain
Effects of the Merger.' The following discussion of the Merger Agreement is
qualified in its entirety by reference to the complete text of the Merger
Agreement, which is included in this Proxy Statement as Appendix A and is
incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
The Effective Time of the Merger will occur upon the filing of a
certificate of merger (the 'Certificate of Merger') with the Secretary of State
of the State of Delaware as required by the DGCL or at such later time as is
agreed by the parties to the Merger Agreement and specified in the Certificate
of Merger. It is anticipated by the Company that the Certificate of Merger will
be filed as promptly as practicable after approval of the Merger Agreement by
the stockholders of the Company at the Special Meeting. Such filing will be
made, however, no earlier than five business days after satisfaction or waiver
of all conditions to the Merger contained in the Merger Agreement.
THE SURVIVING CORPORATION
Pursuant to the Merger Agreement, the Restated Certificate of Incorporation
of the Company, as in effect immediately prior to the effectiveness of the
Merger, shall be amended as of the Effective Time of the Merger as provided in
the Merger Agreement. See Appendix G "Certificate of Incorporation of Surviving
Corporation." The By-laws of Merger Sub as in effect at the Effective Time of
the Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law. The officers of the
Company at the Effective Time of the Merger shall serve as the officers of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be, and the directors of the Merger Sub will serve as the directors of the
Surviving Corporation. See 'SPECIAL FACTORS--Plans for the Company After the
Merger' and 'DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, VENCOR, VHLLC AND
THE SURVIVING CORPORATION--Information Concerning Directors and Executive
Officers of the Surviving Corporation.'
CONSIDERATION TO BE RECEIVED BY STOCKHOLDERS OF THE COMPANY
Pursuant to the Merger Agreement, at the Effective Time of the Merger, each
outstanding share of Common Stock (except (i) shares held by the Company (as
treasury stock), Parent or their subsidiaries, (ii) the 1,234,568 shares held by
VHLLC as Retained Shares or (iii) shares held by stockholders who perfect their
appraisal rights under the DGCL) will be converted into the right to receive the
Merger Consideration of $20.25 in cash, without interest. With respect to the
Retained Shares, see 'SPECIAL FACTORS--Interests of Certain Persons in the
Merger.' The Company does not hold any shares of Common Stock as treasury stock.
In addition, neither Parent nor Merger Sub, nor any subsidiaries of the Company
or Parent hold any outstanding shares of Common Stock. LFREI and its affiliates
are subject to the terms of certain standstill provisions contained in a
confidentiality agreement executed by the Company and LFREI that prevent Parent
and its subsidiaries from acquiring shares of Common Stock except as
contemplated by the Merger Agreement.
Prior to the Effective Time of the Merger, Parent shall select a bank or
trust company reasonably satisfactory to the Company to act as paying agent (the
'Paying Agent'), for payment of the Merger Consideration. Parent has informed
the Company that it currently contemplates selecting National City Bank (the
Company's current transfer agent), as the Paying Agent and paying the Paying
Agent customary fees for its services. At the Effective Time of the Merger,
Parent shall transfer funds or provide for the transfer of funds to Merger Sub
in an amount sufficient to pay the Merger Consideration for every share of
Common Stock to be
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converted at the Effective Time of the Merger into Merger Consideration (the
'Aggregate Merger Consideration'), and Parent represents and warrants to the
Company in the Merger Agreement that the Surviving Corporation will have all
such funds at the Effective Time of the Merger. See 'SOURCE OF FUNDS FOR THE
MERGER.' After the Effective Time of the Merger, the Surviving Corporation will
provide the Paying Agent on a timely basis, as and when needed, the funds
necessary to pay the Aggregate Merger Consideration. All interest earned on
funds made available to the Paying Agent in accordance with the Merger Agreement
shall be turned over to Parent.
If the Merger is consummated, instructions with regard to the surrender of
certificates formerly representing shares of Common Stock, together with the
letter of transmittal to be used for that purpose, will be mailed by the Paying
Agent to stockholders of record of the Company as soon as reasonably practicable
after the Effective Time of the Merger. The Paying Agent, upon receipt from a
stockholder of a duly executed letter of transmittal, together with certificates
formerly representing Common Stock and any other items reasonably requested by
the Paying Agent, shall pay to such stockholder the Merger Consideration,
without interest, multiplied by the number of shares of Common Stock represented
by such certificates. If payment is to be made to a person other than the person
in whose name a certificate surrendered is registered, it will be a condition of
payment that the certificate so surrendered be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment pay to the
Paying Agent any transfer or other taxes required by reason of such payment to a
person other than the registered holder thereof or establish to the satisfaction
of the Surviving Corporation that such taxes have been paid or are not
applicable.
STOCKHOLDERS SHOULD NOT SUBMIT ANY STOCK CERTIFICATES FOR COMMON STOCK AT
THE PRESENT TIME.
If the Merger is consummated, after the Effective Time of the Merger a
holder of a certificate formerly representing Common Stock shall cease to have
any rights as a stockholder of the Company, and such holder's sole right will be
to receive the Merger Consideration to which such holder is entitled, or in the
case of a stockholder exercising appraisal rights under Section 262 of the DGCL,
the 'fair value' of such stockholder's shares determined in accordance with the
provisions of the DGCL. See 'APPRAISAL RIGHTS.'
Parent, Merger Sub, the Company and the Paying Agent shall not be liable to
any person as a result of any amount paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. If any certificates of
Common Stock have not been surrendered by holders of Common Stock seven years
after the Effective Time of the Merger (or such earlier date immediately prior
to such time as such amounts would otherwise escheat to or become property of
any governmental entity), all of the amounts that would have been payable in
respect of such certificates under the Merger Agreement shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation
free and clear of any claims or interest of any person previously entitled
thereto. All cash paid upon the surrender of such certificates in accordance
with the terms of the Merger Agreement shall be deemed to have been paid in full
satisfaction of all rights pertaining to such certificates.
No transfer of shares of Common Stock outstanding immediately prior to the
Effective Time of the Merger will be made on the stock transfer books of the
Surviving Corporation after the Effective Time of the Merger. Certificates
formerly representing Common Stock presented to the Surviving Corporation after
the Effective Time of the Merger will be canceled in exchange for the Merger
Consideration as set forth above.
COMPANY STOCK OPTIONS
The Company and Parent have agreed that each outstanding option to purchase
Common Stock, whether or not then exercisable (a 'Company Stock Option'), with
the exception of the Rollover Options, shall be converted into the right to
receive from the Surviving Corporation at the Effective Time of the Merger an
amount in cash determined by multiplying (i) the excess, if any, of the Merger
Consideration over the applicable exercise price per share of the Company Stock
Option by (ii) the number of shares of Common Stock such holder could have
purchased had such holder exercised such Company Stock Option in full
immediately prior to the Effective Time of the Merger, and each such Company
Stock Option shall thereafter be canceled and cease to be exercisable as to any
shares of capital stock of the Surviving Corporation. See 'SPECIAL
FACTORS--Interests of Certain Persons in the Merger.'
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CONVERTIBLE SUBORDINATED NOTES
Prior to the Effective Time of the Merger, the Company and PNC Bank,
Kentucky, Inc., as trustee (the 'Trustee'), shall enter into a supplemental
indenture (the 'Supplemental Indenture') to the Indenture dated as of October
16, 1997, between the Company and the Trustee (the 'Indenture'), pursuant to
Section 15.6 of the Indenture, which must be reviewed and approved by Parent and
which shall become effective upon the Effective Time of the Merger. The
Supplemental Indenture shall provide that, from and after the Effective Time of
the Merger, each of the Company's outstanding 5.0% Convertible Subordinated
Notes due 2002 (the 'Convertible Sub Notes') shall cease to be convertible into
shares of Common Stock, but shall be convertible solely into an amount of cash,
without interest, equal to the product of (x) the number of shares of Common
Stock into which such Note was convertible immediately prior to the Effective
Time of the Merger and (y) the Merger Consideration. Pursuant to the terms of
the Indenture, after the Effective Time of the Merger, each holder of
Convertible Sub Notes shall have the right (pursuant to procedures set forth in
the Indenture) to require the Surviving Corporation to repurchase all of such
holder's Convertible Sub Notes (or any portion thereof that is an integral
multiple of $1,000) at a purchase price equal to 100% of the principal amount of
such notes, plus interest accrued and unpaid thereon to (but excluding) the date
of repurchase. See 'SOURCE OF FUNDS FOR THE MERGER.'
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company to Parent and Merger Sub, including with respect to the following
matters: (i) the due organization, good standing and corporate power of the
Company and its subsidiaries and similar corporate matters; (ii) the
capitalization of the Company; (iii) the due authorization, execution and
delivery of the Merger Agreement by the Company and its binding effect on the
Company, the absence of required consents, approvals and governmental filings,
except for certain specified required regulatory filings and approvals in
connection therewith, and the absence of conflicts between the Merger Agreement
and the transactions contemplated thereby, and the Company's Restated
Certificate of Incorporation or Amended and Restated By-laws, certain contracts
applicable to the Company and its subsidiaries, or any law, rule, regulation,
order, writ, injunction or decree applicable to the Company or its subsidiaries;
(iv) the accuracy of the Company's filings with the Commission and financial
statements; (v) the accuracy of the information provided by the Company for
inclusion in this Proxy Statement and the Schedule 13E-3; (vi) the absence of
certain changes regarding, or undisclosed liabilities of, the Company and its
subsidiaries; (vii) certain litigation matters; (viii) the absence of certain
changes in the Company's benefit plans; (ix) compliance by the Company and its
subsidiaries (and their respective benefit plans) with provisions of applicable
law, including the Employee Retirement Income Security Act of 1974, as amended;
(x) certain tax matters; (xi) severance and other payments; (xii) voting
requirements and necessary approvals for consummation of the Merger; (xiii)
certain actions taken by the Board of Directors of the Company, the
inapplicability of state anti-takeover statutes and the receipt by the Board of
Directors of the Company of a fairness opinion from the Company's and the
Special Committee's financial advisor; (xiv) certain actions taken with respect
to the Rights Agreement; (xv) compliance with laws; (xvi) material contracts of
the Company and its subsidiaries; (xvii) certain transactions with affiliates of
the Company; (xviii) the properties and developments of the Company and its
subsidiaries; (xix) environmental matters; (xx) labor matters; (xxi) the absence
of certain broker's fees and expenses; and (xxii) compliance with law as to
certain healthcare matters. Such representations and warranties are subject, in
certain cases, to specified exceptions and qualifications.
The Merger Agreement also contains various representations and warranties
of Parent and Merger Sub to the Company, including those with respect to the
following matters: (i) the due organization, good standing and corporate power
of each of Parent and Merger Sub and similar corporate matters; (ii) the due
authorization, execution and delivery of the Merger Agreement by Parent and
Merger Sub, and its binding effect on them, the absence of required consents,
approvals and governmental filings, except for certain specified required
regulatory filings and approvals in connection therewith, and the absence of
conflicts between the Merger Agreement and the transactions contemplated
thereby, and the Certificates of Incorporation of Parent and Merger Sub, By-laws
of Parent and Merger Sub, certain contracts applicable to Parent and Merger Sub,
or any law, rule, regulation, order, writ, injunction or decree applicable to
any of such parties; (iii) the accuracy of the information supplied by Parent
and Merger Sub for inclusion in this Proxy Statement and the Schedule 13E-3;
(iv) the absence of certain broker's fees and expenses; (v) Parent's and Merger
Sub's access to cash funds sufficient to consummate
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the transactions contemplated by the Merger Agreement; (vi) the terms of
agreements entered into between Parent and Merger Sub and certain members of the
Company's management; (vii) the accuracy of Parent's financial statements;
(viii) the formation, capitalization and absence of prior activities of Merger
Sub; and (ix) the absence of certain actions by Parent. Such representations and
warranties are subject, in certain cases, to specified exceptions and
qualifications.
COVENANTS RELATING TO CONDUCT OF THE COMPANY'S BUSINESS
The Company has agreed in the Merger Agreement that, until the Effective
Time of the Merger, the Company and its subsidiaries will conduct their
businesses in the ordinary course consistent with past practice and will use
their reasonable efforts to preserve their current business organization and
relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, the Company has agreed that, until the Effective Time of the Merger,
the Company will not, and will not permit any of its subsidiaries to: (i)
declare or pay any dividends or other distribution; (ii) split, combine or
reclassify the Common Stock or any other capital stock; (iii) redeem, purchase
or otherwise acquire any of its capital stock; (iv) issue, sell, transfer,
pledge or otherwise encumber any capital stock or securities convertible into
capital stock (except upon the exercise of Company Stock Options or the
Convertible Sub Notes); (v) amend its Certificate of Incorporation or By-laws or
comparable organizational documents; (vi) enter into any contract relating to
the acquisition of another business or entity, or material assets other than
inventory in the ordinary course of business and consistent with past practices;
(vii) grant any increase in the compensation payable to any executive, officer
or director, except in the ordinary course of business consistent with prior
practice, or grant any increase in severance or termination pay, in either case
except to the extent required under any agreement in effect as of December 31,
1997; (viii) enter into any employment, consulting, indemnification, severance
or termination agreement with any employee having an annual salary in excess of
$75,000, or any officer or director; (ix) establish, adopt, enter into, amend,
otherwise increase or accelerate the payment or vesting of material amounts
payable under any benefit plan or collective bargaining agreement; (x) change
any material accounting methods except as required by generally accepted
accounting principles or applicable law; (xi) sell, lease, mortgage or otherwise
encumber or subject to any lien, any assets having a fair market value in excess
of $50,000, other than sales in the ordinary course of business; (xii) incur any
indebtedness for borrowed money (whether by issuance of debt securities or
otherwise) in excess of $50,000; (xiii) make loans to or guarantee the
obligations of any other person, in excess of $50,000, other than guarantees of
indebtedness of Elder Healthcare Developers, LLC in an aggregate amount not to
exceed $10,000,000; (xiv) make any new capital expenditure or expenditures which
individually exceeds $500,000 or in the aggregate exceeds $5,000,000; (xv) make
any material tax election, amend any material tax return or settle or compromise
any material tax liability or refund; (xvi) pay, discharge or satisfy any
material claims, liabilities or obligations, other than in the ordinary course
of business and certain other required payments as disclosed; (xvii) enter into
any transaction or agreement with Vencor or its affiliates other than as
contemplated by the Merger Agreement; or (xviii) agree or commit to do any of
the foregoing.
The Company has also agreed not to take any action, nor to permit its
subsidiaries to take any action, that would, or that could reasonably be
expected to, result in: (i) any of the representations and warranties of the
Company set forth in the Merger Agreement that are qualified as to materiality
becoming untrue; (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect; or (iii) any of the
conditions to the consummation of the Merger not being satisfied. The Company
has further agreed to advise promptly Parent orally and in writing of any change
or event having, or which, insofar as could reasonably be foreseen, would have,
a material adverse effect on the Company.
NON-SOLICITATION
The Merger Agreement provides that the Company will not, nor will it permit
any of its subsidiaries, officers, directors, employees, investment bankers,
attorneys or other advisors or representatives to: (i) solicit, initiate, or
encourage the submission of, any takeover proposal; (ii) enter into any
agreement with respect to any takeover proposal; or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any takeover proposal; provided, however, that, prior to the
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adoption of the Merger Agreement by the stockholders of the Company, to the
extent required by the fiduciary obligations of the Board of Directors of the
Company, the Company may (x) in response to an unsolicited request therefor,
participate in discussions or negotiations with, or furnish information with
respect to the Company pursuant to a customary confidentiality agreement to, any
person in connection with any takeover proposal or potential takeover proposal
or (y) issue a press release or other public announcement disclosing the receipt
by the Company of any takeover proposal. The Merger Agreement requires the
Company to advise Parent orally and in writing within 24 hours of receipt of any
takeover proposal or inquiry which could reasonably be expected to lead to a
takeover proposal.
For purposes of the Merger Agreement and this Proxy Statement, a 'takeover
proposal' means any proposal for a merger or other business combination
involving the Company or any of its significant subsidiaries, any proposal for
the issuance by the Company of additional equity securities equal to 20% or more
of the outstanding equity securities of the Company as consideration for the
assets or securities of another person or any proposal or offer to acquire in
any manner, directly or indirectly, additional equity securities equal to 20% or
more of the outstanding equity securities of the Company, or 20% or more of the
assets of the Company (and, with respect to assets, its subsidiaries, taken as a
whole), other than the transactions contemplated by the Merger Agreement.
The Merger Agreement provides that the Board of Directors of the Company
will not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Merger Sub, the approval or recommendation by the Board of
Directors of the Merger Agreement or the Merger or (ii) approve or recommend, or
propose to approve or recommend, any takeover proposal. However, the Merger
Agreement also provides that the Board of Directors of the Company, to the
extent required by its fiduciary obligations, may approve or recommend (and, in
connection therewith, withdraw or modify its approval or recommendation of the
Merger Agreement and the Merger) another takeover proposal; provided, however
that the Board of Directors of the Company may not approve or recommend another
takeover proposal, or withdraw or modify its approval or recommendation of the
Merger Agreement and the Merger until 48 hours after Parent shall have received
written notice of such takeover proposal.
COOPERATION AND REASONABLE EFFORTS
The Company has agreed to afford to Parent, and to Parent's officers,
employees and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time of the Merger to its
properties, books and records and, during such period, the Company will, and
will cause each of its subsidiaries to, furnish promptly to Parent (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as Parent may reasonably request.
Unless the Board of Directors of the Company approves or recommends another
takeover proposal, Parent, Merger Sub and Company have agreed to use their
reasonable efforts to take all actions, and to do and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger, including: (i) obtaining of all necessary consents and approvals from
governmental entities and the making of all necessary notifications,
registrations and filings with any governmental entity; (ii) obtaining of all
necessary consents, approvals or waivers from third parties; (iii) defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or the consummation of the Merger; and (iv)
executing and delivering of any additional instruments necessary to consummate
the Merger and to fully carry out the purposes of the Merger Agreement and
certain other documents contemplated thereby. In connection with and without
limiting the foregoing, the Company and the Board of Directors of the Company
have agreed to take all reasonable action necessary to ensure that no state
anti-takeover or similar statute or regulation becomes applicable to the Merger
Agreement or the Merger and to take all reasonable action necessary to minimize
the effect of any state anti-takeover or similar statute or regulation if such
statute or regulation becomes applicable thereto. Notwithstanding the foregoing,
the Board of Directors of the Company (or any committee thereof) shall not be
prohibited from taking any action permitted by the Merger Agreement with respect
to another takeover proposal.
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The Company has agreed to give prompt notice to Parent, and Parent or
Merger Sub have agreed to give prompt notice to the Company, of (i) any
representation or warranty made by it contained in the Merger Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under the Merger Agreement.
Parent and Merger Sub, on the one hand, and the Company, on the other hand,
have agreed to consult with each other before issuing, to provide each other the
opportunity to review and comment upon any press release or other public
statements with respect to the Merger and to refrain from issuing any such press
release or making any such public statement prior to such consultation.
Except as otherwise provided in the Merger Agreement, the Board of
Directors of the Company will not amend the Rights Agreement or take any action
with respect to, or make any determination under, the Rights Agreement unless
the Board of Directors approves or recommends a takeover proposal, in which case
the Company may take any action to render the rights issued under the Rights
Agreement inapplicable to such takeover proposal. See 'SPECIAL
FACTORS--Background of the Merger.'
ROLLOVER OPTIONS
The Merger Agreement provides that Messrs. Mulloy, Schoepf and Wesley will
convert Company Stock Options to purchase 232,439, 235,000, and 109,750 shares,
respectively, that would otherwise be exercisable into shares of Common Stock at
the Effective Time of the Merger into options to acquire shares of the
Recapitalized Common Stock of Surviving Corporation (the 'Rollover Options').
The Board of Directors of the Surviving Corporation will equitably adjust the
number of shares and the exercise price with respect to the Rollover Options to
preserve the aggregate spread with respect to each Rollover Option. Under the
terms of the Merger Agreement, (i) the aggregate 'spread' with respect to each
Rollover Option immediately prior to the Effective Time of the Merger shall be
equal to the product of (x) the number of shares covered by such Rollover Option
and (y) the excess of the Merger Consideration over the exercise price of such
Rollover Option. Accordingly, the aggregate spread for Messrs. Mulloy, Schoepf
and Wesley will be $1,250,000, $1,140,625, and $500,000, respectively.
The Merger Agreement also provides that the aggregate 'spread' with respect
to each Rollover Option immediately following the Effective Time of the Merger
shall be equal to the product of (x) the number of shares covered by such
Rollover Option and (y) the excess of the fair market value of one share of
Recapitalized Common Stock over the exercise price of the Rollover Option. The
fair market value of a share of Recapitalized Common Stock shall be determined
by the Board of Directors of the Surviving Corporation, provided that if Parent
purchases any shares of Recapitalized Common Stock at or immediately after the
Effective Time of the Merger, such fair market value shall be deemed to be equal
to the price per share paid by Parent. Parent, pursuant to its financing of the
Merger, will purchase shares of Recapitalized Common Stock at $20.25 per share
as of the Effective Time of the Merger. See 'SPECIAL FACTORS--Interests of
Certain Persons in the Merger' and 'SOURCE OF FUNDS FOR THE MERGER.'
BENEFIT PLANS AND OTHER ARRANGEMENTS
Parent has agreed to cause the Surviving Corporation to maintain for the
period from the Effective Time of the Merger through December 31, 1998, the
benefit plans of the Company and its subsidiaries in effect on the date of the
Merger Agreement or to provide benefits to employees of the Company and its
subsidiaries that are not materially less favorable in the aggregate to such
employees than those in effect on the date of the Merger Agreement. Parent has
agreed to cause the Surviving Corporation and its subsidiaries to honor in
accordance with their terms all employment, severance, consulting and other
arrangements disclosed in all documents filed with the Commission or in any
schedule to the Merger Agreement, between any of the Company or any of its
subsidiaries and any current or former director, officer or employee thereof,
and all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time of the Merger under such plans and arrangements.
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INDEMNIFICATION
Parent and Merger Sub agree that all rights to indemnification for acts or
omissions occurring prior to the Effective Time of the Merger now existing in
favor of the current or former directors or officers of the Company and its
subsidiaries as provided in their respective certificates of incorporation or
by-laws, or similar organizational documents, shall survive the Merger and shall
continue in full force and effect in accordance with their terms for a period of
not less than six years from the Effective Time of the Merger. Parent will cause
to be maintained for a period of not less than six years from the Effective Time
of the Merger the Company's current directors' and officers' insurance and
indemnification policy to the extent that it provides coverage for events
occurring prior to the Effective Time of the Merger for all persons who are
directors and officers of the Company on the date of the Merger Agreement, so
long as the annual premium therefor would not be in excess of 200% of the last
annual premium paid prior to the date of the Merger Agreement (the 'Maximum
Premium'). If such insurance and indemnification policy expires, is terminated
or canceled during such six-year period, Parent has agreed to use all reasonable
efforts to cause to be obtained as much directors' and officers' insurance and
indemnification as can be obtained for the remainder of such period for an
annualized premium not in excess of the Maximum Premium, on terms and conditions
no less advantageous than the existing directors' and officers' insurance and
indemnification policy of the Company. The Company has represented to Parent
that the Maximum Premium is $240,720. See 'SPECIAL FACTORS--Interests of Certain
Persons in the Merger.'
FEES AND EXPENSES
Except for financial printing fees and expenses (which shall be paid by
Parent) and as otherwise set forth below, all fees and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
The Company has agreed to pay to Parent upon demand a fee of $18,209,496
(the 'Termination Fee') plus all reasonable out-of-pocket expenses of Parent or
any of its affiliates, if: (i) the Company terminates the Merger Agreement after
the Board of Directors of the Company, acting in accordance with its fiduciary
obligations under applicable law, determines it should withdraw or nullify its
approval or recommendation of the Merger or the Merger Agreement in order to
accept an acquisition proposal from a third party; (ii) Parent terminates the
Merger Agreement pursuant to its right to terminate if the Company breaches or
fails to perform in any material respect any of its representations, warranties
or covenants, provided that the breach or failure to perform by the Company
giving rise to such right to terminate must be a deliberate breach or failure to
perform with the intent of frustrating the consummation of the Merger; (iii)
Parent terminates the Merger Agreement pursuant to the withdrawal of the
approval of the Board of Directors of the Company of, or such Board's failure to
recommend (or reaffirm its recommendation) that the stockholders of the Company
approve, the Merger Agreement; (iv) any person makes a takeover proposal that
was not withdrawn more than ten days prior to the date of a Company stockholders
meeting and thereafter the Merger Agreement is terminated pursuant to Parent's
right to terminate if the stockholders of the Company, upon a vote, do not
approve the Merger Agreement and the Merger; or (v) any person makes a takeover
proposal that was not withdrawn on the date 60 days prior to the October 31,
1998 and the Company's stockholders do not approve the Merger Agreement and the
Merger prior to termination of the Merger Agreement.
The Termination Fee provisions of the Merger Agreement may deter
unaffiliated third parties from seeking to acquire the Company at a price per
share higher than $20.25. Termination fee provisions, however, are customary in
transactions of this type, particularly when the target company has an express
contractual right of termination if its board of directors, acting in accordance
with its fiduciary duties under applicable law, determines it should withdraw or
nullify its approval or recommendation of the transaction in order to accept an
acquisition proposal from a third party (as is provided in the Merger
Agreement). Accordingly, during negotiations of the Merger Agreement, the
Special Committee agreed to inclusion of the Termination Fee once it concluded
that the events triggering payment of the Termination Fee were limited in number
and reasonable under the circumstances. See '--Termination.'
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The final amount of the Termination Fee was determined through direct
negotiations between representatives of the Special Committee and LFREI, and is
significantly lower than the original Termination Fee suggested by LFREI in
draft Merger Agreements in March 1998.
Parent shall reimburse all reasonable out-of-pocket expenses of the Company
incurred or paid by or on behalf of the Company in connection with the Merger,
the Merger Agreement and the transactions contemplated thereby, upon demand if
the Merger Agreement is terminated by the Company pursuant to Parent's or Merger
Sub's breach or failure to perform in any material respect of any of its
representations, warranties or covenants.
TRANSFER TAXES
Parent and Merger Sub have agreed to pay any state, local, foreign or
provincial sales, use, real property transfer, stock, transfer, stock or similar
tax (including any interest or penalties with respect thereto) payable in
connection with the consummation of the Merger. The Company has agreed to
cooperate with Parent or Merger Sub, as the case may be, in the filing of any
returns with respect to such taxes.
HEADQUARTERS
Parent, Merger Sub and Surviving Corporation have agreed that for three
years after the Effective Time of the Merger, the corporate headquarters and
principal offices of the Surviving Corporation shall remain in the Louisville,
Kentucky, metropolitan area.
CONDITIONS TO CLOSING
The respective obligations of the Company, Parent and Merger Sub to
consummate the Merger are subject to the satisfaction or waiver, at or prior to
the Effective Time, of the following conditions: (i) approval and adoption of
the Merger Agreement and the transactions contemplated thereby by the holders of
a majority of the outstanding shares of Common Stock at a meeting of
stockholders of the Company, (ii) the termination of any applicable waiting
period under the Hart-Scott-Rodino Act, and (iii) the absence of a temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger.
The obligations of Parent and Merger Sub to consummate the Merger are
further subject to the satisfaction or waiver of certain conditions including,
among others: (i) there shall not exist inaccuracies in the representations and
warranties of the Company set forth in the Merger Agreement such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have, a
material adverse effect on the Company or material adverse impact on the ability
of the Company to perform its obligations under the Merger Agreement or to
consummate the Merger (disregarding for purposes of such determination any
exceptions for 'materiality' or 'material adverse effect' contained in such
representations and warranties); (ii) the Company's performance in all material
respects of all obligations required to be performed by it under the Merger
Agreement; (iii) the absence of any suit, action or proceeding by any
governmental entity or any other person, or before any court or governmental
authority, agency or tribunal, domestic or foreign, that has a reasonable
likelihood of success, (A) challenging the acquisition by Parent or Merger Sub
of any shares of Common Stock, seeking to restrain or prohibit the consummation
of the Merger, or seeking to obtain from the Company, Parent or Merger Sub any
damages that are material in relation to the Company and its subsidiaries taken
as a whole, (B) seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any material portion
of the business or assets of the Company, Parent or any of their respective
subsidiaries, or to compel the Company, Parent or any of their respective
subsidiaries to dispose of or hold separate any material portion of the business
or assets of the Company, Parent or any of their respective subsidiaries, as a
result of the Merger, (C) seeking to impose limitations on the ability of Parent
or Merger Sub to acquire or hold, or exercise full rights of ownership of, any
shares of Common Stock, (D) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company or its subsidiaries, or (E) which otherwise having
a material adverse effect on the Company; (iv) the completion of all material
filings and notifications required to be made to any governmental entity in
connection with the Merger; and (v) the receipt of all material consents,
approvals, authorizations and permits required to be obtained by the Company and
its subsidiaries from any governmental entity at or prior to the Effective Time
of the Merger.
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The obligation of the Company to effect the Merger is subject to the
following conditions, among others: (i) the performance by Parent and Merger Sub
in all material respects of all obligations to be performed by them under the
Merger Agreement, (ii) the absence of inaccuracies in the representations and
warranties of Parent and Merger Sub set forth in the Merger Agreement, such that
the aggregate effect of such inaccuracies has, or is reasonably likely to have,
a (A) material adverse effect on Parent or (B) material adverse impact on the
ability of Parent or Merger Sub, respectively, to perform their respective
obligations under the Merger Agreement or in the case of Parent and Merger Sub,
to consummate the Merger (disregarding for purposes of such determination any
exceptions for 'materiality' or 'material adverse effect' contained in such
representations and warranties), and (iii) the receipt by the Company of a
solvency letter from a nationally recognized evaluation firm (in form and
substance reasonably satisfactory to the Company) as to the solvency of the
Surviving Corporation after the Effective Time of the Merger.
In the event that the Company waives any material condition to consummation
of the Merger, the Company will resolicit proxies from the holders of Common
Stock.
TERMINATION
The Agreement may be terminated by mutual written consent of Parent, Merger
Sub and the Company at any time prior to the Effective Time of the Merger. The
Merger Agreement may be terminated by either Parent or the Company: (i) if, upon
a stockholder vote, approval and adoption of the majority of the stockholders of
the Company of the Merger Agreement and the transactions contemplated thereby
shall not have been obtained; (ii) if the Merger is not consummated on or before
October 31, 1998, unless the failure to consummate the Merger is the result of a
willful and material breach of the Merger Agreement by the party seeking to
terminate the Merger Agreement, and provided the period for consummation of the
Merger has not been tolled in connection with certain nonfinal orders, decrees,
rulings or actions as provided in the Merger Agreement; (iii) if any
governmental entity issues an order, decree or ruling or takes any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
or (iv) if any condition to the obligation of such party to consummate the
Merger set forth in the Merger Agreement becomes incapable of satisfaction prior
to October 31, 1998 (provided that the terminating party is not then in willful
and material breach of any representation, warranty or covenant).
The Merger Agreement may be terminated by Parent: (i) if the Company
breaches or fails to perform in any material respect any of its representations,
warranties or covenants contained in the Merger Agreement, which breach or
failure to perform would give rise to the failure of certain conditions to the
Merger and cannot be or has not been cured within 30 days after the giving of
written notice to the Company of such breach (provided that Parent is not then
in willful and material breach of any representation, warranty or covenant
contained in the Merger Agreement); (ii) if the Board of Directors of the
Company or any committee thereof withdraws or modifies in a manner adverse to
Parent its approval of recommendation of the Merger Agreement or fails to
recommend to the Company's stockholders that they approve and adopt the Merger
Agreement and the transactions contemplated thereby, or such Board of Directors
resolves to take any of the foregoing actions; or (iii) if the Board of
Directors of the Company fails to reaffirm publicly and unconditionally its
recommendation to the Company's stockholders that they approve and adopt the
Merger Agreement and the transactions contemplated thereby within five business
days of Parent's written request to do so (which request may be made at any time
following public disclosure of a takeover proposal).
The Merger Agreement may be terminated by the Company if: (i) either Parent
or Merger Sub breaches or fails to perform in any material respect of any of its
representations, warranties or covenants contained in the Merger Agreement,
which breach or failure to perform would give rise to the failure of certain
conditions to the Merger and cannot be or has not been cured within 30 days
after the giving of written notice to Parent of such breach (provided that the
Company is not then in willful and material breach of any representation,
warranty or covenant in the Merger Agreement); or (ii) if, prior to the approval
and adoption of the Merger Agreement and the transactions contemplated thereby
by the stockholders of the Company, the Board of Directors has received a
takeover proposal and determines that the Board of Directors should withdraw or
nullify its approval or recommendation of the Merger or the Merger Agreement in
order to comply with its fiduciary duty under applicable law, and the Company
complies with certain notice and other procedures specified in the Merger
Agreement (including payment of the Termination Fee).
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AMENDMENT
The Merger Agreement may be amended by a written instrument signed by
Parent, Merger Sub and the Company at any time before or after receipt of
approval and adoption of the Merger Agreement and the transactions contemplated
thereby by the Company's stockholders; provided, however, that after such
approval, no amendment may be made that by law requires further approval by the
Company's stockholders without the further approval of such stockholders.
Notwithstanding the foregoing, without the written consent of VHLLC, the parties
shall not make any amendment to the Merger Agreement that (i) reduces the Merger
Consideration or changes the form of the Merger Consideration provided herein,
(ii) changes the number of Retained Shares or the number of shares of
Recapitalized Common Stock into which the Retained Shares shall be converted or
(iii) amends certain provisions of the Merger Agreement concerning acceleration
and cash-out of the Company Stock Options.
REGULATORY REQUIREMENTS
The Company's communities are subject to regulation, licensing, certificate
of need requirements and permitting by state and local health and social service
agencies and other regulatory authorities. The Merger will effect a change in
control of the Company that triggers certain notice and/or relicensing
requirements in some of the states in which the Company operates. The Company
has made all of the required notice filings and license applications in such
states and currently has no reason to believe that it will not receive all
required permits, consents and licenses required to be received from such state
regulatory authorities in a timely fashion that will not materially delay the
Effective Time of the Merger.
The Company and Parent have determined that the Merger is exempt from the
filing requirements of the Hart-Scott-Rodino Act. Accordingly, except as set
forth above and except for the filing of a merger certificate with the Secretary
of State of the State of Delaware after approval and adoption of the Merger
Agreement and the transactions contemplated thereby, and compliance with federal
and state securities laws, the Company is not aware of any federal, state or
foreign governmental regulatory requirement necessary to be obtained in
connection with the Merger Agreement or the Merger.
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APPRAISAL RIGHTS
DELAWARE STATUTORY APPRAISAL RIGHTS
Holders of Voting Shares are entitled to appraisal rights under Section 262
of the DGCL ('Section 262'). A person having a beneficial interest in Voting
Shares held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect whatever appraisal
rights the beneficial owner may have.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX E TO THIS
PROXY STATEMENT. All references in Section 262 and in this summary to a
'stockholder' are to the record holder of the Voting Shares as to which
appraisal rights are asserted.
Under the DGCL, holders of Voting Shares who do not wish to accept the
Merger Consideration provided for in the Merger Agreement and who follow the
procedures set forth in Section 262 will be entitled to have their Voting Shares
appraised by the Delaware Court of Chancery and to receive payment in cash of
the 'fair value' of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Special Meeting, the corporation,
not less than 20 days prior to the meeting, must notify each of its stockholders
entitled to appraisal rights that such appraisal rights are available and
include in such notice a copy of Section 262. This Proxy Statement shall
constitute such notice to the holders of Voting Shares and the applicable
statutory provisions of the DGCL are attached to this Proxy Statement as
Appendix E. Any stockholder who wishes to exercise such appraisal rights, or who
wishes to preserve his or her right to do so, should review the following
discussion and Appendix E carefully because failure to timely and properly
comply with the procedures specified will result in the loss of appraisal rights
under the DGCL.
