SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material pursuant to Rule 14a-12
AMERICAN RETIREMENT CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(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.
|_| 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AMERICAN RETIREMENT CORPORATION
111 Westwood Place, Suite 200
Brentwood, Tennessee 37027
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2006
As a shareholder of American Retirement Corporation, you are hereby given notice
of and invited to attend in person or by proxy the annual meeting of
shareholders of the Company to be held at the Embassy Suites Hotel Nashville
South, 820 Crescent Centre Drive, Franklin, Tennessee, on Wednesday, May 17,
2006, at 11:00 a.m., central time, for the following purposes:
1. to elect three Class III directors to serve for a term of three
years;
2. to consider and approve the American Retirement Corporation 2006
Stock Incentive Plan; and
3. to transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 29, 2006 are entitled
to notice of and to vote at the meeting and any adjournment or postponement
thereof.
You can ensure that your shares of common stock are voted at the annual meeting
by signing and dating the enclosed proxy and returning it in the envelope
provided. Sending in a signed proxy will not affect your right to attend the
annual meeting and vote in person. Whether or not you plan to attend, we urge
you to sign and date the enclosed proxy and return it promptly in the envelope
provided.
By Order of the Board of Directors,
/s/ George T. Hicks
-------------------
George T. Hicks
Secretary
Brentwood, Tennessee
April 17, 2006
AMERICAN RETIREMENT CORPORATION
111 WESTWOOD PLACE, SUITE 200
BRENTWOOD, TENNESSEE 37027
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2006
This proxy statement contains information related to the annual meeting of
shareholders of American Retirement Corporation (the "Company") to be held at
the date, time, and place and for the purposes set forth in the accompanying
notice of annual meeting of shareholders, and at any adjournment or postponement
thereof. This proxy statement and the enclosed proxy are first being sent to
shareholders on or about April 17, 2006.
At the annual meeting, shareholders will act upon the matters outlined in the
accompanying notice of meeting, including the election of three Class III
directors and the consideration of a proposal to approve the American Retirement
Corporation 2006 Stock Incentive Plan (the "2006 Plan"). Shareholders of record
on the record date, March 29, 2006, are entitled to notice of and to vote at the
annual meeting. Each shareholder is entitled to one vote for each share of
common stock held on the record date.
The presence at the meeting, in person or by proxy, of at least a majority of
the outstanding shares of common stock entitled to vote is necessary to
constitute a quorum to transact business at the annual meeting. As of the record
date, 35,289,354 shares of the Company's common stock were outstanding. Proxies
received but marked as abstentions will be counted as present for purposes of
determining a quorum on all matters. Broker non-votes will be counted as present
for purposes of determining a quorum on all matters presently known to be
brought to a vote at the annual meeting, except for the proposal to approve the
2006 Plan. Broker non-votes will not be counted as present for purposes of
determining a quorum to consider the proposal to approve the 2006 Plan. A broker
non-vote occurs when a broker holding shares registered in street name is
permitted to vote, in the broker's discretion, on routine matters without
receiving instructions from the client, but is not permitted to vote without
instructions on non-routine matters, and the broker returns a proxy card with no
vote (the "non-vote") on the non-routine matter.
Shares of common stock represented by a proxy properly signed and received at or
prior to the annual meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. Shareholders are urged to specify
their choices by marking the appropriate boxes on the enclosed proxy. If a proxy
is dated, signed, and returned without specifying choices, the shares will be
voted as recommended by the Company's Board of Directors. A shareholder who
signs and returns a proxy may revoke it at any time before it is voted by
attending the annual meeting and electing to vote in person, by notifying the
secretary of the Company in writing, or by duly executing a proxy bearing a
later date. Shareholders whose shares of common stock are held in street name
who wish to attend the meeting and vote in person will need to obtain a proxy
form from the institution that holds their shares.
The affirmative vote of a plurality of the votes cast at the annual meeting is
required for the election of directors. Abstentions and broker non-votes will
not be counted as votes for or against any director nominee. The proposal to
approve the 2006 Plan will be approved if the number of shares of common stock
voted in favor of the proposal exceeds the number of shares of common stock
voted against it. Pursuant to the rules of the New York Stock Exchange,
abstentions will have the effect of a vote against the proposal to approve the
2006 Plan. Broker non-votes will not be counted as votes for or against the
proposal to approve the 2006 Plan. Any other matters that may properly come
before the meeting or any adjournment thereof shall be approved by the
affirmative vote of a majority of the votes cast by the holders of common stock
represented and entitled to vote at the annual meeting, and abstentions and
non-votes will have no effect on the outcome of the vote.
The Board of Directors knows of no other matters that are to be brought to a
vote at the annual meeting. If any other matter, properly presented consistent
with the Company's bylaws, does come before the annual meeting, the persons
appointed in the proxy or their substitutes will vote in accordance with the
recommendation of the Board of Directors or, if no recommendation is given, in
their best judgment.
CORPORATE GOVERNANCE
General
The Company believes that effective corporate governance is critical to the
Company's long-term health and ability to create value for the shareholders.
During the past year, the Company has continued to review its corporate
governance policies and practices and to compare them against "best practice"
proposals and the practices of other public companies. The Company has also
continued to review the provisions of the Sarbanes-Oxley Act of 2002, new and
proposed rules of the Securities and Exchange Commission, or the SEC, and the
corporate governance rules of the New York Stock Exchange, or the NYSE. The
Company continues to monitor emerging developments in corporate governance and
enhance its policies and procedures when required or when the Board determines
that it would benefit the Company and its shareholders.
The responsibilities of the Board and the committees of the Board are described
below, along with other corporate governance-related disclosures. The Company's
Corporate Governance Guidelines, Code of Business Conduct and Ethics and current
committee charters are available on the "Investors Welcome" section of the
Company's website, www.arclp.com, or in print by request to the following
address: American Retirement Corporation, Attention: Secretary, 111 Westwood
Place, Suite 200, Brentwood, Tennessee 37027.
Board and Committee Composition
The chart below shows the current composition of the Board of Directors and each
of the committees of the Board. Biographical information for the directors is
provided elsewhere in this Proxy Statement under the caption "Proposal 1 -
Election of Directors." John A. Morris, Jr., M.D. has notified the Company that
he will not stand for re-election at the annual meeting; however, Dr. Morris
will continue in his position as a member of the Board of Directors and the
Executive and Quality Assurance Committees until the date of the annual meeting.
Nominating and
Corporate Quality
Audit Compensation Executive Governance Assurance
Name Committee Committee Committee Committee Committee
---- --------- --------- --------- ----------- ---------
Frank M. Bumstead Chair Member
Donald D. Davis Chair
John C. McCauley Member Chair
John A. Morris, Jr., M.D. Member Member
Daniel K. O'Connell Member
J. Edward Pearson Member
James R. Seward Member
W.E. Sheriff Member
Nadine C. Smith Member Member Chair
Lawrence J. Stuesser Chair
Director Independence
The Board of Directors has determined that each of the following directors is an
"independent director" under applicable NYSE rules.
Frank M. Bumstead
Donald D. Davis
John C. McCauley
Daniel K. O'Connell
J. Edward Pearson
James R. Seward
Nadine C. Smith
Lawrence J. Stuesser
2
Director Candidates
The Nominating and Corporate Governance Committee considers candidates for board
membership suggested by its members and other board members, as well as
management and shareholders in accordance with the terms of the Company's
Director Nominations Policy, a copy of which is attached to this proxy statement
as Appendix A and is available on the "Investors Welcome" section of the
Company's website at www.arclp.com. A shareholder who wishes to recommend a
prospective nominee for the Board should notify the Secretary in writing, in
compliance with the notice, timing and other requirements provided for in the
Bylaws. There are no differences in the manner in which the Committee evaluates
prospective nominees based on whether the nominee is recommended by a
shareholder.
The Committee does not have specific minimum qualifications for prospective
nominees, except that each nominee must have professional integrity, sound
judgment and sufficient time available to devote to Board activities.
After the Nominating and Corporate Governance Committee has identified a
prospective nominee, the Committee decides whether to conduct a full evaluation
of the candidate. The initial determination is based on the initial information
provided to the Committee, the Committee's own knowledge of the candidate, and
any information received from inquiries by the Committee or others. The
Committee also considers the need for additional Board members to fill vacancies
or expand the size of the Board and the likelihood that the prospective nominee
can satisfy a full evaluation.
If the Committee determines that additional consideration is warranted, it may
request additional information about the prospective nominee's background and
experience. The Committee then evaluates the prospective nominee in depth,
including an evaluation of the prospective nominee's general understanding of
the elements relevant to the success of a publicly-traded company in today's
business environment and the Company's business, together with an analysis of
the prospective nominee's skills, educational and professional background,
experience and other personal characteristics. The Committee also considers any
other factors it deems relevant, including the current composition of the Board,
the balance of management and independent directors, the need for audit
committee or other specialized expertise, the need for diversity and the
qualifications of other prospective nominees. The Committee then determines
whether an interview(s) is warranted. If so, one or more members of the
Committee, and other members of the Board of Directors as appropriate, interview
the prospective nominee. After completing the evaluation and interviews, the
Committee determines whether or not to recommend the prospective nominee to the
full Board, and the Board, after considering the recommendation and report of
the Committee, decides whether to appoint and/or nominate the candidate.
Board of Directors Meetings and Committees
The Board of Directors is responsible for establishing broad corporate policies
and reviewing the overall performance of the Company rather than day-to-day
operations. In fulfilling its duties, the Board is guided primarily by the
Bylaws and the charters of the board committees. The Board's primary
responsibility is to oversee the Company's management and, in so doing, serve
the best interests of the Company and the shareholders. The Board selects,
evaluates, and provides for the succession of the executive officers. It reviews
and approves corporate objectives and strategies, and evaluates significant
policies and proposed major commitments of corporate resources. It participates
in decisions that have a potential major economic impact on the Company.
Management keeps directors informed of the Company's activities through regular
written reports and presentations at Board and committee meetings.
Mr. Sheriff is the only director who is currently an employee of the Company.
The non-management directors meet at regularly scheduled executive sessions
(i.e., with no members of management present). Executive sessions of the
non-management directors are chaired by Mr. Bumstead, the Company's Lead
Director. During 2005, the non-management directors held five meetings in
executive session. The independent directors (i.e., directors other than Mr.
Sheriff and Dr. Morris) also held one meeting during 2005.
The Board of Directors holds regular quarterly meetings and meets on other
occasions when required by special circumstances. The Board of Directors met six
times during 2005. Each director attended at least 75% of the total number of
meetings of the Board of Directors and the committees on which he or she served.
3
The Board has standing Audit, Compensation, Executive, Nominating and Corporate
Governance, and Quality Assurance Committees. Each of the committees operates
pursuant to a written charter that has been approved by the Board, which it
reviews at least annually. A copy of each committee charter is available on the
"Investors Welcome" section of the Company's website at www.arclp.com.
The Board and each committee annually conducts a self-evaluation of whether the
Board and each such committee are functioning effectively.
The Audit, Compensation, and Nominating and Corporate Governance Committees are
composed entirely of independent directors.
Audit Committee
The Company has a separately-designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. The Audit Committee consists of Messrs. Stuesser
and Pearson and Ms. Smith, with Mr. Stuesser serving as its Chair. The Board has
determined that each member of the Audit Committee is an "independent director"
and "financially literate" under applicable SEC and NYSE rules. The Board has
determined that Mr. Stuesser qualifies as an "audit committee financial expert"
as defined under rules adopted by the SEC and is "independent," as that term is
used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act. The Audit
Committee has the following responsibilities, among others:
o oversees the Company's financial controls, accounting policies and
reporting processes;
o appoints and oversees the Company's registered public accounting
firm;
o monitors the audit of the Company's financial statements;
o reviews the Company's annual and interim financial statements;
o reviews the Company's policies with respect to risk assessment; and
o oversees corporate compliance activities of the Company.
The Audit Committee held nine meetings in 2005.
Compensation Committee
The Compensation Committee consists of Messrs. Davis, McCauley and O'Connell and
Ms. Smith, with Mr. Davis serving as its Chair. The Board has determined that
each member is an "independent director" under applicable NYSE rules. The
Compensation Committee determines compensation, including awards under the
current equity incentive plans, for the executive officers. The Compensation
Committee has the following responsibilities, among others:
o approves compensation and performance criteria for compensation
programs with respect to executive officers;
o advises management regarding benefits and other terms and conditions
of compensation; and
o administers the Company's stock incentive, stock purchase, 401(k),
deferred compensation and other executive compensation plans.
The Compensation Committee met frequently in 2005 on an informal basis and held
six formal meetings during the year.
Executive Committee
The Executive Committee consists of Messrs. Bumstead and Sheriff and Dr. Morris,
with Mr. Bumstead serving as its Chair. When necessary, the Executive Committee
exercises the power and authority of the full Board of Directors between
meetings of the Board, except the power to authorize any matter prohibited by
the Tennessee Business Corporation Act. The Executive Committee also reviews and
evaluates certain transactions or special projects as requested by the Board of
Directors and brings recommendations to the Board. The Executive Committee met
frequently in 2005 on an informal basis and held two formal meetings during the
year.
4
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists of Messrs. Bumstead
and Seward and Ms. Smith, with Ms. Smith serving as its Chair. The Board has
determined that each member is an "independent director" under applicable NYSE
rules. The Nominating and Corporate Governance Committee is responsible for,
among other things, developing and implementing policies and practices relating
to corporate governance. The Nominating and Corporate Governance Committee also
develops and reviews background information for director candidates, including
those recommended by shareholders, and makes recommendations to the Board
regarding such candidates. Additional information regarding this committee's
activities is provided above under the heading "Director Candidates." The
Nominating and Corporate Governance Committee held four meetings in 2005.
Quality Assurance Committee
The Quality Assurance Committee consists of Mr. McCauley and Dr. Morris, with
Mr. McCauley serving as its Chair. The Quality Assurance Committee assists, and
makes recommendations to, the Board of Directors with respect to its oversight
responsibilities regarding the following matters:
o the liability risks inherent in the Company's operating activities;
o the Company's liability risk management program, policies and
procedures, and its insurance programs;
o the Company's quality assurance program, policies and procedures;
and
o the Company's compliance with legal and regulatory requirements
relating to its operating activities.
The Quality Assurance Committee held four meetings in 2005.
Lead Director
The Board of Directors has designated Mr. Bumstead to serve as the Company's
Lead Director. The Lead Director has the following duties:
o assists the chief executive officer by serving in a counseling or
sounding board role;
o serves as liaison or conduit between the Board of Directors and the
chief executive officer and management team;
o enhances communications between the Board of Directors and the
Company's senior management by developing a process for regular
one-on-one communication with the Company's senior management team;
o enhances communications between the Company's independent Board
members;
o increases director awareness, involvement and participation;
o schedules and presides over meetings of independent directors;
o coordinates and assists in the preparation of agendas for Board
meetings;
o assists in succession planning, and the recruitment and mentoring of
new Board members;
o communicates to the chief executive officer the Board of Director's
annual evaluation of the chief executive officer;
o periodically reviews and assesses the Board of Director's committee
structure and committee assignments; and
o coordinates and facilitates annual self-evaluations and performance
reviews of independent board members.
Director Compensation
Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Prior to January 1, 2006,
on the date of each annual meeting of shareholders, each non-employee director
received an annual retainer of $16,000 payable in quarterly installments.
Non-employee directors were also entitled to a fee of $1,000 for each board
meeting attended. Directors who served as Lead Director or as chair of the Audit
Committee or the Compensation Committee were entitled to an additional annual
retainer of $4,000. In addition, a director who served as the chair of the
Quality Assurance Committee was entitled to an additional retainer of $1,000.
Each member of the Audit Committee received $1,000 for each committee meeting
attended. Each member of the Compensation, Executive, Nominating and Corporate
Governance, and Quality Assurance Committees received $500 for each committee
meeting attended.
5
Effective as of January 1, 2006, each non-employee member of the Board of
Directors will receive a base annual cash retainer of $34,000, to be paid in
quarterly installments. Each non-employee director is expected to serve as a
member of at least one committee. Each non-employee member of the Board of
Directors will also be entitled to receive an annual cash retainer for service
on each committee of the Board of Directors. Those members serving on the
Executive Committee or Audit Committee will receive an annual committee retainer
of $12,000. Those members serving on the Compensation Committee, Nominating and
Corporate Governance Committee or Quality Assurance Committee will receive an
annual committee retainer of $6,000. The chairs of the Executive Committee and
Audit Committee will receive an additional annual cash retainer of $6,000 and
the chairs of the Compensation Committee, Nominating and Corporate Governance
Committee and Quality Assurance Committee will receive an additional annual cash
retainer of $3,000. Effective as of January 1, 2006, members of the Board of
Directors will no longer be entitled to receive fees for attending or
participating telephonically in board and committee meetings.
All directors are entitled to reimbursement for their actual out-of-pocket
expenses incurred in connection with attending meetings.
In addition to cash compensation, prior to the 2006 annual meeting, non-employee
directors received options to purchase shares of common stock pursuant to the
Company's 1997 Stock Incentive Plan ("1997 Plan"). On the date of each annual
meeting of the shareholders of the Company, each non-employee director who would
continue as a director following such meeting automatically received an option
to purchase 3,000 shares of common stock. Such options vest with respect to all
3,000 shares on the date of the next annual meeting of shareholders. All options
automatically granted to a non-employee director enable the optionee to purchase
shares of common stock at the fair market value of the common stock on the date
of grant. The terms of the options are ten years from the date of grant. The
exercise price may be paid in cash, shares of common stock previously owned by
the director, or a combination thereof. The Board of Directors has the
discretion to reduce, but not increase, the number of shares awardable to
non-employee directors.
Beginning with the 2006 annual meeting, non-employee directors will receive
options to purchase shares of common stock pursuant to the 2006 Plan, provided
that it is approved by the Company's shareholders at the annual meeting.
Pursuant to the terms of the 2006 Plan, the Board has discretion over the number
of options to grant to each non-employee director. As of the date of the 2006
annual meeting, each non-employee director continuing as a director following
such meeting will receive an option to purchase a number of shares of common
stock having a fair value equal to the sum of the base annual cash retainer
($34,000 for 2006) and one base annual committee retainer ($6,000 for 2006). The
number of shares will be determined each year using the Black-Scholes valuation
methodology. Such options will vest with respect to all shares on the date of
the next annual meeting of shareholders. All options granted to a non-employee
director will enable the optionee to purchase shares of common stock at the fair
market value of the common stock on the date of grant. The terms of the options
will be ten years from the date of grant. The exercise price may be paid in
cash, shares of common stock previously owned by the director, or any
combination thereof.
In March 2006, the Board of Directors amended the Company's Deferred
Compensation Plan to permit non-employee directors to defer all or a portion of
their cash compensation. Under this plan, non-employee directors may, from time
to time, voluntarily elect to defer portions of their compensation for a minimum
of five years or until a separation of service (as defined in the plan). Amounts
deferred by each director under this plan are accrued but unfunded by the
Company and accrue interest at the prime rate plus one percent per annum, but
not less than six percent per annum or greater than ten percent per annum. The
deferred compensation under this plan is an unsecured obligation of the Company.
The Company has also adopted, subject to shareholder approval of the 2006 Plan,
a deferred compensation plan for its independent directors under the 2006 Plan.
Under this plan, the Company's non-employee directors may elect to defer up to
100% of their annual retainer and receive a return payable in shares of the
Company's common stock on the deferred funds as if the funds were invested in
the Company's common stock. Plan participants must irrevocably elect to receive
the deferred amounts either in a lump sum or in annual installments provided
that the payment period shall not exceed five years following the participant's
termination of service as a director. A participant will begin receiving
distributions as soon as reasonably practicable following the participant's
termination of service as a director. The deferred compensation under this plan
is an unsecured obligation of the Company.
6
Minimum Stock Ownership for Directors
During 2005, the Company adopted minimum stock ownership guidelines for its
directors. The Company's directors are expected to own Company stock with a
market value equal to at least three times the base annual cash retainer
($34,000 for 2006), including one base committee retainer ($6,000 for 2006). The
minimum ownership requirement will adjust as the annual cash and committee
retainers adjust each year. Directors have a three-year period to achieve this
ownership requirement. Any Company stock purchased by a director (or his or her
spouse), stock options exercised and held by the director, any compensation
deferred through the deferred compensation plan and 50% of a director's stock
options which are vested, but not exercised, will be included to determine a
director's compliance with this standard.
Code of Ethics for Senior Executive and Financial Officers
The Sarbanes-Oxley Act of 2002 requires companies to have procedures to receive,
retain, and treat complaints received regarding accounting, internal accounting
controls, or auditing matters and to allow for the confidential and anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters. The Company currently has such procedures in place.
Under the Sarbanes-Oxley Act of 2002 and the SEC's related rules, the Company is
required to disclose whether it has adopted a code of ethics that applies to the
Company's principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions. The
Company's chief executive officer and senior financial officers are bound by the
Company's Code of Ethics for Senior Executive and Financial Officers. A copy of
the Company's Code of Ethics for Senior Executive and Financial Officers can be
obtained from the "Investors Welcome" section of the Company's website at
www.arclp.com. The Company intends to disclose any amendments to, or waivers
from, the Code of Ethics for Senior Executive and Financial Officers in
accordance with the rules and regulations of the SEC and the NYSE. If such
disclosure is made on the Company's website it will be located in the "Investors
Welcome" section of the Company's website at www.arclp.com.