A holder of Voting Shares wishing to exercise his or her appraisal rights
must deliver to the Secretary of the Company, before the vote on the Merger
Agreement and the transactions contemplated thereby at the Special Meeting, a
written demand for appraisal of his or her Voting Shares and must not vote his
or her shares of stock in favor of approval and adoption of the Merger Agreement
and the transactions contemplated thereby. Because a proxy that does not contain
voting instructions will, unless revoked, be voted for approval and adoption of
the Merger Agreement and the transactions contemplated thereby, a holder of
Voting Shares who votes by proxy and who wishes to exercise his or her appraisal
rights must (i) vote against approval and adoption of the Merger Agreement and
the transactions contemplated thereby or (ii) abstain from voting on approval
and adoption of the Merger Agreement and the transactions contemplated thereby.
Neither voting (in person or by proxy) against, abstaining from voting on or
failing to vote on the proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby will constitute a written demand for
appraisal within the meaning of Section 262. The written demand for appraisal
must be in addition to and separate from any such proxy or vote. In addition, a
holder of Voting Shares wishing to exercise his or her appraisal rights must
hold of record such shares on the date the written demand for appraisal is made
and must continue to hold such shares until the Effective Time of the Merger.
Only a holder of record of Voting Shares is entitled to assert appraisal
rights for the Voting Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as his or her name appears on the stock certificates. If the Voting
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the Voting Shares are owned of record by more than one person, as in a
joint tenancy and tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder such as a broker who holds Voting Shares as
nominee for several beneficial owners may exercise appraisal rights with respect
to the Voting Shares held for one or more beneficial owners while not exercising
such rights with respect to the Voting Shares held for other beneficial
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owners; in such case, the written demand should set forth the number of Voting
Shares as to which appraisal is sought and when no number of Voting Shares is
expressly mentioned the demand will be presumed to cover all Voting Shares held
in the name of the record owner. Stockholders who hold their Voting Shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a nominee. All
written demands for appraisal should be delivered to J. Timothy Wesley,
Secretary of the Company, either in person or by mail (certified mail, return
receipt requested, being the recommended form of transmittal) addressed to him
at Atria Communities, Inc., 501 South Fourth Avenue, Suite 140, Louisville,
Kentucky 40202.
Within ten days after the Effective Time of the Merger, the Surviving
Corporation must send a notice as to the effectiveness of the Merger to each
former stockholder of the Company who has made such a written demand for
appraisal and who has not voted in favor of approval and adoption of the Merger
Agreement and the transactions contemplated thereby. Within 120 days after the
Effective Time of the Merger, but not thereafter, the Surviving Corporation, or
any stockholder who is entitled to appraisal rights under Section 262 and has
complied with the requirements of Section 262, may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
Voting Shares. The Surviving Corporation is under no obligation to and has no
present intention to file a petition in respect to the appraisal of the fair
value of the Voting Shares. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262.
Within 120 days after the Effective Time of the Merger, any stockholder who
has complied with the requirements under Section 262 for exercise of appraisal
rights will be entitled, upon written request, to receive from the Surviving
Corporation a statement setting forth the aggregate number of Voting Shares with
respect to which demands for appraisal have been received and which have not
voted in favor of approval and adoption of the Merger Agreement and the
transactions contemplated thereby, and the aggregate number of holders of such
shares. Such statements must be mailed within ten days after a written request
therefor has been received by the Surviving Corporation.
If a petition for appraisal is duly filed by a holder of Voting Shares and
a copy thereof is delivered to the Surviving Corporation, the Surviving
Corporation will then be obligated within 20 days to provide the Delaware Court
of Chancery with a duly verified list containing the names and addresses of all
holders of Voting Shares who have demanded appraisal of their shares.
After notice to such holders of Voting Shares, the Delaware Court of
Chancery is empowered to conduct a hearing upon the petition to determine those
holders of Voting Shares who have complied with Section 262 and who have become
entitled to appraisal rights under that section. The Delaware Court of Chancery
may require the holders of Voting Shares who have demanded payment for their
shares to submit their stock certificates to the Register in Chancery for a
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court of Chancery
may dismiss the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the 'fair value' of their Voting Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Voting Shares as
determined under Section 262 could be more than, the same as or less than the
consideration they would receive pursuant to the Merger Agreement if they did
not seek appraisal of their Voting Shares and that investment banking opinions
as to fairness from a financial point of view are not opinions as to fair value
under Section 262. The Delaware Supreme Court has stated that 'proof of value by
any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court' should be considered in
the appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Delaware Court of Chancery also will
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose Voting Shares have been appraised. The costs of the
action may be determined by the Delaware Court of Chancery and taxed upon the
parties as the Delaware Court of Chancery deems equitable. The Delaware Court of
Chancery also may order that all or a portion of the expenses incurred by any
stockholder in
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connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the Voting Shares
entitled to appraisal.
Any holder of shares who has duly demanded an appraisal in compliance with
Section 262 will not be entitled, after the Effective Time of the Merger, to
vote the Voting Shares subject to the appraisal demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions, other than the Merger Consideration,
payable to holders of record of Voting Shares as of a date prior to the
Effective Time of the Merger).
If any stockholder who demands appraisal of his Voting Shares under Section
262 fails to perfect, or effectively withdraws or loses, his or her right to
appraisal as provided in the DGCL, the Voting Shares of such stockholder will be
converted into the right to receive the Merger Consideration in accordance with
the Merger Agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his or her right to appraisal if he or she votes for approval and
adoption of the Merger Agreement (or submits a proxy without voting
instructions) or if no petition for appraisal is filed within 120 days after the
Effective Time of the Merger or if the stockholder delivers to the Company (or,
after the Effective Time, to the Surviving Corporation) a written withdrawal of
his or her demand for appraisal and an acceptance of the Merger, except that any
such attempt to withdraw made more than 60 days after the Effective Time of the
Merger will require the written approval of the Surviving Corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
IN VIEW OF THE COMPLEXITIES OF SECTION 262 OF THE DGCL, THE MATERIAL
PROVISIONS OF WHICH ARE BRIEFLY SUMMARIZED ABOVE, STOCKHOLDERS OF THE COMPANY
WHO CONSIDER PURSUING APPRAISAL RIGHTS ARE URGED TO CONSULT WITH LEGAL COUNSEL.
THE ABOVE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262 OF
THE DGCL, INCLUDED AS APPENDIX E TO THIS PROXY STATEMENT.
47
<PAGE>
SOURCE OF FUNDS FOR THE MERGER
FINANCING OF THE TRANSACTION
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement and to pay related fees and expenses is
estimated to be approximately $624.0 million, consisting of (i) approximately
$460.3 million to pay the Aggregate Merger Consideration and to cash-out
outstanding Company Stock Options, (ii) approximately $143.8 million to
repurchase the Convertible Sub Notes following the Merger as described under
'THE MERGER AGREEMENT--Convertible Subordinated Notes,' and (iii) approximately
$19.9 million in legal, accounting and other fees and expenses payable by the
Company, Parent and Merger Sub (which are described in more detail below under
'--Fees and Expenses').
Parent and Merger Sub have advised the Company that they expect to obtain
such funds from the following sources: (i) approximately $185.0 million will be
provided to the Surviving Corporation as an equity contribution from Parent,
which will obtain such funds from the Fund (which in turn will obtain such funds
from capital contributions from its partners); and (ii) approximately $439.0
million will be provided to the Surviving Corporation from the proceeds of debt
financing by the Surviving Corporation. As of the date hereof, the Fund is in
discussion with several lenders with respect to such debt financing. However,
the Fund has not entered into any agreement with any such lenders and the actual
amount of funds that will be provided by equity financing and debt financing
will depend on prevailing interest rates and other financial and market
conditions. The Merger is not subject to a financing condition.
FEES AND EXPENSES
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring such expenses except as described under the heading 'THE MERGER
AGREEMENT--Fees and Expenses.' Estimated fees and expenses to be incurred by the
Company, Parent and Merger Sub in connection with the Merger are as follows:
<TABLE>
<S> <C>
Financing and commitment costs........................................................... $ 5,300,000
Legal, accounting and professional fees.................................................. 4,500,000
Financial advisory fees.................................................................. 9,000,000
Filing fees.............................................................................. 100,000
Printing and mailing costs............................................................... 500,000
Miscellaneous............................................................................ 500,000
-----------
Total.................................................................................... $19,900,000
-----------
-----------
</TABLE>
The fees and expenses described above do not include an estimated aggregate
of $50,000 in legal, accounting and other fees and expenses payable by Vencor.
For a discussion of BT Alex. Brown's financial advisory fees, see 'SPECIAL
FACTORS--Opinion of the Company's and the Special Committee's Financial
Advisor.'
48
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
'Pro Forma Financial Statements') have been derived by the application of pro
forma adjustments to the Company's historical consolidated financial statements
incorporated by reference in this Proxy Statement. The pro forma consolidated
statements of operations for the three months ended March 31, 1998 and for the
12 months ended December 31, 1997, give effect to the Merger as if such
transaction was consummated as of January 1, 1997. The pro forma consolidated
balance sheet gives effect to the Merger as if such transaction had occurred as
of March 31, 1998. The adjustments are described in the accompanying notes. The
Pro Forma Financial Statements should not be considered indicative of actual
results that would have been achieved had the Merger been consummated on the
date or for the periods indicated and do not purport to indicate balance sheet
data or results of operations as of any future date or for any future period.
The Pro Forma Financial Statements should be read in conjunction with the
Company's historical consolidated financial statements and notes thereto
incorporated by reference in this Proxy Statement.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the Merger.
For purposes of preparing the Pro Forma Financial Statements, financing
certain assumptions have been made regarding an acquisition financing facility
of the Surviving Corporation (the 'Acquisition Facility'), including a financing
fee with respect to such facility of $1.0 million, an annual interest rate of
8.5% and a term of three months or less. Parent anticipates replacing the
Acquisition Facility with a permanent financing structure (the 'Permanent
Financing') some time after the close of the Merger which may or may not
resemble the terms of the Acquisition Facility. However, Parent has assumed that
the Permanent Financing will bear interest at 8.5% over its term for purposes of
these Pro Forma Financial Statements.
49
<PAGE>
ATRIA COMMUNITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
MARCH 31, 1998 ADJUSTMENTS(A) PRO FORMA
----------------- -------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 76,508 $ (3,294)(k) $ 73,214
Short-term investments........................................... 68,707 -- 68,707
Resident accounts receivable less allowance for loss of $216..... 1,132 -- 1,132
Nursing center accounts receivable............................... 1,070 -- 1,070
Income taxes..................................................... 1,312 -- 1,312
Other............................................................ 6,523 -- 6,523
----------------- -------------- ---------
Total current assets.......................................... 155,252 (3,294) 151,958
Property and equipment, net........................................ 293,304 -- 293,304
Intangible assets less accumulated amortization of $2,713
(historical)..................................................... 13,912 (5,420)(j) 13,792
5,300(d) --
Notes receivable................................................... 10,275 -- 10,275
Other.............................................................. 10,966 -- 10,966
----------------- -------------- ---------
Total assets.................................................. $ 483,709 $ (3,414) $ 480,295
----------------- -------------- ---------
----------------- -------------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 4,925 $ -- $ 4,925
Salaries, wages and other compensation........................... 1,646 -- 1,646
Accrued interest................................................. 4,351 (3,294)(k) 1,057
Other accrued liabilities........................................ 5,084 -- 5,084
Long-term debt due within one year............................... 994 -- 994(g)
----------------- -------------- ---------
Total current liabilities..................................... 17,000 (3,294) 13,706
Long-term debt..................................................... 259,082 (143,750)(e) 115,332(g)
Acquisition Facility............................................... -- 438,993(a) 438,993
Deferred credits and other liabilities............................. 12,055 -- 12,055
----------------- -------------- ---------
Total liabilities............................................. 288,137 291,949 580,086
----------------- -------------- ---------
Shareholders' equity:
Common stock, $0.10 par value; authorized 50,000 shares; 23,381
issued and outstanding (historical) and 10,370 issued and
outstanding (pro forma)....................................... 2,338 (2,215)(f) 1,037
914(h)
Capital in excess of par value................................... 181,776 (181,776)(i) 184,086
184,086(h)
Retained earnings (deficit)...................................... 11,458 (276,352)(f) (284,914)
(14,600)(c)
(5,420)(j)
----------------- -------------- ---------
Total shareholders' equity (deficit).......................... 195,572 (295,363) (99,791)
----------------- -------------- ---------
Total liabilities and shareholders' equity (deficit).......... $ 483,709 $ (3,414) $ 480,295
----------------- -------------- ---------
----------------- -------------- ---------
BOOK VALUE PER SHARE (DEFICIT)
Book value (deficit) per share..................................... $ 8.36 $ (9.62)
----------------- ---------
----------------- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
50
<PAGE>
UNAUDITED NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma consolidated balance sheet has been derived by the
application of pro forma adjustments to the Company's historical consolidated
balance sheet at March 31, 1998. The Merger will be accounted for as a
recapitalization which will have no impact on the historical basis of assets and
liabilities. The pro forma consolidated balance sheet assumes that there are no
dissenting stockholders to the Merger.
a. The Merger Agreement provides for, among other things, the merger of Merger
Sub, a wholly owned subsidiary of Parent, with and into the Company, with
the Company continuing as the Surviving Corporation. Merger Sub was formed
solely for the purpose of consummating the Merger and carrying out related
transactions and has not been engaged in any other transactions other than
those associated with the consummation of the Merger. It is expected that
Parent, which is an indirect wholly owned subsidiary of the Fund, will
receive a capital contribution of $185.0 million by the Fund. Parent in turn
will make an equity contribution to Merger Sub of $185.0 million for the
purpose of effecting the Merger.
At the Effective Time of the Merger, each share of the Common Stock, other
than (i) those shares held by the Company (with respect to treasury stock),
Parent or their respective subsidiaries, (ii) those shares held by
stockholders of the Company who perfect their appraisal rights under the
DGCL, and (iii) the Retained Shares held by VHLLC, will be converted into the
right to receive $20.25 per share in cash. Also at the Effective Time of the
Merger, (a) each outstanding share of Common Stock held by the Company (as
treasury stock) and Parent or Merger Sub will be canceled without
consideration, (b) each of the Retained Shares held by VHLLC will be
converted into and become one share of Recapitalized Common Stock, and (c)
each of the 1,000 outstanding shares of Merger Sub common stock held by the
Parent (representing all shares of capital stock of Merger Sub outstanding)
will be converted into 9,135.802 shares of the Recapitalized Common Stock. At
the Effective Time of the Merger, Parent will own approximately 88.1% of the
outstanding shares of Recapitalized Common Stock and VHLLC will retain
approximately 11.9% of the outstanding shares of Recapitalized Common Stock.
Also in connection with the Merger, the Company expects to enter into a
Supplemental Indenture with the Trustee that will become effective at the
Effective Time of the Merger and provide that each of the Company's
Convertible Sub Notes will cease to be convertible into shares of Common
Stock but will be convertible solely into an amount of cash, without
interest, equal to the product of (x) the number of shares of Common Stock
into which such Convertible Sub Note was convertible immediately prior to the
Effective Time of the Merger and (y) $20.25. The Indenture governing the
Convertible Sub Notes provides that if a change of control of the Company
occurs, each holder of Convertible Sub Notes shall have the right to require
the Company to repurchase all of such holder's Convertible Sub Notes for cash
at a price equal to 100% of the principal amount together with accrued and
unpaid interest. The Company expects that substantially all Convertible Sub
Note holders will exercise their rights to require the Company to repurchase
all outstanding Convertible Sub Notes after the Effective Time of the Merger,
although there can be no assurance that any holder of the Convertible Sub
Notes will exercise such rights.
Parent has informed the Company that it currently expects that the portion of
the Merger Consideration that will be funded by an equity contribution from
Parent will be approximately $185.0 million, for which Parent will receive
9,135,802 shares of Recapitalized Common Stock at $20.25 per share in the
Merger. Pursuant to the Merger Agreement, Parent may elect, by written notice
to the Company and Vencor at any time prior to ten calendar days prior to the
Special Meeting, to increase the aggregate number of shares of Recapitalized
Common Stock into which the capital stock of Merger Sub will be converted
upon consummation of the Merger up to 11,111,111; provided, however, that,
regardless of the number of shares of Recapitalized Common Stock to be
received by Parent in the Merger, the portion of the Merger Consideration
that is funded by an equity contribution from Parent shall be $20.25 per
share of Recapitalized Common Stock to be received by Parent in the Merger.
In the event that Parent elects to increase its equity contribution up to
$225.0 million and receive 11,111,111 shares of Recapitalized Common Stock,
after the Effective Time of the Merger, Parent will own approximately 90% of
the outstanding shares of Recapitalization Common Stock, and VHLLC will own
approximately 10% of the outstanding shares of Recapitalized Common Stock.
51
<PAGE>
The Merger provides and utilizes the following sources and uses of funds (in
thousands, except share amounts):
<TABLE>
<S> <C>
SOURCE OF FUNDS
Acquisition Facility at 8.5% and due within three months after issuance................. $ 438,993
Equity contribution from Parent......................................................... 185,000
--------------
Total Sources........................................................................... $ 623,993
--------------
--------------
USES OF FUNDS
Payment for historical Common Stock, $.10 par value per share, for $20.25 per share (See
Footnote (b) below)................................................................... $ 448,543
Payment for outstanding Company Stock Options (See Footnote (b) below).................. 11,800
Repurchase of Convertible Sub Notes at their face value................................. 143,750
Deferred financing fees:
Acquisition Facility.................................................................. 1,000
Permanent Financing................................................................... 4,300
Estimated transaction costs............................................................. 14,600
--------------
Total uses.............................................................................. $ 623,993
--------------
--------------
b. The amount associated with the repurchase of the Common Stock is calculated
as follows:
Total shares outstanding........................................................... 23,384,862
Less Retained Shares held by VHLLC................................................. (1,234,568)
--------------
22,150,294
Cash purchase price per share...................................................... $ 20.25
--------------
Total.............................................................................. $ 448,543,454
--------------
--------------
Holders of Company Stock Options (excluding the Rollover Options) will receive the
excess of $20.25 over the exercise price of the Company Stock Options multiplied
by the total number of shares of Common Stock subject to such options. The total
cash consideration to be paid to holders of the Company Stock Options will be
approximately $11.8 million.
c. Estimated costs associated with the Merger are detailed below (in
thousands):
Financial advisory fees................................................................. $ 9,000
Legal and accounting fees............................................................... 4,500
Other................................................................................... 1,100
--------------
$ 14,600
--------------
--------------
d. To reflect the estimated financing fees associated with the Acquisition
Facility and Permanent Financing.
e. Reflects the repurchase of the Convertible Sub Notes at their face value of
$143,750,000.
f. To reflect the Company's payment for 22,732,988 shares of Common Stock at
$20.25 in accordance with the Merger Agreement (in thousands):
Payment for Common Stock (including consideration for Company Stock Options)............ $ 460,343
Book value at March 31, 1998............................................................ 175,705
--------------
Repurchase price premium................................................................ $ 284,638
--------------
--------------
The repurchase price premium is charged to capital in excess of par value and
retained deficit as follows (in thousands):
Capital in excess of par value.......................................................... $ 8,286
Retained deficit........................................................................ 276,352
--------------
$ 284,638
--------------
--------------
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
g. Historical long term debt at March 31, 1998 remaining after the expected
repurchase of the Convertible Sub Notes is made up of the following (in
thousands):
Industrial revenue bonds................................................................ $ 61,290
Non-interest bearing resident mortgage bonds............................................ 33,492
Mortgage notes payable.................................................................. 15,367
Other................................................................................... 6,177
Less current portion.................................................................... (994)
--------------
$ 115,332
--------------
--------------
</TABLE>
h. Parent will make an equity contribution to Merger Sub in the amount of
$185.0 million and will receive 9,135,802 shares of Recapitalized Common
Stock (See Footnote (a) above).
i. To reflect the elimination of capital in excess of par value associated
with the shares of Common Stock purchased ($173,490,000) and the portion of
the shares of Common Stock repurchase price premium charged to capital in
excess of par value ($8,286,000).
j. To reflect the write-off of $5.4 million of deferred financing costs
associated with the repurchase of the Convertible Sub Notes and the
termination of the bank credit facility.
k. To reflect the payment of accrued interest associated with the repurchase
of the Convertible Sub Notes.
53
<PAGE>
ATRIA COMMUNITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA(A)
---------- ----------- ------------
<S> <C> <C> <C>
Revenues.................................................................. $ 25,448 $ - $ 25,448
---------- ----------- ------------
Operating expenses:
Salaries, wages and benefits............................................ 11,024 - 11,024
Supplies................................................................ 2,436 - 2,436
Rent.................................................................... 766 - 766
Depreciation and amortization........................................... 2,618 (216)(g) 2,251
(151)(h)
Other operating expenses................................................ 4,514 - 4,514
---------- ----------- ------------
Total operating expenses.................................................. 21,358 (367) 20,991
---------- ----------- ------------
Operating income.......................................................... 4,090 367 4,457
Interest expense.......................................................... 2,268 9,483(b) 9,954
(1,797)(f)
Investment income......................................................... (2,279) - (2,279)
---------- ----------- ------------
Income (loss) before income taxes......................................... 4,101 (7,319) (3,218)
Provision for income taxes.............................................. 1,534 (1,534)(e) -
---------- ----------- ------------
Net income (loss)......................................................... $ 2,567 $ (5,785) $ (3,218)
---------- ----------- ------------
---------- ----------- ------------
Earnings per common share:
Basic:
Net income (loss).................................................... $ 0.11 $ (0.31)
---------- ------------
---------- ------------
Diluted:
Net income (loss).................................................... $ 0.11 $ (0.31)
---------- ------------
---------- ------------
Shares used in computing earnings per common share:
Basic................................................................... 23,378 10,370(d) 10,370
(23,378)(c)
Diluted................................................................. 23,934 10,370(d) 10,370
(23,934)(c)
Ratio of earnings to fixed charges........................................ 1.88x .63x
</TABLE>
The accompanying notes are an integral part of these pro forma statements of
operations.
54
<PAGE>
ATRIA COMMUNITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA(A)
---------- ----------- ------------
<S> <C> <C> <C>
Revenues.................................................................. $ 68,878 $ - $ 68,878
---------- ----------- ------------
Operating expenses:
Salaries, wages and benefits............................................ 28,152 - 28,152
Supplies................................................................ 6,332 - 6,332
Rent.................................................................... 615 - 615
Depreciation and amortization........................................... 7,399 (194)(g) 6,615
(590)(h)
Other operating expenses................................................ 13,752 - 13,752
---------- ----------- ------------
Total operating expenses.................................................. 56,250 (784) 55,466
---------- ----------- ------------
Operating income.......................................................... 12,628 784 13,412
Interest expense.......................................................... 5,409 38,929(b) 42,841
(1,497)(f)
Investment income......................................................... (4,579) - (4,579)
---------- ----------- ------------
Income (loss) before income taxes and extraordinary loss.................. 11,798 (36,648) (24,850)
Provision for income taxes................................................ 4,413 (4,413)(e) -
---------- ----------- ------------
Income (loss) before extraordinary loss................................... 7,385 (32,235) (24,850)
Extraordinary loss on extinguishment of debt, net of income tax benefit of
$134 in 1997............................................................ (199) - (199)
---------- ----------- ------------
Net income (loss)......................................................... $ 7,186 $ (32,235) $(25,049)
---------- ----------- ------------
---------- ----------- ------------
Earnings per common share:
Basic:
Income (loss) before extraordinary loss.............................. $ 0.37 $ (2.40)
Extraordinary loss on extinguishment of debt......................... (0.01) (0.02)
---------- ------------
Net income (loss).................................................. $ 0.36 $ (2.42)
---------- ------------
---------- ------------
Diluted:
Income (loss) before extraordinary loss.............................. $ 0.37 $ (2.40)
Extraordinary loss on extinguishment of debt......................... (0.01) (0.02)
---------- ------------
Net income (loss).................................................. $ 0.36 $ (2.42)
---------- ------------
---------- ------------
Shares used in computing earnings per common share:
Basic................................................................... 19,720 10,370(d) 10,370
(19,720)(c)
Diluted................................................................. 20,054 10,370(d) 10,370
(20,054)(c)
Ratio of earnings to fixed charges........................................ 2.34x .41x
</TABLE>
The accompanying notes are an integral part of these pro forma statements of
operations.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations have been
derived by the application of pro forma adjustments to the Company's historical
consolidated financial statements for the periods noted. It is expected that the
Merger will be accounted for as a recapitalization, which will have no impact on
the historical basis of assets and liabilities. The pro forma consolidated
statements of operations assumes that there are no dissenting stockholders to
the Merger.
a. The pro forma adjustments exclude the $14.6 million of estimated Merger
transaction fees and expenses to be incurred in connection with the
Merger and the write-off of $5.4 million of deferred financing costs
associated with the repurchase of the Convertible Sub Notes and the
termination of the Company's bank credit facility. Such amounts
represent non-recurring expenses which the Company anticipates will be
reflected in the consolidated statement of operations for the period
including the Merger.
b. The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
THREE
FISCAL YEAR ENDED MONTHS ENDED
----------------- --------------
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Interest expense on Acquisition Facility at 8.5%......... $ 9,329 $--
Interest expense on Permanent Financing at 8.5%.......... 27,986 9,329
Amortization of deferred financing fees:
Acquisition Facility................................... 1,000 --
Permanent Financing (seven years)...................... 614 154
----------------- -------
Total adjustment.................................... $38,929 $9,483
----------------- -------
----------------- -------
</TABLE>
c. Reflects the elimination of the historical weighted average shares of
Common Stock outstanding.
d. Reflects the new shares of Recapitalized Common Stock to be issued as a
result of the Merger.
e. Reflects the elimination of the historical income tax provision. No
income tax benefit is given to the pro forma loss due to the highly
leveraged nature of the Merger.
f. Reflects the elimination of the historical interest expense associated
with the Convertible Sub Notes.
g. Reflects the elimination of the historical deferred financing
amortization expense associated with the Convertible Sub Notes.
h. Reflects the elimination of the historical deferred financing
amortization expense associated with the Company's bank credit facility.
56
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
The following table sets forth selected consolidated financial and
statistical data of the Company as of and for each of the prior five fiscal
years in the period ended December 31, 1997 that has been derived, with respect
to data prior to the initial public offering of the Common Stock ('IPO'), from
the consolidated financial statements of Vencor, and is presented as if the
Company had been operated as a separate entity prior to the IPO. The financial
statements for the Company for the years ended December 31, 1993, 1994, 1995,
1996 and 1997 have been audited by Ernst & Young LLP, independent auditors. The
selected consolidated financial and statistical data for the three months ended
March 31, 1997 and 1998 were derived from the unaudited consolidated financial
statements of the Company and include all adjustments which management considers
necessary for a fair presentation of financial position and results of
operations. The following financial and statistical data should be read in
conjunction with 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS' and the Consolidated Financial Statements and related
Notes contained in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1998, which are incorporated herein by
reference. See 'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31,
(UNAUDITED) YEARS ENDING DECEMBER 31,
------------------ ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Revenues..................................... $25,448(e) $14,217 $ 68,878(f) $51,846 $47,976(g) $39,758 $35,870
------- ------- -------- ------- ------- ------- -------
Salaries, wages and benefits................. 11,024 5,660 28,152 19,861 17,455 14,638 14,735
Supplies..................................... 2,436 1,290 6,332 5,024 4,860 4,023 4,360
Rent......................................... 766 39 615 353 383 333 351
Depreciation and amortization................ 2,618 1,388 7,399 5,060 5,113 4,541 4,503
Non-recurring transactions................... -- -- -- 1,050(h) 600(i) (1,675)(j) (266)(k)
Other operating expenses..................... 4,514 2,786 13,752 10,594 9,465 8,347 8,031
------- ------- -------- ------- ------- ------- -------
21,358 11,163 56,250 41,942 37,876 30,207 31,714
------- ------- -------- ------- ------- ------- -------
Operating income............................. 4,090 3,054 12,628 9,904 10,100 9,551 4,156
Interest expense............................. 2,268 1,182 5,409 4,287 4,322 3,538 3,499
Investment income............................ (2,279) (753) (4,579) (1,439) (147) (330) (346)
------- ------- -------- ------- ------- ------- -------
Income before income taxes and extraordinary
loss....................................... 4,101 2,625 11,798 7,056 5,925 6,343 1,003
Provision for income taxes................... 1,534 1,047 4,413 2,787 2,341 2,506 396
------- ------- -------- ------- ------- ------- -------
Income before extraordinary loss............. 2,567 1,578 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................................... $ 2,567 $ 1,578 $ 7,186 $ 4,269 $ 3,438 $ 3,837 $ 504
------- ------- -------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- -------
Earnings per common share (a):
Basic:
Income before extraordinary loss........... $ 0.11 $ 0.10 $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on extinguishment of
debt..................................... -- -- (0.01) -- (0.02)
------- ------- -------- ------- -------
Net income................................. $ 0.11 $ 0.10 $ 0.36 $ 0.35 $ 0.34
------- ------- -------- ------- -------
------- ------- -------- ------- -------
Diluted:
Income before extraordinary loss........... $ 0.11 $ 0.10 $ 0.37 $ 0.35 $ 0.36
Extraordinary loss on extinguishment of
debt..................................... -- -- (0.01) -- (0.02)
------- ------- -------- ------- -------
Net income................................. $ 0.11 $ 0.10 $ 0.36 $ 0.35 $ 0.34
------- ------- -------- ------- -------
------- ------- -------- ------- -------
Shares used in computing earnings per common
share:
Basic...................................... 23,378 15,830 19,720 12,140 10,095
Diluted.................................... 23,934 15,987 20,054 12,226 10,095
Ratio of earnings to fixed charges(b):....... 1.9 2.7 2.3 2.5 2.3 2.7 1.3
Statistical Data:
Average occupancy(c)......................... 83.8% 94.6% 89.5% 96.1% 94.5% 93.8% 90.8%
Number of communities(d):
Owned and leased........................... 51(l) 23 39 19 20 19 19
Managed.................................... 2 2 2 2 2 2 2
------- ------- -------- ------- ------- ------- -------
Total...................................... 53 25 41 21 22 21 21
------- ------- -------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- -------
Number of units(d):
Owned and leased........................... 4,827(l) 2,807 3,791 2,523 2,603 2,531 2,574
Managed.................................... 420 419 379 419 419 419 419
------- ------- -------- ------- ------- ------- -------
Total...................................... 5,247 3,226 4,170 2,942 3,022 2,950 2,993
------- ------- -------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- -------
Balance Sheet Data:
Cash and cash equivalents.................... $76,508 $50,004 $152,724 $65,238 $ 2,819 $ 1,497 $ 1,695
Assets....................................... 483,709 217,099 475,463 209,782 140,917 133,016 137,308
Long-term debt, including amounts due within
one year................................... 260,076 113,642 256,847 110,032 105,350 91,193 91,744
Stockholders' equity......................... 195,572 90,626 192,839 88,946 28,447 31,835 34,959
Book value per share......................... 8.37 5.72 9.78 7.33
</TABLE>
(Footnotes on next page)
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(Footnotes from previous page)
- ------------------
(a) Share and per share amounts for periods prior to the IPO are presented on a
pro forma basis.
(b) The ratio of fixed earnings to fixed charges is calculated by dividing
income before income taxes and extraordinary loss plus fixed charges
(excluding capitalized interest) by fixed charges (including capitalized
interest). Fixed charges consist of interest expense, including
amortization of financing costs, and that portion of rental expense deemed
to be representative of the interest component of rental expense less any
applicable sublease income.
(c) Average occupancy is calculated on a daily basis by dividing the number of
occupied units by the total number of available units.
(d) At end of period.
(e) Increase in revenue is principally due to acquisitions, including American
Elderserve, ($7.2 million) and newly constructed facilities ($1,588,000).
(f) Increase in revenue is due to the acquisition of American Elderserve
($6,921,000) and newly constructed facilities ($1,980,000) as well as price
increases.
(g) Increase in revenues is principally due to the Company purchasing
controlling interest in two entities and completion of newly constructed
facilities.
(h) Settlement of certain litigation which reduced pre-tax income by
$1,050,000.
(i) Relates to a write-down associated with certain undeveloped property.
(j) Includes settlement of certain litigation which increased pre-tax income by
approximately $1.3 million and a gain on sale of property aggregating
$425,000.
(k) Settlement of certain litigation which increased pre-tax income by
$266,000.
(l) Includes two nursing centers with 332 beds.
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MARKET PRICES FOR THE COMMON STOCK
The Common Stock is listed and traded on the Nasdaq National Market System
under the symbol 'ATRC.' The following table sets forth the high and low sales
prices per share of Common Stock, as reported by the Nasdaq National Market
System for the fiscal periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year ended December 31, 1996:
Third Quarter*........................................................... $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............................................................ 22.00 16.00
Second Quarter........................................................... 19.94 17.06
Third Quarter (through July )..........................................
------ ------
</TABLE>
- ------------------
* The Common Stock commenced trading on August 20, 1996.
On January 30, 1998, the trading date before the public announcement that
Vencor was seeking a strategic investor to purchase all of the 10,000,000 shares
of Common Stock beneficially owned by Vencor, the high and low sales prices per
share for the Common Stock were $18.13 and $17.75, respectively.
On February 24, 1998, the trading day before the public announcement that
the Company had received several informal proposals regarding a possible
business combination, the high and low sales prices per share of Common Stock
were $20.88 and $20.13, respectively.
On April 17, 1998, the trading day before the public announcement of the
agreement in principle as to the Merger price of $20.25 per share, the high and
low sales prices per share for the Common Stock were $19.75 and $19.13,
respectively.
On July , 1998, the most recent practicable date before the printing of
this Proxy Statement the high and low sales prices per share for the Common
Stock were $ and $ , respectively, and shares of Common
Stock were issued and outstanding among record holders.
HOLDERS OF COMMON STOCK ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
COMMON STOCK.
59
<PAGE>
DIVIDENDS
The Company has never paid regular cash dividends on the Common Stock, and
the current Board of Directors plans to continue this policy, retaining future
earnings to support growth and expansion of the Company's business. The
Company's credit facility prohibits the Company from paying cash dividends.
CERTAIN INFORMATION CONCERNING VENCOR AND VHLLC
VENCOR
Vencor, Inc., a Delaware corporation ('Vencor'), is the owner of all of the
issued and outstanding capital stock of Vencor Operating, Inc., a Delaware
corporation ('Vencor Operating'). Vencor Operating is the owner of the entire
interest in VHLLC. Vencor is a successor to the operations of Ventas, Inc., a
Delaware corporation ('Ventas'), pursuant to the terms of a reorganization
consummated on April 30, 1998 (the 'Reorganization Date'). Prior to the
Reorganization Date, the corporate name of Ventas was 'Vencor, Inc.' and all of
the current operations of Vencor and its subsidiaries were conducted by Ventas
and its subsidiaries. All references in this Proxy Statement to 'Vencor' with
respect to any time period prior to the Reorganization Date shall be deemed to
refer to Ventas, unless the context requires otherwise. On the Reorganization
Date, the rights and obligations of Ventas under the Support Agreement executed
as of April 19, 1998, were assigned to Vencor, which immediately assigned those
rights to Vencor Operating. In turn, Vencor Operating immediately assigned its
right under the Support Agreement to VHLLC.
Vencor is one of the largest providers of long-term health care services in
the United States. At March 31, 1998, Vencor's operations included 62 long-term
acute care hospitals containing 5,313 licensed beds, 305 nursing centers
containing 39,960 licensed beds, and the Vencare contract services business
which provides respiratory and rehabilitation therapies and medical and pharmacy
management services to approximately 2,900 healthcare facilities. Healthcare
services provided through this network include long-term hospital care, nursing
care, contract respiratory therapy services, subacute and post-operative care,
in-patient and out-patient rehabilitation therapy, specialized care for
Alzheimer's disease and pharmacy services. As of the date of this Proxy
Statement, the directors and executive officers of Vencor are as set forth under
'DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, VENCOR, VHLLC AND THE
SURVIVING CORPORATION--Information Concerning Directors and Executive Officers
of Vencor and VHLLC.' The directors of Vencor have approved the transactions
described in the Merger Agreement.