Communications with Members of the Board
The Company's Board of Directors has established procedures for the Company's
shareholders and other interested parties to communicate with members of the
Board of Directors. Shareholders and other interested parties who wish to
communicate with the Board of Directors, with a particular director (including
the Lead Director) or with the non-management directors as a group may send a
letter to the Secretary of the Company at 111 Westwood Place, Suite 200,
Brentwood, Tennessee 37027. The mailing envelope must contain a clear notation
indicating that the enclosed letter is a "Shareholder/Interested Party-Board
Communication." All such letters must clearly state whether the intended
recipients are all members of the Board, just certain specified individual
directors, or just the non-management directors as a group. The Secretary will
make copies of all such letters and circulate them to the appropriate director
or directors.
Board Member Attendance at Annual Meeting
The Company's Board of Directors has established a policy whereby directors are
strongly encouraged to attend the Company's meetings of shareholders. All of the
Company's directors, except Mr. Bumstead, attended the 2005 Annual Meeting of
Shareholders.
7
Minimum Stock Ownership for Officers
During 2005, the Company revised its minimum stock ownership guidelines for its
officers. The Company's chief executive officer is expected to own Company stock
with a market value equal to at least four times his base annual salary. The
Company's chief operating officer and chief financial officer are expected to
own Company stock with a market value equal to at least three times their
respective base annual salaries. The Company's executive vice presidents are
expected to own Company stock with a market value equal to at least two times
their respective base annual salaries. All other officers are expected to own
Company stock with a market value equal to at least the amounts of their
respective base annual salaries. Officers have a three-year period to achieve
this ownership requirement. Neither stock options or unvested restricted stock
apply to satisfy these requirements.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes, each class
to be as nearly equal in number as possible. At each annual meeting of
shareholders, directors comprising one class are elected for a three-year term.
The current Board of Directors is comprised of ten members. John A. Morris, Jr.,
M.D. has notified the Company that he will not stand for re-election at the
annual meeting. Accordingly, the Board of Directors has decided to reduce the
number of directors to nine members effective as of the date of the annual
meeting. The terms of the three Class III directors will expire at the 2006
annual meeting. Upon the recommendation of the Nominating and Corporate
Governance Committee, the Board of Directors has nominated John C. McCauley,
James R. Seward and W.E. Sheriff, all of whom are currently serving as directors
of the Company, to be reelected as Class III directors to serve until the annual
meeting of shareholders in 2009 and until their successors are duly elected and
qualified. Mr. Seward was appointed by the Board of Directors as a Class I
director to fill a vacancy on the Board of Directors during 2005. The terms of
the Class I and Class II directors will expire at the annual meetings in 2007
and 2008, respectively.
Each of the nominees has consented to serve, if elected. If any of the nominees
should become unable or unwilling to serve as a director, the persons named in
the proxy may vote for such other person or persons as may be designated by the
Board of Directors. Certain information with respect to the nominees for
election as Class III directors and with respect to the Class I and Class II
directors (who are not being elected at the annual meeting) is set forth below.
No information is set forth regarding Dr. Morris, as he will not be standing for
re-election at the annual meeting.
The Board of Directors recommends that the shareholders vote "FOR" all of the
director nominees.
Name Age Principal Occupation/Directorships Director Since
---- --- ---------------------------------- --------------
Director Nominees
-----------------
Class III Directors
(Terms Expire 2009)
John C. McCauley 57 Since August 2004, Mr. McCauley has served as the Assistant Vice 2003
Chancellor - Risk and Insurance Management for Vanderbilt University.
From March 1996 until August 2004, Mr. McCauley was the Executive
Director of Risk and Insurance Management for Vanderbilt University.
From September 1987 to February 1996, Mr. McCauley was Senior
Executive Director of Risk Management/Claims Counsel at Charter
Medical Corporation. Previously, Mr. McCauley served as Director of
Risk Management for NKC Inc. (Norton Healthcare) and Corporate Claims
Manager for Humana, Inc. Mr. McCauley is licensed to practice law in
Tennessee and Kentucky.
James R. Seward 53 Since 2000, Mr. Seward has been a private investor consultant. 2005
Previously, Mr. Seward was Chief Executive Officer and President of
SLH Corporation and Chief Financial Officer of Seafield Capital
Corporation, both of which were publicly-traded investment holding
companies. Mr. Seward, a Chartered Financial Analyst, currently
serves on the board of directors of Syntroleum Corporation, a natural
gas and oil processor ("Syntroleum"), and is Chairman of Trustees of
Tamarack Funds, a registered investment company.
8
W.E. Sheriff 63 Mr. Sheriff has served as chairman and chief executive officer of the 1997
Company and its predecessors since April 1984 and as president since
November 2003. Mr. Sheriff also serves on the boards of various
educational and charitable organizations and in varying capacities
with several trade organizations.
Continuing Directors
Class I Directors
(Terms Expire 2007)
Donald D. Davis 67 Mr. Davis is currently an adjunct and part-time faculty member at the 2004
Marriott School at Brigham Young University. Until his retirement in
1998, Mr. Davis served as Executive Vice President, Human Resources
for CSX Corporation for 12 years. From 1977 to 1986, Mr. Davis was
the Senior Vice President, Human Resources for Wilson Foods. Prior to
1977, Mr. Davis worked for Ryder System, Inc. and for Mobil Oil in
various Human Resource positions. In addition, Mr. Davis currently
serves on various councils and boards of several organizations.
Daniel K. O'Connell 77 Mr. O'Connell has served as a director of the Company since its 1997
inception and as a director of various of the Company's predecessors
since 1985. Until his retirement in 1991, Mr. O'Connell worked for
Ryder System, Inc. for 27 years in various capacities, including
legal counsel and chief financial officer.
Lawrence J. Stuesser 64 Since June 1999, Mr. Stuesser has been a private investor. From July 1997
1993 to May 2000, Mr. Stuesser was a director of Curative Health
Services, Inc., a wound care services company. From June 1996 to May
1999, Mr. Stuesser served as the president and chief executive
officer and a director of Computer People, Inc., an information
technology professional services and staffing company that was a
subsidiary of Delphi Group PLC, of which Mr. Stuesser also served as
a director. From July 1993 to May 1996, Mr. Stuesser was a private
investor and independent business consultant. From January 1991 to
July 1993, Mr. Stuesser was chairman and chief executive officer of
Kimberly Quality Care, Inc., a home health care services company.
Mr. Stuesser is also a director of IntegraMed America, Inc., a
company providing products and services in the infertility industry.
Early in his career, Mr. Stuesser qualified as a certified public
accountant (currently inactive) and served as an audit manager with
Alexander Grant & Company, an accounting firm.
Class II Directors
(Terms Expire 2008)
Frank M. Bumstead 64 Since 1989, Mr. Bumstead has been president or chairman and a 1997
principal shareholder of Flood, Bumstead, McCready & McCarthy, Inc., a
business management firm that represents, among others, artists,
songwriters, and producers in the music industry. From 1993 to
December 1998, Mr. Bumstead also served as the chairman and chief
executive officer of FBMS Financial, Inc., an investment advisor
registered under the Investment Company Act of 1940. Mr. Bumstead is
a director of Syntroleum.
9
J. Edward Pearson 43 Since June 2003, Mr. Pearson has served as president and chief 2003
executive officer of DigiScript, a company that specializes in
capturing live presentations and making them available on demand via
the Internet and/or CD-ROM. Previously, from January 1990 to June
2003, Mr. Pearson was a senior executive in companies providing
services to the healthcare industry, including chief executive
officer of Medibuy, an internet-based healthcare exchange and supply
efficiency solutions provider, chief financial officer of HIE, Inc.,
a systems and information integration solutions firm, chief financial
officer of Criterion Health Strategies, Inc., a decision support and
data warehousing solutions company, and chief financial officer of
Inforum, Inc., a provider of strategic planning and decisions support
solutions. Mr. Pearson is a certified public accountant (currently
inactive) and was in public practice for several years. Since June
2003, Mr. Pearson has served on the board of Summit American
Television, Inc. In addition, Mr. Pearson currently serves on the
board of several non-profit organizations.
Nadine C. Smith 48 Ms. Smith is a private investor and business consultant. From August 1997
2000 to December 2001, Ms. Smith served as president and a member of
the board of managers of Final Arrangements, LLC, and chief executive
officer of Arrange OnLine.com. From April 2000 to August 2000, Ms.
Smith was the president of Aegis Asset Management, Inc. Prior to
April 2000, Ms. Smith served as president and chief executive officer
of Enidan Capital Corp., an investment company that made equity
investments in public and privately held companies. Previously, Ms.
Smith was an investment banker and principal with NC Smith & Co. and
The First Boston Corporation, and a management consultant with
McKinsey & Co. Ms. Smith is also a director of Patterson-UTI Energy
Corp.
10
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table shows the number of shares of common stock beneficially
owned by each current director (including the three nominees for director), each
of the executive officers named in the Summary Compensation Table beginning on
page eleven hereof, the directors and executive officers as a group, and each
shareholder known to management of the Company to own beneficially more than
five percent of the outstanding common stock. Unless otherwise indicated, the
Company believes that the beneficial owner set forth in the table has sole
voting and investment power. All information is as of March 29, 2006.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1)(2)(3) Class %
-------------------------------------------------------------- ----------------------------------- ---------------
W.E. Sheriff 1,062,772 (4) 3.0%
Gregory B. Richard 86,027 *
H. Todd Kaestner 237,816 *
George T. Hicks 180,695 *
Bryan D. Richardson 134,967 *
Frank M. Bumstead 69,100 *
Donald D. Davis 7,000 *
John C. McCauley 7,200 *
John A. Morris, Jr., M.D. 285,490 (5) *
Daniel K. O'Connell 107,000 *
J. Edward Pearson 9,000 *
James R. Seward 100,000 *
Nadine C. Smith 58,956 *
Lawrence J. Stuesser 85,000 *
The Southern Fiduciary Group Inc. 1,829,812 (6)(7) 5.2%
Mercury Real Estate Advisors LLC 4,554,000 (6)(8) 12.9%
FMR Corp. 4,686,502 (6)(9) 13.3%
All directors and executive officers as a group (19 persons) 2,935,825 8.1%
-------------------
* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares
subject to options held by directors and executive officers of the Company
that are exercisable within 60 days of the date hereof are deemed
outstanding for the purpose of computing such director's or executive
officer's beneficial ownership and the beneficial ownership of all
directors and executive officers as a group.
(2) Includes the following shares of common stock issuable upon the exercise
of options granted pursuant to the Company's 1997 Plan that the following
persons are entitled to exercise within 60 days of the date hereof: Mr.
Sheriff, 251,250; Mr. Kaestner, 95,459; Mr. Hicks, 82,125; Mr. Richardson,
81,667; Ms. Smith, Dr. Morris, and Messrs. Bumstead, O'Connell, and
Stuesser, 27,000; Mr. Richard, 23,188; Messrs. Davis, McCauley, and
Pearson, 6,000; and directors and executive officers as a group (19
persons), 870,814.