VHLLC
Vencor Holdings, L.L.C., an indirect wholly owned subsidiary of Vencor
('VHLLC'), is a Delaware limited liability company that does not engage in any
business activities other than holding securities in other entities, including
the Company. As of the date of this Proxy Statement, the directors and executive
officers of VHLLC are as set forth under 'DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY, VENCOR, VHLLC AND THE SURVIVING CORPORATION--Information Concerning
Directors and Executive Officers of Vencor and VHLLC.'
GENERAL
The business address of Vencor and VHLLC is 3300 Aegon Center, 400 West
Market Street, Louisville, Kentucky 40202. The telephone number of Vencor and
VHLLC is (502) 596-7300.
CERTAIN TRANSACTIONS
In May 1996, the Company was incorporated as a wholly owned subsidiary of
Vencor. In connection with the Company's initial public offering on August 20,
1996 (the 'IPO'), the Company and Vencor entered into the following agreements
to provide for the transition of the Company from a wholly owned subsidiary of
Vencor to a separate company. Except for the contracts that otherwise expired or
terminated prior to the Reorganization Date, all of the following contracts were
assigned to Vencor Operating as of the Reorganization Date.
Incorporation Agreement. Prior to the completion of the IPO, Vencor
transferred to the Company, or caused its respective subsidiaries or affiliates
to transfer to the Company, their respective interests in various
60
<PAGE>
communities pursuant to the terms of an Incorporation Agreement. The Company
assumed all the communities' liabilities in accordance with the Incorporation
Agreement. Except as expressly set forth in the Incorporation Agreement, no
party made any representation or warranty as to the assets, businesses or
liabilities transferred or assumed as part of the separation, as to any consents
or approvals required in connection therewith, as to the value or freedom from
counterclaim with respect to any claim of any party, or as to the legal
sufficiency of any assignment, document or instrument delivered to convey title
to any asset transferred. Except as expressly set forth in the Incorporation
Agreement, all assets were transferred on an 'as is,' 'where is' basis, and the
Company agreed to bear the economic and legal risks that the conveyance was
insufficient to vest in the Company good and marketable title, free and clear of
any security interest or adverse claim.
The Company has indemnified Vencor and its subsidiaries against certain
losses, claims, damages or liabilities including those arising out of: (i) any
inaccurate representation or breach of warranty under the Incorporation
Agreement; and (ii) any indebtedness, lease, contract or other obligation
referred to in the Incorporation Agreement. The Company also indemnified Vencor,
as a controlling person, against any loss, claim, damage or liability arising
out of the IPO, except for losses, claims, damages or liabilities arising from
information supplied in writing by Vencor for inclusion in the prospectus used
for the IPO. Vencor indemnified the Company and its subsidiaries with respect to
any inaccurate representation or breach of warranty under the Incorporation
Agreement.
Administrative Services Agreement. The Company and Vencor entered into an
administrative services agreement (the '1996 Administrative Services Agreement')
pursuant to which Vencor provided certain administrative services to the
Company. The 1996 Administrative Services Agreement expired in August 1997. Some
of the services provided to the Company by Vencor included finance and
accounting, human resources, risk management, legal, marketing and information
systems support. During 1997, the Company paid Vencor approximately $32,000 per
month pursuant to the 1996 Administrative Services Agreement. Upon the
expiration of the 1996 Administrative Services Agreement, the Company and Vencor
entered into another administrative services agreement (the 'New Administrative
Services Agreement') relating to the provision of marketing, human resources and
information systems support for a monthly fee of $17,033. The New Administrative
Services Agreement expired on December 31, 1997.
Services Agreements and Sublease Agreement. The Company and subsidiaries
of Vencor entered into services agreements relating to seven communities which
are contiguous to Vencor facilities (the 'Services Agreements'). The Services
Agreements pertained to the sharing of costs relating to maintenance and lawn
services, marketing, food services, general office, housekeeping and emergency
call systems. These Services Agreements could have been canceled by either party
upon 90 days' prior written notice. The maximum amount that the Company paid
Vencor in connection with the Services Agreements was $150,000 per year. The
Services Agreements expired in August 1997. The Company and Vencor also entered
into a two-year Sublease Agreement covering approximately 4,000 square feet of
office space used for the Company's headquarters located in Louisville, Kentucky
at an annual rental of $48,300. This Sublease Agreement expired in January 1998.
New Pond Lease. New Pond Village Associates, a partnership owned by
subsidiaries of Vencor ('New Pond'), leases the New Pond Village Retirement
Center to the Company pursuant to the terms of a lease which is categorized as a
finance lease for financial and tax accounting purposes. The lease has a term of
99 years, unless earlier terminated. Under the lease, the Company pays no rent
as such, but is obligated to pay all ad valorem property taxes, insurance,
utilities and all payments required to be made on the indebtedness secured by
the leased property. New Pond is obligated to use its reasonable best efforts to
obtain the requisite zoning and consent of the holder of the mortgage on the
leased property to the conveyance of the leased property to the Company. At such
time as such conveyance occurs, the Company will assume the indebtedness secured
by the mortgage on the leased property.
Guaranty Fee Agreement. Vencor and the Company entered into a guaranty fee
agreement ('Guaranty Fee Agreement') prior to completion of the IPO. The
Guaranty Fee Agreement provides that the Company will pay to Vencor a fee equal
to 1.5% of the average outstanding sum of the principal balance of all debts,
letters of credit or obligations of the Company which are guaranteed by Vencor.
In connection with the Company's credit facility, Vencor was obligated to
guarantee up to $100.0 million in the first year following the IPO, declining to
$75.0 million, $50.0 million and $25.0 million in each respective year
thereafter. During 1997, the Company did
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<PAGE>
not incur any costs related to Vencor's guarantee. Prior to May 1, 1998, the
Company incurred approximately $38,000 in costs related to Vencor's guarantee
during 1998.
Redding Lease. During part of 1996 and 1997 the Company leased certain
real estate in Redding, California from Vencor pursuant to a lease categorized
as a finance lease for financial and tax accounting purposes. The lease had a
term of 99 years, unless earlier terminated. Under the lease, the Company paid
$1.00 per year rent and was obligated to pay all ad valorem property taxes,
insurance and utilities relating to the leased property. The lease also required
Vencor to use its reasonable best efforts to obtain the requisite approval for
the subdivision of a larger parcel of which the leased property was a part. Upon
receipt of such approval, Vencor conveyed the property to the Company for $1.00,
and the lease terminated.
Registration Rights Agreement. The Company granted demand and incidental
registration rights to Vencor for the registration of shares of Common Stock
owned by Vencor under the Securities Act of 1933, as amended. Four demand
registrations are permitted. The Company will pay the fees and expenses of two
demand registrations and the incidental registrations, while Vencor will pay all
underwriting discounts and commissions. The registration rights expire five
years from the completion of the IPO and are subject to certain conditions and
limitations, including the right of underwriters to limit the number of shares
owned by Vencor included in such registration.
Voting Agreement. Vencor entered into a voting agreement ('Voting
Agreement') pursuant to which it agreed to vote all of its shares of Common
Stock at any meeting at which directors are elected in favor of the election of
independent directors so that after such election, if such persons are elected,
there will be at least two independent directors. The Voting Agreement will
continue in effect for five years from the date of the IPO so long as Vencor
beneficially owns 30.0% or more of the outstanding Common Stock.
Tax Sharing Agreement. Vencor and the Company entered into a tax sharing
agreement ('Tax Sharing Agreement') which generally provides for the manner in
which the parties will bear taxes for the period between the Company's
organization and the sale by the Company of the Common Stock pursuant to the
IPO, and income tax deficiencies/refunds resulting from future audit
adjustments. The Company will be required to pay Vencor an amount equal to the
excess of the income tax liability which the Company would have for the short
period over the amount which the Company has previously paid (or been charged
with by Vencor) with respect to such taxes.
If additional taxes must be paid by the Company or Vencor as a result of an
adjustment made by a tax regulatory authority and as a result of that adjustment
the other party would obtain an offsetting tax benefit, the party obtaining the
tax benefit pays an amount equal to the additional tax to the party whose income
tax liability was increased. Likewise, if income taxes are reduced as a result
of an adjustment made by a tax regulatory authority and as a result of that
adjustment the other party would suffer an offsetting tax detriment, the party
whose taxes were reduced pays that amount to the other party. The Tax Sharing
Agreement also contains provisions dealing with challenging adjustments made by
tax regulatory authorities, who will bear the expenses of any such challenge and
cooperation between the parties.
Borrowing From Vencor. A subsidiary of the Company was indebted to Vencor
in the amount of $14.0 million as of both December 31, 1996 and June 30, 1997.
The indebtedness was evidenced by a promissory note in favor of Vencor, bearing
interest at a rate equal to the floating prime rate of National City Bank,
Kentucky plus 1.0%. The Company repaid this note in July 1997. The interest
costs incurred by the Company in connection with the promissory note aggregated
$697,000 and $482,000 for 1997 and 1996, respectively.
Additional Capital Contribution by Vencor. In connection with the
Company's credit facility, Vencor contributed $4.3 million in cash to the
Company before the completion of the IPO.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
VENCOR, VHLLC AND THE SURVIVING CORPORATION
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table and summaries set forth the name of each director and
executive officer of the Company and a description of his or her positions and
offices with the Company, if any; a brief description of his or her principal
occupation and business experience during at least the last five years; certain
directorships presently held by him or her in companies other than the Company;
and certain other information including his or her age (as of January 1, 1998).
Unless otherwise indicated, the address of each director and executive officer
of the Company is that of the Company at 501 South Fourth Avenue, Suite 140,
Louisville, Kentucky 40202. Each person listed below is a citizen of the United
States.
<TABLE>
<CAPTION>
DIRECTOR NAME AGE DIRECTOR SINCE
- ----------------------------------------------------------------------------------- --- --------------
<S> <C> <C>
Sandra Harden Austin............................................................... 50 1996
William C. Ballard Jr.............................................................. 57 1996
Peter J. Grua...................................................................... 43 1996
Thomas T. Ladt..................................................................... 47 1996
W. Bruce Lunsford.................................................................. 50 1996
W. Patrick Mulloy, II*............................................................. 44 1996
Andy L. Schoepf*................................................................... 49 1997
R. Gene Smith...................................................................... 63 1996
<CAPTION>
EXECUTIVE OFFICER NAME AGE
- ----------------------------------------------------------------------------------- ---
<S> <C> <C>
J. Timothy Wesley.................................................................. 38
</TABLE>
- ------------------
*Also an executive officer of the Company.
The following is a summary of the principal business associations of the
Company's directors and executive officers.
Sandra Harden Austin has served as a Director of the Company since May
1996. Ms. Austin has served as President and Chief Executive Officer of Sedona
Healthcare Group, Inc., a physician practice management company, since 1997.
From 1994 to 1996, Ms. Austin was a Division President of Caremark
International, a provider of health care products and services. Ms. Austin
served as President and Chief Operating Officer of University of Chicago
Hospitals from 1990 to 1993. Ms. Austin is a director of National City
Corporation, a bank holding company, and Ferro Corporation, a multi-specialty
chemical manufacturer.
William C. Ballard Jr. has served as a Director of the Company since May
1996. Since 1992, Mr. Ballard has been of counsel to the law firm of Greenebaum
Doll & McDonald PLLC. Mr. Ballard is a director of Mid-America Bancorp, United
Health Care Corp., LG&E Energy Corp., Health Care REIT, Inc., Healthcare
Recoveries, Inc., and American Safety Razor Inc.
Peter J. Grua has served as a Director of the Company since August 1996.
Since 1992, Mr. Grua has been a principal of HLM Management, an investment
management company specializing in entrepreneurial and growth companies.
Thomas T. Ladt has served as a Director of the Company since May 1996. On
May 1, 1998, Mr. Ladt was named President and Chief Operating Officer and a
director of Ventas. From February 1996 until his appointment, Mr. Ladt served as
Executive Vice President, Operations of Vencor. From November 1995 to February
1996, he served as President of Vencor's Hospital Division. Mr. Ladt was Vice
President of Vencor's Hospital Division from 1993 to November 1995. From 1989 to
1993, Mr. Ladt was a Regional Director of Operations for Vencor.
W. Bruce Lunsford has served as a Director and Chairman of the Board of the
Company since May 1996. Mr. Lunsford has served as Chairman of the Board and
Chief Executive Officer of Ventas since it commenced operations in 1985 and as
President until April 30, 1998. On April 30, 1998, Mr. Lunsford was named
Chairman of the Board, Chief Executive Officer and President of Vencor. He is
also the Chairman of the Board, President and Chief Executive Officer of Vencor.
He is a director of National City Corporation, Churchill Downs
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<PAGE>
Incorporated, and Res-Care, Inc., a provider of residential training and support
services for persons with developmental disabilities and certain vocational
training services.
W. Patrick Mulloy, II, has served as the Chief Executive Officer, President
and a Director of the Company since May 1996. From 1994 to 1996, Mr. Mulloy was
a member and of counsel to the law firm of Greenebaum Doll & McDonald PLLC. From
1992 to 1994, Mr. Mulloy served as the Secretary of the Finance and
Administration Cabinet for the Commonwealth of Kentucky. Mr. Mulloy is on the
Board of Directors of the Assisted Living Federation of America and the American
Seniors Housing Association. Mr. Mulloy has also been actively involved in
commercial and multi-family real estate acquisitions and developments.
Andy L. Schoepf has been the Company's Chief Operating Officer since April
1997 and a Director of the Company since May 1997. For over nine years prior to
that time, Mr. Schoepf served as President and Chief Executive Officer of
American ElderServe Corporation, an operator of assisted living communities. He
was a board member of the Senior Living Association of Georgia and the Executive
Vice President and founding board member of the Assisted Living Association of
Georgia.
R. Gene Smith has served as a Director of the Company since May 1996. Mr.
Smith has been Vice Chairman of the Board of Ventas since 1987 and is a director
of Vencor. From 1987 to 1995, Mr. Smith was President of New Jersey Blockbuster,
Ltd., which held the Blockbuster Video franchise for northern New Jersey. Since
1988, Mr. Smith has been Chairman of the Board of Taco Tico, Inc., an operator
of Mexican fast-food restaurants. Since 1993, Mr. Smith has been Managing
General Partner of Direct Program Services, which was a marketer of direct
broadcast satellite television services. In addition, he has been President and
owner of R. Gene Smith, Inc., a private investment firm, since 1980. Mr. Smith
is a director of Ventas.
J. Timothy Wesley has been the Chief Financial Officer, Vice President of
Development and Secretary of the Company since May 1996. From 1994 to May 1996,
Mr. Wesley was Director and Manager of Development of Vencor. From 1992 to 1994,
Mr. Wesley was Vice President of Strategic Planning for HomeCare Affiliates,
Inc.
The information given in this Proxy Statement concerning the directors and
executive officers of the Company is based upon statements made or confirmed to
the Company by or on behalf of such directors, except to the extent certain
information appears in its records.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF VENCOR AND VHLLC
Set forth below is the name of each director and executive officer of
Vencor and VHLLC and, unless disclosed elsewhere in this Proxy Statement, the
present principal occupation or employment of each such person; a brief
description of his principal occupation and business experience during at least
the last five years; and other information including his or her age (as of
January 1, 1998). Unless as otherwise indicated, the address of each director
and executive officer of Vencor and VHLLC is that of Vencor at 3300 Aegon
Center, 400 West Market Street, Louisville, Kentucky 40202. Each person listed
below is a citizen of the United States.
<TABLE>
<CAPTION>
VENCOR DIRECTORS AGE
- ---------------------------------------------------------------------------------------- ---
<S> <C>
Michael R. Barr+........................................................................ 48
Ulysses L. Bridgeman, Jr................................................................ 44
Elaine L. Chao.......................................................................... 44
Donna R. Ecton.......................................................................... 50
William H. Lomicka...................................................................... 60
W. Bruce Lunsford*+..................................................................... 50
W. Earl Reed, III+...................................................................... 46
R. Gene Smith*.......................................................................... 63
<CAPTION>
VENCOR EXECUTIVE OFFICERS++ AGE
- ---------------------------------------------------------------------------------------- ---
<S> <C>
Richard E. Chapman...................................................................... 48
Jill L. Force........................................................................... 45
James H. Gillenwater, Jr................................................................ 40
Richard A. Lechleiter................................................................... 39
</TABLE>
(Footnotes on next page)
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(Footnotes from previous page)
- ------------------
* Descriptions of the occupations and business experience of Messrs. Lunsford
and Smith are located under the heading '--INFORMATION CONCERNING DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY.'
+ Also an executive officer of Vencor and VHLLC. Each individual holds the same
office with VHLLC as he holds with Vencor.
++ Each individual holds the same office with VHLLC as he or she holds with
Vencor.
All references below to 'Vencor' with respect to any time prior to the
Reorganization Date shall be deemed to refer to Ventas unless the context
requires otherwise.
Michael R. Barr has served as Chief Operating Officer and Executive Vice
President of Vencor since February 1996. From November 1995 to February 1996, he
was Executive Vice President of Vencor and Chief Executive Officer of Vencor's
Hospital Division. Mr. Barr served as Vencor's Vice President, Operations from
1985 to November 1995. Mr. Barr is a director of Colorado MEDtech, Inc., a
medical products and equipment company.
Ulysses L. Bridgeman, Jr. has been President of Bridgeman Foods, Inc., a
franchisee of 51 Wendy's Old Fashioned Hamburger Restaurants since 1988.
Elaine L. Chao is a Distinguished Fellow of The Heritage Foundation in
Washington, D.C. From 1992 to 1996, Ms. Chao was President and Chief Executive
Officer of the United Way of America. Ms. Chao is a director of Dole Food
Company, Inc., NASD, Inc. and Protective Life Corporation.
Donna R. Ecton has been Chief Operating Officer of PETsMART, Inc., a pet
supplies retailer since December 1996. From 1995 to 1996, she was Chairman,
President and Chief Executive Officer of Business Mail Express, Inc., an
expedited print and mail services company. From 1991 to 1994, she was President
and Chief Executive Officer of Van Houten North America, Inc. and Andes Candies
Inc., confectionery products businesses. Ms. Ecton is a director of Barnes
Group, Inc., a diversified manufacturing, aerospace and distribution company,
PETsMART, Inc. and H&R Block, Inc.
William H. Lomicka has served as President of Mayfair Capital, Inc., a
private investment firm since 1989. Mr. Lomicka serves as a director of Regal
Cinemas, Inc., a regional motion picture exhibitor, and Sabratek Corporation, a
company that designs, produces and markets medical products for the alternative
site healthcare marketplace.
W. Earl Reed, III, has been Chief Financial Officer and Executive Vice
President of Vencor since 1995. From 1987 to November 1995, Mr. Reed served as
Vice President, Finance and Development of Vencor.
Richard E. Chapman has served as Senior Vice President and Chief
Information Officer of Vencor since October 1997. From March 1993 to October
1997, Mr. Chapman was Senior Vice President of Information Systems of
Columbia/HCA Healthcare Corp., Vice President of Galen Health Care, Inc. from
March 1993 to August 1993, and of Humana Inc. from September 1990 to February
1993.
Jill L. Force has served as Senior Vice President, General Counsel and
Assistant Secretary of Vencor since December 1996. From November 1995 through
December 1996, she served as Vice President, General Counsel and Corporate
Secretary of Vencor. From 1989 to 1995, she was General Counsel and Corporate
Secretary of Vencor. Ms. Force is a director of Healthcare Recoveries, Inc., a
provider of health insurance subrogation and related recovery services.
James H. Gillenwater, Jr., has served as Senior Vice President, Planning
and Development of Vencor since December 1996. From November 1995 through
December 1996, he served as Vice President, Planning and Development of Vencor.
From 1989 to November 1995, he was Director of Planning and Development of
Vencor.
Richard A. Lechleiter has served as Vice President, Finance and Corporate
Controller of Vencor since November 1995. From June 1995 to November 1995, he
was Director of Finance of Vencor. Mr. Lechleiter was
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<PAGE>
Vice President and Controller of Columbia/HCA Healthcare Corp. from September
1993 to May 1995, of Galen Health Care, Inc. from March 1993 to August 1993, and
of Humana Inc. from September 1990 to February 1993.
VHLLC Directors. The directors of VHLLC are Messrs. Barr, Lunsford and
Reed. Descriptions of the occupations and business experience of Messrs. Barr,
Lunsford and Reed are located under the heading '--INFORMATION CONCERNING
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY' and under the subheading for
Vencor under the heading '--INFORMATION CONCERNING DIRECTORS AND EXECUTIVE
OFFICERS OF VENCOR AND VHLLC.'
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
CORPORATION
In accordance with the terms of the Merger Agreement, the directors of the
Surviving Corporation will be the current directors of Merger Sub. The executive
officers of the Company will continue to serve as officers of the Surviving
Corporation. Set forth below is the name of each director of Merger Sub and the
present principal occupation or employment of each person; a brief description
of his principal occupation and business experience during at least the last
five years; and other information including his or her age (as of January 1,
1998). The business address for Evan A. Kaplan, Glenn Kaplan and Raymond
DioGuardi is 125 Froehlich Farm Boulevard, Woodbury, New York 11797. The
business address for Robert P. Freeman and Murry N. Gunty is 30 Rockefeller
Plaza, 63rd Floor, New York, New York 10020. Each person listed below is a
citizen of the United States.
Raymond DioGuardi, 42, is a director of Merger Sub and has been the Chief
Financial Officer of Parent since January 1997. From November 1994 to January
1997, Mr. DioGuardi was Senior Vice President of Finance and Chief Financial
Officer of Dataflex Corporation, a public company that sells computer hardware
and related services. From December 1989 to October 1994, Mr. DioGuardi was Vice
President of Finance, Chief Financial Officer and Secretary of Nathan's Famous,
Inc. From 1977 to 1989, Mr. DioGuardi was employed by the accounting firm of
Price Waterhouse, where he became a senior manager with responsibility for
planning, coordinating and executing financial audits and special projects for
major corporate clients. Mr. DioGuardi is a certified public accountant and
received a B.A. degree in Business from Rutgers University.
Robert P. Freeman, 52, is the Treasurer and a director of Merger Sub and a
director of Parent. Mr. Freeman has been a General Member of Lazard Freres & Co.
LLC since January 1998 and a Principal of LFREI since January 1993. Mr. Freeman
received a J.D. degree from Harvard Law School and a B.A. degree from Stanford
University. He is currently a director of American Apartment Communities II,
Inc., American Apartment Communities III, Inc., Atlantic American Properties
Trust, Commonwealth Atlantic Properties, ARV Assisted Living Inc., The
Rubenstein Company, L.P. and The Fortress Group, Inc.
Murry N. Gunty, 30, is the Secretary and a director of Merger Sub and a
director of Parent. Mr. Gunty is a Principal of LFREI, which he joined in 1995.
From 1995 to 1996, Mr. Gunty was a Vice President of LFREI. From 1993 to 1995,
he was associated with J.E. Robert Company, a real estate investment company. He
is currently a director of Atlantic American Properties Trust, ARV Assisted
Living Inc., The Rubenstein Company, L.P. and The Fortress Group, Inc. Mr. Gunty
received an M.B.A. degree from Harvard Business School and an A.B. degree from
Harvard College.
Evan A. Kaplan, 38, is the President and a director of Merger Sub, and the
President, Chief Operating Officer and a director of Parent. Prior to June 1996,
Mr. Kaplan was a partner and co-founder of The Kapson Group. Mr. Kaplan received
a B.A. degree in Psychology from Syracuse University.
Glenn Kaplan, 45, is a director of Merger Sub and the Chairman of the Board
of Directors and the Chief Executive Officer of Parent. Prior to June 1996, he
was a partner and co-founder of The Kapson Group. Mr. Kaplan received a B.S.
degree in Accounting from the University of Bridgeport.
In addition to the above listed directors, Vencor will have the right
pursuant to the Shareholders Agreement to name one director to the Board of
Directors of the Surviving Corporation. See 'SPECIAL FACTORS--Interests of
Certain Persons in the Merger.'
66
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY
Except as set forth in the table below, none of the directors of executive
officers of Vencor or VHLLC are the beneficial owners of any shares of Common
Stock. The following table sets forth information as of the Record Date, with
respect to the beneficial ownership of each person who is known by the Company
to be the beneficial owner of more than five percent of the outstanding shares
of the Common Stock, and each director and executive officer of the Company and
all of the Company's directors and executive officers as a group:
PRE-MERGER BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY PERCENT
NAME OF INDIVIDUAL OR NUMBER IN GROUP OWNED(1) OF CLASS
- ------------------------------------------------------------------------------- ------------ --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Sandra Harden Austin........................................................... 7,500 (2) *
William C. Ballard Jr.......................................................... 23,000 (3) *
Peter J. Grua.................................................................. 9,500 (2) *
Thomas T. Ladt................................................................. 25,535 (4) *
W. Bruce Lunsford.............................................................. 10,080,000 (5) 43.1%
W. Patrick Mulloy, II.......................................................... 116,635 (6) *
Andy L. Schoepf................................................................ 642,737 (7) 2.7%
R. Gene Smith.................................................................. 67,500 (2) *
J. Timothy Wesley.............................................................. 26,500 (8) *
All executive officers and directors of the Company as a group (9 persons)..... 10,998,907 (9) 47.0%
DIRECTORS AND EXECUTIVE OFFICERS OF VENCOR AND VHLLC
Michael R. Barr................................................................ 21,250 (10) *
Jill L. Force.................................................................. 2,250 (10) *
James H. Gillenwater........................................................... 5,750 (10) *
Richard A. Lechleiter.......................................................... 625 (11) *
W. Earl Reed, III.............................................................. 1,250 (10) *
FIVE PERCENT BENEFICIAL OWNERS
Vencor, Inc.................................................................... 10,000,000 (12) 42.8%
Dresdner RCM Global Investors, LLC............................................. 1,835,500 (13) 7.8%
Wellington Management Company, LLP............................................. 1,704,600 (14) 7.3%
Travelers Group Inc............................................................ 1,532,656 (15) 6.6%
</TABLE>
- ------------------
(*) Less than 1.0%
(1) Beneficial ownership of shares for purposes of this Proxy Statement, as
determined in accordance with the applicable rules and regulations of the
Commission, includes shares as to which a person has or shares voting power
or investment power or which the person has the right to acquire beneficial
ownership within 60 days. Except as set forth in the accompanying
footnotes, the named persons have sole voting power and sole investment
power over the shares beneficially owned by them. Beneficial ownership is
given as of the Record Date, except as otherwise noted below.
(2) Includes 2,500 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998 and 2,500 shares subject to options exercisable within
60 days.
(3) Includes 7,000 shares held in trust for Mr. Ballard's spouse, 4,000 shares
held in trust for his children, 2,500 restricted shares of Common Stock
with restrictions lapsing on August 20, 1998, and 2,500 shares subject to
options exercisable within 60 days.
(4) Includes 2,000 shares held by a partnership of which Mr. Ladt is the
managing general partner and 6,000 shares held in an estate of which Mr.
Ladt is executor. This amount also includes 35 shares held as custodian for
his son, 2,500 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998 and 2,500 shares subject to options exercisable within
60 days.
(Footnotes continued on next page)
67
<PAGE>
(Footnotes continued from previous page)
(5) Includes 10,000,000 shares held by Vencor. Mr. Lunsford is Chairman of the
Board, President and Chief Executive Officer of Vencor. Because Mr.
Lunsford has authority to direct the voting and disposition of such shares,
he may be deemed to beneficially own these shares. Mr. Lunsford disclaims
beneficial ownership of these shares. This amount also includes 10,000
restricted shares of Common Stock with restrictions lapsing on August 20,
1998 and 20,000 shares subject to options exercisable within 60 days.
Excludes 10,000 shares held in trust for the benefit of his children. Mr.
Lunsford's address is 3300 Aegon Center, 400 West Market Street,
Louisville, Kentucky 40202.
(6) Includes 1,830 shares held by his spouse, 380 shares held as custodian for
his minor children, 80,000 shares subject to options exercisable within 60
days and 15,000 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998.
(7) Includes 6,250 shares subject to options exercisable within 60 days.
(8) Includes 2,500 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998 and 20,000 shares subject to options exercisable within
60 days.
(9) Includes 40,000 restricted shares of Common Stock with restrictions lapsing
on August 20, 1998 and 138,750 shares subject to options exercisable within
60 days held by all directors and executive officers.
(10) Includes 1,250 shares subject to options exercisable within 60 days.
(11) Includes 625 shares subject to options exercisable within 60 days.
(12) The ownership given for Vencor is based on information contained in the
Schedule 13D dated April 30, 1998 filed by Vencor with the Securities and
Exchange Commission. All of these shares are held of record by VHLLC. The
address of Vencor is 3300 Aegon Center, 400 West Market Street, Louisville,
Kentucky 40202.
(13) As reported by Dresdner RCM Global Investors, LLL ('Dresdner RCM') as of
December 31, 1997, in a Schedule 13G filed with the Commission on February
6, 1998, Dresdner had sole voting power with respect to 1,529,500 shares,
sole dispositive power with respect to 1,761,500 shares, and shared
dispositive power with respect to 74,000 shares. RCM Limited L.P. is the
Managing Agent of Dresdner RCM, and RCM General Corporation is the General
Partner of RCM Limited L.P. Dresdner RCM is an investment advisor under
Section 203 of the Investment Advisors Act of 1940. As reported by Dresdner
Bank AG ('Dresdner') in a Schedule 13G filed with the Commission on
February 6, 1998, Dresdner RCM is a wholly owned subsidiary of Dresdner, an
international banking organization headquartered in Frankfurt, Germany. The
address of Dresdner RCM is Four Embarcadero Center, San Francisco,
California 94111.
(14) As reported by Wellington Management Company, LLP ('WMC') as of December
31, 1997, in a Schedule 13G filed with the Commission on February 10, 1998,
WMC has shared voting power with respect to 1,341,500 shares and shared
dispositive power with respect to all of the shares beneficially owned by
WMC. The address of WMC is 75 State Street, Boston, Massachusetts 02109.
(15) As reported by Travelers Group Inc. ('Travelers') as of May 7, 1998, in a
Schedule 13D filed with the Commission on May 26, 1998. All of these shares
are beneficially owned by subsidiaries of Travelers. The address of
Travelers is 388 Greenwich Street, New York, New York 10013.
POST-MERGER OWNERSHIP OF OUTSTANDING RECAPITALIZED COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Recapitalized Common Stock immediately following the Merger.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY PERCENT
NAME OF INVESTOR OWNED (# OF SHARES) OF CLASS
- -------------------------------------------------------------------------- ------------------- --------
<S> <C> <C>
Kapson Senior Quarters Corp............................................... 9,135,802(1) 88.1%
Vencor, Inc. (held of record by VHLLC).................................... 1,234,568(2) 11.9%
W. Patrick Mulloy, II..................................................... 232,439(3) 2.1%
Andy L. Schoepf........................................................... 235,000(3) 2.1%
J. Timothy Wesley......................................................... 109,750(3) 1.0%
</TABLE>
(Footnotes on next page)
68
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Parent may, under certain circumstances, elect to receive up to 11,111,111
shares of the Recapitalized Common Stock as of the Effective Time of the
Merger. See 'SPECIAL FACTORS--Purpose and Structure of the Merger; Certain
Effects of the Merger.' Parent will beneficially own approximately 83.4% of
the outstanding Recapitalized Common Stock if all of the Rollover Options
are exercised.
(2) Vencor will beneficially own approximately 11.2% of the outstanding
Recapitalized Common Stock if all of the Rollover Options are exercised.
(3) All of these shares are issuable upon the exercise of the Rollover Options
which are exercisable within sixty (60) days after the Effective Time of the
Merger. Assumes that the number of shares of Recapitalized Common Stock
received in connection with the Rollover Options is not adjusted by the
Surviving Corporation's Board of Directors. See 'THE MERGER
AGREEMENT--Rollover Options.'
69
<PAGE>
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS
Concurrently with the consummation of the Company's initial public offering
of Common Stock in August 1996, the Company issued 10,000,000 shares of Common
Stock to Vencor in exchange for its transfer of certain assisted and independent
living communities previously operated by Vencor and its affiliates. Except as
provided in the foregoing sentence, neither the Company, Vencor nor VHLLC have
purchased any shares of Common Stock since August 20, 1996 (the date that the
Common Stock commenced trading on the Nasdaq National Market System). The
following table sets forth certain information concerning purchases of Common
Stock since August 20, 1996 by the directors and executive officers of the
Company, Vencor and VHLLC:
<TABLE>
<CAPTION>
NUMBER WHERE AND HOW
OF SHARES PRICE PER TRANSACTION
NAME DATE PURCHASED SHARE($) EFFECTED
- -------------------------------------------------------- -------------- --------- --------- --------------
<S> <C> <C> <C> <C>
Sandra Harden Austin Aug. 20, 1996 5,000 -- (1)
William C. Ballard Jr. Aug. 20, 1996 5,000 -- (1)
Aug. 20, 1996 4,500 10.00 Nasdaq
Aug. 21, 1996 1,000 11.00 Nasdaq(2)
Dec. 3, 1996 5,000 9.75 Nasdaq(3)
Dec. 3, 1996 5,000 9.875 Nasdaq(3)
Michael R. Barr Sep. 24, 1997 8,000 18.25 Nasdaq
Sep. 24, 1997 2,000 18.125 Nasdaq
Oct. 21, 1997 5,000 17.25 Nasdaq
Oct. 23 1997 5,000 17.25 Nasdaq
Jill L. Force Aug. 20, 1996 8,000 10.00 Nasdaq
James H. Gillenwater, Jr Aug. 20, 1996 4,500 10.00 Nasdaq
Peter J. Grua Aug. 20, 1996 5,000 -- (1)
May 14, 1997 2,000 12.375 Nasdaq
Thomas T. Ladt Aug. 20, 1996 5,000 -- (1)
Aug. 20, 1996 10,000 10.00 Nasdaq
Sept. 15, 1996 35 12.00 Nasdaq(4)
Richard A. Lechleiter Aug. 20, 1996 5,200 10.00 Nasdaq
W. Bruce Lunsford Aug. 20, 1996 20,000 -- (1)
Aug. 20, 1996 50,000 10.00 Nasdaq(5)
W. Patrick Mulloy, II Aug. 20, 1996 30,000 -- (1)
Aug. 20, 1996 4,550 10.00 Nasdaq(6)
Oct. 30, 1996 360 12.76 Nasdaq(7)
Dec. 24, 1996 180 10.625 Nasdaq(8)
April 4, 1997 1,000 10.875 Nasdaq(7)
May 12, 1997 425 11.625 Nasdaq
W. Earl Reed, III Aug. 20, 1996 10,000 10.00 Nasdaq
Andy L. Schoepf Apr. 1, 1997 636,487 (9) (9)
R. Gene Smith Aug. 20, 1996 5,000 -- (1)
Aug. 20, 1996 50,000 10.00 Nasdaq
Apr. 3, 1997 3,000 11.00 Nasdaq
Apr. 4, 1997 7,000 11.00 Nasdaq
J. Timothy Wesley Aug. 20, 1996 5,000 -- (1)
Aug. 20, 1996 500 10.00 Nasdaq
Dec. 3, 1996 1,000 9.50 Nasdaq
</TABLE>
(Footnotes on next page)
70
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Restricted stock grant.
(2) Shares purchased in trust for Mr. Ballard's spouse.
(3) Includes 3,000 shares purchased in trust for Mr. Ballard's spouse, and 2,000
shares purchased in trust for Mr. Ballard's children.
(4) Shares purchased in trust for Mr. Ladt's children.
(5) Includes 40,000 shares of Common Stock purchased directly and 10,000 shares
purchased in trust for Mr. Lunsford's children.
(6) Includes 4,000 shares of Common Stock purchased directly, 350 shares
purchased by Mr. Mulloy's spouse, and 200 shares purchased in trust for Mr.
Mulloy's children.
(7) Shares purchased by Mr. Mulloy's spouse.
(8) Shares purchased in trust for Mr. Mulloy's children.
(9) All 636,487 shares of Common Stock acquired in connection with the Company's
acquisition of American ElderServe Corporation. Mr. Schoepf was a 50%
shareholder, President and Chief Executive Officer of American ElderServe
Corporation upon its acquisition by the Company.