(4) Includes 447,948 shares owned directly by Mr. Sheriff, 359,574 shares
beneficially owned by a family partnership in which Mr. Sheriff is a
general partner and 4,000 shares beneficially owned by Mr. Sheriff's wife.
(5) All shares are beneficially owned by partnerships owned and controlled by
Dr. Morris, his brother, and other members of Dr. Morris's family.
(6) Based solely upon information set forth in a Schedule 13G or Schedule 13D
filed with the Securities and Exchange Commission. (7) Address: 2325
Crestmoor Road, Suite 202, Nashville, TN 37215. The Southern Fiduciary
Group, an investment advisor, reported that it has sole voting power with
respect to 908,400 shares and sole dispositive power with respect to
1,829,812 shares.
(8) Address: 100 Field Point Road, Greenwich, CT 06830. Mercury, an investment
advisor, reported that it has shared voting and dispositive power with
respect to these shares.
(9) Address: 82 Devonshire Street, Boston, MA 02109. FMR, a parent holding
company, reported that it has sole voting power with respect to 439,553
shares and sole dispositive power with respect to 4,686,502 shares.
11
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation paid or accrued by the
Company during 2003, 2004 and 2005 on behalf of the Company's chief executive
officer and the four other most highly-paid executive officers of the Company
(collectively, the "named executive officers").
Long-Term
Annual Compensation Compensation Awards
--------------------------- --------------------------
Restricted Securities
Fiscal Salary Bonus Stock Underlying All Other
Name and Principal Positions Year ($) ($)(1) Awards ($) Options (#) Compensation ($)
----------------------------- ---------- ------------ ----------- ------------- ------------ -------------------
W.E. Sheriff, 2005 395,955 (2) 166,944 -- -- 49,300 (3)
Chairman, Chief Exec. 2004 340,665 505,828 446,250 (4) -- 48,314
Officer and President 2003 271,500 101,590 -- -- 49,253
Gregory B. Richard, 2005 233,788 (5) -- -- 9,047 (3)
Executive Vice 2004 211,950 115,610 148,750 (4) 20,000 8,478
President and Chief 2003 185,676 310,647 -- 40,000 9,325
Operating Officer
63,400
George T. Hicks, 2005 230,000 (6) -- -- 5,344 (3)
Executive Vice 2004 196,287 89,228 148,750 (4) -- 3,492
President - Finance, 2003 185,000 308,505 -- -- 5,284
Secretary and Treasurer
78,540
Bryan D. Richardson, 2005 230,682 (7) -- -- 9,044 (3)
Executive Vice 2004 195,037 88,512 148,750 (4) 80,000 8,464
President - Finance and 2003 172,500 303,920 -- -- 9,325
Chief Financial Officer 73,958
H. Todd Kaestner, 2005 231,894 84,906 -- -- 9,044 (3)
Executive Vice 2004 196,287 301,318 148,750 (4) 20,000 8,464
President - Corporate 2003 185,000 71,355 -- -- 9,325
Development
-----------------
(1) Each of the named executive officers received a grant of restricted stock
in 2005 pursuant to a long-term incentive plan. These awards are reported
under the heading "-Long-Term Incentive Plans - Awards in Last Fiscal
Year."
(2) Mr. Sheriff elected to defer $48,000 of this amount pursuant to the
Company's Supplemental Executive Retirement Plan.
(3) Includes insurance premiums paid by the Company for life and health
insurance policies.
(4) Represents the value of shares of restricted stock issued pursuant to the
Company's 1997 Plan on July 19, 2004. The shares vest ratably over a
three-year period, although the vesting schedule will be accelerated in
the event of a Change in Control of the Company. Persons holding shares of
restricted stock are entitled to receive any dividends declared prior to
the date of vesting. The shares of restricted stock issued to the named
executive officers were 75,000 to Mr. Sheriff, and 25,000 to each of
Messrs. Richard, Hicks, Richardson and Kaestner. The closing price of the
Company's common stock on the date of grant was $5.95. The value of the
aggregate number of shares of unvested restricted stock held by the named
executive officers as of December 31, 2005, based upon the closing price
of the Company's common stock of $25.13 at December 31, 2005, was
$2,261,700 for Mr. Sheriff, $871,182 for each of Messrs. Richard and
Richardson, and $795,792 for each of Messrs. Hicks and Kaestner.
(5) Mr. Richard elected to defer $11,692 of this amount pursuant to the
Company's Deferred Compensation Plan.
(6) Mr. Hicks elected to defer $34,506 of this amount pursuant to the
Company's Deferred Compensation Plan.
(7) Mr. Richardson elected to defer $24,000 of this amount pursuant to the
Company's Deferred Compensation Plan.
12
Option/SAR Grants in Last Fiscal Year
No options or stock appreciation rights were granted to any of the named
executive officers during 2005.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table provides information as to options exercised during 2005 and
the value realized when exercised (even if stock held), the number of
unexercised options held by the named executive officers at December 31, 2005
and the value of unexercised in-the-money options at such date. None of the
named executive officers has held or exercised stock appreciation rights.
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options at Options at
Shares Fiscal Year-End (#) Fiscal Year-End ($)(1)
Acquired on Value ------------------- ----------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------- ------------ ------------ ------------ -------------- -------------- ---------------
W.E. Sheriff -- -- 251,250 -- 6,313,913 --
Gregory B. Richard 61,814 1,504,794 16,521 26,665 415,173 670,091
George T. Hicks -- -- 82,125 -- 2,063,801 --
Bryan D. Richardson 5,000 71,250 81,667 53,333 2,052,292 1,340,258
H. Todd Kaestner -- -- 88,792 13,333 2,231,343 335,058
-------------------
(1) Calculated based on the closing market price of $25.13 at December 31,
2005.
Long-Term Incentive Plans -- Awards in Last Fiscal Year
The following table provides information with respect to awards (other than
stock options) granted to the named executive officers pursuant to long-term
incentive plans during the fiscal year ended December 31, 2005.
Estimated Future Payouts
Under Non-Stock
Price-Based Plans(#)
Number of
Shares, Performance or ------------------------------------
Units Other Period
or Other Until Maturation
Name Rights(1) or Payout Threshold Target Maximum
------------------------ ------------- ---------------------------- ---------------------- -------------
W.E. Sheriff 40,000 09/22/05-3/31/08 (1) (1) 40,000
Gregory B. Richard 18,000 09/22/05-3/31/08 (1) (1) 18,000
George T. Hicks 15,000 09/22/05-3/31/08 (1) (1) 15,000
Bryan D. Richardson 18,000 09/22/05-3/31/08 (1) (1) 18,000
H. Todd Kaestner 15,000 09/22/05-3/31/08 (1) (1) 15,000
------------------------
(1) Shares of performance-based restricted stock that vest in three
installments on March 31, 2006, March 31, 2007 and March 31, 2008. Vesting
of the restricted shares is subject to each officer's continued employment
and the Company achieving various levels of targeted growth for the fiscal
years ending December 31, 2005, 2006 and 2007 in (i) same community net
operating income, (ii) adjusted earnings before interest, taxes,
depreciation, amortization and rent, and (iii) cash earnings. Each target
is weighted equally and comprises one-third of the total performance
measurement. Achieving at least 94% of a target results in 100% vesting of
the restricted shares related to that target, achieving at least 90% but
less than 94% of a target results in 75% vesting of the restricted shares
related to that target, achieving at least 85% but less than 90% of a
target results in 50% vesting of the restricted shares related to that
target and achieving less than 85% of a target results in no vesting of
the restricted shares related to that target. The shares of restricted
stock will also become fully vested upon the occurrence of a Change in
Control or Potential Change in Control of the Company (as defined in the
1997 Plan).
13
Equity Compensation Plans
The table below sets forth the following information as of December 31, 2005
with respect to the compensation plans (including individual compensation
arrangements) under which the Company's equity securities are authorized for
issuance aggregated by (i) all compensation plans previously approved by the
Company's security holders and (ii) all compensation plans not previously
approved by the Company's security holders:
o the number of securities to be issued upon the exercise of outstanding
options; o the weighted-average exercise price of the outstanding options; and o
the number of securities remaining available for future issuance under the
plans.
In addition to options, warrants and rights, the Company's 1997 Plan allows
awards to be made in the form of restricted stock or other forms of equity-based
compensation. As of December 31, 2005, the Company had issued 696,003 shares of
restricted stock, net of forfeitures, under the 1997 Plan. Such shares are not
reflected in the table below.
Each of the Company's 1997 Plan and Associate Stock Purchase Plan has been
approved by the Company's shareholders, and, accordingly, the Company has no
compensation plans under which equity securities are authorized to be issued
that have not been approved by the Company's security holders.
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation plans
be issued upon exercise exercise price of (excluding securities
of outstanding options, outstanding options, reflected in the first
Plan category warrants and rights warrants and rights column) (1)
-------------------------- ------------------------- ------------------------- -----------------------------
Equity compensation
plans approved by
security holders 1,936,586 $6.43 988,369 (2)
Equity compensation
plans not approved by
security holders --- --- ---
Total 1,936,586 $6.43 988,369
(1) The number of shares available under the Company's 1997 Plan automatically
increases by an amount equal to 15% of the number of shares of stock issued
in each public or private offering of the Company's common stock (excluding
issuances in compensatory transactions with the Company's officers,
employees or consultants).
(2) During the first quarter of 2006, the Company consummated a public offering
of 3,450,000 shares of the Company's common stock. Accordingly, the number
of shares available for future issuance under the Company's 1997 Plan was
automatically increased. As of March 29, 2006, 1,019,857 shares remained
available for future issuance under the Company's equity compensation
plans.
No Employment Agreements
The Company does not have employment agreements with any of its executive
officers, including the named executive officers.
14
Amended and Restated Executive Change in Control Severance Benefits Plan
In March 2006, the Compensation Committee of the Board of Directors amended and
restated the Company's Executive Change in Control Severance Benefits Plan (the
"Severance Plan") for certain of its officers, including each of the named
executive officers. Under the terms of the Severance Plan, those members of the
Company's senior management holding the titles of Chairman of the Board, Chief
Executive Officer, Chief Operating Officer, President, Chief Financial Officer,
Executive Vice President, Senior Vice President or Vice President will be
entitled to severance benefits if they are terminated within 18 months following
a Change in Control (as defined in the Severance Plan) of the Company, but only
if such termination is (a) by the Company without Good Cause, or (b) by the
officer for Good Reason (as such capitalized terms are defined in the Severance
Plan). The Severance Plan may be amended or terminated by the Board of Directors
at any time prior to a Change in Control.