UNDERWRITTEN PUBLIC OFFERINGS
From and since August 20, 1996 (the commencement of the Company's initial
public offering of Common Stock), the Company has engaged in the following
underwritten public offerings of Common Stock for cash:
<TABLE>
<CAPTION>
COMMENCEMENT
DATE OF OFFERING NUMBER OF SHARES PRICE PER SHARE($) AGGREGATE PROCEEDS($)
- ------------------------------------------------------ ---------------- ------------------ ---------------------
<S> <C> <C> <C>
August 20, 1996....................................... 5,750,000 10.00 53,475,000(1)
July 2, 1997.......................................... 6,900,000 14.00 91,528,500(2)
</TABLE>
- ------------------
(1) After deducting underwriting discounts and commissions of $4,025,000, but
before deducting expenses of the offering.
(2) After deducting underwriting discounts and commissions of $5,071,500, but
before deducting expenses of the offering.
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters that may be
presented at the Special Meeting, but if other matters do properly come before
the meeting, it is intended that the persons named in the proxy will vote,
pursuant to their discretionary authority, according to their best judgment in
the interest of the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company at December 31, 1996
and December 31, 1997, and for each of the three years in the period ended
December 31, 1997, incorporated by reference, have been audited by Ernst & Young
LLP, independent auditors ('Ernst & Young'), as indicated in their report
thereon. Representatives of Ernst & Young will be present at the Special Meeting
and will be available to respond to appropriate questions.
71
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is not consummated for any reason, proposals of stockholders
intended to be presented at the 1999 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or prior to
January 4, 1999 to be eligible for inclusion in the Company's Proxy Statement
and form of proxy relating to that meeting. Stockholders should mail any
proposals by certified mail, return receipt requested.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-21159) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by the Company's Annual Report on
Form 10-K filed on April 30, 1998;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
3. The Company's Current Report on Form 8-K dated February 1, 1998, as
amended by the Company's Current Report on Form 8-K/A filed on
March 23, 1998;
4. The Company's Current Report on Form 8-K dated February 15, 1998,
as amended by the Company's Current Report on Form 8-K/A filed on
February 25, 1998; and
5. The Company's Current Report on Form 8-K dated April 19, 1998, as
amended by the Company's Current Report on Form 8-K/A filed on May
29, 1998.
6. The Company's Registration Statement on Form 8-A12(g) dated
August 7, 1996, as amended by the Company's Registration Statement
on Form 8-A12(g) filed on August 16, 1996 and the Company's
Registration Statement on Form 8-A12(g) filed on August 20, 1996.
7. The Company's Registration Statement on Form 8-A12(g) dated
February 17, 1998, as amended by the Company Registration Statement
on Form 8-A12(g)/A filed on February 25, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document that is or is
deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be deemed
to constitute a part hereof except as so modified or superseded. All information
appearing in this Proxy Statement is qualified in its entirety by the
information and financial statements (including the notes thereto) appearing in
the documents incorporated by reference.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN CERTAIN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO THE COMPANY, FROM
ATRIA COMMUNITIES, INC., 501 SOUTH FOURTH AVENUE, SUITE 140, LOUISVILLE,
KENTUCKY 40202, ATTENTION: CORPORATE SECRETARY, TELEPHONE: (502) 719-1600.
By order of the Board of Directors,
J. TIMOTHY WESLEY
Secretary
Louisville, Kentucky
July , 1998
PLEASE COMPLETE AND RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED PREPAID
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
72
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
CONFORMED COPY
CONFIDENTIAL
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 19, 1998
AMONG
KAPSON SENIOR QUARTERS CORP.,
KA ACQUISITION CORP.,
AND
ATRIA COMMUNITIES, INC.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions and Usage..................................................................................... A-1
<CAPTION>
ARTICLE I
[Intentionally Omitted]
ARTICLE II
The Merger
<S> <C>
SECTION 2.01. The Merger................................................................................. A-1
SECTION 2.02. Closing.................................................................................... A-1
SECTION 2.03. Effective Time............................................................................. A-2
SECTION 2.04. Effects of the Merger...................................................................... A-2
SECTION 2.05. Certificate of Incorporation and By-laws................................................... A-2
SECTION 2.06. Directors.................................................................................. A-2
SECTION 2.07. Officers................................................................................... A-2
SECTION 2.08. Supplemental Indenture..................................................................... A-2
SECTION 2.09. Parent's Election to Modify the Terms of the Merger........................................ A-2
<CAPTION>
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
<S> <C>
SECTION 3.01. Effect on Capital Stock.................................................................... A-3
SECTION 3.02. Exchange of Certificates................................................................... A-4
<CAPTION>
ARTICLE IV
Representations and Warranties
<S> <C>
SECTION 4.01. Representations and Warranties of the Company.............................................. A-5
SECTION 4.02. Representations and Warranties of Parent and Sub........................................... A-13
<CAPTION>
ARTICLE V
Covenants Relating to Conduct of Business
<S> <C>
SECTION 5.01. Conduct of Business........................................................................ A-16
SECTION 5.02. No Solicitation............................................................................ A-17
<CAPTION>
ARTICLE VI
Additional Agreements
<S> <C>
SECTION 6.01. Preparation of Proxy Materials............................................................. A-18
SECTION 6.02. Access to Information; Confidentiality..................................................... A-19
SECTION 6.03. Reasonable Efforts; Notification........................................................... A-19
SECTION 6.04. Rights Agreement........................................................................... A-20
SECTION 6.05. Stock Options.............................................................................. A-20
SECTION 6.06. Benefit Plans.............................................................................. A-21
SECTION 6.07. Indemnification............................................................................ A-21
SECTION 6.08. Fees and Expenses.......................................................................... A-21
SECTION 6.09. Public Announcements....................................................................... A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.10. Transfer Taxes............................................................................. A-22
SECTION 6.11. Support Agreements......................................................................... A-22
SECTION 6.12. Headquarters............................................................................... A-22
<CAPTION>
ARTICLE VII
Conditions Precedent
<S> <C>
SECTION 7.01. Conditions to Each Party's Obligation To Effect the Merger................................. A-22
SECTION 7.02. Conditions to Obligations of Parent and Sub................................................ A-23
SECTION 7.03. Condition to Obligation of the Company..................................................... A-23
<CAPTION>
ARTICLE VIII
Termination, Amendment and Waiver
<S> <C>
SECTION 8.01. Termination................................................................................ A-24
SECTION 8.02. Effect of Termination...................................................................... A-24
SECTION 8.03. Amendment.................................................................................. A-25
SECTION 8.04. Extension; Waiver.......................................................................... A-25
SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver.................................. A-25
<CAPTION>
ARTICLE IX
General Provisions
<S> <C>
SECTION 9.01. Nonsurvival of Representations and Warranties.............................................. A-26
SECTION 9.02. Notices.................................................................................... A-26
SECTION 9.03. Definitions................................................................................ A-27
SECTION 9.04. Interpretation............................................................................. A-28
SECTION 9.05. Counterparts............................................................................... A-28
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries............................................. A-28
SECTION 9.07. Governing Law.............................................................................. A-28
SECTION 9.08. Assignment................................................................................. A-28
SECTION 9.09. Enforcement................................................................................ A-28
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Press Release Announcing the Transactions
Exhibit B-1 Form of Support Agreement with V Corp.
Exhibit B-2 Form of Support Agreement with Management Stockholders
Exhibit C Form of Shareholders and Registration Rights Agreement
Exhibit D Form of Certificate of Incorporation of Surviving Corporation
<CAPTION>
SCHEDULES
<S> <C>
Schedule 4.01(a) Organization, Standing and Corporate Power
Schedule 4.01(d) Consents
Schedule 4.01(g) Absence of Certain Changes or Events
Schedule 4.01(j) ERISA Compliance
Schedule 4.01(k) Taxes
Schedule 4.01(l) Excess Parachute Payments
Schedule 4.01(r) Transactions with Affiliates
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C>
Schedule 4.01(s)(i) Company Properties; Liens
Schedule 4.01(s)(ii) Title Policies
Schedule 4.01(s)(iii) Material Noncompliance
Schedule 4.01(s)(iv) Material Demands
Schedule 4.01(s)(v) The Projects
Schedule 4.01(t) Environmental Matters
Schedule 4.01(u) Labor Matters
Schedule 4.01(w) Permits
Schedule 6.05(a) Stock Plans
Schedule 6.05(d) Rollover Options
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of April 19, 1998, among KAPSON
SENIOR QUARTERS CORP, a Delaware corporation ('Parent'), KA ACQUISITION CORP., a
Delaware corporation ('Sub') and a wholly owned subsidiary of Parent, and ATRIA
COMMUNITIES, INC., a Delaware corporation (the 'Company').
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger (the 'Merger') of Sub into the Company on the terms and
subject to the conditions set forth in this Agreement, whereby each issued share
of common stock, par value $0.10 per share, of the Company (the 'Common Stock'),
including the associated Rights (as defined in Section 4.01(c)) (except shares
(i) owned directly or indirectly by Parent or the Company, (ii) 1,234,568 shares
(the 'V Corp. Retained Shares') of Common Stock owned by V CORP. ('V Corp.') and
its wholly owned subsidiaries, and (iii) shares held by Dissenting Stockholders
(as defined below)), shall be converted into the right to receive $20.25 in
cash;
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent and Sub are entering into (i) a Support Agreement with V Corp., in the
form of Exhibit B-1 hereto, and (ii) a Support Agreement with certain officers
and directors of the Company (collectively, the 'Management Stockholders'), in
the form of Exhibit B-2 hereto, pursuant to which V Corp. and such officers and
directors shall agree to take certain actions to support the transactions
contemplated by this Agreement (the 'Support Agreements');
WHEREAS, the respective Board of Directors of the Company, Parent and V
Corp. have approved the execution and delivery at the Closing (as defined below)
of the Shareholders and Registration Rights Agreement (the 'Shareholders
Agreement' and together with this Agreement and the Support Agreements, the
'Operative Agreements') among the Company, Parent, V Corp. and the Management
Stockholders, in the form of Exhibit C;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows (certain terms used herein have the meanings assigned to them in Section
9.03):
ARTICLE I
[Intentionally Omitted]
ARTICLE II
The Merger
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the 'DGCL'), Sub shall be merged with and into the Company at the Effective
Time of the Merger (as hereinafter defined). Following the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation (the 'Surviving Corporation') and shall succeed to and
assume all the rights and obligations of Sub in accordance with the DGCL. At the
election of Parent, any affiliate of Parent may be substituted for Sub as a
constituent corporation in the Merger. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to reflect the
foregoing. The Merger and the other transactions contemplated by the Operative
Agreements are referred to in this Agreement collectively as the 'Transactions'.
SECTION 2.02. Closing. The closing of the Merger (the 'Closing') will take
place at 10:00 a.m. on a date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Sections 7.02 and 7.03)
shall be no later than the fifth business day after satisfaction or waiver of
the conditions set forth in Section 7.01 and no earlier than July 15, 1998 (the
'Closing Date'), at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825
Eighth Avenue, New York, N.Y. 10019, unless another date or place is agreed to
in writing by the parties hereto.
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SECTION 2.03. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VII, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the 'Certificate of Merger') executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such other time as Sub and the Company shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being the
'Effective Time of the Merger').
SECTION 2.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 2.05. Certificate of Incorporation and By-laws. (a) The
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time of the Merger, shall be amended as of the Effective Time of
the Merger to read in the form of Exhibit D and, as so amended, such Certificate
of Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The By-laws of Sub as in effect at the Effective Time of the Merger
shall be the By-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 2.06. Directors. The directors of Sub at the Effective Time of the
Merger shall be the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 2.07. Officers. The officers of the Company at the Effective Time
of the Merger shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 2.08. Supplemental Indenture. Prior to the Effective Time of the
Merger, the Company and the Trustee (as defined below) shall enter into a
supplemental indenture (the 'Supplemental Indenture') to the Indenture dated as
of October 16, 1997 (the 'Indenture'), between the Company and PNC Bank,
Kentucky, Inc., as trustee (the 'Trustee'), pursuant to Section 15.6 of the
Indenture, which shall (i) become effective upon the Effective Time of the
Merger and (ii) provide that, from and after the Effective Time of the Merger,
each of the Company's outstanding 5.0% Convertible Subordinated Notes due 2002
(the 'Convertible Sub Notes') shall cease to be convertible into shares of
Common Stock, but shall be convertible solely into an amount of cash, without
interest, equal to the product of (x) the number of shares of Common Stock into
which such Note was convertible immediately prior to the Effective Time of the
Merger and (y) the Merger Consideration (as defined below). The Company shall
give Parent a reasonable opportunity to comment on the form of the Supplemental
Indenture prior to the execution thereof, and shall not enter into the
Supplemental Indenture if Parent reasonably objects thereto.
SECTION 2.09. Parent's Election to Modify the Terms of the Merger. (a) If,
at any time following the date of this Agreement and prior to the initial
mailing of the Proxy Materials to the Company's stockholders, Parent shall
determine, in its sole discretion, that the Surviving Corporation would not be
entitled to treat the Merger as a recapitalization under GAAP, Parent shall have
the right to modify the terms of the Merger as set forth in clauses (i) and (ii)
below:
(i) each holder of any issued and outstanding shares of Common Stock
of the Company (other than shares to be canceled or converted in accordance
with Sections 3.01(b) and 3.01(c)) and other than V Corp. or any of its
subsidiaries (the 'Public Stockholders') will have right to elect to
receive the Merger Consideration in the form of cash and/or shares of
Common Stock of the Surviving Corporation ('New Public Shares'), valuing
each such share at $20.25 per share, up to a maximum of 1,234,568 New
Public Shares (or, at the option of Parent, 2,469,136 New Public Shares);
provided, however, that (A) such elections shall be subject to proration
(based on the number of shares subject to election) if the Public
Stockholders elect to receive more than 1,234,568 New Public Shares (or, at
the option of Parent, 2,469,136 New Public Shares) and (B) at the option of
Parent, no New Public Shares will be issued (and the Public Stockholders
will receive Merger Consideration consisting solely of cash) if the Public
Stockholders elect to receive less than 617,284 New Public Shares; and
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(ii) the number of V Corp. Retained Shares shall be reduced on
share-for-share basis by the total number of New Public Shares issued to
the Public Stockholders in the Merger (but not below zero).
(b) If Parent elects to modify the terms of the Merger as set forth in
paragraph (a) above, the parties agree to execute an appropriate amendment to
this Agreement in order to reflect such modification, which amendment shall
include (i) an extension of the Outside Date to December 31, 1998, (ii)
provisions relating to the preparation and filing by the Company with the SEC of
a Registration Statement on Form S-4, in which the proxy statement (including
any appropriate amendment to reflect the modified terms of the Merger) will be
included as a prospectus and (iii) such other provisions regarding the mechanics
and timing of the Merger as are customary for cash-election mergers.
(c) Parent and the Company each represents and warrants to the other party
that its Board of Directors has approved the Merger on the modified terms set
forth in this Section 2.09; provided, however, that each party acknowledges
that, notwithstanding any other provision of this Agreement, the Board of
Directors of the Company has not, and is not obligated to, approve or recommend
any election by any stockholder of the Company to receive any Merger
Consideration in the form of New Public Shares.
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any shares of Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become 11,111.111 fully paid and
nonassessable shares of Common Stock, par value $0.01 per share, of the
Surviving Corporation.
(b) Treasury Stock and Parent Owned Stock. Each share of Common Stock that
is owned by the Company and each share of Common Stock that is owned by Parent
or Sub (together, in each case, with the associated Right) shall automatically
be canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor. Each share of Common Stock that is owned by any
subsidiary of the Company or Parent (other than Sub), together, in each case,
with the associated Right, shall automatically be converted into and become one
fully paid and nonassessable share of Common Stock, par value $0.01 per share,
of the Surviving Corporation.
(c) V Corp. Retained Shares. Each V Corp. Retained Share, together with
the associated Right, shall automatically be converted into and become a one
fully paid and nonassessable share of Common Stock, par value $0.01 per share,
of the Surviving Corporation.
(d) Conversion of Common Stock. Subject to Section 3.01(e), each issued
and outstanding share of Common Stock (other than shares to be canceled or
converted in accordance with Sections 3.01(b) and 3.01(c)), together with the
associated Right, shall be converted into the right to receive $20.25 in cash
(the 'Merger Consideration'). As of the Effective Time of the Merger, all such
shares of Common Stock (and the associated Rights) shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Common
Stock (and the associated Rights) shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without interest.
(e) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock that are outstanding
immediately prior to the Effective Time of the Merger and that are held by any
person who objects to the Merger and complies with Section 262 of the DGCL
concerning the right of holders of Common Stock to dissent from the Merger and
require appraisal of their shares of Common Stock (a 'Dissenting Stockholder')
shall not be converted as described in Section 3.01(d) but, as of the Effective
Time of the Merger, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist and shall become the right to
receive such consideration as may be determined to be due to such Dissenting
Stockholder pursuant to the laws of the State of Delaware; provided, however,
that the shares of Common Stock
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(together with the associated Rights) outstanding immediately prior to the
Effective Time of the Merger and held by a Dissenting Stockholder who shall,
after the Effective Time of the Merger, withdraw his demand for appraisal or
lose his right of appraisal, in either case pursuant to the DGCL, shall be
deemed to be converted as of the Effective Time of the Merger into the right to
receive the Merger Consideration. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of shares of Common Stock received
by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, voluntarily make any payment with respect to,
or settle, offer to settle or otherwise negotiate, any such demands.
SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time of the Merger, Parent shall select a bank or trust company
reasonably satisfactory to the Company to act as paying agent (the 'Paying
Agent') for the payment of the Merger Consideration upon surrender of
certificates representing Common Stock. At the Effective Time, Parent shall
transfer funds (or provide for the transfer of funds) to Sub in an amount
sufficient to pay the Merger Consideration for every share of Common Stock to be
converted at the Effective Time into the Merger Consideration, and Parent hereby
represents and warrants to the Company that the Surviving Corporation will have
all such funds at the Effective Time.
(b) Surviving Corporation To Provide Funds. The Surviving Corporation will
provide to the Paying Agent on a timely basis, as and when needed after the
Effective Time of the Merger, funds necessary to pay for the shares of Common
Stock pursuant to Section 3.01, it being understood that any and all interest
earned on funds made available to the Paying Agent in accordance with this
Agreement shall be turned over to Parent.
(c) Exchange Procedure. As soon as reasonably practicable after the
Effective Time of the Merger, the Paying Agent shall mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time of the Merger represented outstanding shares of Common Stock (the
'Certificates') whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 3.01, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancelation to the Paying Agent or to such other agent or agents
as may be appointed by the Parent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash into which the shares of Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.01, and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Common Stock which is not registered
in the transfer records of the Company, payment may be made to a person other
than the person in whose name the Certificate so surrendered is registered, if
such Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 3.02, each Certificate shall be deemed at any
time after the Effective Time of the Merger to represent only the right to
receive upon such surrender the amount of cash, without interest, into which the
shares of Common Stock theretofore represented by such Certificate shall have
been converted pursuant to Section 3.01. No interest will be paid or will accrue
on the cash payable upon the surrender of any Certificate.
(d) No Further Ownership Rights in Common Stock. All cash paid upon the
surrender of Certificates in accordance with the terms of this Article III shall
be deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Common Stock theretofore represented by such Certificates, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Common Stock which were outstanding
immediately prior to the Effective Time of the Merger. If, after the Effective
Time of the Merger, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
III.
(e) No Liability. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time of the
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Merger (or immediately prior to such earlier date on which any payment pursuant
to this Article III would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 4.01(d))), the payment in respect of
such Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(f) Withholding Rights. Parent or Sub, as the case may be, shall be
entitled to deduct and withhold from the consideration otherwise payable to any
holder of Common Stock pursuant to this Agreement only such amounts as are
required to be deducted and withheld with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the 'Code'), or under any
provision of state, local or foreign tax law.
ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of the Company. The Company
represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. The Company and each of
its subsidiaries is the type of entity listed on Schedule 4.01(a), duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite power and authority
to carry on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) would not have a Material Adverse
Effect on the Company. The Company has delivered to Parent complete and correct
copies of its Certificate of Incorporation and By-laws and the certificates of
incorporation and by-laws (or comparable charter or organizational documents) of
its Significant Subsidiaries, in each case as amended to the date of this
Agreement. For purposes of this Agreement, a 'Significant Subsidiary' means any
subsidiary of the Company that constitutes a significant subsidiary within the
meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Subsidiaries. Schedule 4.01(a) lists each subsidiary of the Company.
All the outstanding shares of capital stock or other equity interests of each
such subsidiary have been validly issued and are fully paid and nonassessable
and, except as set forth in Schedule 4.01(a), are owned by the Company and/or
one or more other subsidiaries of the Company, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, 'Liens'). Except for the capital stock or other
equity interests of its subsidiaries and except for the ownership interests set
forth in Schedule 4.01(a), the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership, joint
venture or other entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 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. At the close of
business on April 16, 1998, (i) 23,381,362 shares of Common Stock were issued
and outstanding, of which 80,000 shares were shares of restricted stock granted
to employees of the Company pursuant to the Stock Plans ('Restricted Shares');
(ii) no shares of preferred stock were issued and outstanding; (iii) no shares
of Common Stock were held by the Company in its treasury; (iv) the outstanding
Convertible Sub Notes were convertible into 6,889,858 shares of Common Stock
(without giving effect to fractional shares) pursuant to the terms of the
Indenture governing the Convertible Sub Notes; (v) Company Stock Options
covering 2,255,875 shares of Common Stock were issued and outstanding, of which
(x) Company Stock Options covering 223,374 shares of Common Stock are currently
exercisable and (y) Company Stock Options covering 2,032,501 shares of Common
Stock are currently not exercisable; and (vi) sufficient shares of Common Stock
were reserved for issuance pursuant to the Convertible Sub Notes and the Company
Stock Options and sufficient shares of preferred stock were reserved for
issuance pursuant to the rights (the 'Rights') to purchase shares of Common
Stock issued pursuant to the Rights Agreement dated as of February 15, 1998 (as
amended from time to time, the 'Rights Agreement'), between the Company and
National City Bank, as Rights Agent (the 'Rights Agent'). Except as set forth
above, no shares of capital stock or other voting securities of the Company were
issued, reserved for issuance or outstanding. There are no outstanding stock
appreciation rights granted under any Stock Plan. All outstanding shares of
capital stock of the Company are, and all shares which may be issued pursuant to
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the Stock Plans will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. Except for the
Convertible Sub Notes, there are not any bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except for the Rights, securities issued
under the Stock Plans, the Convertible Sub Notes and as otherwise set forth
above, as of the date of this Agreement, there are not any securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its subsidiaries is a party or by
which any of them is bound obligating the Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or of any of
its subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. As of the date of this
Agreement, there are not any outstanding contractual obligations of the Company
or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company or any of its subsidiaries. The Company has
delivered to Parent a complete and correct copy of the Rights Agreement as
amended and supplemented to the date of this Agreement.
(d) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to receipt of
Company Stockholder Approval (as defined in Section 4.01(m)), to consummate the
Transactions. The execution and delivery by the Company of the Operative
Agreements to which it is a party and the consummation by the Company of the
Transactions have been duly authorized by all necessary corporate action on the
part of the Company, subject to receipt of Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity, including concepts of materiality, reasonableness, good
faith and fair dealing, regardless of whether considered in a proceeding in
equity or in law). The execution and delivery by the Company of the Operative
Agreements to which it is a party do not, and the consummation by the Company of
the Transactions and compliance with the provisions of the Operative Agreements
to which it is a party will not conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancelation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of the Company or any of its subsidiaries under, (i)
the Certificate of Incorporation or By-laws of the Company or the comparable
charter or organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its subsidiaries or their respective properties or assets or (iii)
except for the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, (A) in the case of clause (ii) and
(iii), any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a Material Adverse Effect on
the Company, (B) with respect to the Company's obligation to repurchase the
Convertible Sub Notes at the election of the holders thereof upon a 'Change of
Control' in accordance with the terms of the Indenture and (C) with respect to
the Credit Agreement dated as of August 15, 1996, as amended, by and among the
Company and the financial institutions listed therein (the 'Credit Agreement').
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a 'Governmental Entity'), is required by or with respect to
the Company or any of its subsidiaries in connection with the execution and
delivery by the Company of the Operative Agreements to which it is a party or
the consummation by the Company of the Transactions, except for (i) the filing
of a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the 'HSR Act'), (ii) the
filing with the SEC of (x) a proxy or information statement relating to the
adoption by the Company's stockholders of this Agreement (as amended or
supplemented from time to time, the 'Proxy Statement') and (y) such reports
under Section 13 of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), as may be required in connection with this Agreement and the
Transactions, (iii) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the
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relevant authorities of other states in which the Company is qualified to do
business, (iv) such filings as may be required in connection with the taxes
described in Section 6.10, (v) such filings as may be required under applicable
state licensing and certificate of need laws, (vi) such other consents,
approvals, notices, orders, authorizations, registrations, declarations and
filings as are set forth on Schedule 4.01(d), and (vii) any such consent,
approval, order or authorization, registration, declaration or filing that, if
not obtained or made, individually or in the aggregate, would not have a
Material Adverse Effect on the Company.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since January 1, 1997 (the 'SEC Documents'). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933 (the 'Securities Act'), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in the Filed SEC Documents (as defined below), neither the Company nor any of
its subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a consolidated balance sheet of the Company and its consolidated subsidiaries or
in the notes thereto and which, individually or in the aggregate, would have a
Material Adverse Effect on the Company.
(f) Information Supplied. None of the Proxy Materials (as defined in
Section 6.01), taken as a whole, will, at the respective times they are first
published, sent or given to the Company's stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent or Sub for inclusion or incorporation by
reference therein. The Proxy Materials will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder.
(g) Absence of Certain Changes or Events. Except as disclosed in Schedule
4.01(g) or in the SEC Documents filed and publicly available prior to the date
of this Agreement (the 'Filed SEC Documents'), since the date of the most recent
financial statements included in the SEC Documents, the Company has conducted
its business only in the ordinary course, and there has not been (i) any
Material Adverse Change in the Company and its subsidiaries taken as a whole,
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to, or any
repurchase for value by the Company of, any of the Company's capital stock,
(iii) any split, combination or reclassification of any of its capital stock or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, (iv)
(x) any granting by the Company or any of its subsidiaries to any director,
employee or officer of the Company or any of its subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with prior
practice or as was required under employment agreements in effect as of the date
of the most recent financial statements included in the Filed SEC Documents, (y)
any granting by the Company or any of its subsidiaries to any such director,
employee or officer of any increase in severance or termination pay, except as
was required under any employment, severance or termination agreements in effect
as of the date of the most recent financial statements included in the Filed SEC
Documents or (z) any entry by the Company or any of its subsidiaries into any
employment or termination agreement with any such director, employee or officer,
(v) any damage, destruction or loss, whether or not covered by insurance, that
has a Material Adverse Effect on the Company or (vi) any change in accounting
methods, principles or practices by the Company materially affecting its assets,
liabilities or results of operations, except insofar as may have been required
by a change in GAAP or other applicable law or regulation. The foregoing
representation and warranty shall not be deemed to be inaccurate as of the
Closing Date solely by reason of any action described in
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clauses (i)-(xiii) of Section 5.01 that is taken by the Company or any of its
subsidiaries after the date of this Agreement with the consent of Parent.
(h) Litigation. Except as disclosed in the Filed SEC Documents, there is
no suit, action or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries (and the
Company is not aware of any basis for any such suit, action or proceeding that
is considered by the Company probable of assertion and which if asserted would
have a reasonable probability of an unfavorable outcome) that, individually or
in the aggregate, would (i) have a Material Adverse Effect on the Company, (ii)
materially impair the ability of the Company to perform its obligations under
this Agreement or (iii) prevent the consummation of any of the Transactions, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company or any of its subsidiaries
having any such effect.
(i) Absence of Changes in Benefit Plans. Except as disclosed in the Filed
SEC Documents, since the date of the most recent financial statements included
in the Filed SEC Documents, there has not been any adoption or amendment in any
material respect by the Company or any of its subsidiaries of any collective
bargaining agreement, employment agreement or any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of the Company or any of its
subsidiaries (collectively, 'Benefit Plans'). Except as disclosed in the Filed
SEC Documents, there exist no material employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
between the Company or any of its subsidiaries and any current or former
employee, officer or director of the Company or any of its subsidiaries.
(j) ERISA Compliance. (i) Schedule 4.01(j) contains a list and brief
description of all 'employee pension benefit plans' (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ('ERISA'))
(sometimes referred to herein as 'Pension Plans'), 'employee welfare benefit
plans' (as defined in Section 3(1) of ERISA) and all other Benefit Plans
maintained, or contributed to, by the Company or any of its subsidiaries for the
benefit of any current or former employees, officers or directors of the Company
or any of its subsidiaries. The Company has made available to Parent true,
complete and correct copies of (v) each Benefit Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (w) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (x) the most recent summary plan
description for each Benefit Plan for which such summary plan description is
required, (y) each trust agreement and group annuity contract relating to any
Benefit Plan and (z) the most recent actuarial or financial valuation prepared
with respect to any Benefit Plan.
(ii) Except as disclosed in Schedule 4.01(j), all Pension Plans have
been the subject of determination letters from the Internal Revenue Service
to the effect that such Pension Plans are qualified and exempt from Federal
income taxes under Sections 401(a) and 501(a), respectively, of the
Internal Revenue Code of 1986, as amended (the 'Code'), and no such
determination letter has been revoked nor, to the knowledge of the Company,
has revocation been threatened, nor has any such Pension Plan been amended
since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
materially increase its costs. Each Benefit Plan has been operated in
material compliance with the provisions of all applicable laws, including
ERISA and the Code.
(iii) No Pension Plan that the Company or any of its subsidiaries
maintains, or to which the Company or any of its subsidiaries is obligated
to contribute, other than any Pension Plan that is a 'multiemployer plan'
(as such term is defined in Section 4001(a)(3) of ERISA) (collectively, the
'Multiemployer Pension Plans'), had, as of the respective last annual
valuation date for each such Pension Plan, an 'unfunded benefit liability'
(as such term is defined in Section 4001(a)(18) of ERISA), based on
actuarial assumptions which have been furnished to Parent. None of the
Pension Plans has an 'accumulated funding deficiency' (as such term is
defined in Section 302 of ERISA or Section 412 of the Code), whether or not
waived. None of the Company, any of its subsidiaries, any officer of the
Company or any of its subsidiaries, any trustee of any trust created under
any of the Benefit Plans or any other fiduciary with responsibilities with
respect to such trusts has engaged in a 'prohibited transaction' (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code)
involving a Benefit Plan that is subject to ERISA (including the Pension
Plans) or
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any other breach of fiduciary responsibility that could subject the
Company, any of its subsidiaries or any officer of the Company or any of
its subsidiaries to the tax or penalty on prohibited transactions imposed
by such Section 4975 or to any liability under Section 502(i) or (l) of
ERISA. Neither any of such Benefit Plans nor any trusts created thereunder
has been terminated, nor has there been any 'reportable event' (as that
term is defined in Section 4043 of ERISA) with respect thereto, during the
last five years. Neither the Company nor any of its subsidiaries has
suffered or otherwise caused a 'complete withdrawal' or a 'partial
withdrawal' (as such terms are defined in Section 4203 and Section 4205,
respectively, of ERISA) since the effective date of such Sections 4203 and
4205 with respect to any of the Multiemployer Pension Plans.
(iv) There are no pending claims or suits, or to the knowledge of the
Company, investigations or threatened claims, suits or investigations
regarding the Benefit Plans (other than claims for benefits in the ordinary
course).
(v) Except as disclosed in Schedule 4.01(j), the consummation of the
Transactions (either alone or with any other event) shall not entitle any
director or employee of the Company or any of its subsidiaries to
additional compensation or benefits or accelerate the vesting, payment or
funding of any compensation or benefits.
(vi) Neither the Company nor any entity required to be treated with
the Company as a single employer under Section 414 of the Code has any
material unsatisfied liability under Title IV of ERISA.
(vii) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Schedule 4.01(j), (x) each such
Benefit Plan that is a 'group health plan', as such term is defined in
Section 5000(b)(1) of the Code, complies in all material respects with the
applicable requirements of Section 4980B(f) of the Code and (y) each such
Benefit Plan (including any such Plan covering retirees or other former
employees) may be amended or terminated without material liability to the
Company or any of its subsidiaries on or at any time after the consummation
of the Merger upon not more than 30 days' notice to the participants in
such Benefit Plan.
(k) Taxes. Except as set forth on Schedule 4.01(k), (i) each of the
Company and each of its subsidiaries has timely filed all material tax returns
and reports required to be filed by it, and as of the time of filing, each such
return was true, complete and correct in all material respects; (ii) each of the
Company and each of its subsidiaries has timely paid (or the Company has paid on
its behalf) all material taxes in respect of such tax returns and all other
material taxes; (iii) the most recent financial statements contained in the
Filed SEC Documents reflect an adequate reserve (other than a reserve for
deferred income taxes established to reflect differences between book basis and
tax basis of assets and liabilities) for all material taxes payable by the
Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements; (iv) no deficiencies for any
taxes have been proposed, asserted or assessed against the Company or any of its
subsidiaries, and no requests for waivers of the time to assess any such taxes
are pending; (v) to the knowledge of the Company, the Federal income tax returns
of V Corp. and each of its subsidiaries consolidated in such returns have been
examined by and settled with the United States Internal Revenue Service for all
years through 1993; (vi) to the knowledge of the Company, all material
assessments for taxes due with respect to such completed and settled
examinations or any concluded litigation have been fully and timely paid; (vii)
there are no material Liens for taxes (other than for current taxes not yet due
and payable) on the assets of the Company or any of its subsidiaries; (viii) no
Federal or state income tax returns of the Company or any of its subsidiaries
with respect to a taxable period beginning on or after August 20, 1996 have ever
been (and no such returns are currently being) examined by the United States
Internal Revenue Service or any state taxing authority; and (ix) neither the
Company nor any of its subsidiaries is bound by any agreement or arrangement
with respect to taxes, other than the Tax Sharing Agreement dated August 20,
1996 (the 'Tax Sharing Agreement'), by and between V Corp. and the Company. As
used in this Agreement, 'taxes' shall include all forms of taxation, whenever
created or imposed, and whether of the United States or elsewhere, and whether
imposed by a local, municipal, governmental, state, foreign, Federal or other
body, or in connection with any agreement with respect to taxes, including all
interest, penalties and additions imposed with respect to such amounts, and 'tax
return' shall mean all Federal, state, local, provincial and foreign tax
returns, forms and information returns and any amended tax return relating to
taxes.
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(l) No Excess Parachute Payments; Waiver of Severance and Other
Payments. (i) Other than payments that may be made to the persons listed on
Schedule 4.01(l) (the 'Primary Executives'), any amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
the Transactions by any employee, officer or director of the Company or any of
its affiliates who is a 'disqualified individual' (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an 'excess parachute payment'
(as such term is defined in Section 280G(b)(1) of the Code). Set forth in
Schedule 4.01(l) is (i) the maximum amount that could be paid to each Primary
Executive as a result of the Transactions under all employment, severance and
termination agreements, other compensation arrangements and Benefit Plans
currently in effect and (ii) the 'base amount' (as such term is defined in
Section 280G(b)(3) of the Code) for each Primary Executive calculated as of the
date of this Agreement.
(ii) No director or officer of the Company has any right to receive
any severance or other payment as a result of the Transactions under any
employment, severance or termination agreement, other compensation
arrangement or benefit plan currently in effect, except that upon the
consummation of the Merger (i) all outstanding Company Stock Options (other
than Rollover Options (as defined in Section 6.05(d)) will become
immediately exercisable and (ii) all restrictions applicable to outstanding
Restricted Shares will immediately lapse.
(m) Voting Requirements. (i) The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock approving this Agreement (the
'Company Stockholder Approval') is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the Transactions.