For those eligible named executive officers, the severance benefits payable upon
termination following a Change in Control shall be calculated as follows:
o if, immediately prior to the Change in Control, the eligible officer
held the title of Chairman of the Board, Chief Executive Officer or
President, he or she shall be entitled to an amount equal to the
product of three times the sum of (x) such officer's annual base
salary (as in effect for the calendar year during which the Change
in Control occurs) and (y) seventy-five percent (75%) of the maximum
bonus which the Committee determined such officer could have earned
(regardless of the amount actually earned) for the year in which the
Change in Control occurred (such amount, a "Bonus Amount");
o if, immediately prior to the Change in Control, the eligible officer
held the title of Chief Operating Officer or Chief Financial
Officer, he or she shall be entitled to an amount equal to the
product of two times the sum of (x) such officer's annual base
salary (as in effect for the calendar year during which the Change
in Control occurs) and (y) the officer's Bonus Amount;
o if, immediately prior to the Change in Control, the eligible officer
held the title of Executive Vice President, he or she shall be
entitled to an amount equal to the product of one and a half times
the sum of (x) such officer's annual base salary (as in effect for
the calendar year during which the Change in Control occurs) and (y)
the officer's Bonus Amount;
o if, immediately prior to the Change in Control, the eligible officer
held the title of Senior Vice President, he or she shall be entitled
to an amount equal to the sum of (x) the eligible officer's annual
base salary (as in effect for the calendar year during which the
Change in Control occurs) and (y) the officer's Bonus Amount; or
o if, immediately prior to the Change in Control, the eligible officer
held the title of Vice President, an amount equal to one-half the
sum of (x) the eligible officer's annual base salary (as in effect
for the calendar year during which the Change in Control occurs) and
(y) the officer's Bonus Amount.
Subject to compliance with Section 409A of the Internal Revenue Code, as amended
(the "Code"), the severance benefits described above are payable on a bi-monthly
basis over a period of years equal to the multiplier set forth above for such
officer.
In addition to the severance payments described above, upon a qualifying
termination of employment, each eligible officer shall also be entitled to
receive the following payments, if applicable: (i) the amount of all legal fees
and expenses incurred by the eligible officer in successfully seeking to enforce
any right or benefit provided by the Severance Plan; (ii) an amount sufficient
to reimburse the officer for the premium paid by such officer for continued
coverage for the officer (and covered dependents) under the Company's healthcare
plan pursuant to Consolidated Omnibus Budget Reconciliation Act of 1986 (subject
to certain limitations and conditions, all as set forth in the Severance Plan);
and (iii) expenses to cover certain employment placement services. In addition,
in the event that the aggregate payments or benefits to be made to the eligible
officer under the Severance Plan, together with any other payments or benefits
received or to be received by the eligible officer in connection with a Change
in Control (collectively, "Total Change in Control Payments") would exceed 110%
of the maximum amount permitted under Section 280G of the Code to be received
without incurring an excise tax under Section 4999 of the Code ("Section 280G
15
Maximum"), then the amounts payable under the Severance Plan shall be increased
by an amount necessary to reimburse the eligible officer on an after-tax basis
(as described in the Severance Plan) for any excise tax payable by the officer
under Section 4999 of the Code. If Total Change in Control Payments do not
exceed 110% of the 280G Maximum, then, at the election of the eligible officer,
(i) such payments or benefits shall be payable or provided to the eligible
officer over the minimum period necessary to reduce the present value of such
payments or benefits to an amount which is $1.00 less than the 280G Maximum or
(ii) the payments or benefits to be provided under the Severance Plan shall be
reduced to the extent necessary to avoid incurrence of the excise tax under
Section 4999 of the Code, with the allocation of the reduction among such
payments and benefits to be determined by the eligible officer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Report
The compensation paid to the Company's executive officers is reviewed and
approved annually by the Compensation Committee of the Board of Directors, which
is composed entirely of non-employee directors that the Board has determined are
"independent" under applicable NYSE rules. In addition to reviewing and
approving salary and bonus arrangements for the Company's executive officers,
the Compensation Committee approves long-term incentive awards for the executive
officers and the other key employees of the Company and administers the stock
incentive plan, associate stock purchase plan, 401(k) plan, deferred
compensation plans and other compensation plans maintained by the Company.
Executive Compensation Philosophy
The primary objectives of the Company's executive compensation program are to:
o attract, motivate, and retain the executives critical to the
Company's performance and long-term success;
o reward executives based upon corporate and individual performance;
o provide incentives designed to enhance future long-term and
near-term performance; and
o align the long-term interests of the Company's executive management
team with those of the Company's shareholders.
The primary components of the Company's executive officer compensation program
are a base salary, the potential for annual and long-term performance-based cash
bonuses, and periodic grants of equity compensation. In order to achieve the
objectives of the Company's executive compensation program, the Company
generally intends to provide its executive officers with base salaries that are
at, or slightly in excess of, the average base salaries for comparable
companies. The Company intends to incent annual and long-term performance by
providing additional annual and long-term incentive compensation that is earned
upon achievement of specified goals and objectives. The additional incentive
compensation is intended to place the Company's executive officers' total cash
compensation at approximately the 75th percentile for comparable companies, if
established goals and objectives are achieved.
The Compensation Committee reviews all components of the Company's executive
officer compensation program annually to ensure that the compensation paid to
the Company's executive officers is consistent with the Company's compensation
philosophy, business strategy, corporate culture, operating performance and
financial goals. The Compensation Committee also reviews the compensation
policies of companies the Committee deems to be comparable to the Company to
ensure that the Company's compensation policies are competitive and are
consistent with its compensation philosophy. In 2005, the Compensation Committee
also retained an independent consulting firm to assist the Compensation
Committee in analyzing the Company's compensation programs. The Compensation
Committee believes that the Company competes to attract and retain executives,
not only with companies in the senior living industry, but also with companies
in unrelated industries that are similar in size, scope and complexity.
16
Base Salaries. Base salaries for the Company's executive officers, as well as
changes in those base salaries, are based upon a number of factors, including:
o recommendations by the Company's chief executive officer;
o annual base salaries of similarly situated executives at companies
the Committee deems to be comparable to the Company;
o the nature of the executive officer's position, authority and
responsibility;
o the Committee's subjective determination of the executive officer's
contribution to the performance of the Company;
o the experience of the officer; and
o the term of the officer's employment with the Company.
In August 2005, the Compensation Committee reviewed the base salaries for the
Company's executive officers. As a result of that review, and after
consideration of presentations of management and independent compensation
consultants, and such other matters and information as deemed appropriate, the
Compensation Committee increased the base salaries of certain of the Company's
named executive officers, effective August 15, 2005, as follows:
New Base
Previous Base Salary
Name Salary Effective 8/15/05
---- ------ -----------------
W. E. Sheriff $363,000 $450,000
Gregory B. Richard $230,000 $240,000
George T. Hicks $230,000 $230,000
H. Todd Kaestner $230,000 $235,000
Bryan D. Richardson $225,000 $240,000
Annual Bonus Plan. The Company maintains an annual cash bonus plan for its
executive and other officers with three components (Part A, Part B and Part C),
which provide for the payment of bonuses based upon each officer's satisfaction
of individual performance objectives and the Company's achievement of designated
financial and operating targets. Each year the Compensation Committee
establishes the personal objectives for each officer, and the financial and
operational targets for the Company under the plan. For 2005, the Company's
financial and operating targets were predicated upon the Company's earnings
before interest, taxes, depreciation, amortization and rent and occupancy levels
at certain free-standing assisted living communities. For 2005, the maximum
potential bonuses payable under the plan equaled 80% of each officer's base
salary, with 20% obtainable under Part A, 40% under Part B, and 20% under Part
C. For 2006, the maximum potential bonuses payable under the plan range from 60%
to 120% of an officer's base salary depending on his or her title. Under Part A
of the plan, officers receive bonuses based upon the extent to which they
satisfy their personal performance objectives. Under Part B of the plan, bonuses
are dependent not only upon the satisfaction of personal performance objectives,
but also upon the Company's achievement of quarterly financial and operating
targets. Under Part C of the plan, bonuses are based only upon the Company's
achievement of annual financial and operating targets. The Company accrues for
bonuses under the annual plan as they are earned. The annual plan bonuses are
actually paid to officers during the first quarter of each calendar year for
amounts earned under the plan for the previous year.
Based upon the Company's 2005 results and the individual performance of each
named executive officer, the Company's named executive officers received annual
bonus payments under the annual plan that averaged 35.5% of their ending base
salaries, representing an average of approximately one-half of the total bonus
potential for those officers under the plan. In particular, the Company's named
executive officers received the following amounts: Mr. Sheriff, $166,944; Mr.
Richard, $115,610; Mr. Hicks, $89,228; Mr. Richardson, $88,512; and Mr.
Kaestner, $84,906. The bonuses paid to the named executive officers under the
annual cash bonus plan were generally consistent with the bonuses paid to the
Company's other officers.
17
Equity Compensation. In order to align the long-term interests of the executive
officers with those of shareholders, the Compensation Committee from time to
time awards stock options, time-based restricted stock and/or performance-based
restricted stock to the Company's executive officers. The terms of these grants,
including the sizes of the grants, are determined by the Compensation Committee
based upon the recommendations of the Company's chief executive officer and the
Committee's subjective discretion. The Compensation Committee has reassessed the
Company's compensation philosophy and, with input from management and an
independent consulting firm, modified the philosophy by placing more emphasis on
restricted share grants. The Compensation Committee believes that restricted
share grants will more closely link executive compensation to the long-term
interests of the Company's shareholders.
Awards of stock options to executive officers have been historically at
then-current market prices. Awards of stock options and restricted stock have
generally also been subject to periodic vesting over three years. The level of
restricted stock and option grants to the Company's executive officers is
determined by the Compensation Committee on a discretionary basis, rather than a
formula basis. Grants of equity compensation are dependent upon a variety of
factors, including relative position and authority within the Company, seniority
and individual performance. In 2005, the Compensation Committee, with approval
by the Board of Directors, granted 166,000 shares of performance-based
restricted stock to executive officers (including 106,000 to the named executive
officers). Vesting of the restricted shares are subject to each officer's
continued employment and the Company achieving various levels of targeted growth
for the fiscal years ending December 31, 2005, 2006 and 2007 in (i) same
community net operating income, (ii) adjusted earnings before interest, taxes,
depreciation, amortization and rent, and (iii) cash earnings. Each target is
weighted equally and comprises one-third of the total performance measurement.
Achieving at least 94% of a target results in 100% vesting of the restricted
shares related to that target, achieving at least 90% but less than 94% a target
results in 75% vesting of the restricted shares related to that target,
achieving at least 85% but less than 97% of a target results in 50% vesting of
the restricted shares related to that target and achieving less than 85% of a
target results in no vesting of the restricted shares related to that target.
The shares of restricted stock will also become fully vested upon the occurrence
of a Change in Control or Potential Change in Control of the Company (as defined
in the 1997 Plan). The Compensation Committee did not award any stock options to
executive officers during 2005.