(n) Approval by Board; State Takeover Statutes; Opinion of the Company's
Financial Advisor. The Board of Directors of the Company, at a meeting duly
called and held, acting on the recommendation of the special committee of
disinterested directors of such Board of Directors (the 'Special Committee'),
duly adopted resolutions (i) approving this Agreement, the Merger and the other
Transactions, (ii) determining that the terms of the Merger and the other
Transactions are fair to and in the best interests of the Company and its
stockholders and (iii) recommending that the Company's stockholders adopt this
Agreement. Such resolutions are sufficient to render inapplicable to this
Agreement and the other Operative Agreements, the Merger and the other
Transactions the provisions of Section 203 of the DGCL. To the Company's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Company with respect to this Agreement and
the other Operative Agreements, the Merger or the Transactions. The Company
hereby represents that the Board of Directors of the Company has received the
opinion of BT Alex. Brown Incorporated, dated the date of this Agreement, to the
effect that, as of such date, the Merger Consideration to be received in the
Merger by the holders of Common Stock (other than certain affiliates of the
Company who will be continuing stockholders) is fair to such holders from a
financial point of view, and a complete and correct signed copy of such opinion
will be delivered by the Company to Parent promptly after receipt thereof by the
Company.
(o) Rights Agreement. The Company has taken all necessary action to (i)
render the Rights inapplicable to the Merger and the other Transactions and (ii)
ensure that (y) neither Parent nor any of its affiliates is or becomes an
Acquiring Person (as defined in the Rights Agreement) as a result of the
execution and delivery of this Agreement or the announcement or consummation of
the Merger or any of the other Transactions and (z) the Separation Time (as
defined in the Rights Agreement) does not occur by reason of the execution and
delivery of this Agreement or the announcement or consummation of the Merger or
any of the other Transactions.
(p) Compliance with Laws. Neither the Company nor any of its subsidiaries
has violated or failed to comply with any statute, law, ordinance, regulation,
rule, judgment, decree or order of any Governmental Entity applicable to its
business or operations, including, without limitation, with respect to any
services reimbursable under the Medicare, Medicaid, or any other Federal or
state funded health care program, except for violations and failures to comply
that would not, individually or in the aggregate, result in a Material Adverse
Effect on the Company.
(q) Contracts. Except as disclosed in the Filed SEC Documents, there are
no contracts or agreements that are material to the business, properties,
assets, condition (financial or otherwise), results of operations or prospects
of the Company and its subsidiaries taken as a whole. Neither the Company nor
any of its subsidiaries is in violation of or in default under (nor does there
exist any condition which upon the passage of time or the
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giving of notice would cause such a violation of or default under) any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except for violations or defaults that would not, individually
or in the aggregate, result in a Material Adverse Effect on the Company.
(r) Transactions with Affiliates. As of the date hereof, except in
connection with the Transactions or as disclosed on Schedule 4.01(r) or in the
Filed SEC Documents, (i) there are no material outstanding amounts payable to or
receivable from, or material advances by the Company or any of its subsidiaries
to, and neither the Company nor any of its subsidiaries is otherwise a material
creditor of or debtor to, V Corp. or any of its affiliates or any officer,
director or employee of the Company and (ii) neither the Company nor any of its
subsidiaries is a party to any transaction, agreement, arrangement or
understanding with V Corp. or any of its affiliates or any officer, director or
employee of the Company, other than, with respect to clauses (i) and (ii), in
the case of officers, directors and employees, items arising out of the ordinary
course of employment with the Company.
(s) Properties. (i) Schedule 4.01(s)(i) sets forth a complete and accurate
list and the address of all material real property and interests in real
property owned in fee by the Company and the subsidiaries (individually, an
'Owned Property'). Schedule 4.01(s)(i) also sets forth a complete list of all
material real property and interests in real property leased by the Company and
the subsidiaries (individually, a 'Leased Property'). An Owned Property or
Leased Property is sometimes referred to herein, individually, as a 'Company
Property' and, collectively, as 'Company Properties'.
(ii) The Company or one of its subsidiaries has good and insurable fee
title to the Owned Properties, subject to (i) Permitted Liens, (ii) all
matters of record and all matters which would be shown by a current survey
or inspection of Owned Properties, (iii) all matters disclosed in the Filed
SEC Documents and (iv) all other matters which, in the case of clauses
(ii)-(iv) above, do not, individually or in the aggregate, (x) interfere
materially with the ordinary conduct of any Owned Property or the business
of the Company and its subsidiaries as a whole or (y) detract materially
from the value or usefulness of the Owned Properties to which they apply.
Set forth on Schedule 4.01(s)(ii) is a list of all title insurance policies
which the Company has in its possession for the Owned Properties. To the
knowledge of the Company, such title insurance policies reflect material
title exceptions and other matters relating to the Owned Properties as of
the effective date of the policies and surveys. Since May 1, 1996, the
Company has not created or consented to the creation of any title matters
for the Owned Properties which it believes does or will materially and
adversely affect the current use of the Owned Properties, other than
Permitted Liens or as disclosed in the Filed SEC Documents or on Schedule
4.01(s)(ii). With respect to the Leased Properties in which a leasehold
estate is created under applicable law, the Company or one of its
subsidiaries is the holder of good and valid title to such leasehold estate
(or, with respect to any other Leased Properties, has the interest of the
lessee under the applicable leases), and such party has not assigned,
transferred, or encumbered its interest in the leases in any material way,
except for (i) Permitted Liens, (ii) all matters of record and all matters
which would be shown by a current survey or inspection of the Leased
Properties, (iii) all matters disclosed in the Filed SEC Documents, and
(iv) all other matters which, in the case of clauses (ii)-(iv) above, do
not, individually or in the aggregate, (x) interfere materially with the
ordinary conduct of any Leased Property or the business of the Company and
its subsidiaries as a whole or (y) detract materially from the value or
usefulness of the Leased Properties to which they apply. To the knowledge
of the Company, the uses currently existing with respect to the Company
Properties are permitted under applicable zoning laws. The Company has made
available to Parent for its review originals or copies of all title
insurance policies, material exceptions referenced in such policies,
surveys and title reports which the Company has in its possession for the
Owned Properties.
(iii) Schedule 4.01(s)(iii) contains a complete and accurate
description of any noncompliance by any Company Property, to the Company's
knowledge, with any law, ordinance, code, health and safety regulation or
insurance requirement other than such noncompliance as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(iv) Except as set forth in Schedule 4.01(s)(iv), there are no
outstanding or, to the Company's knowledge, threatened requirements by any
insurance company which has issued an insurance policy covering any Company
Property, or by any board of fire underwriters or other body exercising
similar
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functions, requiring any repairs or alterations to be made to any Company
Property that would, individually or in the aggregate, (x) interfere
materially with the ordinary conduct of any Company Property or the
business of the Company and its subsidiaries as a whole or (y) detract
materially from the value or usefulness of the Company Properties to which
they apply.
(v) Schedule 4.01(s)(v) contains a list of each Company Property which
consists of or includes undeveloped land or which is in the process of
being developed or redeveloped (collectively, the 'Development Properties')
and a brief description of the development or redevelopment intended by the
Company or any subsidiary to be carried out or completed thereon
(collectively, the 'Projects'). The Company has made available to Parent
all feasibility studies, soil tests, due diligence reports and other
studies, tests or reports performed by or for the Company at any time since
the Company's initial public offering which relate to the Development
Properties or the Projects.
(vi) The Company and each of its subsidiaries have good and marketable
title to all the personal and non-real properties and assets reflected in
their books and records as being owned by them, free and clear of all
Liens, except for (i) Permitted Liens, (ii) Liens created in connection
with the Credit Agreement and described in Schedule 4.01(s)(i), (iii) all
matters disclosed in the Filed SEC Documents, and (iv) all other matters
which, in the case of clauses (iii) and (iv) above, do not, individually or
in the aggregate, interfere materially with the ability of the Company and
its subsidiaries to conduct their businesses, taken as a whole, as
currently conducted.
(t) Environmental Matters. (i) Except as set forth in the Filed SEC
Documents or as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, neither the Company nor any of its subsidiaries
has (x) placed, held, located, released, transported or disposed of any
Hazardous Substances (as defined below) on, under, from or at any of the Company
Properties or any other properties, (y) any knowledge of the presence of any
Hazardous Substances on, under or at any of the Company Properties or any other
property but arising from the Company Properties, or (z) during the preceding
five years, received any written notice (A) of any violation of any statute,
law, ordinance, regulation, rule, judgment, decree or order of any Governmental
Entity relating to any matter of pollution, protection of the environment,
environmental regulation or control or regarding Hazardous Substances on or
under any of the Company Properties or any other properties (collectively,
'Environmental Laws'), (B) of the institution or pendency of any suit, action,
claim, proceeding or investigation by any Governmental Entity or any third party
in connection with any such violation (collectively, 'Environmental Claims'),
(C) requiring the response to or remediation of Hazardous Substances at or
arising from any of the Company Properties or any other properties, or (D)
demanding payment for response to or remediation of Hazardous Substances at or
arising from any of the Company Properties or any other properties, except in
each case for the notices set forth in Schedule 4.01(t). For purposes of this
Agreement, the term 'Hazardous Substance' shall mean any toxic or hazardous
materials or substances, including asbestos, buried contaminants, chemicals,
flammable explosives, radioactive materials, petroleum and petroleum products
and any substances defined as, or included in the definition of, 'hazardous
substances', 'hazardous wastes', 'hazardous materials' or 'toxic substances'
under any Environmental Law.
(ii) Except as set forth in the Filed SEC Documents or Schedule
4.01(t), no Environmental Law imposes any obligation upon the Company or
its subsidiaries arising out of or as a condition to any transaction
contemplated by this Agreement, including, without limitation, any
requirement to modify or to transfer any permit or license, any requirement
to file any notice or other submission with any Governmental Entity, the
placement of any notice, acknowledgment or covenant in any land records, or
the modification of or provision of notice under any agreement, consent
order or consent decree, except for obligations that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company.
Except as set forth in the Filed SEC Documents, or Liens that, individually
or in the aggregate, would not have a Material Adverse Effect on the
Company, no Lien has been placed upon any of the Company's or its
subsidiaries' properties under any Environmental Law.
(u) Labor Matters. Except as set forth in Schedule 4.01(u), there are no
collective bargaining or other labor union agreements to which the Company or
any of its subsidiaries is a party or by which any of them is bound. To the
knowledge of the Company, since January 1, 1993, neither the Company nor any of
its subsidiaries has encountered any labor union organizing activity, or had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts.
There are no pending or, to the knowledge of the Company, threatened,
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claims, suits, grievances or investigations regarding the compliance by the
Company or its subsidiaries with any federal, state or local labor or wage law
or regulations, except for any claims, suits, grievances or investigations that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
(v) Brokers. No broker, investment banker, financial advisor or other
person, other than BT Alex. Brown Incorporated, the fees and expenses of which
will be paid by the Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Transactions
based upon arrangements made by or on behalf of the Company. The Company has
furnished to Parent a true and complete copy of all agreements between the
Company and BT Alex. Brown Incorporated relating to the Merger and the other
Transactions.
(w) Compliance with Law.
(i) Licenses and Permits. The Company and each of its subsidiaries has
obtained, maintains in force, and has provided copies to Parent of all
material licenses, permits, certificates of authority, orders and waivers
required from any Governmental Entity ('Permits') to operate or manage, as
the case may be, their respective businesses in the manner in which they
are currently operated and to occupy, operate and use any buildings,
improvements, fixtures and equipment owned or leased in connection with the
operation of all operational assisted living facilities, independent living
facilities, home health agencies and skilled nursing facilities of the
Company and its subsidiaries. Except as specified in Schedule 4.01(w), all
of the Permits referenced in the foregoing sentence have been issued in the
name of the Company or the applicable subsidiary having an ownership,
leasehold, management or operational interest in the facilities referenced
therein. No such permits of the Company or any of its subsidiaries have
been suspended, canceled or terminated and, to the knowledge of the
Company, no suspension, cancelation or termination of any such Permit is
threatened or imminent. To the knowledge of the Company, each employee of
the Company and each of its subsidiaries has obtained and maintains in
force all licenses, permits or similar authorizations required to authorize
such employee to perform his or her duties on behalf of the Company and its
subsidiaries with only such exceptions that individually and in the
aggregate would not have a Material Adverse Effect on the Company.
(ii) Billing. The Company and each of its subsidiaries has complied in
all material respects with all applicable Medicare and all other third
party billing policies, procedures, limitations and restrictions, and there
is no pending or, to the knowledge of the Company, threatened recoupment or
penalty action or proceeding against the Company or any of its subsidiaries
under the Medicare program or any other third party payor program except
for such noncompliance, actions or proceedings that individually or in the
aggregate would not have a Material Adverse Effect on the Company.
(iii) No Kickbacks. Neither the Company nor any of its subsidiaries,
nor, to the knowledge of the Company, any director, officer or employee of
the Company or any of its subsidiaries acting for or on behalf of the
Company or any of its subsidiaries, has paid or caused to be paid, directly
or indirectly, in connection with the business of the Company or any of its
subsidiaries, (i) any bribe, kickback or other similar payment to any
Governmental Entity or any agent of any supplier or customer, except for
payments to V. Corp and its affiliates that were in compliance with
applicable law, or (ii) any contribution to any political party or
candidate (other than from personal funds of directors, officers or
employees not reimbursed by their respective employers or in compliance
with applicable law).
(iv) No Investigations. To the knowledge of the Company, neither the
Company nor any of its subsidiaries is the subject of any investigation,
proceeding or other action, nor has any investigation, proceeding or other
action been threatened by any Governmental Entity or other person,
regarding noncompliance with any law, and no reasonable basis exists for
any such investigation or prosecution which would have a Material Adverse
Effect on the Company.
SECTION 4.02. Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
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(b) Authority; Noncontravention. Parent and Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
Transactions. The execution and delivery by Parent and Sub of the Operative
Agreements to which they are parties and the consummation of the Transactions
have been duly authorized by all necessary corporate action on the part of
Parent and Sub. This Agreement has been duly executed and delivered by Parent
and Sub and constitutes a valid and binding obligation of such party,
enforceable against such party in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, including concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
considered in a proceeding in equity or in law). The execution and delivery by
Parent and Sub of the Operative Agreements to which they are parties do not, and
the consummation of the Transactions and compliance with the provisions of the
Operative Agreements will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancelation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of Parent or Sub under, (i) the certificate of
incorporation or by-laws (or other comparable organizational documents) of
Parent or Sub, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or Sub or their respective properties or assets
or (iii) except for the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or Sub, other than, in the case of
clauses (ii) or (iii), any such conflicts, violations, defaults, rights, losses
or Liens that individually or in the aggregate would not (x) have a Material
Adverse Effect on Parent, (y) materially impair the ability of Parent and Sub to
perform their respective obligations under this Agreement or (z) prevent or
materially delay the consummation of any of the Transactions. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Parent or Sub in
connection with the execution and delivery by Parent or Sub of the Operative
Agreements to which they are parties or the consummation by Parent or Sub, as
the case may be, of any of the Transactions, except for (i) the filing of a
premerger notification and report form under the HSR Act, (ii) the filing with
the SEC of the Proxy Materials and such reports under Sections 13 and 16(a) of
the Exchange Act as may be required in connection with the Operative Agreements
and the Transactions, (iii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
(iv) such filings as may be required in connection with the taxes described in
Section 6.10 and (v) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the 'takeover'
or 'blue sky' laws of various states.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in the
Proxy Materials will, at the respective times they are first published, sent or
given to the Company's stockholders, or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(d) Brokers. No broker, investment banker, financial advisor or other
person, other than Lazard Freres & Co. LLC, the fees and expenses of which will
be paid by Parent, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Parent or Sub.
(e) Financing. At the Effective Time of the Merger, Parent and Sub will
have available all of the funds necessary for the acquisition of all shares of
Common Stock pursuant to the Merger, and to perform their respective obligations
under this Agreement.
(f) Management Arrangements. Parent has provided the Board of Directors of
the Company with a summary of the terms of all contracts, agreements and other
arrangements proposed to be entered into between the Surviving Corporation (or
any of its affiliates) and any of the officers, directors and employees of the
Company (or any of its affiliates), and the Surviving Corporation shall not
enter into any such contracts, agreements or arrangements on terms that are more
favorable to such officers, directors and employees than those set forth in such
summary.
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(g) Financial Statements.
(i) To the knowledge of Parent, (A) the financial statements of Parent
for the year ended December 31, 1997 previously delivered to the Company by
Parent ('Parent Financial Statements') comply as to form in all material
respects with applicable accounting requirements and (if applicable) the
published rules of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the periods
presented (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its subsidiaries,
as of the dates thereof and the consolidated financial position of Parent
and its subsidiaries, as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended, and (B)
except as set forth in the Parent Financial Statements, Parent and its
subsidiaries had no liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) at December 31, 1997 required
by GAAP to be set forth on a consolidated balance sheet of the Parent and
its consolidated subsidiaries or in the notes thereto and which have a
Material Adverse Effect on Parent.
(ii) Concurrently with the acquisition of Parent by Prometheus Senior
Quarters LLC ('Prometheus'), Prometheus contributed in excess of $175
million to the equity capital of Prometheus Acquisition Corp., which merged
with and into Parent on April 7, 1998 (the 'Equity Contribution'). To the
knowledge of Parent, between December 31, 1997 and the time of such
contribution (the 'Contribution Date'), Parent did not suffer any Material
Adverse Change or incur any liability or obligation required by GAAP to be
set forth on a consolidated balance sheet of Parent and its consolidated
subsidiaries or in the notes thereto which would have a Material Adverse
Effect on Parent, other than (i) liabilities and obligations for
transaction-related expenses incurred in connection with the acquisition of
Parent by Prometheus and (ii) other liabilities and obligations in an
aggregate amount not in excess of $25 million.
(iii) Between the Contribution Date and the date of this Agreement,
Parent (A) did not (a) suffer any Material Adverse Change or (b) incur any
liability or obligation required by GAAP to be set forth on a consolidated
balance sheet of Parent and its consolidated subsidiaries or in the notes
thereto which would have a Material Adverse Effect on Parent (other than
(x) liabilities and obligations for transaction-related expenses incurred
in connection with the acquisition of Parent by Prometheus and (y) other
liabilities and obligations in an aggregate amount not in excess of $25
million), or (B)(y) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock or other equity
interests (including any distribution of any portion of the Equity
Contribution to any person), or (z) purchase, redeem or otherwise acquire
any shares of capital stock of Parent or any of its subsidiaries or any
other securities thereof any rights, warrants or options to acquire any
such shares or other securities or interests.
(h) Sub; No Prior Activities. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement. As of the date
hereof and the Effective Time of the Merger, except for obligations or
liabilities incurred in connection with its organization or to be incurred in
connection with the consummation of the Transactions, Sub has not incurred any
obligations or liabilities or engaged in any business activity of any type of
any kind whatsoever or entered into agreements or arrangements with any person,
other than the Operative Agreements.
(i) Certain Actions by Parent. During the period of time from the date of
this Agreement until the Effective Time of the Merger, Parent shall not, and
shall not permit any of its subsidiaries to, (i) pay any extraordinary dividend,
make any extraordinary redemption of any equity securities or make any other
extraordinary distribution of cash or other property to its securityholders or
(ii) sell, transfer or otherwise dispose any of its assets out of the ordinary
course of business unless it receives consideration equal to the fair market
value of such assets (as determined in good faith by the board of directors of
Parent).
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ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business. (a) Ordinary Course. During the period
from the date of this Agreement to the Effective Time of the Merger, the Company
shall, and shall cause its subsidiaries to, carry on their respective businesses
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time of the Merger, the Company shall not, and shall not permit any of
its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly owned subsidiary of the
Company to its parent, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (z)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (1) the issuance of Common Stock (and associated Rights) upon
the exercise of Company Stock Options outstanding on the date of this
Agreement in accordance with their present terms and (2) the issuance of
Common Stock (and associated Rights) upon the exercise of Convertible Sub
Notes in accordance with their terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (y) any
assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, except purchases of inventory (other
than real property) in the ordinary course of business consistent with past
practice;
(v) (A) grant to any employee, officer or director of Company or any
of its subsidiaries any increase in compensation, except in the ordinary
course of business consistent with prior practice or to the extent required
under employment agreements in effect as of the date of the most recent
financial statements included in the Filed SEC Documents, (B) grant to any
employee, officer or director of Company or any of its subsidiaries any
increase in severance or termination pay, except to the extent required
under any agreement in effect as of the date of the most recent financial
statements included in the Filed SEC Documents, (C) enter into any
employment, consulting, indemnification, severance or termination agreement
with any such employee having an annual salary greater than $75,000,
officer or director, (D) establish, adopt, enter into or amend in any
material respect any collective bargaining agreement or Benefit Plan or (E)
take any action to accelerate any material rights or benefits, or make any
material determinations not in the ordinary course of business consistent
with prior practice, under any collective bargaining agreement or Benefit
Plan, except as otherwise required by applicable law or regulation;
(vi) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of the Company, except insofar as may have been
required by a change in GAAP or other applicable laws or regulations;
(vii) sell, lease, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of properties or assets of the Company and
its subsidiaries having a fair market value in excess of $50,000, except
sales or inventory (other than real property) in the ordinary course of
business consistent with past practice;
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(viii) (y) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any 'keep well' or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, other than any guarantee of
indebtedness or debt securities of Elder Healthcare Developers, LLC
(including through the issuance of letters of credit) in an aggregate
amount not to exceed $10,000,000, or (z) make any loans, advances or
capital contributions to, or investments in, any other person, other than
to the Company or any direct or indirect wholly owned subsidiary of the
Company, in the case of clause (y) or (z) above is in an amount which
exceeds $50,000;
(ix) make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $500,000 or, in the aggregate, are in
excess of $5,000,000;
(x) make any material tax election, amend any material tax return or
settle or compromise any material tax liability or refund;
(xi) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than required payments of interest under the terms of the
Convertible Sub Notes or the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents or
incurred in the ordinary course of business consistent with past practice,
or waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its subsidiaries is a party;
(xii) except as part of the Transactions as contemplated by this
Agreement, enter into any transaction, agreement, arrangement or
understanding with V Corp. or any of its affiliates; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions (it being understood and agreed that the Company shall
not be deemed to have breached the foregoing covenant by virtue of the
Company's obligation to repurchase the Convertible Sub Notes at the
election of the holders thereof following the consummation of the Merger in
accordance with the 'Change of Control' provisions of the Indenture).
(b) Other Actions. The Company shall not, and shall not permit any of its
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in (i) any of the representations and warranties of the
Company set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii) except as otherwise
permitted by Section 5.02, any of the conditions to the Merger set forth in
Article VII not being satisfied.
(c) Advice of Changes. The Company shall promptly advise Parent orally and
in writing of any change or event having, or which, insofar as can reasonably be
foreseen, would have, a Material Adverse Effect on the Company.
SECTION 5.02. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) directly or
indirectly solicit, initiate, or encourage the submission of, any takeover
proposal, (ii) enter into any agreement with respect to any takeover proposal or
(iii) directly or indirectly participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover proposal;
provided, however, that, prior to the adoption of this Agreement by the
stockholders of the Company, to the extent required by the fiduciary obligations
of the Board of Directors of the Company, as determined in good faith by a
majority of the disinterested members thereof based on the advice of outside
counsel, the Company may (x) in response to an unsolicited request therefor,
participate in discussions or negotiations with, or furnish information with
respect to the Company pursuant to a customary confidentiality agreement (as
determined by the Company's independent counsel) to, any person in connection
with any takeover proposal or potential takeover proposal or (y) issue a press
release or other public announcement disclosing the receipt by the Company of
any takeover proposal.
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Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any executive officer of the
Company or any of its subsidiaries or any investment banker, attorney or other
advisor or representative of the Company or any of its subsidiaries, whether or
not such person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this Section
5.02(a) by the Company. For purposes of this Agreement, 'takeover proposal'
means any proposal for a merger or other business combination involving the
Company or any of its Significant Subsidiaries, any proposal for the issuance by
the Company of additional equity securities equal to 20% or more of the
outstanding equity securities of the Company as consideration for the assets or
securities of another person or any proposal or offer to acquire in any manner,
directly or indirectly, additional equity securities equal to 20% or more of the
outstanding equity securities of the Company, or 20% or more of the assets of
the Company (and, with respect to assets, its subsidiaries, taken as a whole),
other than the Transactions.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Sub, the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger or (ii) approve
or recommend, or propose to approve or recommend, any takeover proposal.
Notwithstanding the foregoing, the Board of Directors of the Company (or any
committee thereof), to the extent required by the fiduciary obligations thereof,
as determined in good faith by a majority of the disinterested members thereof
based on the advice of outside counsel, may approve or recommend (and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement and the Merger) another takeover proposal; provided, however that the
Board of Directors of the Company (or any committee thereof) may not approve or
recommend another takeover proposal, or withdraw or modify its approval or
recommendation of this Agreement, the Merger and the Transactions until 48 hours
after Parent shall have received the written notice set forth in Section 5.02(c)
below with respect to such takeover proposal.
(c) The Company promptly shall advise Parent orally and in writing, within
24 hours of receipt of any takeover proposal or any inquiry with respect to or
which could reasonably be expected to lead to any takeover proposal, and the
material terms and conditions of such proposal or inquiry (including any change
to the material terms of any such takeover proposal or inquiry).
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of Proxy Materials. (a) As soon as practicable
following the execution of this Agreement, the Company will prepare and file
with the SEC a preliminary Proxy Statement and a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (together with all amendments and supplements
thereto, the 'Schedule 13E-3'; the Proxy Statement and the Schedule 13E-3 are
collectively referred to herein as the 'Proxy Materials'). The Company will use
its best efforts to respond to any comments of the SEC or its staff and to cause
the Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after such filing. The Company will notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Materials or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Materials or the
Merger. If at any time prior to the adoption of this Agreement by the Company's
stockholders there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Materials, the Company will promptly
prepare and mail to its stockholders such an amendment or supplement. The
Company will not mail any Proxy Materials or any amendment or supplement thereto
if Parent reasonably objects thereto. Each of the Company, Parent and Sub agrees
promptly to correct any information provided by it for use in the Proxy
Materials if and to the extent that such information shall have become false or
misleading in any material respect, and the Company further agrees to take all
steps necessary to amend or supplement the Proxy Materials and to cause the
Proxy Materials as so amended or supplemented to be filed with the SEC and to be
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal securities laws. The Company agrees to provide
Parent, Sub and their counsel copies of any written comments the Company or its
counsel may receive from the SEC or its staff with respect to the Proxy
Materials promptly after the receipt of such comments.
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(b) Subject to any necessary SEC approvals of the Proxy Materials, the
Company will, as soon as practicable following the date of this Agreement, duly
call, give notice of, convene and hold a meeting of its stockholders (the
'Stockholders Meeting') for the purpose of approving this Agreement and the
Transactions. The Company will, through its Board of Directors or a committee
thereof, recommend to its stockholders approval of this Agreement and the
Transactions, except to the extent that the Board of Directors of the Company or
a committee thereof shall have withdrawn or modified its approval or
recommendation of this Agreement or the Merger as permitted by Section 5.02(b).
Without limiting the generality of the foregoing, except as otherwise provided
herein the Company agrees that its obligations pursuant to the first sentence of
this Section 6.01(b) shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to the Company of any takeover
proposal or (ii) the withdrawal or modification by the Board of Directors of the
Company of its approval or recommendation of this Agreement or the Merger.
SECTION 6.02. Access to Information; Confidentiality. The Company shall,
and shall cause each of its subsidiaries to, afford to Parent, and to Parent's
officers, employees, accountants, counsel, financial advisers and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time of the Merger to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, the Company shall, and shall cause each of its subsidiaries to,
furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Federal or state securities laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request. All such information shall be held in accordance with the
confidentiality agreement (the 'Confidentiality Agreement') dated February 2,
1998, as amended.
SECTION 6.03. Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, unless, to the extent
permitted by Section 5.02(b), the Board of Directors of the Company (or a
committee thereof) approves or recommends another takeover proposal, each of the
parties agrees to use its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other Transactions, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary notifications, registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of any of the Transactions,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (iv) the execution
and delivery of any additional instruments necessary to consummate the
Transactions and to fully carry out the purposes of the Operative Agreements. In
connection with and without limiting the foregoing, the Company and its Board of
Directors shall (i) take all reasonable action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, any Operative Agreement or any of the other Transactions and (ii) if
any state takeover statute or similar statute or regulation becomes applicable
to the Merger, any Operative Agreement or any other Transaction, take all
reasonable action necessary to ensure that the Merger and the other Transactions
may be consummated as promptly as practicable on the terms contemplated by the
Operative Agreements and otherwise to minimize the effect of such statute or
regulation on the Merger and the other Transactions. Notwithstanding the
foregoing, the Board of Directors of the Company (or any committee thereof)
shall not be prohibited from taking any action permitted by Section 5.02(b).
(b) The Company shall give prompt notice to Parent, and Parent or Sub shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
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SECTION 6.04. Rights Agreement. (a) The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
4.01(o)) reasonably requested in writing by Parent (including redeeming the
Rights immediately prior to the Effective Time of the Merger or amending the
Rights Agreement) in order to render the Rights inapplicable to the Merger and
the other Transactions. Except as provided in this Agreement or requested in
writing by Parent prior to the Stockholders Meeting, the Board of Directors of
the Company shall not (i) amend the Rights Agreement or (ii) take any action
with respect to, or, except as specifically permitted by Section 6.04(b), make
any determination under, the Rights Agreement (including a redemption of the
Rights).
(b) If, to the extent permitted by Section 5.02(b), the Board of Directors
of the Company (or a committee thereof) approves or recommends a takeover
proposal, the Company may take any action in order to render the Rights
inapplicable to such takeover proposal; provided, however, that the foregoing
shall not permit the Company to make any determination under, or take any action
with respect to, the Rights Agreement in order to render the Rights applicable
to the Merger or any of the other Transactions or to redeem the Rights.
SECTION 6.05. Stock Options. (a) Subject to Section 6.05(d), at the
Effective Time of the Merger (and without any action by Board of Directors of
the Company or any committee administering the Stock Plans), all outstanding
stock options to purchase shares of Common Stock ('Company Stock Options')
heretofore granted under any stock option or stock appreciation rights plan,
program or arrangement of the Company (collectively, the 'Stock Plans'), shall
be canceled in exchange for the right to receive a cash payment by the Surviving
Corporation at that time of an amount equal to (i) the excess, if any, of (x)
the price per share of Common Stock to be paid pursuant to the Merger over (y)
the exercise price per share of Common Stock subject to such Company Stock
Option, multiplied by (ii) the number of shares of Common Stock for which such
Company Stock Option shall not theretofore have been exercised (the 'Option
Consideration') (irrespective of whether and the extent to which any or all such
options are exercisable or will be exercisable at the Effective Time). Schedule
6.05(a) identifies all Stock Plans in effect as of the date of this Agreement.
(b) All amounts payable pursuant to this Section 6.05 shall be subject to
any required withholding of taxes and shall be paid without interest. The
Company shall use its commercially reasonable efforts to obtain all consents of
the holders of the Company Stock Options as shall be necessary to effectuate the
foregoing. Notwithstanding anything to the contrary contained in this Agreement,
payment shall, at Parent's request, be withheld in respect of any Company Stock
Option until all necessary consents for such Company Stock Option are obtained.
(c) The Stock Plans shall terminate as of the Effective Time of the Merger,
and the provisions in any other Benefit Plan providing for the issuance,
transfer or grant of any capital stock of the Company or any interest in respect
of any capital stock of the Company shall be deleted as of the Effective Time of
the Merger, and the Company shall ensure that following the Effective Time of
the Merger no holder of a Company Stock Option or any participant in any Stock
Plan or other Benefit Plan shall have any right thereunder to acquire any
capital stock of the Surviving Corporation except as set forth in Section
6.05(d).
(d) Notwithstanding anything the contrary contained herein, the provisions
of Section 6.05(a) shall not apply to the Company Stock Options listed on
Schedule 6.05(d) (the 'Rollover Options'). The Rollover Options shall remain
outstanding after the Effective Time of the Merger as options to acquire shares
of the Surviving Corporation, except that the number of shares and the exercise
price with respect thereto shall be equitably adjusted by the Board of Directors
of the Surviving Corporation as of the Effective Time of the Merger in order to
preserve the aggregate spread with respect to each Rollover Option. For purposes
of the immediately preceding sentence, (i) the aggregate 'spread' with respect
to each Rollover Option immediately prior to the Effective Time of the Merger
shall be equal to the product of (x) the number of shares covered by such
Rollover Option and (y) the excess of the Merger Consideration over the exercise
price of such Rollover Option and (ii) the aggregate 'spread' with respect to
each Rollover Option immediately following the Effective Time of the Merger
shall be equal to the product of (x) the number of shares covered by such
Rollover Option and (y) the excess of the fair market value of one share of
Common Stock of the Surviving Corporation (as determined in good faith by the
Board of Directors of the Surviving Corporation, provided that if Parent shall
purchase any shares of Common Stock of the Surviving Corporation at or
immediately following the Effective Time of the Merger, the fair market value of
one share of Common Stock shall be deemed to be equal to the price per share
paid by Parent) over the exercise price of such Rollover Option. The Rollover
Options shall be subject after the
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Effective Time of the Merger to the same terms and conditions that applied
before the Effective Time of the Merger with the following exceptions: (i) any
provision or agreement providing for the accelerated vesting of such Rollover
Options as a result of the transactions contemplated by this Agreement shall not
be given effect (so that the original vesting schedule shall continue to apply
to such Rollover Options) and (ii) the shares of the Surviving Corporation
delivered upon exercise of the Rollover Options shall be subject to the
shareholder provisions set forth in the Shareholders Agreement. Before the
Effective Time of the Merger, the Company shall take any reasonable actions
(including obtaining any employee consent) as are necessary to implement the
provisions of this Section 6.05(d). The Surviving Corporation shall adopt a
stock option plan as of the Effective Time of the Merger that shall provide for
the issuance of the Rollover Options and by virtue of the Merger and without the
need of any further corporate action, the Surviving Corporation shall assume all
obligations of the Company under the Rollover Options.
SECTION 6.06. Benefit Plans. Except as provided in Section 6.05(c), Parent
will cause the Surviving Corporation to maintain for the period from the
Effective Time of the Merger through December 31, 1998 the Benefit Plans of the
Company and its subsidiaries in effect on the date of this Agreement or to
provide benefits to employees of the Company and its subsidiaries that are not
materially less favorable in the aggregate to such employees than those in
effect on the date of this Agreement. For purposes of participation, vesting and
benefit accrual under any such plans, the service of the employees of Company
and its subsidiaries prior to the Effective Time shall be treated as service
with any employer participating in such employee benefit plans. Parent also
shall cause the Surviving Corporation and its subsidiaries to honor in
accordance with their terms all employment, severance, consulting and other
compensation contracts, agreements and other arrangements disclosed in the Filed
SEC Documents or in any schedule hereto between any of the Company or any of its
subsidiaries and any current or former director, officer, or employee thereof,
and all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under the Benefit Plans.
SECTION 6.07. Indemnification. Parent and Sub agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time of
the Merger now existing in favor of the current or former directors or officers
of the Company and its subsidiaries as provided in their respective certificates
of incorporation or by-laws (or similar organizational documents) shall survive
the Merger and shall continue in full force and effect in accordance with their
terms for a period of not less than six years from the Effective Time of the
Merger. Parent will cause to be maintained for a period of not less than six
years from the Effective Time of the Merger the Company's current directors' and
officers' insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to the Effective Time of the Merger (the
'D&O Insurance') for all persons who are directors and officers of the Company
on the date of this Agreement, so long as the annual premium therefor would not
be in excess of 200% of the last annual premium paid prior to the date of this
Agreement (the 'Maximum Premium'). If the existing D&O Insurance expires, is
terminated or canceled during such six-year period, Parent will use all
reasonable efforts to cause to be obtained as much D&O Insurance as can be
obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium, on terms and conditions no less advantageous than
the existing D&O Insurance. The Company represents to Parent that the Maximum
Premium is $240,720.