Supplemental Executive Retirement Plan (SERP). In 2004, the Company adopted a
supplemental executive retirement plan that allows eligible executives to defer
a portion of the compensation otherwise due them. The SERP also permits the
Compensation Committee to make additional discretionary contributions for the
account of eligible executives. Amounts deferred under this plan are accrued but
unfunded by the Company. Participants direct the investment of the amounts
deferred or credited under the SERP among several available investment funds.
Generally, a participant in the SERP will be entitled to receive the amount of
his or her SERP account, including the earnings thereon, upon separation of
service (as defined in the SERP), except that such payment may be deferred in
certain circumstances.
Currently, Mr. Sheriff is the only participant in the SERP, and he elected to
defer $48,000 of his base salary during 2005. No additional amounts were
credited to Mr. Sheriff's account during 2005 by the Compensation Committee. At
December 31, 2005, Mr. Sheriff's account balance, including accrued earnings
thereon, was $186,618.
Deferred Compensation Plan. In September 2004, the Company established a
deferred compensation plan that allows a select group of management or highly
compensated employees (excluding Mr. Sheriff) to defer a portion of their cash
compensation. Under this plan, participants may, from time to time, voluntarily
elect to defer portions of their cash compensation for a minimum of five years
or until a separation of service (as defined in the plan). Amounts deferred by
each participant are accrued but unfunded by the Company and accrue interest at
the prime rate plus one percent per annum, but not less than six percent per
annum or greater than ten percent per annum. At December 31, 2005, there were
three named executive officers who participated in the deferred compensation
plan and the aggregate deferred amount (including accrued interest) related to
these three participants was approximately $483,300 (Mr. Richard, $166,500; Mr.
Hicks, $188,100; and Mr. Richardson, $128,700).
No Perquisites. The Company's executives do not receive perquisites that are not
generally available to all of the Company's employees. In particular, the
Company does not own or lease a plane, purchase country club memberships,
provide officers with a car allowance or use of a residence, or defray the cost
of personal entertainment or family travel.
18
Chief Executive Officer Compensation
In establishing the compensation of W.E. Sheriff, the Company's chairman, chief
executive officer and president, the Compensation Committee generally utilized
the same compensation policies applicable to executive officers in general. The
Compensation Committee believes that the relative difference between Mr.
Sheriff's compensation and that of the other executive officers of the Company
is equitable and justified based upon Mr. Sheriff's position, duties and
responsibilities.
Limitations on the Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally disallows a corporate
deduction for compensation over $1.0 million paid to the Company's chief
executive officer and any of the four other most highly compensated officers.
The $1.0 million limitation applies to all types of compensation, including
restricted stock awards and amounts realized on the exercise of stock options
and stock appreciation rights, unless the awards and plan under which the awards
are made qualify as "performance based" under the terms of the code and related
regulations. The Company currently anticipates that the compensation of its
executive officers will be deductible under Section 162(m) because executive
officer compensation is presently below the $1.0 million limit. In the event
compensation paid to the Company's chief executive officer or any of the four
other most highly compensated executive officers exceeds the $1.0 million limit,
the Company will attempt to structure such compensation in a manner that will
comply with the limits of Section 162(m).
The Committee believes, however, that in some circumstances factors other than
tax deductibility are more important in determining the forms and levels of
executive compensation most appropriate and in the best interests of the Company
and its shareholders. Given the Company's dynamic and rapidly changing industry
and business, as well as the competitive market for outstanding leadership
talent, the Compensation Committee believes that it is important to retain the
flexibility to design compensation programs consistent with its executive
compensation philosophy, even if some executive compensation is not fully
deductible. Accordingly, the Compensation Committee may from time to time
approve elements of compensation for certain officers that are not fully
deductible.
DONALD D. DAVIS JOHN C. MCCAULEY DANIEL K. O'CONNELL NADINE C. SMITH
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2005, the Compensation Committee of the Board of Directors was composed
of Messrs. Davis, McCauley and O'Connell and Ms. Smith. None of these persons
has at any time been an officer or employee of the Company or any of its
subsidiaries. In addition, there are no relationships among the Company's
executive officers, members of the Compensation Committee or entities whose
executives serve on the Board of Directors or the Compensation Committee that
require disclosure under applicable SEC regulations.
19
AUDIT COMMITTEE REPORT
The Company's management team has the primary responsibility for the Company's
internal controls and financial reporting. The Audit Committee reviews the
Company's financial reporting process on behalf of the Board of Directors. The
Audit Committee of the Board is responsible for providing independent, objective
oversight of the Company's accounting function and internal controls. The Audit
Committee of the Board of Directors is composed of three directors who are
independent directors as defined under the applicable rules of the Securities
and Exchange Commission and the New York Stock Exchange. The Audit Committee
operates under a written charter adopted by the Board of Directors, a copy of
which is available on the "Investor's Welcome" section of the Company's website
at www.arclp.com. The Company's registered public accounting firm is responsible
for performing an independent audit on the Company's consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and to issue reports thereon. The Company's
registered public accounting firm is also responsible to provide an attestation
report on management's assessment of the effectiveness of internal control over
financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board.
In June 2005, the Company restated its consolidated financial statements for the
fiscal years ended December 31, 2004, 2003 and 2002 and for the quarterly
periods for the fiscal years ended December 31, 2004 and 2003. In addition, the
report of the Company's independent auditors indicated that the Company did not
maintain effective internal controls over financial reporting as of December 31,
2004. In order to remediate the weaknesses in the Company's internal controls
over financial reporting, the Company conducted a detailed review of its
controls over the selection, application and monitoring of appropriate
accounting policies and procedures and added personnel and implemented
additional review procedures.
The Audit Committee has reviewed and discussed with management and the
registered public accounting firm the audited December 31, 2005 consolidated
financial statements. The Audit Committee has also discussed with the registered
public accounting firm the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees), as amended. In
addition, the Audit Committee has received from the registered public accounting
firm the written disclosures and the letter required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with them their independence from the Company and its management. The
Audit Committee has considered and determined that the registered public
accounting firm's provision of tax and other non-audit services to the Company
is compatible with the auditors' independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board of Directors has
approved, that the audited consolidated financial statements be included in the
Annual Report on Form 10-K for the year ended December 31, 2005, for filing with
the Securities and Exchange Commission.
J. EDWARD PEARSON NADINE C. SMITH LAWRENCE J. STUESSER
The foregoing report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference the Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.
20
CERTAIN TRANSACTIONS
Note Issued to Affiliates of Dr. Morris
During 2001 and 2000, the Company acquired leasehold interests in six
free-standing assisted living communities owned by affiliates of John Morris,
one of the Company's directors. Dr. Morris is not standing for re-election at
the annual meeting. A $7.6 million, 9.625% fixed interest only note, due October
1, 2008 was issued to Dr. Morris' affiliates. This note, and certain similar
notes, were secured by an interest in a retirement center located in Richmond,
Virginia and a free-standing assisted living community in San Antonio, Texas.
The terms of this note and its related security instruments were identical to
those issued to certain unaffiliated entities in connection with the
simultaneous acquisition of certain other communities. On January 26, 2005, the
Company repaid this note and two similar notes (total repayment of $17.2
million).
Freedom Plaza Care Center ("FPCC")
On July 7, 2005, the Company acquired all of the real property interests
underlying FPCC, a 128-bed skilled nursing and 44-unit assisted living center in
Peoria, Arizona for $20.3 million. The Company previously operated FPCC pursuant
to a long-term operating lease with Maybrook Realty, which was 50% owned by W.E.
Sheriff, the Company's chairman and chief executive officer and president. The
Company consummated the acquisition pursuant to an option under the lease, which
provided for a fixed purchase price of $20.3 million. The Company also
contemporaneously acquired the third-party ground lessor's interest in the
property, including an adjacent parcel of land, for a purchase price of $3.1
million. The total purchase price for these two transactions was $23.4 million,
which was supported by a fair market value appraisal. The purchase price was
paid with $4.7 million of cash and with the proceeds of an $18.7 million
mortgage loan which is secured by the community. Total lease payments during
2005 and 2004 under the lease were $1.1 and $2.2 million, respectively.
After the completion of the purchase of the real estate interests of FPCC, the
Company has no other related party transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and persons who beneficially own more
than ten percent of the common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Such directors, officers,
and greater than ten percent shareholders are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms furnished to
the Company, or written representations from certain reporting persons, the
Company believes that during 2005 its officers, directors, and greater than ten
percent beneficial owners were in compliance with all applicable filing
requirements, except that a Form 5 by Mr. Frisby reporting a gift of shares was
filed late.
21
PERFORMANCE GRAPH
The following graph compares the cumulative returns of $100 invested on December
31, 2000 in (a) the Company; (b) the Standard and Poor's 500 Stock Index; (c)
the Standard and Poor's Health Care Stock Index; and (d) a self-constructed peer
group, as described below, assuming reinvestment of all dividends.
[GRAPHIC OMITTED]
[PLEASE SEE SUPPLEMENTAL PDF PERFORMANCE GRAPH]
[DATA BELOW REPRESENTS PERFORMANCE GRAPH]
31-DEC 00 31-DEC-01 31-DEC-02 31-DEC-03 31-DEC-04 31-DEC-05
------ ------- ------- ------- ------- ------
ACR $100.0 $ 78.4 $ 63.9 $104.9 $386.6 $842.0
S&P 500 $100.0 $136.1 $118.3 $ 90.7 $ 98.8 $101.8
S&P HC $100.0 $100.0 $100.0 $113.3 $113.6 $118.9
Peer Group $100.0 $119.3 $119.9 $132.5 $213.9 $390.7
The Company's self-constructed peer group is composed of the following senior
living companies: Capital Senior Living Corporation, Emeritus Corporation, Five
Star Quality Care Inc., and Sunrise Assisted Living, Inc. During 2004, the
Company added Five Star Quality Care Inc. to the Company's peer group and
removed Greenbriar Corporation, which was acquired during 2004 by a publicly
traded cable company. The prior period returns have been restated to include
Five Star Quality Care Inc. and exclude Greenbriar Corporation in all
measurement periods.
22
PROPOSAL 2: APPROVAL OF THE
AMERICAN RETIREMENT CORPORATION 2006 STOCK INCENTIVE PLAN
The Company's Board of Directors has adopted and recommends that shareholders
approve the American Retirement Corporation 2006 Stock Incentive Plan to replace
the American Retirement Corporation 1997 Stock Incentive Plan. If approved by
shareholders, the 2006 Plan will authorize awards for an aggregate of 4,000,000
shares, including 1,019,857 shares carried over from the 1997 Plan. Of the
4,000,000 shares authorized under the 2006 Plan, no more than 2,000,000 shares
will be available for grants of restricted shares. If shareholder approval of
the 2006 Plan is received at the annual meeting, no further awards will be
granted under the 1997 Plan. If approved by the Company's shareholders, the 2006
Plan will be effective as of May 17, 2006.
The primary purpose of the 2006 Plan is to promote the interests of the Company
and its shareholders by, among other things, (i) attracting and retaining key
officers, employees and directors of, and consultants to, the Company and its
subsidiaries and affiliates, (ii) motivating those individuals by means of
incentives to achieve long-range performance goals, (iii) enabling those
individuals to participate in the long-term growth and financial success of the
Company, (iv) encouraging ownership of stock in the Company by those
individuals, and (v) linking the compensation of those individuals to the
long-term interests of the Company and its shareholders.
The Company's general compensation philosophy is that long-term incentive
compensation should be closely aligned with its shareholders' interests, as more
fully described under the heading "Compensation Committee Report on Executive
Compensation." The Company believes that stock-based compensation has been very
effective over the years in enabling the Company to attract and retain the
talent critical to a company with a focus on providing high quality,
cost-effective senior living and health care services. The Company believes that
stock ownership has focused its key employees on improving the Company's
performance, and has helped to create a culture that encourages employees to
think and act as shareholders.
The Compensation Committee of the Board of Directors reassessed the Company's
compensation philosophy and the award strategy under the 1997 Plan and, in
conjunction with management and an independent consulting firm, modified its
philosophy. The 2006 Plan is intended to facilitate the Company's efforts to
better align its long-term awards structure with its business and talent needs
and its shareholders' interests. The Company has recently placed more emphasis
on restricted share grants and believes the shift to restricted share grants
will more closely link executive compensation to the long-term interests of its
shareholders. The Company also believes using restricted shares rather than
options will allow it to be more economically efficient in that the Company will
be able to deliver similar value to employees using fewer shares.
As of March 29, 2006, the Company had an aggregate of 1,929,612 options
outstanding under the 1997 Plan. Shares underlying outstanding restricted share
awards are not included in outstanding awards because they are already reflected
in the number of common shares outstanding. As of March 29, 2006, there were
532,423 restricted shares outstanding under the 1997 Plan. As of March 29, 2006,
there were 1,019,857 shares remaining available for grant under the 1997 Plan
and a total of 35,289,354 shares of common stock outstanding.
The Company believes that its equity programs and its emphasis on employee stock
ownership have been integral to its success in the past and are important to its
ability to achieve its corporate performance goals in the years ahead. The
Company believes that the ability to attract, retain and motivate talented
employees is critical to long-term Company performance and shareholder returns.
The Company believes that the 2006 Plan will allow it the flexibility to
implement its current long-term incentive philosophy in future years and will
better align executive and shareholder interests. For these reasons, the Company
considers approval of the 2006 Plan important to its future success.
The following is a brief summary of the principal features of the 2006 Plan,
which is qualified in its entirety by reference to the 2006 Plan itself, a copy
of which is attached hereto as Appendix B and incorporated herein by reference.
Shares Available for Awards under the Plan. Under the 2006 Plan, awards
may be made in common stock of the Company. Subject to adjustment as
provided by the terms of the 2006 Plan, the maximum number of shares of
common stock with respect to which awards may be granted under the 2006
Plan is 4,000,000 (which includes 1,019,857 shares under the 1997 Plan
23
that were authorized but not granted). Except as adjusted in accordance
with the terms of the 2006 Plan, no more than 4,000,000 shares of common
stock authorized under the 2006 Plan may be awarded as incentive stock
options and no more than 2,000,000 shares authorized under the 2006 Plan
may be awarded as awards other than options. The maximum number of shares
with respect to which awards may be granted under the 2006 Plan shall be
increased by the number of shares with respect to which options or other
awards were granted under the 1997 Plan as of the effective date of the
2006 Plan, but which terminate, expire unexercised, or are settled for
cash, forfeited or cancelled without delivery of the shares under the
terms of the 1997 Plan after the effective date of the 2006 Plan. The
aggregate number of shares with respect to which awards may be granted
under the 2006 Plan (and the number of restricted shares which may be
granted under the 2006 Plan) shall, upon the consummation of certain
equity issuances (such as a public offering of additional shares of common
stock) increase automatically by ten percent (10%) of the number of shares
issued in the equity issuance.
Shares underlying common stock subject to an award under the 2006 Plan or
the 1997 Plan that are cancelled, expire unexercised, forfeited, settled
in cash or otherwise terminated without a delivery of shares of common
stock to the participant remain available for awards under the 2006 Plan.
Shares of common stock issued under the 2006 Plan may be either newly
issued shares or shares which have been reacquired by the Company. Shares
issued by the Company as substitute awards granted solely in connection
with the assumption of outstanding awards previously granted by a company
acquired by the Company, or with which the Company combines ("Substitute
Awards"), do not reduce the number of shares available for awards under
the 2006 Plan.
In addition, the 2006 Plan imposes individual limitations on the amount of
certain awards in order to comply with Section 162(m) of the Code. Under
these limitations, no single participant may receive options or stock
appreciation rights ("SARs") in any calendar year that, taken together,
relate to more than 200,000 shares of common stock, subject to adjustment
in certain circumstances.
With certain limitations, awards made under the 2006 Plan may be adjusted
by the Compensation Committee of the Board of Directors (the "Committee")
in its discretion or to prevent dilution or enlargement of benefits or
potential benefits intended to be made available under the 2006 Plan in
the event of any stock dividend, reorganization, recapitalization, stock
split, combination, merger, consolidation, change in laws, regulations or
accounting principles or other relevant unusual or nonrecurring event
affecting the Company.
Eligibility and Administration. Current and prospective officers and
employees, and directors of, and consultants to, the Company or its
subsidiaries or affiliates are eligible to be granted awards under the
2006 Plan. As of March 29, 2006, approximately 270 individuals were
eligible to participate in the 2006 Plan. The Committee will administer
the 2006 Plan, except with respect to awards to non-employee directors,
for which the 2006 Plan will be administered by the Board. The Committee
will be composed of not less than two non-employee directors, each of whom
will be a "Non-Employee Director" for purposes of Section 16 of the
Exchange Act and Rule 16b-3 thereunder, an "outside director" within the
meaning of Section 162(m) and the regulations promulgated under the Code
and will be an independent director as defined by the listing standards of
the New York Stock Exchange. Subject to the terms of the 2006 Plan, the
Committee is authorized to select participants, determine the type and
number of awards to be granted, determine and later amend (subject to
certain limitations) the terms and conditions of any award, interpret and
specify the rules and regulations relating to the 2006 Plan, and make all
other determinations which may be necessary or desirable for the
administration of the 2006 Plan.
Stock Options and Stock Appreciation Rights. The Committee is authorized
to grant stock options, including both incentive stock options, which can
result in potentially favorable tax treatment to the participant, and
non-qualified stock options. The Committee may specify the terms of such
grants subject to the terms of the 2006 Plan. The Committee is also
authorized to grant SARs, either with or without a related option. The
exercise price per share subject to an option is determined by the
Committee, but may not be less than the fair market value of a share of
common stock on the date of the grant, except in the case of Substitute
Awards. The maximum term of each option or SAR, the times at which each
option or SAR will be exercisable, and the provisions requiring forfeiture
of unexercised options at or following termination of employment generally
are fixed by the Committee, except that no option or SAR relating to an
24
option may have a term exceeding ten years. Incentive stock options that
are granted to holders of more than ten percent of the Company's voting
securities are subject to certain additional restrictions, including a
five-year maximum term and a minimum exercise price of 110% of fair market
value.
A stock option or SAR may be exercised in whole or in part at any time,
with respect to whole shares only, within the period permitted thereunder
for the exercise thereof. Stock options and SARs shall be exercised by
written notice of intent to exercise the stock option or SAR and, with
respect to options, payment in full to the Company of the amount of the
option price for the number of shares with respect to which the option is
then being exercised.
Payment of the option price must be made in cash or cash equivalents, or,
at the discretion of the Committee, (i) by transfer, either actually or by
attestation, to the Company of shares that have been held by the
participant for at least six months (or such lesser period as may be
permitted by the Committee) which have a fair market value on the date of
exercise equal to the option price, together with any applicable
withholding taxes, or (ii) by a combination of such cash or cash
equivalents and such shares; provided, however, that a participant is not
entitled to tender shares pursuant to successive, substantially
simultaneous exercises of any stock option of the Company. Subject to
applicable securities laws and Company policy, the Company may permit an
option to be exercised by delivering a notice of exercise and
simultaneously selling the shares thereby acquired, pursuant to a
brokerage or similar agreement approved in advance by proper officers of
the Company, using the proceeds of such sale as payment of the option
price, together with any applicable withholding taxes. Until the
participant has been issued the shares subject to such exercise, he or she
shall possess no rights as a shareholder with respect to such shares.
Restricted Shares and Restricted Share Units. The Committee is authorized
to grant restricted shares of common stock and restricted share units.
Restricted shares are shares of common stock subject to transfer
restrictions as well as forfeiture upon certain terminations of employment
prior to the end of a restricted period or other conditions specified by
the Committee in the award agreement. A participant granted restricted
shares of common stock generally has most of the rights of a shareholder
of the Company with respect to the restricted shares, including the right
to receive dividends and the right to vote such shares. None of the
restricted shares may be transferred, encumbered or disposed of during the
restricted period or until after fulfillment of the restrictive
conditions.
Each restricted share unit has a value equal to the fair market value of a
share of common stock on the date of grant. The Committee determines, in
its sole discretion, the restrictions applicable to the restricted share
units. A participant will be credited with dividend equivalents on any
vested restricted share units at the time of any payment of dividends to
shareholders on shares of common stock. Except as determined otherwise by
the Committee, restricted share units may not be transferred, encumbered
or disposed of, and such units shall terminate, without further obligation
on the part of the Company, unless the participant remains in continuous
employment of the Company for the restricted period and any other
restrictive conditions relating to the restricted share units are met.
Performance Awards. A performance award consists of a right that is
denominated in cash or shares of common stock, valued in accordance with
the achievement of certain performance goals during certain performance
periods as established by the Committee, and payable at such time and in
such form as the Committee shall determine. Performance awards may be paid
in a lump sum or in installments following the close of a performance
period or on a deferred basis, as determined by the Committee. Termination
of employment prior to the end of any performance period, other than for
reasons of death or total disability, will result in the forfeiture of the
performance award. A participant's rights to any performance award may not
be transferred, encumbered or disposed of in any manner, except by will or
the laws of descent and distribution.