SECTION 6.08. Fees and Expenses. (a) Except as provided below, all fees
and expenses incurred in connection with the Merger, this Agreement and the
Transactions shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated.
(b) The Company shall pay to Parent upon demand a fee of $18,209,496,
payable in same day funds, plus all Expenses (as defined below) of the Company,
if (i) the Company terminates this Agreement pursuant to Section 8.01(f); (ii)
Parent terminates this Agreement pursuant to Section 8.01(c), provided that the
breach or failure to perform by the Company giving rise to such right to
terminate under Section 8.01(c) must be a deliberate breach or failure to
perform with the intent of frustrating the Closing; (iii) Parent terminates this
Agreement pursuant to Section 8.01(d); (iv) any person makes a takeover proposal
that was not withdrawn more than ten days prior to the date of the Stockholders
Meeting and thereafter this Agreement is terminated pursuant to Section
8.01(b)(i); or (v) any person makes a takeover proposal that was not withdrawn
on the date 60 days prior to the Outside Date (as defined in Section
8.01(b)(ii)) and the Company Stockholder Approval is not obtained prior to
termination of this Agreement. Any fee payable to Parent by the Company pursuant
to this Section 6.08(b) is herein referred to as the 'Termination Fee.'
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(c) For purposes of this Agreement, the term 'Expenses' shall mean, with
respect to a party hereto, all reasonable out-of-pocket fees and expenses
incurred or paid by or on behalf of such party or any of its affiliates in
connection with the Merger or the consummation of any of the Transactions,
including all fees and expenses of counsel, investment banking firms,
accountants, experts and consultants to such party or any or its affiliates and
all fees and expenses of banks, investment banking firms and other financial
institutions and their respective counsel, accountants and agents in connection
with arranging or providing financing (collectively, the 'Expenses').
(d) Parent shall reimburse all of the Expenses of the Company upon demand
if this Agreement is terminated by the Company pursuant to Section 8.01(e).
SECTION 6.09. Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the Transactions, including the
Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange. The parties agree that (a) the initial press
release to be issued with respect to the Transactions is set forth in Exhibit A
to this Agreement, (b) such initial press release shall contain a statement to
the effect that, to the extent required by the fiduciary obligations of the
Board of Directors of the Company, determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel, the
Company may, in response to an unsolicited request therefor, furnish information
with respect to the Company to any person pursuant to an appropriate
confidentiality agreement, and (c) the Company shall be entitled to prepare (in
its sole discretion) and file a report on Form 8-K with the SEC pursuant to the
Exchange Act describing this Agreement and the Merger and file the Operative
Agreements as exhibits to such Form 8-K.
SECTION 6.10. Transfer Taxes. Parent shall pay or cause Sub to pay any
state, local, foreign or provincial sales, use, real property transfer, stock,
transfer, stock or similar tax (including any interest or penalties with respect
thereto) payable in connection with the consummation of the Merger
(collectively, the 'Transfer Taxes'). The Company agrees to cooperate with
Parent or Sub, as the case may be, in the filing of any returns with respect to
the Transfer Taxes, including supplying in a timely manner a complete list of
all real property interests held by the Company and its subsidiaries and any
information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the assets
giving rise to such Transfer Taxes shall be agreed to by the Company and the
Parent.
SECTION 6.11. Support Agreements. Parent and Sub hereby represent and
warrant to the Company that the Support Agreements, complete and correct copies
of which (including all amendments or other modifications thereto) are attached
hereto as Exhibits B-1 and B-2, are the only contracts, agreements, arrangements
or other understandings currently in effect related to the Transactions by and
among Parent and/or any of its affiliates, on the one hand, and V Corp. and/or
any other stockholder of the Company, on the other hand. Parent and Sub will not
(directly or indirectly) amend either or both of the Support Agreements, or
enter into any other contract, agreement, arrangement or other understanding
related (directly or indirectly) to the Transactions with any stockholder of the
Company (record or beneficial), without the prior written consent of the
Company.
SECTION 6.12. Headquarters. Parent, Sub and Surviving Corporation hereby
covenant that from and after the Effective Time of the Merger until the date
that is three years after the Effective Time of the Merger, the corporate
headquarters and principal offices of the Company and, after the Effective Time
of the Merger, the Surviving Corporation, shall remain in the Louisville,
Kentucky, metropolitan area.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company shall have obtained the Company
Stockholder Approval.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
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consummation of the Merger shall be in effect; provided, however, that each of
the parties shall have used its reasonable efforts to prevent the entry of any
such injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
SECTION 7.02. Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to the following
conditions:
(a) Representations and Warranties. There shall not exist inaccuracies in
the representations and warranties of the Company set forth in the Agreement, in
each case as of the Closing Date (except for representations and warranties
confined to a specified date, which speak only to such date), such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have, a
(A) Material Adverse Effect on the Company or (B) material adverse impact on the
ability of the Company (i) to perform its obligations under this Agreement or
(ii) to consummate the Merger (disregarding for purposes of such determination
any exceptions for materiality or Material Adverse Effect contained in such
representations and warranties so as not to 'double-count'), and Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(c) No Litigation. There shall not be pending any suit, action or
proceeding by any Governmental Entity or any other person, or before any court
or governmental authority, agency or tribunal, domestic or foreign, in each case
that has a reasonable likelihood of success, (i) challenging the acquisition by
Parent or Sub of any shares of Common Stock, seeking to restrain or prohibit the
consummation of the Merger or any of the other Transactions, or seeking to
obtain from the Company, Parent or Sub any damages that are material in relation
to the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit
or limit the ownership or operation by the Company, Parent or any of their
respective subsidiaries of any material portion of the business or assets of the
Company, Parent or any of their respective subsidiaries, or to compel the
Company, Parent or any of their respective subsidiaries to dispose of or hold
separate any material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries, as a result of the Merger or any of the
other Transactions, (iii) seeking to impose limitations on the ability of Parent
or Sub to acquire or hold, or exercise full rights of ownership of, any shares
of Common Stock, including, without limitation, the right to vote the Common
Stock purchased by it on all matters properly presented to the stockholders of
the Company, (iv) seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect the business or operations of
the Company or its subsidiaries, or (v) which otherwise has a Material Adverse
Effect on the Company.
(d) Material Filings and Notices. There shall have been made by the
Company and its subsidiaries, as applicable, all material filings and
notifications required to be made to any Governmental Entity in connection with
the Merger, and all material consents, approvals, authorizations and Permits
required to be obtained by the Company and its subsidiaries from any
Governmental Entity at or prior to the Effective Time of the Merger shall have
been obtained.
SECTION 7.03. Condition to Obligation of the Company. The obligation of
the Company to effect the Merger is subject to the following conditions:
(a) Parent and Sub shall have performed in all material respects all
obligations to be performed by them under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed on behalf
of Parent and Sub by their respective chief executive officers and chief
financial officers to such effect.
(b) Representations and Warranties. There shall not exist inaccuracies in
the representations and warranties of Parent and Sub set forth in this
Agreement, in each case as of the Closing Date (except for representations and
warranties confined to a specified date, which speak only to such date), such
that the aggregate effect of such inaccuracies has, or is reasonably likely to
have, a (A) Material Adverse Effect on Parent or (B) material adverse impact on
the ability of Parent or Sub, respectively, (i) to perform their respective
obligations under this Agreement or (ii) in the case of Parent and Sub, to
consummate the Merger (disregarding for purposes of such determination any
exceptions for materiality or Material Adverse Effect contained in such
representations and warranties so as not to 'double-count'), except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate signed on behalf of Parent and Sub by the chief executive officers
and chief financial officers of Parent and Sub, respectively, to such effect.
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(c) Solvency Opinion. The Company shall have received a solvency letter,
dated as of the Closing Date, from a nationally recognized valuation firm, as to
the solvency of the Surviving Corporation after the Effective Time of the
Merger, in form and substance reasonably satisfactory to the Company.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting (or any
adjournment thereof), the Company Stockholder Approval shall not have been
obtained;
(ii) if the Merger is not consummated on or before October 31, 1998
(the 'Outside Date'), unless the failure to consummate the Merger is the
result of a wilful and material breach of this Agreement by the party
seeking to terminate this Agreement; provided, however, that the passage of
such period shall be tolled for any part thereof during which any party
shall be subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger;
(iii) if any Governmental Entity issues an order, decree or ruling or
takes any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable; or
(iv) if any condition to the obligation of such party to consummate
the Merger set forth in Section 7.02 (in the case of Parent) or 7.03 (in
the case of the Company) becomes incapable of satisfaction prior to the
Outside Date; provided, however, that the terminating party is not then in
wilful and material breach of any representation, warranty or covenant
contained in this Agreement);
(c) by Parent, if the Company breaches or fails to perform in any material
respect any of its representations, warranties or covenants contained in this
Agreement, which breach or failure to perform (i) would give rise to the failure
of a condition set forth in Section 7.02(a) or 7.02(b) and (ii) cannot be or has
not been cured within 30 days after the giving of written notice to the Company
of such breach (provided that Parent is not then in wilful and material breach
of any representation, warranty or covenant contained in this Agreement);
(d) by Parent:
(i) if the Board of Directors of the Company or any committee thereof
withdraws or modifies in a manner adverse to Parent its approval of
recommendation of this Agreement or fails to recommend to the Company's
stockholders that they give the Company Stockholder Approval, or such Board
of Directors or any committee thereof resolves to take any of the foregoing
actions; or
(ii) if the Board of Directors of the Company fails to reaffirm
publicly and unconditionally its recommendation to the Company's
stockholders that they give the Company Stockholder Approval within five
business days of Parent's written request to do so (which request may be
made at any time following public disclosure of a takeover proposal, which
public reaffirmation must also include the unconditional rejection of such
takeover proposal);
(e) by the Company, if either Parent or Sub breaches or fails to perform in
any material respect of any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (i) would give
rise to the failure of a condition set forth in Section 7.03(a) or 7.03(b) and
(ii) cannot be or has not been cured within 30 days after the giving of written
notice to Parent of such breach (provided that the Company is not then in wilful
and material breach of any representation, warranty or covenant in this
Agreement); or
(f) by the Company prior to receipt of the Company Stockholder Approval in
accordance with Section 8.05(b); provided, however, that the Company shall have
complied with all provisions thereof, including the notice provisions therein.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the
provisions of Section 4.01(v), Section 4.02(d), the last sentence of Section
6.02, Section 6.08, this Section 8.02 and Article IX
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and except to the extent that such termination results from the wilful and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in the Operative Agreements.
SECTION 8.03. Amendment. This Agreement may be amended by the parties at
any time before or after receipt of the Company Stockholder Approval; provided,
however, that after any such approval, there shall not be made any amendment
that by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties. Notwithstanding
the foregoing, without the written consent of V Corp., the parties shall not
make any amendment to this Agreement that (i) reduces the Merger Consideration
or changes the form of the Merger Consideration provided herein, (ii) changes
the number of V Corp. Retained Shares or the number of shares of Common Stock
into which the V Corp. Retained Shares shall be converted as of the Effective
Time of the Merger or (iii) amends Section 6.05.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time
of the Merger, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.
SECTION 8.05. Procedure for Termination, Amendment, Extension or
Waiver. (a) A termination of this Agreement pursuant to Section 8.01, an
amendment of this Agreement pursuant to Section 8.03 or an extension or waiver
pursuant to Section 8.04 shall, in order to be effective, require (a) in the
case of Parent, Sub or the Company, action by its Board of Directors or the duly
authorized designee of its Board of Directors and (b) in the case of the
Company, action by a majority of the members of the Board of Directors of the
Company who were members thereof on the date of this Agreement and remain as
such hereafter or the duly authorized designee of such members.
(b) The Company may terminate this Agreement pursuant to Section 8.01(f)
only if (i) the Board of Directors of the Company has received a takeover
proposal, (ii) in light of such takeover proposal a majority of the
disinterested directors of the Company shall have determined in good faith,
based upon the advice of outside counsel, that the Board of Directors of the
Company should withdraw or modify its approval or recommendation of the Merger
or this Agreement in order to comply with its fiduciary duty under applicable
law, (iii) the Company has notified Parent in writing of the determinations
described in clause (ii) above, (iv) at least 48 hours following receipt by
Parent of the notice referred to in clause (iii) above, and taking into account
any revised proposal made by Parent since receipt of the notice referred to in
clause (iii) above, a majority of the disinterested directors of the Company has
again made the determinations referred to in clause (ii) above, (v) the Company
is in compliance in all material respects with Section 5.02 and (vi) the Company
has previously paid the fee due under Section 6.08. Acceptance by Parent of the
fee due under Section 6.08 shall constitute acceptance by Parent of the validity
of any termination of this Agreement under Section 8.01(f) and this Section
8.05(b).
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ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time of the Merger. This
Section 9.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time of the Merger.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Kapson Senior Quarters Corp.
242 Crossways Park Drive
Woodbury, NY 11797
Attention: Glenn Kaplan and Ray DiGuardi
Telecopy: (516) 921-8998
Telephone: (516) 921-8900
with copies to:
Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Robert P. Freeman and Murry N. Gunty
Telecopy: (212) 332-5980
Telephone: (212) 632-6000
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Kevin J. Grehan, Esq.
Telecopy: (212) 474-3700
Telephone: (212) 474-1490
(b) if to the Company, to
ATRIA COMMUNITIES, INC.
501 South Fourth Avenue
Suite 140
Louisville, KY 40202
Attention: William C. Ballard Jr.
W. Patrick Mulloy, II
Audra J. Eckerle, Esq.
Telecopy: (502) 719-1699
Telephone: (502) 719-1600
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
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Attention: J. Vaughan Curtis, Esq.
Telecopy: (404) 881-4777
Telephone: (404) 881-7397
SECTION 9.03. Definitions. For purposes of this Agreement:
(a) an 'affiliate' of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person (it being understood and agreed
that a person shall be deemed to 'control' (i) any corporation of which such
person owns at least 40% of the outstanding equity interests and (ii) any
partnership or limited liability company of which such person is the general
partner or managing member, as applicable; provided, however, that V Corp. shall
not be deemed to be an affiliate of the Company);
(b) 'Company Stock Option' has the meaning assigned thereto in Section
6.05(a).
(c) 'Company Stockholder Approval' has the meaning assigned thereto in
Section 4.01(m).
(d) 'GAAP' means United States generally accepted accounting principles;
(e) 'Material Adverse Change' or 'Material Adverse Effect' means, when used
in connection with the Company or Parent, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to result in
any change or effect) that (i) is materially adverse to the business,
properties, assets, condition (financial or otherwise), results of operations or
prospects of such party and its subsidiaries taken as a whole, (ii) would
materially impair the ability of such party to perform its obligations under
this Agreement or (iii) would prevent or materially delay the consummation by
such party of any of the Transactions.
(f) 'Medicaid' means that means-tested entitlement program under Title XIX
of the Social Security Act that provides federal grants to states for medical
assistance based on specific eligibility criteria. (Social Security Act of 1965,
Title XIX, P.L. 89-97, as amended; 42 U.S.C. 1396 et seq.).
(g) 'Medicare' means that government-sponsored entitlement program under
Title XVIII of the Social Security Act that provides for a health insurance
system for eligible elderly and disabled individuals. (Social Security Act of
1965, Title XVIII, P.L. 89-87, as amended, 42 U.S.C. 1395 et seq.).
(h) 'Permitted Liens' means (i) Liens (other than Liens imposed under ERISA
or any Environmental Law, or in connection with any Environmental Claim) for
taxes or other assessments or charges of Governmental Entities that are not yet
delinquent or that are being contested in good faith by appropriate proceedings,
in each case, with respect to which adequate reserves are being maintained by
the Company or its subsidiaries to the extent required by GAAP, (ii) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
Liens (other than Liens imposed under ERISA or any Environmental Law or in
connection with any Environmental Claim) imposed by law and created in the
ordinary course of business for amounts not yet overdue or which are being
contested in good faith by appropriate proceedings, in each case, with respect
to which adequate reserves or other appropriate provisions are being maintained
by the Company or its subsidiaries to the extent required by GAAP, (iii)
easements, rights-of-way, covenants and restrictions which are customary and
typical for properties similar to the Company Properties and which do not (x)
interfere materially with the ordinary conduct of any Company Property or the
business of the Company and its subsidiaries as a whole or (y) detract
materially from the value or usefulness of the Company Properties to which they
apply, (iv) Liens described or disclosed on Schedule B of any title insurance
policy held by the Company and its subsidiaries and provided to Parent and (iv)
the other Liens, if any, described in Schedule 4.01(s)(i);
(i) 'person' means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(j) 'Proxy Materials' has the meaning assigned thereto in Section 6.01(a).
(k) 'Stockholders Meeting' has the meaning assigned thereto in Section
6.01(c).
(l) a 'subsidiary' of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of
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Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person;
(m) 'takeover proposal' has the meaning assigned thereto in Section 5.02.
SECTION 9.04. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words 'include', 'includes' or 'including' are used in
this Agreement, they shall be deemed to be followed by the words 'without
limitation'.
SECTION 9.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. The
Operative Agreements and the Confidentiality Agreement, taken together, (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of the Transactions and (b) except for the provisions of Article
III and Sections 6.06 and 6.07 and the last sentence of Section 8.03, are not
intended to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any affiliate of Parent, but no such assignment shall
relieve Sub of any of its obligations under this Agreement. Any purported
assignment without such consent shall be void. Subject to the preceding
sentences, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.09. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or the State of Delaware or in Delaware state
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Federal court located in the State of
New York or the State of Delaware or any Delaware state court in the event any
dispute arises out of any Operative Agreement or any of the Transactions, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to any Operative Agreement or any of the
Transactions in any court other than a Federal or state court sitting in the
State of New York or the State of Delaware or a Delaware state court.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
KAPSON SENIOR QUARTERS CORP.
By: /s/ EVAN A. KAPLAN
---------------------------------
Name: Evan A. Kaplan
Title: President
KA ACQUISITION CORP.
By: /s/ EVAN A. KAPLAN
---------------------------------
Name: Evan A. Kaplan
Title: President
ATRIA COMMUNITIES, INC.
By: /s/ W. PATRICK MULLOY, II
---------------------------------
Name: W. Patrick Mulloy, II
Title: President/CEO
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EXECUTION COPY
FIRST AMENDMENT, dated as of May 19, 1998 (the 'First Amendment'), to
the Agreement and Plan of Merger dated as of April 19, 1998 (the 'Merger
Agreement') among KAPSON SENIOR QUARTERS CORP., a Delaware corporation
('Parent'), KA ACQUISITION CORP., a Delaware corporation and a wholly owned
subsidiary of Parent ('Sub'), and ATRIA COMMUNITIES, INC., a Delaware
corporation (the 'Company').
WHEREAS the respective Boards of Directors of Parent, Sub and the Company,
have previously approved the merger of the Sub (the 'Merger') with and into the
Company, upon the terms and subject to the conditions set forth in the Merger
Agreement; and
WHEREAS Parent, Sub and the Company desire to amend the Merger Agreement as
set forth herein and the respective Boards of Directors of Parent, Sub and the
Company have approved the Merger upon the terms and subject to the conditions
set forth in the Merger Agreement as amended hereby;
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment to Section 3.01 of the Merger Agreement. Section
3.01(a) of the Merger Agreement is hereby amended and restated to read in its
entirety as follows:
'(a) Capital Stock of Sub. Each issued and outstanding share of the
common stock of Sub shall be converted into and become 9,135.802 fully paid
and nonassessable shares of Common Stock, par value $0.01 per share, of the
Surviving Corporation; provided, however, that at any time prior to ten
calendar days prior the Stockholders Meeting, Parent and Sub may elect, by
written notice to the Company and Vencor, to change the number of shares of
Common Stock of the Surviving Corporation into which each share of capital
stock of Sub shall be converted at the Effective Time of the Merger to any
number of shares not less than 9,135.802 and not greater than 11,111.111;
provided further, however, that, at or immediately prior to the Effective
Time of the Merger, Parent shall make an equity contribution to Sub in an
aggregate amount equal to the product of (x) $20.25 and (y) the aggregate
number of shares of Common Stock of the Surviving Corporation into which
the outstanding shares of common stock of Sub shall be converted at the
Effective Time of the Merger.'
SECTION 2. Amendment to Section 4.02(h). Section 4.02(h) of the Merger
Agreement is hereby amended by adding the following sentence to the end of such
Section: 'Parent and Sub hereby represent and warrant to the Company that the
outstanding capital stock of Sub immediately prior to the Effective Time of the
Merger will consist solely of 1,000 shares of common stock, par value $0.01 per
share, owned of record and beneficially by Parent or an affiliate of Parent.'
SECTION 3. Amendment to Certain Provisions Relating to Rollover
Options. (a) Subparagraph (ii) of Section 4.01(l) of the Merger Agreement is
hereby amended by replacing the reference to 'Rollover Options' to a reference
to 'Nonaccelerating Rollover Options'.
(b) The first sentence of Section 6.05(d) is hereby amended by
replacing the reference to 'Schedule 6.05(d)' to 'Schedule 6.05(d)(i)'.
(c) The fourth sentence of Section 6.05(d) of the Merger Agreement is
hereby amended and restated in its entirety as follows:
'The Rollover Options shall be subject after the Effective Time of the
Merger to the same terms and conditions that applied before the Effective
Time of the Merger (including terms and conditions that will cause the
accelerated vesting of the Rollover Options as a result of the transactions
contemplated by this Agreement) with the following exceptions: (i) with
respect to the Company Stock Options identified on Schedule 6.05(d)(ii)
(the 'Nonaccelerating Rollover Options'), any provision or agreement
providing for (x) the accelerated vesting of such Nonaccelerating Rollover
Options as a result of the transactions contemplated by this Agreement or
(y) the expiration or cancellation of such Nonaccelerating Rollover Options
upon the termination of employment for any reason ('Termination') of the
holder of
A-30
<PAGE>
Nonaccelerating Rollover Options shall not be given effect provided, that,
(1) the original vesting schedule shall continue to apply to such
Nonaccelerating Rollover Options and (2) upon the vesting of any
Nonaccelerating Rollover Options that have not vested as of the date of
Termination, the holder thereof shall receive an amount of cash therefor
equal to the aggregate spread with respect to each Nonaccelerating Rollover
Option; (ii) upon Termination of the holder of any Rollover Options, such
holder shall receive an amount of cash equal to the aggregate spread with
respect to each Rollover Option, except for Nonaccelerating Rollover
Options that are unvested as of such Termination (which are governed by
clause (i) above); and (iii) the shares of the Surviving Corporation
delivered upon exercise of the Rollover Options shall be subject to the
shareholder provisions set forth in the Shareholders Agreement. For
purposes of the immediately preceding sentence, the aggregate 'spread' with
respect to each Rollover Option shall be equal to the product of (x) the
number of shares covered by such Rollover Option and (y) the excess of (A)
the fair market value of one share of Common Stock of the Surviving
Corporation at the date of determination (either the date of Termination or
vesting, as applicable), over (B) the exercise price of such Rollover
Option.'
(d) Schedule 6.05(d) to the Merger Agreement is hereby amended and
restated in its entirety to read as set forth on Exhibit A attached hereto.
(e) Schedule 4.01(l) to the Merger Agreement is hereby amended and
restated in its entirety to read as set forth on Exhibit B hereto.
SECTION 4. Amendment to Section 6.08(b). The first sentence of Section
6.08(b) is hereby amended and restated in its entirety as follows:
The Company shall pay to Parent upon demand a fee of $18,209,496,
payable in same day funds, plus all Expenses (as defined below) of Parent,
if (i) the Company terminates this Agreement pursuant to Section 8.01(f);
(ii) Parent terminates this Agreement pursuant to Section 8.01(c), provided
that the breach or failure to perform by the Company giving rise to such
right to terminate under Section 8.01(c) must be a deliberate breach or
failure to perform with the intent of frustrating the Closing; (iii) Parent
terminates this Agreement pursuant to Section 8.01(d); (iv) any person
makes a takeover proposal that was not withdrawn more than ten days prior
to the date of the Stockholders Meeting and thereafter this Agreement is
terminated pursuant to Section 8.01(b)(i); or (v) any person makes a
takeover proposal that was not withdrawn on the date 60 days prior to the
Outside Date (as defined in Section 8.01(b)(ii)) and the Company
Stockholder Approval is not obtained prior to termination of this
Agreement.
SECTION 5. Amendment to Section 9.08 of the Merger Agreement. Section 9.08
is hereby amended by inserting the following sentence immediately after the
second sentence of such Section:
'Notwithstanding anything to the contrary in Section 2.01 or this
Section 9.08, no person shall be substituted as a constituent corporation
in the Merger unless (i) such person is a wholly owned subsidiary of Parent
or a wholly owned subsidiary of an affiliate of Parent and (ii) the
representations and warranties of Sub set forth in Sections 4.02(a), (b),
(c) and (h) shall be true and correct with respect to such person.'
SECTION 6. Governing Law. This First Amendment shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 7. Counterparts. This First Amendment may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8. Full Force and Effect. Except as expressly modified and amended
by this First Amendment, the Merger Agreement shall continue in full force and
effect and is hereby ratified and confirmed in all respects.
A-31
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this First
Amendment to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
KAPSON SENIOR QUARTERS CORP.,
By: /s/ EVAN A. KAPLAN
---------------------------------
Name: Evan A. Kaplan
Title: President
KA ACQUISITION CORP.,
By: /s/ EVAN A. KAPLAN
---------------------------------
Name: Evan A. Kaplan
Title: President
ATRIA COMMUNITIES, INC.,
By: /s/ J. TIMOTHY WESLEY
---------------------------------
Name: J. Timothy Wesley
Title: Chief Financial Officer,
Vice President of
Development and Secretary
Pursuant to Section 8.03 of the Merger Agreement, VENCOR, INC. and VENCOR
HOLDINGS, L.L.C. hereby approve the amendment of the Merger Agreement as set
forth above.
VENCOR, INC.,
By: /s/ JAMES H. GILLENWATER, JR.
---------------------------------
Name: James H. Gillenwater, Jr.
Title: Senior Vice President,
Planning and Development
VENCOR HOLDINGS, L.L.C.,
By: /s/ JAMES H. GILLENWATER, JR.
---------------------------------
Name: James H. Gillenwater, Jr.
Title: Senior Vice President,
Planning and Development
A-32
<PAGE>
APPENDIX B
SUPPORT AGREEMENT BY AND AMONG PARENT, MERGER SUB AND CERTAIN
OF THE OFFICERS AND ALL OF THE DIRECTORS OF THE COMPANY
<PAGE>
CONFORMED COPY
SUPPORT AGREEMENT dated as of April 19, 1998, between KAPSON SENIOR
QUARTERS CORP., a Delaware corporation ('Parent'), KA ACQUISITION CORP., a
Delaware corporation ('Sub'), and the individuals and other parties listed on
Schedule A hereto (each, a 'Stockholder' and, collectively, the 'Stockholders').
WHEREAS, Parent, Sub and Atria Communities, Inc., a Delaware corporation
(the 'Company'), propose to enter into an Agreement and Plan of Merger dated as
of the date hereof (as the same may be amended or supplemented, the 'Merger
Agreement'; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement) providing for the merger of Sub with
and into the Company; and
WHEREAS each Stockholder owns the number of shares of Common Stock set
forth opposite his, her or its name on Schedule A hereto (such shares of Common
Stock, together with any other shares of capital stock of the Company acquired
by such Stockholder after the date hereof and during the term of this Agreement,
being collectively referred to herein as the 'Subject Shares' of such
Stockholder); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has requested that each Stockholder enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to Parent
and Sub as of the date hereof in respect of himself, herself or itself as
follows:
(a) Authority; Execution and Delivery; Enforceability. The
Stockholder has all requisite power and authority to execute this Agreement
and to consummate the transactions contemplated hereby. The Stockholder has
duly executed and delivered this Agreement, and this Agreement constitutes
the legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws affecting creditors' rights generally from time to time
in effect and to general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether considered in a proceeding in equity or at
law). The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with
the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancelation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the
Stockholder or any of its subsidiaries under, (i) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Stockholder or any of its subsidiaries or their respective properties or
assets or (ii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Stockholder
or any of its subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not (x) have a Material Adverse Effect on the Stockholder,
(y) impair the ability of the Stockholder to perform their respective
obligations under this Agreement or (z) prevent the consummation of any of
the Transactions. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to the Stockholder or any of its subsidiaries
in connection with the execution and delivery of this Agreement by the
Stockholder or the consummation by the Stockholder of transactions
contemplated hereby, except for the filing with the SEC of such reports
under Section 13(d) and 16(a) of the Exchange Act as may be required in
connection with the Agreement and the transactions contemplated hereby. If
the Stockholder is married and the Subject Shares of the Stockholder
constitute community property or otherwise need spousal or other approval
to be legal, valid and binding, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement
of, the Stockholder's spouse, enforceable against such spouse in accordance
with its terms. No trust of which the Stockholder is a trustee requires the
consent of any beneficiary to the execution and
B-1
<PAGE>
delivery of this Agreement or to the consummation of the transactions
contemplated hereby. The Stockholder will execute a power of attorney in
favor of at least two other Stockholders with respect to the matters
covered by Sections 3(a) and 3(b) in the event of incapacity of the
Stockholder.
(b) The Subject Shares. The Stockholder is the record and beneficial
owner of, or is the trustee of a trust that is the record holder of, and
whose beneficiaries are the beneficial owners of, and has good and
marketable title to, the Subject Shares set forth opposite his, her or its
name on Schedule A attached hereto, free and clear of any Liens. The
Stockholder does not own, of record or beneficially, any shares of capital
stock of the Company other than the Subject Shares set forth opposite his
or its name on Schedule A attached hereto. The Stockholder has the sole
right to vote such Subject Shares, and none of such Subject Shares is
subject to any voting trust or other agreement, arrangement or restriction
with respect to the voting of such Subject Shares, except as contemplated
by this Agreement.
SECTION 2. Representations and Warranties of Parent. Parent and Sub hereby
represent and warrant to each Stockholder as follows: Parent and Sub have all
requisite corporate power and authority to enter into this Agreement and to
consummate the Transactions. The execution and delivery of this Agreement and
the consummation of the Transactions have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement has been duly
executed and delivered by Parent and Sub and constitutes a valid and binding
obligation of such party, enforceable against such party in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether considered in a proceeding in equity or at law).
The execution and delivery of the Operative Agreements do not, and the
consummation of the Transactions and compliance with the provisions of the
Operative Agreements will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancelation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of Parent or Sub under, (i) the certificate of
incorporation or by-laws (or other comparable organizational documents) of
Parent or Sub, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or Sub or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or Sub, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses
or Liens that individually or in the aggregate would not (x) have a Material
Adverse Effect on Parent, (y) impair the ability of Parent and Sub to perform
their respective obligations under this Agreement or (z) prevent the
consummation of any of the Transactions. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement or the consummation by Parent or Sub,
as the case may be, of any of the Transactions, except for (i) the filing with
the SEC of the Proxy Materials and such reports under Sections 13 and 16(a) of
the Exchange Act as may be required in connection with the Operative Agreement
and the Transactions, (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
(iii) such filings as may be required in connection with the taxes described in
Section 6.10 of the Merger Agreement and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the 'takeover' or 'blue sky' laws of various states.
SECTION 3. Covenants of each Stockholder. Subject to Section 5 hereof,
each Stockholder, severally and not jointly, covenants and agrees as follows:
(a) The Stockholder hereby permits the Company, Parent and Sub to
publish and disclose in the Proxy Materials (including all documents and
schedules filed with the SEC) its identity and ownership of the Subject
Shares and the nature of its commitments, arrangements and understandings
under this Agreement.
(b) (1) At any meeting of the stockholders of the Company called to
seek the approval of the Merger Agreement and the Merger (the 'Company
Stockholder Approval') or in any other circumstances upon which a vote,
consent or other approval with respect to the Merger Agreement, any other
Operative
B-2
<PAGE>
Agreement, the Merger or any other Transaction is sought, the Stockholder
shall vote (or cause to be voted) the Subject Shares of the Stockholder in
favor of granting the Company Stockholder Approval.
(2) The Stockholder hereby irrevocably grants to, and appoints,
Parent Robert P. Freeman and Murry N. Gunty, or any of them, and any
individual designated in writing by any of them, and each of them
individually, as the Stockholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of
the Stockholder, to vote the Subject Shares of the Stockholder, or
grant a consent or approval in respect of the Subject Shares of the
Stockholder in a manner consistent with this Section 3. The
Stockholder understands and acknowledges that Parent is entering into
the Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder hereby affirms that the
irrevocable proxy set forth in this Section 3(b) is given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy is given to secure the performance of the duties of
the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and
may under no circumstances be revoked, except as provided herein. The
Stockholder hereby ratifies and confirms all that such irrevocable
proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL. The
irrevocable proxy granted hereunder shall automatically terminate
upon the termination of Sections 3(b) and 3(c).
(c) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, the Stockholder
shall vote (or cause to be voted) the Subject Shares against (i) any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by Company,
(ii) any takeover proposal (as defined in the Merger Agreement) and (iii)
any amendment of the certificate of incorporation or by-laws of the Company
or other proposal or transaction involving the Company or any of its
subsidiaries, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify any provision of any Operative
Agreement, the Merger or any other Transaction or change in any manner the
voting rights of any class of capital stock of the Company. The Stockholder
shall not commit or agree to take any action inconsistent with the
foregoing.
(d) Other than this Agreement, the Stockholder shall not (i) sell,
transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, 'Transfer'), or enter into any Contract, option or other
arrangement (including any profit sharing arrangement) with respect to the
Transfer of, any Subject Shares to any person other than pursuant to the
Merger or (ii) enter into any voting arrangement, whether by proxy, voting
agreement or otherwise, with respect to any Subject Shares and shall not
commit or agree to take any of the foregoing actions.
(e) The Stockholder shall not, nor shall it authorize or permit any
employee of, or any investment banker, attorney or other adviser or
representative of, the Stockholder to, (i) directly or indirectly solicit,
initiate or encourage the submission of, any takeover proposal, (ii) enter
into any agreement with respect to any takeover proposal or (iii) directly
or indirectly participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover
proposal. The Stockholder promptly shall advise Parent orally and in
writing of any takeover proposal or inquiry made to the Stockholder with
respect to or that could reasonably be expected to lead to any takeover
proposal and the material terms of any such takeover proposal or inquiry.
(f) The Stockholder shall use its reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other Transactions.
(g) The Stockholder hereby consents to and approves the actions taken
by the Board of Directors of the Company in approving the Merger Agreement,
the Merger and the other Transactions. The Stockholder
B-3
<PAGE>
hereby waives, and agrees not to exercise or assent, any appraisal rights
under Section 262 in connection with the Merger.
SECTION 4. [Intentionally Omitted]
SECTION 5. Termination. This Agreement shall terminate upon the earliest
of (i) the Effective Time, (ii) the termination of the Merger Agreement in
accordance with its terms and (iii) the Outside Date, other than with respect to
the liability of any party for breach hereof prior to such termination.
SECTION 6. Additional Matters. (a) Each Stockholder shall, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Parent may
reasonably request for the purpose of effectively carrying out the transactions
contemplated hereby.
(b) Concurrently with the Closing of the Merger, each of J. Timothy
Wesley, Andy J. Schoepf, W. Patrick Mulloy, II, and Parent shall enter into
the Shareholders and Registration Rights Agreement, in the form attached as
Exhibit A hereto.
(c) No Stockholder shall be deemed to make any agreement or
understanding herein in his or her capacity as a director or officer of the
Company. Each Stockholder signs solely in his, her or its capacity as the
record holder and beneficial owner of, or the trustee of a trust whose
beneficiaries are the beneficial owners of, such Stockholder's Subject
Shares and nothing herein shall limit or affect any actions taken by any
Stockholder in his capacity as an officer or director of the Company (to
the extent not specifically prohibited by the Merger Agreement).
SECTION 7. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto and consented to
by the Company.
(b) Notice. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Parent in accordance
with Section 9.02 of the Merger Agreement and to the Stockholders at their
respective addresses set forth on Schedule A hereto (or at such other
address for a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words 'include', 'includes'
or 'including' are used in this Agreement, they shall be deemed to be
followed by the words 'without limitation'.
(d) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
This Agreement shall become effective against Parent when one or more
counterparts have been signed by Parent and delivered to each Stockholder.
This Agreement shall become effective against any Stockholder when one or
more counterparts have been executed by such Stockholder and delivered to
Parent. Each party need not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect
to the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto (and, with respect to Section 7(a) and
(h) only, the Company) any rights or remedies hereunder.
B-4
<PAGE>
(g) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the
laws that might otherwise govern under applicable principles of conflicts
of law thereof.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole
or in part, by operation of law or otherwise, (i) by Parent or Sub without
the prior written consent of the Stockholder and the Company (except that
Parent or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any affiliate of Parent, but no such assignment
shall relieve Parent or Sub of its obligations hereunder without the
consent of the Stockholder and the Company) or (ii) by any Stockholder
without the prior written consent of Parent and the Company, and any
purported assignment without such consent shall be void. Subject to the
preceding sentences, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective
successors and permitted assigns.
(i) Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any New
York state court, any Federal court located in the State of New York or the
State of Delaware or in any Delaware state court, this being in addition to
any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any New York state court, any Federal court
located in the State of New York or the State of Delaware or any Delaware
state court in the event any dispute arises out of this Agreement or any
Transaction, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court, (iii) agrees that it will not bring any action relating to this
Agreement or any Transaction in any court other than a New York state
court, any Federal court sitting in the State of New York or the State of
Delaware or any Delaware state court and (iv) waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of
this Agreement or any transaction contemplated hereby.
B-5
<PAGE>
IN WITNESS WHEREOF, each party has duly executed this Agreement, all as of
the date first written above.
KAPSON SENIOR QUARTERS CORP.,
By: /s/ EVAN A. KAPLAN
---------------------------------
Name: Evan A. Kaplan
Title: President
KA ACQUISITION CORP.,
By: /s/ EVAN A. KAPLAN
---------------------------------
Name: Evan A. Kaplan
Title: President
SIGNATURE PAGE TO SUPPORT AGREEMENT DATED AS OF APRIL 19, 1998
STOCKHOLDERS:
/s/ SANDRA HARDEN AUSTIN
-------------------------------------
Sandra Harden Austin
/s/ WILLIAM C. BALLARD JR.
-------------------------------------
William C. Ballard Jr.
/s/ PETER J. GRUA
-------------------------------------
Peter J. Grua
/s/ THOMAS T. LADT
-------------------------------------
Thomas T. Ladt
/s/ BRUCE LUNSFORD
-------------------------------------
W. Bruce Lunsford
/s/ W. PATRICK MULLOY, II
-------------------------------------
W. Patrick Mulloy, II
/s/ ANDY J. SCHOEPF
-------------------------------------
Andy J. Schoepf
/s/ R. GENE SMITH
-------------------------------------
R. Gene Smith
/s/ J. TIMOTHY WESLEY
-------------------------------------
J. Timothy Wesley
B-6
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF
NAME AND ADDRESS OF STOCKHOLDER COMMON STOCK OWNED
- ------------------------------------------------------------------------------------------- ------------------
<S> <C>
Sandra Harden Austin 5,000
*
William C. Ballard Jr. 20,500(1)
*
Peter J. Grua 7,000
*
Thomas T. Ladt 15,035(2)
*
W. Bruce Lunsford 70,000(3)
*
W. Patrick Mulloy, II 34,805(4)
*
Andy J. Schoepf 636,487
*
R. Gene Smith 65,000
*
J. Timothy Wesley 6,500
*
* c/o Atria Communities, Inc.
515 West Market Street
Suite 2000
Louisville, KY 40202
</TABLE>
- ------------------
(1) Includes 11,000 shares held as a custodian.
(2) Includes 35 shares held as a custodian, but excludes 2,000 shares held by a
partnership in which he is a general partner and 6,000 shares held by an
estate of which he is the executor.
(3) Includes 10,000 shares held as a custodian.
(4) Includes 380 shares held as a custodian.
B-7
<PAGE>
APPENDIX C
SUPPORT AGREEMENT BY AND AMONG PARENT, MERGER SUB AND CERTAIN
PREDECESSORS TO VENCOR AND VHLLC
<PAGE>
CONFORMED COPY
SUPPORT AGREEMENT dated as of April 19, 1998, among KAPSON SENIOR QUARTERS
CORP., a Delaware corporation ('Parent'), KA ACQUISITION CORP., a Delaware
corporation ('Sub'), Vencor, Inc., a Delaware corporation ('Vencor'), and Vencor
Assisted Living Holdings, Inc., a Delaware corporation ('VALH') (each of Vencor
and VALH, a 'Stockholder' and, collectively, the 'Stockholders').
WHEREAS, Parent, Sub and Atria Communities, Inc., a Delaware corporation
(the 'Company'), propose to enter into an Agreement and Plan of Merger dated as
of the date hereof (as the same may be amended or supplemented, the 'Merger
Agreement'; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement) providing for the merger of Sub with
and into the Company;
WHEREAS, pursuant to the Merger Agreement, the outstanding capital stock of
Sub will be converted into 11,111,111 shares of Common Stock of the Surviving
Corporation and the Stockholders will retain 1,234,568 shares of Common Stock of
the Surviving Corporation;
WHEREAS, each Stockholder owns the number of shares of Common Stock set
forth opposite its name on Schedule A hereto (such shares of Common Stock,
together with any other shares of capital stock of the Company acquired by such
Stockholder after the date hereof and during the term of this Agreement, being
collectively referred to herein as the 'Subject Shares' of such Stockholder);
and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent and Sub have requested that each Stockholder enter into this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby represents and warrants to Parent and Sub as of the date
hereof as follows:
(a) Authority; Execution and Delivery; Enforceability. The
Stockholder has all requisite corporate power and authority to execute this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Stockholder of this Agreement and
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the
Stockholder. The Stockholder has duly executed and delivered this
Agreement, and this Agreement constitutes the legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in
accordance with its terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws
affecting creditors' rights generally from time to time in effect and to
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of
whether considered in a proceeding in equity or at law). The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any
obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the
Stockholder or any of its subsidiaries under, (i) the Certificate of
Incorporation or By-laws of the Stockholder or the comparable charter or
organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to the Stockholder or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Stockholder
or any of its subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not (x) have a Material Adverse Effect on the Stockholder,
(y) impair the ability of the Stockholder to perform their respective
obligations under this Agreement or (z) prevent the consummation of any of
the Transactions. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to the Stockholder or any of its subsidiaries
in connection with the execution and delivery of this Agreement by the
Stockholder or the consummation by the Stockholder of transactions
contemplated hereby, except for the
C-1
<PAGE>
filing with the SEC of such reports under Section 13(d) and 16(a) of the
Exchange Act as may be required in connection with the Agreement and the
transactions contemplated hereby.
(b) The Subject Shares. The Stockholder is the record and/or
beneficial owner of, and has good and valid title to, the Subject Shares,
free and clear of any Liens. The Stockholder does not own, of record or
beneficially, any shares of capital stock of Company other than the Subject
Shares. The Stockholder has the sole right to vote the Subject Shares, and
none of the Subject Shares is subject to any voting trust or other
agreement, arrangement or restriction with respect to the voting of the
Subject Shares, except as contemplated by this Agreement.
SECTION 2. Representations and Warranties of Parent and Sub. Parent and
Sub hereby represent and warrant to each Stockholder as follows: Parent and Sub
have all requisite corporate power and authority to enter into this Agreement
and to consummate the Transactions. The execution and delivery of this Agreement
and the consummation of the Transactions have been duly authorized by all
necessary corporate action on the part of Parent and Sub. This Agreement has
been duly executed and delivered by Parent and Sub and constitutes a valid and
binding obligation of such party, enforceable against such party in accordance
with its terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principles of
equity, including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing, regardless of whether considered in a proceeding in
equity or at law). The execution and delivery of the Operative Agreements do
not, and the consummation of the Transactions and compliance with the provisions
of the Operative Agreements will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any obligation or
to loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Parent or Sub under, (i) the certificate of
incorporation or by-laws (or other comparable organizational documents) of
Parent or Sub, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or Sub or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or Sub, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses
or Liens that individually or in the aggregate would not (x) have a Material
Adverse Effect on Parent, (y) impair the ability of Parent and Sub to perform
their respective obligations under this Agreement or (z) prevent the
consummation of any of the Transactions. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement or the consummation by Parent or Sub,
as the case may be, of any of the Transactions, except for (i) the filing with
the SEC of the Proxy Materials and such reports under Sections 13 and 16(a) of
the Exchange Act as may be required in connection with the Operative Agreement
and the Transactions, (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
(iii) such filings as may be required in connection with the taxes described in
Section 6.10 of the Merger Agreement and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the 'takeover' or 'blue sky' laws of various states.
SECTION 3. Covenants of Each Stockholder. Subject to Section 5 hereof,
each Stockholder covenants and agrees as follows:
(a) The Stockholder hereby permits the Company, Parent and Sub to
publish and disclose in the Proxy Materials (including all documents and
schedules filed with the SEC) its identity and ownership of the Subject
Shares and the nature of its commitments, arrangements and understandings
under this Agreement.
(b) (1) At any meeting of the stockholders of the Company called to
seek the approval of the Merger Agreement and the Merger (the 'Company
Stockholder Approval') or in any other circumstances upon which a vote,
consent or other approval with respect to the Merger Agreement, any other
Operative Agreement, the Merger or any other Transaction is sought, the
Stockholder shall vote (or cause to be voted) the Subject Shares in favor
of granting the Company Stockholder Approval.
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<PAGE>
(2) The Stockholder hereby irrevocably grants to, and appoints,
Parent, Robert P. Freeman and Murry N. Gunty, or any of them, and any
individual designated in writing by any of them, and each of them
individually, as the Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Subject Shares, or grant a consent or approval
in respect of the Subject Shares in a manner consistent with this
Section 3. The Stockholder understands and acknowledges that Parent is
entering into the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder hereby affirms
that the irrevocable proxy set forth in this Section 3(b) is given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy is given to secure the performance of the duties of
the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except as provided herein. The
Stockholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable
proxy is executed and intended to be irrevocable in accordance with the
provisions of Section 212(e) of the DGCL. The irrevocable proxy granted
hereunder shall automatically terminate upon the termination of Sections
3(b) and 3(c).
(c) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, the Stockholder
shall vote (or cause to be voted) the Subject Shares against (i) any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by Company,
(ii) any 'takeover proposal' (as defined in the Merger Agreement) and (iii)
any amendment of the certificate of incorporation or by-laws of the Company
or other proposal or transaction involving the Company or any of its
subsidiaries, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify any provision of any Operative
Agreement, the Merger or any other Transaction or change in any manner the
voting rights of any class of capital stock of the Company. The Stockholder
shall not commit or agree to take any action inconsistent with the
foregoing.
(d) Other than this Agreement, the Stockholder shall not (i) sell,
transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, 'Transfer'), or enter into any agreement, option or other
arrangement (including any profit sharing arrangement) with respect to the
Transfer of, any Subject Shares to any person other than pursuant to the
Merger or (ii) enter into any voting arrangement, whether by proxy, voting
agreement or otherwise, with respect to any Subject Shares and shall not
commit or agree to take any of the foregoing actions. Notwithstanding the
foregoing, the Stockholder may Transfer the Subject Shares to the Vencor
Operating Company (as defined below) or one of its wholly owned
subsidiaries in connection with the transactions described in the Vencor
Proxy Statement (as defined below); provided, however, that the Vencor
Operating Company (or such subsidiary, if applicable) shall execute and
deliver to Parent a supplement to this Agreement agreeing to be bound by
the terms hereof. 'Vencor Operating Company' means the corporation referred
to as the 'Operating Company' in the Vencor Proxy Statement. The 'Vencor
Proxy Statement' means definitive proxy statement included in the Schedule
14A of Vencor, as amended, filed with the Securities and Exchange
Commission on March 26, 1998.
(e) The Stockholder shall not, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or
other adviser or representative of, the Stockholder to, (i) directly or
indirectly solicit, initiate or encourage the submission of, any takeover
proposal, (ii) enter into any agreement with respect to any takeover
proposal or (iii) directly or indirectly participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any takeover proposal. The Stockholder promptly shall advise
Parent orally and in writing of any takeover proposal or inquiry made to
the Stockholder with respect to or that could reasonably be expected to
lead to any takeover proposal and the material terms of any such takeover
proposal or inquiry.
(f) The Stockholder shall use its reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other Transactions.
C-3
<PAGE>
(g) The Stockholder hereby consents to and approves the actions taken
by the Board of Directors of the Company in approving the Merger Agreement,
the Merger and the other Transactions. The Stockholder hereby waives, and
agrees not to exercise or assent, any appraisal rights under Section 262 in
connection with the Merger.
SECTION 4. [Intentionally Omitted]
SECTION 5. Termination. This Agreement shall terminate upon the earliest
of (i) the Effective Time, (ii) the termination of the Merger Agreement in
accordance with its terms and (iii) the Outside Date, other than with respect to
the liability of any party for breach hereof prior to such termination.
SECTION 6. Additional Matters. (a) The Stockholder shall, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Parent may
reasonably request for the purpose of effectively carrying out the transactions
contemplated hereby.
(b) Concurrently with the Closing of the Merger, each Stockholder and
Parent shall enter into the Shareholders and Registration Rights Agreement,
in the form attached as Exhibit A hereto.
(c) No Stockholder shall be deemed to make any agreement or
understanding herein with respect to any director or officer of such
Stockholder in his or her capacity as a director or officer of the Company.
Each Stockholder signs solely in its capacity as the record holder and
beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, such Stockholder's Subject Shares and nothing herein
shall limit or affect any actions taken by any director or officer of such
Stockholder in his or her capacity as a director or officer of the Company
(to the extent not specifically prohibited by the Merger Agreement).
SECTION 7. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto and consented to
by the Company.
(b) Notice. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Parent or Sub in
accordance with Section 9.02 of the Merger Agreement and to the Stockholder
at its address set forth on Schedule A hereto (or at such other address for
a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words 'include', 'includes'
or 'including' are used in this Agreement, they shall be deemed to be
followed by the words 'without limitation'.
(d) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
This Agreement shall become effective against Parent and Sub when one or
more counterparts have been signed by Parent and Sub and delivered to each
Stockholder. This Agreement shall become effective against any Stockholder
when one or more counterparts have been executed by such Stockholder and
delivered to Parent and Sub. Each party need not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect
to
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<PAGE>
the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto (and, with respect to Section 7(a) and
(h) only, the Company) any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the
laws that might otherwise govern under applicable principles of conflicts
of law thereof.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole
or in part, by operation of law or otherwise, (i) by Parent or Sub without
the prior written consent of the Stockholders and the Company (except that
Parent or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any affiliate of Parent, but no such assignment
shall relieve Parent or Sub of its obligations hereunder without the
consent of the Stockholders and the Company) or (ii) by any Stockholder
without the prior written consent of Parent and the Company (except that
any Stockholder may assign, in its sole discretion, its rights and
obligations hereunder to the Vencor Operating Company or one of its wholly
owned subsidiaries in connection with any Transfer permitted by the last
sentence of Section 3(d), but no such assignment shall relieve such
Stockholder of its obligations hereunder without the consent of Parent and
the Company), and any purported assignment without such consent shall be
void. Subject to the preceding sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and permitted assigns.
(i) Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any New
York state court, any Federal court located in the State of New York or the
State of Delaware or in any Delaware state court, this being in addition to
any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any New York state court, any Federal court
located in the State of New York or the State of Delaware or any Delaware
state court in the event any dispute arises out of this Agreement or any
Transaction, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court, (iii) agrees that it will not bring any action relating to this
Agreement or any Transaction in any court other than a New York state
court, any Federal court sitting in the State of New York or the State of
Delaware or any Delaware state court and (iv) waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of
this Agreement or any transaction contemplated hereby.
IN WITNESS WHEREOF, each party has duly executed this Agreement, all as of
the date first written above.
KAPSON SENIOR QUARTERS CORP.,
By: /s/ EVAN A. KAPLAN
--------------------------------
Name: Evan A. Kaplan
Title: President
VENCOR, INC.,
By: /s/ W. BRUCE LUNSFORD
--------------------------------
Name: W. Bruce Lunsford
Title: Chief Executive Officer
KA ACQUISITION CORP.,
By: /s/ EVAN A. KAPLAN
--------------------------------
Name: Evan A. Kaplan
Title: President
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME AND ADDRESS OF STOCKHOLDER COMMON STOCK OWNED
- ------------------------------------------------------------- -------------------
<S> <C>
Vencor 0
3300 Aegon Center
400 West Market Street
Louisville, KY 40202
VALH 10,000,000
3300 Aegon Center
400 West Market Street
Louisville, KY 40202
</TABLE>
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<PAGE>
APPENDIX D
FORM OF SHAREHOLDERS AND REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT C
TO MERGER AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDERS AND REGISTRATION RIGHTS AGREEMENT
Dated as of [ ], 1998
among
ATRIA COMMUNITIES, INC.,
KAPSON SENIOR QUARTERS CORP.,
VENCOR, INC.,
VENCOR ASSISTED LIVING HOLDINGS, INC.
and
THE MANAGEMENT SHAREHOLDERS LISTED ON SCHEDULE I HERETO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SHAREHOLDERS AND REGISTRATION RIGHTS
AGREEMENT dated as of [ ], 1998, among ATRIA COMMUNITIES, INC., a
Delaware corporation (the 'Company'); KAPSON SENIOR QUARTERS CORP., a Delaware
corporation ('Kapson'); VENCOR, INC., a Delaware corporation ('Vencor'), and
VENCOR ASSISTED LIVING HOLDINGS, INC., a Delaware corporation ('VALH') (each of
V Corp. and VALH, a 'V Corp. Shareholder' and, collectively, the 'V Corp.
Shareholders'); and the other shareholders set forth on Schedule I hereto
(collectively, the 'Management Shareholders' and, together with Kapson and the V
Corp. Shareholders, the 'Shareholders').
Preliminary Statements
WHEREAS, the Company, Kapson and KA Acquisition Corp. have entered into an
Agreement and Plan of Merger dated as of April [ ], 1998 (the 'Merger
Agreement');
WHEREAS, as of the Effective Time of the Merger (as defined in the Merger
Agreement), the Company has authorized capital stock consisting of 50,000,000
shares of common stock, par value $0.01 per share ('Common Stock');
WHEREAS, as of the Effective Time of the Merger, (i) Kapson is the record
and beneficial owner of 11,111,111 shares of Common Stock, (ii) V Corp. is the
record and beneficial owner of [ ] shares of Common Stock and VALH is the record
and beneficial owner of [ ]shares of Common Stock and (iii) the Management
Shareholders are the record and beneficial owners of an aggregate of [ ] shares
of Common Stock and options to purchase an aggregate of [ ] shares of Common
Stock; and
WHEREAS, the Shareholders believe it to be in their best interests and the
best interests of the Company that they enter into this Agreement providing for
certain rights and restrictions with respect to certain equity securities of the
Company owned by them or their transferees.
NOW THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Certain Terms Used Herein. As used herein, the
following terms shall have meanings specified below:
'Custodial Care/Healthcare Business' means (i) the development, ownership,
operation or management of any assisted or independent living community,
long-term care facility, hospital, outpatient clinic, nursing center or any
other facility that is used or useful in the provision of custodial care or
healthcare services, (ii) any custodial care or healthcare business affiliated
or associated with any facility referred to in clause (i) above and (iii) any
business related, ancillary or complementary to the foregoing.
'Exchange Act' shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
'GAAP' shall mean generally accepted accounting principles applied on a
consistent basis.
'Governmental Entity' shall mean any Federal, state or local government or
any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign.
'IPO' shall mean the initial public offering of the Company's Common Stock.
'Liens' shall mean any pledges, claims, liens, charges, encumbrances or
security interests of any kind or nature whatsoever.
'Majority-in-Interest' shall mean the holders of a majority of the
outstanding shares of Common Stock.
'Merger Agreement' shall mean the Agreement and Plan of Merger among the
Company, Kapson and KA Acquisition Corp., dated as of April [ ], 1998.
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<PAGE>
'Percentage Interest' means, as to any Shareholder at any time, such
Shareholder's pro rata share, expressed as a percentage, of the total number of
shares of Common Stock outstanding at such time (excluding treasury shares).
'SEC' shall mean the Securities and Exchange Commission and any successor
commission or agency having similar powers.
'Securities Act' shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
'Shareholder' shall mean (a) Kapson, (b) the Vencor Shareholders, (c) each
Management Shareholder and (d) from and after the date on which it acquires
Common Stock and executes a supplement to this Agreement substantially in the
form of Exhibit A hereto and agrees to be bound by the terms hereof, each other
purchaser or transferee of Shares.
'Transfer' shall have the meaning set forth in Section 4.01.
'Vencor Operating Company' shall mean the corporation referred to as the
'Operating Company' in the Vencor Proxy Statement.
'Vencor Proxy Statement' shall mean the definitive proxy statement included
in the Schedule 14A of Vencor, as amended, filed with the Securities and
Exchange Commission on March 26, 1998.
SECTION 1.02. Usage. The definitions in this Article I shall apply equally
to both the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. All references in this Agreement to Articles, Sections and
Exhibits shall be deemed to be references to Articles, Sections and Exhibits of
or to this Agreement, unless the context shall otherwise require. The words
'include', 'includes' and 'including' shall be deemed to be followed by the
phrase 'without limitation', regardless of whether such phrase so appears.
ARTICLE II
Representations and Warranties
SECTION 2.01. Representations and Warranties of the Company. The Company
hereby represents and warrants to each other party hereto as follows:
(a) Authority; No Conflicts; Consents. The Company has all requisite power
and authority to execute this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company. The Company has
duly executed and delivered this Agreement, and this Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. The execution and delivery of this
Agreements does not, and the consummation of the transactions contemplated
hereby and compliance with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of the Company
or any of its subsidiaries under, (i) the Certificate of Incorporation or
By-laws of the Company or the comparable charter or organizational documents of
any of its subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its subsidiaries or
their respective properties or assets or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its subsidiaries or their respective properties or assets. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to the Company or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of transactions contemplated
hereby.
(b) Legal Proceedings. There are no judgments, orders or decrees of any
kind against the Company that are unpaid or unsatisfied, nor is there any legal
action, suit or other legal or administrative proceeding pending,
D-2
<PAGE>
threatened or reasonably anticipated that could be filed against the Company,
that would adversely affect the ability of the Company to perform its
obligations under this Agreement.
(c) Bankruptcy or Insolvency. The Company has not filed or commenced, or
suffered or submitted to the filing or commencement of, any bankruptcy or
insolvency proceeding under applicable law.
SECTION 2.02. Representations and Warranties of Kapson. Kapson hereby
represents and warrants to each other party hereto as follows:
(a) Authority; No Conflicts; Consents. Kapson has all requisite power and
authority to execute this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by Kapson of this Agreement and
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of Kapson. Kapson has duly executed and
delivered this Agreement, and this Agreement constitutes the legal, valid and
binding obligation of Kapson, enforceable against Kapson in accordance with its
terms. The execution and delivery of this Agreements does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancelation or acceleration of any obligation or
to loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Kapson under, (i) the Certificate of
Formation or the Limited Liability Company Agreement of Kapson, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Kapson or its
properties or assets or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Kapson or its properties or assets.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Kapson in
connection with the execution and delivery of this Agreement by Kapson or the
consummation by Kapson of transactions contemplated hereby.
(b) Ownership of Shares. After giving effect to the Closing, Kapson will
own the shares of Common Stock as indicated in the preliminary statements to
this Agreement, in each case free and clear of any pledge or other encumbrance.
(c) Legal Proceedings. There are no judgments, orders or decrees of any
kind against Kapson that are unpaid or unsatisfied, nor is there any legal
action, suit or other legal or administrative proceeding pending, threatened or
reasonably anticipated that could be filed against Kapson, that would adversely
affect the ability of Kapson to perform its obligations under this Agreement.
(d) Bankruptcy or Insolvency. Kapson has not filed or commenced, or
suffered or submitted to the filing or commencement of, any bankruptcy or
insolvency proceeding under applicable law.
SECTION 2.03. Representations and Warranties of the Vencor
Shareholders. The V Corp. Shareholders jointly and severally hereby represent
and warrant to each other party hereto as follows:
(a) Authority; No Conflicts; Consents. Each Vencor Shareholder has all
requisite power and authority to execute this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by each Vencor
Shareholder of this Agreement and consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of such
Vencor Shareholder. Each V Corp. Shareholder has duly executed and delivered
this Agreement, and this Agreement constitutes the legal, valid and binding
obligation of such Vencor Shareholder, enforceable against such Vencor
Shareholder in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of any Vencor
Shareholder or any of its subsidiaries under, (i) the Certificate of
Incorporation or By-laws of any Vencor Shareholder or the comparable charter or
organizational documents of any of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to any Vencor
Shareholder or any of their respective subsidiaries or their respective
properties or assets or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to any Vencor Shareholder or any of its
subsidiaries or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration
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or filing with, any Governmental Entity is required by or with respect to any
Vencor Shareholder or any of its subsidiaries in connection with the execution
and delivery of this Agreement by any Vencor Shareholder or the consummation by
any Vencor Shareholder of the transactions contemplated hereby.
(b) Ownership of Shares. After giving effect to the Closing, each Vencor
Shareholder will own the shares of Common Stock as indicated in the preliminary
statements to this Agreement, in each case free and clear of any pledge or other
encumbrance.
(c) Legal Proceedings. There are no judgments, orders or decrees of any
kind against any Vencor Shareholder that are unpaid or unsatisfied, nor is there
any legal action, suit or other legal or administrative proceeding pending,
threatened or reasonably anticipated that could be filed against any Vencor
Shareholder, that would adversely affect the ability of such Vencor Shareholder
to perform its obligations under this Agreement.
(d) Bankruptcy or Insolvency. Neither Vencor Shareholder has filed or
commenced, or suffered or submitted to the filing or commencement of, any
bankruptcy or insolvency proceeding under applicable law.
SECTION 2.04. Representations and Warranties of Management
Shareholders. Each Management Shareholder hereby represents and warrants to
each of the other parties hereto as follows:
(a) Authority; No Conflicts; Consents. Such Management Shareholder has all
requisite power and authority to execute this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by such Management
Shareholder of this Agreement and consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of such
Management Shareholder. Such Management Shareholder has duly executed and
delivered this Agreement, and this Agreement constitutes the legal, valid and
binding obligation of such Management Shareholder, enforceable against such
Management Shareholder in accordance with its terms. The execution and delivery
of this Agreements does not, and the consummation of the transactions
contemplated hereby and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of such Management Shareholder or any of its subsidiaries under, (i) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
such Management Shareholder or any of its subsidiaries or their respective
properties or assets or (ii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to such Management Shareholder or any
of its subsidiaries or their respective properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to such Management
Shareholder or any of its subsidiaries in connection with the execution and
delivery of this Agreement by such Management Shareholder or the consummation by
such Management Shareholder of transactions contemplated hereby.
(b) Ownership of Shares. After giving effect to the Closing, such
Management Shareholder will own the shares of Common Stock, as indicated in the
preliminary statement to this Agreement, in each case free and clear of any
pledge or other encumbrance.
(c) Legal Proceedings. There are no judgments, orders or decrees of any
kind against such Management Shareholder that are unpaid or unsatisfied, nor is
there any legal action, suit or other legal or administrative proceeding
pending, threatened or reasonably anticipated that could be filed against such
Management Shareholder, that would adversely affect the ability of such
Management Shareholder to perform its obligations under this Agreement.
(d) Bankruptcy or Insolvency. Such Management Shareholder has not filed or
commenced, or suffered or submitted to the filing or commencement of, any
bankruptcy or insolvency proceeding under applicable law.
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ARTICLE III
Management
SECTION 3.01. Board of Directors. From and after the date hereof, each
Shareholder shall take all action necessary, including but not limited to the
voting of capital stock of the Company, to cause one member of the Board of
Directors of the Company to be a person designated by Vencor who is reasonably
acceptable to Kapson. Notwithstanding the foregoing, if, as a result of any
Transfer or Transfers of Common Stock after the date hereof by any Vencor
Shareholder, the aggregate Percentage Interest of the Vencor Shareholders shall
be less than 5%, (i) Vencor shall no longer be entitled to designate one member
of the Company's Board of Directors and (ii) Vencor shall cause the individual
then serving on the Company's Board of Directors who shall have been designated
by Vencor to promptly resign.
SECTION 3.02. Limitation on Business. (a) So long as V Corp shall have the
right to designate one director pursuant to Section 3.01 (the 'Vencor
Director'), without the consent of the Vencor Director, the Company shall not
(i) engage in any business other than the Custodial Care/Healthcare Business or
(ii) merge or consolidate with, or sell all or substantially all its assets to,
any person pursuant to a transaction in which the Vencor Shareholders will
receive stock of a person that is engaged in any business other than the
Custodial Care/Healthcare Business. Notwithstanding the foregoing, if (A) a
majority of the Board of Directors of the Company votes to approve any
transaction described in clause (i) or (ii) above and (B) the Vencor Director
does not approve such transaction, Kapson shall have the right, exercisable
within 10 business days after such vote, to purchase all shares of Common Stock
owned by the Vencor Shareholders (the 'Vencor Shares') for a cash purchase price
equal to the Fair Market Value (as defined below) of the Vencor Shares, in which
event the prohibition set forth in the first sentence of this paragraph shall no
longer apply. The closing of the purchase by Kapson of the Vencor Shares shall
take place within 20 business days after the determination of the Fair Market
Value pursuant to paragraph (b) below.
(b) Within 10 business days after Kapson shall elect to purchase the Vencor
Shares pursuant to paragraph (a) of this Section, Kapson and Vencor shall each
select an independent appraiser nationally recognized as qualified to appraise
businesses engaged in the Custodial Care/Healthcare Business (a 'Qualified
Appraiser'), who shall seek to agree on a single appraisal of Fair Market Value.
If such Qualified Appraisers fail to agree on such appraisal within 20 business
days after their selection, such Qualified Appraisers shall select a third
Qualified Appraiser (or, in the absence of their agreement on such selection,
the independent accountants of the Company shall select a third Qualified
Appraiser), who shall deliver its appraisal of Fair Market Value to Kapson and
Vencor within 20 business days of the selection of such third Qualified
Appraiser.
SECTION 3.03. Administrative Services. Vencor agrees to continue to
provide to the Company the same administrative and support services relating to
employee benefits as are currently being provided through December 31, 1998,
unless the Company elects to terminate such services prior to such date. [In
consideration for such services, the Company will pay to Vencor the same amount
in respect of such services as currently being paid by the Company.]
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ARTICLE IV
Transfers of Common Stock
SECTION 4.01. Transfer Restrictions. (a) No Vencor Shareholder nor any
Management Shareholder shall sell, transfer, pledge, assign or otherwise dispose
of (collectively, 'Transfer') any shares of Common Stock without first obtaining
the written approval of Kapson; provided, however, that such approval shall not
be required in connection with:
(i) the Transfer of shares of Common Stock by any Vencor Shareholder
to any wholly owned direct or indirect subsidiary of Vencor (including,
without limitation, the Vencor Operating Company or any of its wholly owned
subsidiaries);
(ii) the sale by any Shareholder of Common Stock in an IPO.
(b) Any Transfer by reason of the death or legal incapacity of a Management
Shareholder shall not constitute a violation of this Section 4.01, provided that
the transferee is a family member of such Management Shareholder.
(c) Any Transfer made in violation of the applicable provisions of this
Agreement shall be void and without legal effect.
SECTION 4.02. Conditions to Assignment. (a) No Transfer of Common Stock
shall be effective unless and until the transferee has executed and delivered to
each remaining Shareholder a supplement to this Agreement (i) agreeing to be
bound by the terms hereof and (ii) agreeing to such additional restrictions on
Transfers as any other Shareholder may reasonably request in order to put into
effect the same substantive restrictions under this Article IV as theretofore
applied to the transferring Shareholder (taking into account differences in
ownership structure). Notwithstanding the foregoing, the provisions of this
Section 4.02 shall not apply to any Transfer of shares of Common Stock in an IPO
or to any subsequent Transfer of shares of Common Stock acquired in an IPO.
(b) Each Transfer of Common Stock shall be made in compliance with all
applicable laws and regulations; and no such Transfer shall be effective unless
and until all governmental consents necessary in connection therewith shall have
been obtained and all governmental requirements satisfied. If requested by any
other Shareholder, the transferring Shareholder shall deliver to each other
Shareholder evidence of its compliance with the foregoing requirements,
including an opinion of counsel reasonably satisfactory to each Shareholder.
SECTION 4.03. Unregistered Securities. (a) Each Shareholder represents
that it has been advised that the shares of Common Stock owned by it have not
been registered under the Securities Act. Each Shareholder agrees that, in
addition to being bound by the other restrictions on transfer contained herein,
it will not, directly or indirectly, offer, transfer, sell or otherwise dispose
of any of the shares of Common Stock held by it (or solicit any offers to
purchase or otherwise acquire any such shares) unless such transfer, sale or
other disposition is made (i) pursuant to an effective registration statement
under the Securities Act and all applicable state and foreign securities and
blue sky laws or (ii) pursuant to an available exemption from registration
under, or otherwise in compliance with, the Securities Act and all applicable
state and foreign securities and blue sky laws.
(b) Each certificate representing shares of Common Stock shall bear the
following legend: 'The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
transferred, sold or otherwise disposed of unless such transfer, sale or
disposition is made pursuant to an effective registration statement under said
Act or pursuant to an available exemption from registration under, or otherwise
in compliance with, said Act.'
(c) The restriction referred to in the legend required pursuant to Section
4.03(b) shall terminate and cease to be effective as to any particular shares of
Common Stock at the earlier of (i) the time when, in the opinion of counsel for
the holder thereof and counsel for the Company, such restriction is no longer
required in order to assure compliance with the Securities Act and all
applicable state and foreign securities and blue sky laws and (ii) the time when
such shares of Common Stock shall have been effectively registered under the
Securities Act and all applicable state securities and blue sky laws. At the
time such restriction shall terminate and cease to be effective as to any such
shares, any holder of such shares shall be entitled to receive from the Company,
without
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expense (other than applicable transfer taxes, if any), replacement certificates
for such shares not bearing the legend set forth in Section 4.03(b).
SECTION 4.04. Tag-Along Rights. (a) Subject to Sections 4.01, 4.02 and
4.05, if Kapson at any time proposes to sell any of its Common Stock (other than
to an affiliate of Kapson), Kapson shall have the obligation, and each other
Shareholder shall have the right, to require the proposed transferee to purchase
from each such other Shareholder a number of shares of Common Stock equal to the
product (rounded up to the nearest whole number) of (i) the number of shares of
Common Stock proposed to be sold in the contemplated sale (or such greater
number of shares of Common Stock the proposed transferee indicates it is willing
to purchase in order to accommodate the Shareholders who elect to tag along
pursuant to this Section 4.04), and (ii) a fraction, (x) the numerator of which
is the Percentage Equity Interest of such other Shareholder and (y) the
denominator of which is the aggregate Percentage Equity Interest of all
Shareholders participating in such sale, at the same price per share as that
received by Kapson, and such purchase and sale shall otherwise take place upon
the same terms and conditions given to Kapson, provided that in order to be
entitled to exercise its right to sell any of its Common Stock to the proposed
purchaser pursuant to this Section 4.04, a Shareholder must agree to make
substantially the same representations, warranties, covenants and indemnities
and other similar agreements as Kapson agrees to make in connection with the
proposed sale.
(b) Kapson shall give notice to the other Shareholders of each proposed
sale giving rise to tag-along rights under this Section 4.04 at least 30 days
prior to the proposed consummation of such sale, setting forth the name and
address of the proposed purchaser, the number of shares proposed to be so sold,
the proposed amount and form of consideration and terms and conditions of
payments offered by such proposed purchaser, the percentage of shares each other
Shareholder may sell to such proposed purchaser (in accordance with the first
sentence of this Section 4.04(a)) and a representation that the proposed
purchaser has been informed of the tag-along rights provided for in this Section
4.04 and has agreed to purchase shares in accordance with the terms hereof. The
tag-along rights provided for in this Section 4.04 must be exercised by a
Shareholder within 20 days following receipt of the notice required by the
preceding sentence, by delivery of a written notice to Kapson indicating such
Shareholder's desire to exercise its rights and specifying the number of shares
it desires to sell (up to the maximum number of shares required to be purchased
from such Shareholder pursuant to the first sentence of Section 4.04(a)).
(c) If the proposed purchaser fails to purchase shares from any Shareholder
that has properly exercised its tag-along rights, then Kapson shall not be
permitted to make the proposed sale, and any such attempted sale shall be void
and of no effect.
(d) If any Shareholder exercises its tag-along rights under this Section
4.04, the closing of the purchase of the shares with respect to which such
rights have been exercised shall take place concurrently with the closing of the
sale of Kapson's shares.
SECTION 4.05. Drag-Along Rights. (a) If Kapson at any time proposes to
sell at least a majority of its Common Stock in a bona fide transaction with a
third party, Kapson shall have the right to cause each other Shareholder
(whereupon such Shareholder shall have the obligation) to sell the same
proportion of its Common Stock to the same purchaser at the same price per share
as that received by Kapson, and such purchase and sale shall take place upon the
same terms and conditions as to be paid and given to Kapson, provided that a
Shareholder (other than Kapson) shall not be obligated to make any
representations, warranties, covenants or indemnities to the purchaser other
than representations, warranties, covenants and indemnities customarily given by
selling shareholders selling under similar circumstances, and a Shareholder's
liability in respect of any such representations, warranties, covenants or
indemnities shall not exceed the sale price for its Common Stock.
(b) Kapson shall give notice to the other Shareholders of any proposed sale
giving rise to drag-along rights under this Section 4.05 at least 30 days prior
to the proposed consummation of such sale, setting forth the name and address of
the proposed purchaser, the number of shares proposed to be so sold, the
proposed amount and form of consideration and terms and conditions of payments
offered by such proposed purchaser. If the proposed purchaser fails to purchase
shares from any Shareholder, then Kapson shall not be permitted to make the
proposed sale, and any such attempted sale shall be void and of no effect.
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(c) The closing of the purchase of the Common Stock with respect to which
such rights have been exercised shall take place concurrently with the closing
of the sale of Kapson's Common Stock.
ARTICLE V
Registration Rights
SECTION 5.01. Demand Registration. (a) Subject to the other restrictions
set forth herein (including the hold-back restrictions set forth in Section
5.03), at any time following the IPO, Vencor may make a written request to the
Company for registration under the Securities Act of all (but not less than all)
of the Common Stock it then owns (a 'Demand Registration'). Any such request by
Vencor shall specify the aggregate amount of Common Stock to be registered and
also shall specify the intended method of disposition thereof. Within ten
business days after receipt of such registration request, the Company shall
commence preparation of the registration of the specified number of shares of
Common Stock; provided, however, that the Company may, upon written notice to
Vencor given within such ten-business day period, delay such commencement for a
reasonable period of time (the 'Blockage Period'), but not for more than 75
calendar days from the Company's receipt of the request for such registration
(x) as is necessary to prepare audited financial statements of the Company for
its most recently completed fiscal year or other audited financial statements
required in the registration statement or (y) if the Company would be required
to disclose in such registration statement the existence of any facts relating
to a proposed acquisition, financing or other material corporate development not
otherwise required to be publicly disclosed and the Board of Directors of the
Company shall have in good faith determined that such disclosure would be
materially adverse to the Company. Such notice of delay shall explain, in
reasonable detail, the reasons for such delay. If the Company shall so delay
commencement of the preparation of such registration, Vencor may, within 30
calendar days after receipt of the notice of delay, notify the Company that it
is withdrawing its request for Demand Registration, and such request for
registration shall be deemed to be withdrawn and such request shall be deemed
not to have been exercised for purposes of this Section 5.01. Aggregate Blockage
Periods under this Section 5.01(a) shall not exceed 150 days in any calendar
year.
(b) Except as provided by Section 5.01(d) below, Vencor shall be entitled
to one Demand Registration under this Section 5.01.
(c) If the Demand Registration involves an underwritten offering and the
managing underwriter advises the Company that, in its opinion, the number of
shares proposed to be included in such Demand Registration is such as to
materially adversely affect the success of such offering or the trading price of
the Common Stock, then the number of shares of Common Stock to be registered in
such offering shall be reduced or limited to the number that, in the reasonable
opinion of such managing underwriter, can be sold without materially adversely
affecting the success of such offering or the trading price of the Common Stock.
(d) If (i) any Common Stock sought to be registered by Vencor in a Demand
Registration pursuant to this Section 5.01 are not included in such registration
pursuant to Section 5.01(c), (ii) a Demand Registration pursuant to this Section
5.01 is delayed pursuant to Section 5.01(a) and does not become effective within
120 days following the Blockage Period referred to in Section 5.01(a), (iii) a
Demand Registration under this Section 5.01 is not delayed pursuant to Section
5.01(a) and the registration statement filed in respect of such Demand
Registration does not for any reason become effective within 120 days after
Vencor's demand for registration under this Section 5.01, (iv) such registration
statement, after it has become effective, is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court by reason of an act or omission by the Company or any of its
subsidiaries or (v) the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied because of an act or omission by the Company or
any of its subsidiaries, then in each such case such Demand Registration shall
not be counted for purposes of calculating the number of demand rights exercised
by Vencor in Section 5.01(b).
(e) Vencor shall bear (i) all customary expenses incident to the Company's
performance of or compliance with a Demand Registration, regardless of whether
the registration statement becomes effective, and (ii) all expenses incurred by
Vencor in connection with a Demand Registration, regardless of whether the
registration statement becomes effective.
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SECTION 5.02. Piggyback Registrations. (a) If (i) the Company at any time
proposes to register any of its equity securities under the Securities Act
(other than a Demand Registration or a registration on Form S-4 or S-8 or any
similar forms), whether or not for sale for its own account, on a form and in a
manner that would permit registration of Common Stock for sale to the public
under the Securities Act and (ii) the related registered offering would include
Common Stock to be sold by any Shareholder, the Company will promptly give
notice to the other Shareholders of its intention to do so (which notice shall
include the anticipated filing date of the registration statement and the number
of its equity securities proposed to be included in the registration statement).
Upon the written request of any such other Shareholder delivered to the Company
within 30 calendar days after the receipt of any such notice (which request
shall specify the Common Stock intended to be disposed of by such Shareholder
and the intended method of disposition thereof), the Company will use its best
efforts to effect the registration under the Securities Act of all of the Common
Stock that the Company has been so requested to register; provided, however,
that:
(A) if, at any time after giving such written notice of its intention
to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each Shareholder who made a request as hereinabove provided and thereupon
shall be relieved of its obligation to register any Common Stock in
connection with such registration; and
(B) if such registration involves an underwritten offering, all
holders of Common Stock requesting to be included in the Company's
registration must sell their Common Stock to the underwriters selected by
the Company.
(b) The Company shall not be obligated to effect any registration of Common
Stock under this Section 5.02 incidental to (i) the registration of any of its
securities in connection with mergers, acquisitions, exchange offers, dividend
reinvestment plans or stock option or other employee benefit plans or (ii) any
Demand Registration.
(c) If a registration pursuant to this Section 5.02 involves an
underwritten offering and the managing underwriter advises the Company that, in
its opinion, the number of shares proposed to be included in such registration
should be limited, then the Company will include in such registration (i) first,
the securities the Company proposes to sell, and (ii) second, the number of
shares of Common Stock requested by Shareholders to be included in such
registration that, in the opinion of such managing underwriter, can be sold
without materially adversely affecting the success of such offering, such amount
to be allocated pro rata among all such requesting Shareholders on the basis of
the respective Percentage Interests of the Shareholders proposing to register
shares in the offering.
(d) In connection with any underwritten offering with respect to which
Shareholders shall have requested registration pursuant to this Section 5.02,
the Company shall have the right to select the managing underwriter or
underwriters with respect to the offering.
SECTION 5.03. Hold-Back Agreements. (a) Each Shareholder (whether or not
such Shareholder owns Common Stock to be covered by a registration statement
filed pursuant to Section 5.01 or 5.02), agrees, if requested by the managing
underwriters in an underwritten offering, not to effect any public sale or
distribution of securities of the Company of the same class as the securities
included in such registration statement, including a sale pursuant to Rule 144
under the Securities Act (except as part of such underwritten registration),
during the 10-day period prior to, and during such period agreed by Kapson with
respect to its Common Stock (but not longer than one year) beginning on the
closing date of each underwritten offering made pursuant to such registration
statement, to the extent timely notified in writing by the Company or the
managing underwriter or underwriters.
SECTION 5.04. Registration Expenses. (a) Except as provided in Section
5.04(b), all expenses incident to the Company's performance of or compliance
with a piggyback registration pursuant to Section 5.02 will be borne by the
Company, regardless of whether the registration statement becomes effective,
including:
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(1) all registration and filing fees;
(2) fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Common Stock under the laws
of such jurisdictions as the managing underwriters may designate);
(3) printing, messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company;
(5) fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit and
'cold comfort' letters required by or incident to such performance);
(6) fees and disbursements of underwriters (excluding discounts,
commissions, fees or legal expenses of underwriters, selling brokers,
dealer managers or similar securities industry professionals relating to
the distribution of the Common Stock to be sold by any Shareholder);
(7) fees and expenses of other persons retained by the Company; and
(8) fees and expenses of one counsel for the Shareholders seeking
registration of their Common Stock under Section 5.02, such counsel to be
(i) selected by the holders of a majority of the Common Stock to be
registered in such registration by Shareholders, and (ii) subject to the
reasonable approval of the Company.
(b) Each Shareholder shall bear the cost of (i) fees and disbursements of
its legal counsel (other than the counsel contemplated by Section 5.04(a)(8)),
(ii) discounts, commissions, fees or legal expenses of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the Common Stock to be sold by such Shareholder and (iii)
taxes incurred by such Shareholder.
SECTION 5.05. Registration Procedures. In connection with any registration
of Common Stock owned by a Shareholder under the Securities Act pursuant to this
Article V, the Company will use its best efforts to effect such registration to
permit the sale of such Common Stock in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) Before filing a registration statement or prospectus or any amendments
or supplements thereto, furnish to counsel for the selling Shareholders, and to
such Shareholders and the underwriters, if any, upon request, copies of all such
documents proposed to be filed, which documents will be subject to the review of
such counsel, Shareholders and underwriters, as applicable, and the Company will
not file any registration statement or amendment thereto or any prospectus or
any supplement thereto to which the holders of a Majority-in-Interest of the
Common Stock of the selling Shareholders covered by such registration statement,
or such counsel, if any, shall reasonably object.
(b) Prepare and file with the U.S. Securities and Exchange Commission (the
'SEC') such amendments and post-effective amendments to the registration
statement, and such supplements to the prospectus, as may be reasonably
requested by any selling Shareholder or any underwriter of Common Stock or as
may be required by the rules, regulations or instructions applicable to the
registration form utilized by the Company or by the Securities Act or rules and
regulations thereunder necessary to keep the registration statement effective
for the applicable period and cause the prospectus as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during the applicable period
in accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement or supplement to the prospectus.
(c) Notify the selling Shareholders and the managing underwriters, if any,
promptly, and (if requested by any such person) confirm such advice in writing:
(1) when the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the registration statement
or any post-effective amendment, when the same has become effective;
(2) of any request by the SEC for amendments or supplements to the
registration statement or the prospectus or for additional information;
D-10
<PAGE>
(3) of the issuance by the SEC of any stop order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose;
(4) if at any time the representations and warranties of the Company
contemplated by paragraph (l) below cease to be true and correct;
(5) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Common Stock for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and
(6) that an event has occurred or a condition exists, such that the
registration statement, the prospectus or any document incorporated therein
by reference contains an untrue statement of material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(d) Make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
practicable time.
(e) If requested by the managing underwriter or underwriters or the holders
of a Majority-in-Interest of the Common Stock being sold in connection with an
underwritten offering, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a Majority-in-Interest of the Common Stock being sold agree should be
included therein relating to the plan of distribution with respect to such
Common Stock, including information with respect to the amount of Common Stock
being sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Common Stock to be sold in such offering;
and make all required filings of such prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment.
(f) Furnish to each selling Shareholder and each managing underwriter, if
any, without charge, at least one conformed copy of the registration statement
and any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
(g) Deliver to each selling Shareholder and the underwriters, if any,
without charge, as many copies of the prospectus and any amendment or supplement
thereto as such persons may reasonably request; the Company consents to the use
of the prospectus or any amendment or supplement thereto by each of the selling
Shareholders and the underwriters, if any, in connection with the offering and
sale of the Common Stock covered by the prospectus or any amendment or
supplement thereto, subject to the requirements of the Securities Act and the
rules and regulations thereunder.
(h) Prior to any public offering of Common Stock, register or qualify such
shares of Common Stock for offer and sale under the securities or blue sky laws
of such jurisdictions in the United States as any underwriter or the holders of
a Majority-in-Interest of the Common Stock being sold reasonably request in
writing and do what is reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Common Stock covered by the
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified, to subject itself to taxation in any such jurisdiction or to take any
action which would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the selling Shareholders and the managing underwriters,
if any, to facilitate the timely preparation and delivery of certificates
representing the shares of Common Stock to be sold and not bearing any
restrictive legends; and cause such shares of Common Stock to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Common Stock to the
underwriters.
(j) Use its best efforts to cause the Common Stock covered by the
applicable registration statement to be (i) registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers thereof
or the underwriters, if any, to consummate the disposition of such Common Stock
and (ii) listed for trading on the national securities exchange
D-11
<PAGE>
or reported on the national securities system, as applicable, on which the
Common Stock is then listed or reported.
(k) If any fact exists which results in the registration statement, the
prospectus or any document incorporated therein by reference containing an
untrue statement of material fact or omitting to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
prepare a supplement or post-effective amendment to the registration statement
or the related prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Common Stock, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(l) Enter into agreements (including underwriting agreements in customary
form) and take all other appropriate actions in order to expedite or facilitate
the disposition of such Common Stock and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration:
(1) make such representations and warranties to the holders of such
Common Stock and the underwriters, if any, in form, substance and scope as
are customarily made by issuers to underwriters in similar underwritten
offerings;
(2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and counsel
to the holders of a Majority-in-Interest of the Common Stock being sold)
addressed to each selling Shareholder and the underwriters, if any,
covering the matters customarily covered in opinions requested in similar
underwritten offerings;
(3) obtain 'cold comfort' letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
Shareholders and the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in 'cold comfort'
letters delivered to underwriters in connection with similar underwritten
offerings;
(4) if requested, provide the indemnification in accordance with the
provisions and procedures of Section 5.07 to all parties to be indemnified
pursuant to such Section; and
(5) deliver such documents and certificates as may be reasonably
requested by the holders of a Majority-in-Interest of the Common Stock
being sold and the managing underwriters, if any, to evidence compliance
with clause (k) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The above shall be done at the effectiveness of such registration statement and
at each closing under any underwriting or similar agreement as and to the extent
required thereunder.
(m) Make available for inspection by a representative of the holders of a
Majority-in-Interest of the Common Stock covered by the registration statement,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney or accountant retained by the sellers or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
registration, in each case as shall be reasonably necessary to enable them to
exercise their due diligence responsibility; provided that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order or by law.
(n) Otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make generally available to its security holders,
earnings statements satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 calendar days after the end of any 12-month period (or 90
calendar days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which shares of Common Stock are sold to underwriters in an
underwritten offering, or (2) if not sold to underwriters in such an offering,
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the registration statement, which statements shall
cover said 12-month periods.
D-12
<PAGE>
SECTION 5.06. Certain Other Obligations with Regard to Registration. (a)
The Company may require each seller of Common Stock as to which any registration
is being effected to furnish to the Company such information regarding the
distribution of such securities and such other information, as may otherwise be
required to be included in the registration statement.
(b) Each Shareholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections
5.05(c)(3), (5) or (6), such Shareholder will forthwith discontinue disposition
of shares of Common Stock or prospectuses in all jurisdictions until such
Shareholder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5.05(k), or until it is advised in writing by the
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, and, if so directed by the Company, such Shareholder will
deliver to the Company all copies, other than permanent file copies then in such
Shareholder's possession, of the prospectus covering such shares of Common Stock
current at the time of receipt of such notice.
(c) If a registration pursuant to Section 5.02 involves an underwritten
offering, no Shareholder requesting to have its Common Stock included in such
registration may participate in such registration unless such Shareholder (i)
agrees to sell such Shareholder's Common Stock on the basis provided in any
underwriting arrangements approved by the Company and a Majority-in-Interest of
the Shareholders exercising registration rights pursuant to Section 5.02 and
(ii) completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
SECTION 5.07. Indemnification. (a) Indemnification by the Company. The
Company agrees to indemnify and hold harmless each Shareholder selling Common
Stock pursuant to a registration statement under this Article V, its officers,
directors, employees and agents and each person who controls such Shareholder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (each such person being sometimes hereinafter referred to as an
'Indemnified Holder') from and against all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in such registration statement or the final prospectus
included therein or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information furnished in writing to the Company by
such Shareholder expressly for use therein; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
preliminary prospectus if (i) such Shareholder or any underwriter failed to send
or deliver a copy of the final prospectus with or prior to the delivery of
written confirmation of the sale of shares of Common Stock and (ii) the final
prospectus would have completely corrected such untrue statement or omission;
and provided further, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the final prospectus, if such untrue statement or alleged
untrue statement, omission or alleged omission is completely corrected in an
amendment or supplement to the final prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the final prospectus as
so amended or supplemented, such Shareholder or any underwriter thereafter fails
to deliver such final prospectus as so amended or supplemented, prior to or
concurrently with the sale of shares of Common Stock to the person asserting
such loss, claim, damage, liability or expense who purchased such Common Stock
which are the subject thereof from such Shareholder. This indemnity will be in
addition to any liability which the Company may otherwise have. The Company will
also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each person who controls such persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Indemnified Holders.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing, and the Company shall assume the defense
D-13
<PAGE>
thereof, including the employment of counsel satisfactory to such Indemnified
Holder and the payment of all expenses. Such Indemnified Holder shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be the expense
of such Indemnified Holder unless (a) the Company has agreed to pay such fees
and expenses or (b) the Company shall have failed to assume the defense of such
action or proceeding and failed to employ counsel satisfactory to such
Indemnified Holder in any such action or proceeding or (c) the named parties in
any action or proceeding (including any impleaded parties) include both such
Indemnified Holder and the Company, and such Indemnified Holder shall have been
advised by counsel that there may be one or more legal defenses available to
such Indemnified Holder which are different from or additional to those
available to the Company (in which case, if such Indemnified Holder notifies the
Company in writing that it elects to employ separate counsel at the expense of
the Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Holder, it being understood,
however, that the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related action or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for such Indemnified Holder and any
other Indemnified Holders, which firm shall be designated in writing by the
Indemnified Holders holding a Majority-in-Interest of the Common Stock held by
all Indemnified Holders). The Company shall not be liable for any settlement of
any such action or proceeding effected without its written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless such Indemnified Holders from and against any loss or liability by
reason of such settlement or judgment.
(b) Indemnification by Selling Shareholder. Each Shareholder selling
Common Stock pursuant to a registration statement under this Article V (an
'Indemnifying Holder') agrees to indemnify and hold harmless the Company, its
directors and officers and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Indemnifying Holder, but only with respect to information relating to such
Indemnifying Holder furnished in writing by such Indemnifying Holder expressly
for use in such registration statement or the final prospectus included therein,
or any amendment or supplement thereto, or any preliminary prospectus. In case
any action or proceeding shall be brought against the Company or its directors
or officers or any such controlling person, in respect of which indemnity may be
sought against an Indemnifying Holder, such Indemnifying Holder shall have the
rights and duties given the Company; and the Company or its directors or
officers or such controlling person shall have the rights and duties given to
each Indemnified Holder by Section 5.07(a).
(c) Contribution. If the indemnification provided for in this Section 5.07
is unavailable to an indemnified party under Section 5.07(a) or Section 5.07(b)
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Company on the
one hand and of the Indemnified Holder or Indemnifying Holder on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE VI
Term of Agreement
This Agreement shall terminate on the date of the closing of the IPO;
provided, however, that the provisions of Article V (Registration Rights) shall
continue in full force and effect until the second anniversary of the IPO.
D-14
<PAGE>
ARTICLE VII
Miscellaneous Provisions
SECTION 7.01. Specific Performance. The parties hereto agree that the
obligations imposed on them in this Agreement are special, unique and of an
extraordinary character, and that in the event of breach by any party damages
would not be an adequate remedy, and each of the other parties shall be entitled
to specific performance and injunctive and other equitable relief in addition to
any other remedy to which it may be entitled, at law or in equity; and the
parties hereto further agree to waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such injunctive or
other equitable relief.
SECTION 7.02. Legend. Each certificate representing shares of the
Company's Common Stock shall bear the following legend: 'The securities
represented by this certificate are subject to terms and conditions (including
restrictions on voting and transfer) set forth in a Shareholders and
Registration Rights Agreement dated as of [ ], 1998, a copy of which may be
obtained from Atria Communities, Inc. or from the holder of this security. No
transfer of such securities will be made on the books of, or be effective with
respect to, Atria Communities, Inc. unless accompanied by evidence of compliance
with the terms of such Agreement.'
SECTION 7.03. Conflicts and Inconsistent Agreements. Each of the
Shareholders and the Company shall take all action reasonably necessary,
including but not limited to the voting of capital stock of the Company, to
ensure that the Articles of Incorporation and By-laws of the Company or other
governing documents of the Company's subsidiaries do not conflict with the terms
of this Agreement. Neither the Company nor any Shareholder shall enter into any
agreement inconsistent with the terms of this Agreement.
SECTION 7.04. Complete Agreement. This Agreement constitutes the entire
agreement and understanding among the parties hereto with respect to the matters
referred to herein and supersedes all prior agreements and understandings among
the parties hereto with respect to the matters referred to herein.
SECTION 7.05. Amendment. This Agreement may not be amended, modified or
supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by each party hereto.
SECTION 7.06. Successors; Assigns. The terms and conditions of this
Agreement shall be binding on and inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
SECTION 7.07. Attorney Fees. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other party for and against all
reasonable out-of-pocket expenses, including legal fees and expenses, incurred
by such other party by reason of the enforcement and protection of its rights
under this Agreement. The payment of such expenses is in addition to any other
relief to which such other party may be entitled.
SECTION 7.08. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by prepaid telex, cable or telecopy or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
shall be deemed given when so delivered by hand, telexed, cabled or telecopied,
or if mailed, three days after mailing (one business day in the case of express
mail or overnight courier service), as follows:
(i) if to the Company:
Atria Communities, Inc.
501 South Fourth Avenue
Suite 140
Louisville, KY 40202
Attention: W. Patrick Mulloy, II
Telecopy: (502) 719-1699
Telephone: (502) 719-1665
D-15
<PAGE>
(ii) if to Kapson:
Kapson Senior Quarters Corp.
Kapson Senior Quarters Corp.
242 Crossways Park Drive
Woodbury, NY 11797
Attention: Glenn Kaplan and Ray DiGuardi
Telecopy: (516) 921-8998
Telephone: (516) 921-8900
with copies to:
Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Robert P. Freeman and Murry N. Gunty
Telecopy: (212) 332-5980
Telephone: (212) 632-6000
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Kevin J. Grehan, Esq.
Telecopy: (212) 474-3700
Telephone: (212) 474-1490
(iii) if to Vencor:
400 West Market Street
Louisville, KY 40202
Attention: Chief Operating Officer
Telecopy: [ ]
Telephone: [ ]
with a copy to:
400 West Market Street
Louisville, KY 40202
Attention: General Counsel
Telecopy: [ ]
Telephone: [ ]
SECTION 7.09. Interpretation; Exhibits and Schedules. The headings
contained in this Agreement, in any Exhibit or Schedule hereto and in the table
of contents to this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. All Exhibits
and Schedules annexed hereto or referred to herein are hereby incorporated in
and made a part of this Agreement as if set forth in full herein. Any
capitalized terms used in any Schedule or Exhibit but not otherwise defined
therein, shall have the meaning as defined in this Agreement.
SECTION 7.10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
SECTION 7.11. Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other party in any
D-16
<PAGE>
manner by any representations, warranties or covenants relating to such subject
matter except as specifically set forth herein.
SECTION 7.12. Severability. If any provision of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other persons or circumstance.
SECTION 7.13. Consent to Jurisdiction. (a) Each party hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement; and each party hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding will be heard and determined in such New York State or, to
the extent permitted by law, in such Federal court. Each party hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any New York State or Federal court
sitting in New York. Each party hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) Each party irrevocably consents to service of process in connection
with any matter referred to above by personal delivery, or by registered or
certified mail, postage prepaid, to it at its address specified for notice.
Nothing in this Agreement will affect the right of any party to this Agreement
to serve process in any other manner permitted by law. Each party agrees that,
in the event of any breach of this Section, the other party has no adequate
remedy at law and shall be entitled to injunctive relief to enforce the terms of
this Section.
SECTION 7.14. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
KAPSON SENIOR QUARTERS CORP.,
By:
--------------------------------
Name:
Title:
VENCOR, INC.,
By:
--------------------------------
Name: Joseph L. Landenwich
Title: Corporate Counsel
D-17
<PAGE>
MANAGEMENT SHAREHOLDERS
Signature Page to Shareholders and Registration Rights Agreement
--------------------------------------
[Name]
--------------------------------------
[Name]
--------------------------------------
[Name]
--------------------------------------
[Name]
D-18
<PAGE>
EXHIBIT A
TO SHAREHOLDERS AND
REGISTRATION RIGHTS AGREEMENT
INSTRUMENT OF ACCESSION
The undersigned, ________________, in order to become the owner or holder
of __________ shares of Common Stock, par value $0.01 per share (the 'Shares'),
of ATRIA COMMUNITIES, INC., a Delaware corporation, hereby agrees to become a
Shareholder party to that certain Shareholders and Registration Rights
Agreement, dated as of [ ], 1998 (the 'Shareholders Agreement'), a
copy of which is attached hereto, and to become a 'Shareholder' with respect to
such shares for all purposes provided therein. This Instrument of Accession
shall take effect and shall become a part of said Shareholders Agreement.
The undersigned agrees not to Transfer any Shares unless as a condition
precedent thereto the transferee shall have executed and delivered an Instrument
of Accession. Defined terms used herein and not otherwise defined herein have
the meanings given them in the Shareholders Agreement.
Executed as of the date set forth below under the laws of the State of New
York.
Name:
------------------------------
Address:
---------------------------
------------------------------------
------------------------------------
Date:
D-19
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.01. Definition of Certain Terms Used Herein.................................................. D-1
SECTION 1.02. Usage.................................................................................... D-2
<CAPTION>
ARTICLE II
Representations and Warranties
<S> <C> <C>
SECTION 2.01. Representations and Warranties of the Company............................................ D-2
SECTION 2.02. Representations and Warranties of Kapson................................................. D-3
SECTION 2.03. Representations and Warranties of the Vencor Shareholders................................ D-3
SECTION 2.04. Representations and Warranties of Management Shareholders................................ D-4
ARTICLE III
Management
<S> <C> <C>
SECTION 3.01. Board of Directors....................................................................... D-5
SECTION 3.02. Limitation on Business................................................................... D-5
SECTION 3.03. Administrative Services.................................................................. D-5
<CAPTION>
ARTICLE IV
Transfers of Common Stock
<S> <C> <C>
SECTION 4.01. Transfer Restrictions.................................................................... D-6
SECTION 4.02. Conditions to Assignment................................................................. D-6
SECTION 4.03. Unregistered Securities.................................................................. D-6
SECTION 4.04. Tag-Along Rights......................................................................... D-7
SECTION 4.05. Drag-Along Rights........................................................................ D-7
<CAPTION>
ARTICLE V
Registration Rights
<S> <C> <C>
SECTION 5.01. Demand Registration...................................................................... D-8
SECTION 5.02. Piggyback Registrations.................................................................. D-9
SECTION 5.03. Hold-Back Agreements..................................................................... D-9
SECTION 5.04. Registration Expenses.................................................................... D-9
SECTION 5.05. Registration Procedures.................................................................. D-10
SECTION 5.06. Certain Other Obligations with Regard to Registration.................................... D-13
SECTION 5.07. Indemnification.......................................................................... D-13
<CAPTION>
ARTICLE VI
Term of Agreement
ARTICLE VII
Miscellaneous Provisions
<S> <C> <C>
SECTION 7.01. Specific Performance..................................................................... D-15
SECTION 7.02. Legend................................................................................... D-15
SECTION 7.03. Conflicts and Inconsistent Agreements.................................................... D-15
</TABLE>
D-i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 7.04. Complete Agreement....................................................................... D-15
SECTION 7.05. Amendment................................................................................ D-15
SECTION 7.06. Successors; Assigns...................................................................... D-15
SECTION 7.07. Attorney Fees............................................................................ D-15
SECTION 7.08. Notices.................................................................................. D-15
SECTION 7.09. Interpretation; Exhibits and Schedules................................................... D-16
SECTION 7.10. Counterparts............................................................................. D-16
SECTION 7.11. Entire Agreement......................................................................... D-16
SECTION 7.12. Severability............................................................................. D-17
SECTION 7.13. Consent to Jurisdiction.................................................................. D-17
SECTION 7.14. Governing Law............................................................................ D-17
EXHIBIT A Instrument of Accession
</TABLE>
D-ii
<PAGE>
APPENDIX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
<PAGE>
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word 'stockholder' means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words 'stock' and
'share' mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words 'depository receipt' mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constitutent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders.
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this tide is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all
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or substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituted corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section, provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entited to
appraisal rights. Such notice may, if given on or after the effective date
of the merger or consolidation, shall also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constitutent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constitutent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with the
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constitutent
corporation may fix, in advance a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal
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and to accept the terms offered upon the merger or consolidation. Within 120
days after the effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a) and (b) hereof, upon
written request, shall be entitled to receive from the corporation surviving the
merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, is such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (8 Del. C. 1953,
Section 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, Section 24; 57 Del.
Laws, c. 148, Sections 27-29; 59 Del. Laws, c. 106, Section 12; 60 Del. Laws, c.
371, Sections 3-12; 63 Del. Laws, c. 25, Section 14; 63 Del. Laws, c. 152,
Sections 1, 2; 64 Del. Laws, c. 112, Sections 46-54; 66 Del. Laws, c. 136,
Sections 30-32; 66 Del. Laws, c. 352, Section 9; 67 Del. Laws, c. 376, Sections
19, 20; 68 Del. Laws, c. 337, Sections 3, 4; 69 Del. Laws, c. 61, Section 10; 69
Del. Laws, c. 262, Sections 1-9; 70 Del. Laws, c. 79, Section 16; 70 Del. Laws,
c. 186, Section 1; 70 Del. Laws, c. 299, Sections 2, 3; 70 Del. Laws, c. 349,
Section 22; 71 Del. Laws, c. 120, Section 15.)
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APPENDIX F
OPINION OF BT ALEX. BROWN INCORPORATED
<PAGE>
APPENDIX F
[LOGO] BT Alex Brown
Incorporated
[LOGO] Bankers Trust
Architects of Value
April 19, 1998
Board of Directors
Atria Communities, Inc.
501 South Fourth Avenue
Louisville, Kentucky 40202
Members of the Board:
Atria Communities, Inc., a Delaware corporation ('Atria'), Kapson Senior
Quarters Corp., a Delaware corporation ('Kapson'), and KA Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Kapson ('Sub'), have
proposed to enter into an Agreement and Plan of Merger, dated as of April 19,
1998 (the 'Merger Agreement'). Pursuant to the Merger Agreement, the
implementation of which is contingent on approval by the stockholders of Atria,
Sub will be merged with and into Atria (the 'Merger') and each outstanding share
of the common stock, par value $0.10 per share, of Atria (the 'Atria Common
Stock') will be converted into the right to receive $20.25 in cash (the 'Merger
Consideration'), subject to adjustment under certain circumstances specified in
the Merger Agreement. We have been advised by representatives of Atria that
Vencor, Inc. ('Vencor') and certain members of the management of Atria will, in
connection with the transactions contemplated by the Merger, rollover a portion
of their shares of Atria Common Stock or options to purchase such shares into
newly issued securities of Atria (such stockholders and option holders, the
'Rollover Holders'). You have requested our opinion as to whether the Merger
Consideration is fair, from a financial point of view, to the holders of Atria
Common Stock (other than Rollover Holders).
BT Alex. Brown Incorporated ('BT Alex. Brown'), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of Atria
in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger
and a portion of which is payable upon the the delivery of this opinion. We
previously have acted as lead managing underwriter and as lead placement agent
in connection with various financings relating to the securities of Atria, for
which services we have received compensation. With your consent, BT Alex. Brown
and/or affiliates thereof may participate in the financing of the Merger, for
which services we would receive compensation. BT Alex. Brown maintains a market
in Atria Common Stock and regularly publishes research reports regarding the
health care industry and the businesses and securities of Atria and other
publicly owned companies in the health care industry. In the ordinary course of
business, BT Alex. Brown may actively trade the securities of Atria for our own
account and the account of our customers and, accordingly, may at any time hold
a long or short position in securities of Atria.
In connection with this opinion, we have reviewed and analyzed certain
publicly available financial information and other information concerning Atria
and certain internal analyses and other information furnished to us by Atria. We
have also held discussions with the members of the senior management of Atria
and representatives of Kapson regarding the business and prospects of Atria. In
addition, we have (i) reviewed the reported prices and trading activity for
Atria Common Stock, (ii) compared certain financial and stock market information
for Atria with similar information for certain other publicly traded companies,
(iii) reviewed the financial terms of certain recent business combinations which
we deemed comparable in whole or in part, (iv) reviewed the terms of the Merger
Agreement, and (v) performed such other studies and analyses and considered such
other factors as we deemed appropriate.
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Board of Directors
Atria Communities, Inc.
April 19, 1998
Page 2
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of Atria, we
have assumed that such information reflects the best currently available
judgments and estimates of the management of Atria as to the likely future
financial performance of Atria. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities of Atria, nor have we been
furnished with any such evaluations or appraisals. Our opinion is based on
market, economic and other conditions as they exist and can be evaluated as of
the date of this letter.
In connection with our engagement, we were authorized to solicit, and did
solicit, interest from third parties with respect to the acquisition of Atria.
Our advisory services and the opinion expressed herein were prepared for
the use of the Board of Directors of Atria and do not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. We hereby consent to the inclusion of this opinion letter in
its entirety as an exhibit to the proxy statement of Atria distributed in
connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Merger Consideration is fair, from a financial point of
view, to the holders of Atria Common Stock (other than Rollover Holders).
Very truly yours,
BT ALEX. BROWN INCORPORATED
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APPENDIX G
CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION
<PAGE>
APPENDIX G
CERTIFICATE OF INCORPORATION
OF
SURVIVING CORPORATION
ARTICLE I
The name of the corporation (hereinafter called the 'Corporation') is ATRIA
COMMUNITIES, INC.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware. The name of the registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock that the Corporation
shall have authority to issue is 20,000,000 shares of Common Stock having the
par value of $0.01 per share.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by the Board of Directors of the Corporation.
ARTICLE VI
In furtherance and not in limitation of the powers conferred upon it by
law, the Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal the By-laws of the Corporation.
ARTICLE VII
Unless and except to the extent that the By-laws of the Corporation so
require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE VIII
To the fullest extent from time to time permitted by law, no director of
the Corporation shall be personally liable to any extent to the Corporation or
its stockbrokers for monetary damages for breach of his fiduciary duty as a
director.
ARTICLE IX
Each person who is or was or had agreed to become a director or officer of
the Corporation, and each such person who is or was serving or who had agreed to
serve at the request of the Corporation as a director, officer, partner, member,
employee or agent of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise (including the heirs,
executor, administrators or estate of such person), shall be indemnified by the
Corporation to the fullest extent permitted from time to time by applicable law.
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