Performance awards are subject to certain specific terms and conditions
under the 2006 Plan. Unless otherwise expressly stated in the relevant
award agreement, each award granted to a Covered Officer under the 2006
Plan is intended to be performance-based compensation within the meaning
of Section 162(m). Performance goals for Covered Officers will be limited
to one or more of the following financial performance measures relating to
the Company or any of its subsidiaries, operating units, business segments
or divisions: (a) earnings before interest, taxes, depreciation,
amortization and/or rent; (b) net operating income or profit (including or
25
excluding entry fee income); (c) operating efficiencies (including but not
limited to same store sales and occupancy rates); (d) return on equity,
assets, capital, capital employed or investment; (e) after tax or pre-tax
operating income; (f) net income; (g) earnings or book value per share (or
fully-diluted share); (h) cash flow(s), operating cash flows, cash
earnings or net resale cash flow; (i) total sales or revenues (including
those from specified sources such as entry fee sales); (j) capital
expenditures; (k) stock price or total shareholder return; (l) dividends;
(m) debt reduction; (n) strategic business objectives, consisting of one
or more objectives based on meeting specified cost targets, business
expansion goals (such as net move-ins), and goals relating to acquisitions
or divestitures; (o) enterprise value; or (p) any combination thereof.
Each goal may be expressed on an absolute and/or relative basis, may be
based on or otherwise employ comparisons based on internal targets, the
past performance of the Company or any subsidiary, operating unit (such as
the Company's communities), business segment or division of the Company
(whether or not consolidated and whether or not created solely for
performance measurement purposes) and/or the past or current performance
of other companies, and in the case of earnings-based measures, may use or
employ comparisons relating to capital, shareholders' equity and/or shares
outstanding, or to assets or net assets. The Committee may appropriately
adjust any evaluation of performance under criteria set forth in the 2006
Plan to exclude any of the following events that occurs during a
performance period: (i) asset write-downs, (ii) litigation or claim
judgments or settlements, (iii) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (iv) accruals for reorganization and restructuring programs and
(v) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and
analysis of financial condition and results of operations appearing in the
Company's annual report to shareholders for the applicable year.
To the extent necessary to comply with Section 162(m) of the Code, with
respect to grants of performance awards, no later than 90 days following
the commencement of each performance period (or such other time as may be
required or permitted by Section 162(m)), the Committee will, in writing,
(1) select the performance goal or goals applicable to the performance
period, (2) establish the various targets and bonus amounts which may be
earned for such performance period, and (3) specify the relationship
between performance goals and targets and the amounts to be earned by each
Covered Officer for such performance period. Following the completion of
each performance period, the Committee will certify in writing whether the
applicable performance targets have been achieved and the amounts, if any,
payable to Covered Officers for such performance period. In determining
the amount earned by a Covered Officer for a given performance period,
subject to any applicable award agreement, the Committee shall have the
right to reduce (but not increase) the amount payable at a given level of
performance to take into account additional factors that the Committee may
deem relevant in its sole discretion to the assessment of individual or
corporate performance for the performance period. With respect to any
Covered Officer, the maximum annual number of shares in respect of which
all performance awards may be granted under the 2006 Plan is 300,000 and
the maximum annual amount of all performance awards that are settled in
cash is $3,000,000.
Other Stock-Based Awards. The Committee is authorized to grant any other
type of awards that are denominated or payable in, valued by reference to,
or otherwise based on or related to shares of common stock. The Committee
will determine the terms and conditions of such awards, consistent with
the terms of the 2006 Plan.
Non-Employee Director Awards. The Board may provide that all or a portion
of a non-employee director's annual retainer, meeting fees and/or other
awards or compensation as determined by the Board be payable in
non-qualified stock options, restricted shares, restricted share units,
SARs and/or other stock-based awards, including unrestricted shares,
either automatically or at the option of the non-employee directors. The
Board will determine the terms and conditions of any such awards,
including those that apply upon the termination of a non-employee
director's service as a member of the Board.
Outside Director Deferred Compensation Plan. In March 2006, the Company
adopted a deferred compensation plan for its independent directors under
the 2006 Plan. Under this plan, the Company's non-employee directors may
elect to defer up to 100% of their annual retainer and receive a return
payable in shares of the Company's common stock on the deferred funds as
if the funds were invested in the Company's common stock. Plan
participants must irrevocably elect to receive the deferred amounts either
in a lump sum or in annual installments provided that the payment period
shall not exceed five years following the participant's termination of
26
service as a director. A participant will begin receiving distributions as
soon as reasonably practicable following the participant's termination of
service as a director. The deferred compensation under this plan is an
unsecured obligation of the Company.
Termination of Employment. The Committee will determine the terms and
conditions that apply to any award upon the termination of employment with
the Company, its subsidiaries and affiliates, and provide such terms in
the applicable award agreement or in its rules or regulations.
Change in Control. Unless otherwise provided in an award agreement or
other contractual agreement between the Company and a participant, if,
within eighteen months following a Change in Control (as defined in the
2006 Plan), a participant's employment with the Company is terminated
because of death, disability, retirement, Good Reason (as defined in the
2006 Plan) or by the Company for any reason other than for Cause (as
defined in the 2006 Plan), all outstanding awards vest, become immediately
exercisable or payable and have all restrictions lifted.
Amendment and Termination. The Board may amend, alter, suspend,
discontinue or terminate the 2006 Plan or any portion of the 2006 Plan at
any time, except that shareholder approval must be obtained for any such
action if such approval is necessary to comply with any tax or regulatory
requirement with which the Board deems it desirable or necessary to
comply. The Committee may waive any conditions or rights under, amend any
terms of, or alter, suspend, discontinue, cancel or terminate any award,
either prospectively or retroactively. The Committee does not have the
power, however, to amend the terms of previously granted options to reduce
the exercise price per share subject to such option or to cancel such
options and grant substitute options with a lower exercise price per share
than the cancelled options. The Committee also may not materially and
adversely affect the rights of any award holder without the award holder's
consent.
The Committee may also make adjustments in the terms and conditions of,
and the criteria included in, awards under the 2006 Plan in recognition of
unusual or nonrecurring events affecting the Company or its financial
statements or of changes in applicable laws, regulations or accounting
principles whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
The Committee may also cancel, rescind, or otherwise limit or restrict any
unexpired, unpaid or deferred awards under the 2006 Plan at any time if a
participant does not comply with all applicable provisions of the award
agreement and the 2006 Plan, or if the participant engages in a
Detrimental Activity (as defined in the 2006 Plan). In addition, the
Committee may provide in an award agreement that if during the period
beginning on the grant date and continuing through a date that is five
years following the later of the exercise or vesting of an award, the
participant engages in any Detrimental Activity, the participant will
forfeit any gain realized on the vesting or exercise of the award and must
repay any gain to the Company.
Other Terms of Awards. The Company may take action, including the
withholding of amounts from any award made under the 2006 Plan, to satisfy
withholding and other tax obligations. The Committee may provide for
additional cash payments to participants to defray any tax arising from
the grant, vesting, exercise or payment of any award. Except as permitted
by the applicable award agreement, awards granted under the 2006 Plan
generally may not be pledged or otherwise encumbered and are not
transferable except by will or by the laws of descent and distribution, or
as permitted by the Committee in its discretion.
Certain Federal Income Tax Consequences. The following is a brief
description of the Federal income tax consequences generally arising with
respect to awards under the 2006 Plan.
Tax consequences to the Company and to participants receiving awards will
vary with the type of award. Generally, a participant will not recognize
income, and the Company is not entitled to take a deduction, upon the
grant of an incentive stock option, a nonqualified option, an SAR or a
restricted share award. A participant will not have taxable income upon
exercising an incentive stock option (except that the alternative minimum
tax may apply). Upon exercising an option other than an incentive stock
option, the participant must generally recognize ordinary income equal to
the difference between the exercise price and fair market value of the
freely transferable and non-forfeitable shares of common stock acquired on
the date of exercise.
27
If a participant sells shares of common stock acquired upon exercise of an
incentive stock option before the end of two years from the date of grant
and one year from the date of exercise, the participant must generally
recognize ordinary income equal to the difference between (i) the fair
market value of the shares of common stock at the date of exercise of the
incentive stock option (or, if less, the amount realized upon the
disposition of the incentive stock option shares of common stock), and
(ii) the exercise price. Otherwise, a participant's disposition of shares
of common stock acquired upon the exercise of an option (including an
incentive stock option for which the incentive stock option holding period
is met) generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the
participant's tax basis in such shares of common stock (the tax basis
generally being the exercise price plus any amount previously recognized
as ordinary income in connection with the exercise of the option).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
an option. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant.
Accordingly, the Company will not be entitled to any tax deduction with
respect to an incentive stock option if the participant holds the shares
of common stock for the incentive stock option holding periods prior to
disposition of the shares.
Similarly, the exercise of an SAR will result in ordinary income on the
value of the stock appreciation right to the individual at the time of
exercise. The Company will be allowed a deduction for the amount of
ordinary income recognized by a participant with respect to an SAR. Upon a
grant of restricted shares, the participant will recognize ordinary income
on the fair market value of the common stock at the time restricted shares
vest unless a participant makes an election under Section 83(b) of the
Code to be taxed at the time of grant. The participant also is subject to
capital gains treatment on the subsequent sale of any common stock
acquired through the exercise of an SAR or restricted share award. For
this purpose, the participant's basis in the common stock is its fair
market value at the time the SAR is exercised or the restricted share
becomes vested (or is granted, if an election under Section 83(b) is
made). Payments made under performance awards are taxable as ordinary
income at the time an individual attains the performance goals and the
payments are made available to, and are transferable by, the participant.
Section 162(m) of the Code generally disallows a public company's tax
deduction for compensation paid in excess of $1 million in any tax year to
its five most highly compensated executives. However, compensation that
qualifies as "performance-based compensation" is excluded from this $1
million deduction limit and therefore remains fully deductible by the
company that pays it. The Company intends that (i) performance awards and
(ii) options granted (a) with an exercise price at least equal to 100% of
fair market value of the underlying shares of common stock at the date of
grant (b) to employees the Committee expects to be named executive
officers at the time a deduction arises in connection with such awards,
qualify as "performance-based compensation" so that these awards will not
be subject to the Section 162(m) deduction limitations.
The foregoing discussion is general in nature and is not intended to be a
complete description of the Federal income tax consequences of the 2006
Plan. This discussion does not address the effects of other Federal taxes
or taxes imposed under state, local or foreign tax laws. Participants in
the 2006 Plan are urged to consult a tax advisor as to the tax
consequences of participation.
The 2006 Plan is not intended to be a "qualified plan" under Section 401(a) of
the Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
AMERICAN RETIREMENT CORPORATION 2006 STOCK INCENTIVE PLAN. PROXIES SOLICITED BY
THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS OTHERWISE SPECIFY IN
THEIR PROXIES.
28
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder in accordance with applicable rules
and regulations for presentation at the Company's annual meeting of shareholders
in 2007 and received at the Company's executive offices no later than December
14, 2006 will be included in the Company's proxy statement and form of proxy
relating to such annual meeting.
In addition, the Company's bylaws contain an advance notice provision that
provides that for a shareholder proposal to be brought before and considered at
the next annual meeting of shareholders, such shareholder must provide notice
thereof to the Secretary of the Company no later than December 14, 2006. The
proposal and the shareholder must comply with Regulation 14A under the
Securities Exchange Act. In the event that a shareholder proposal intended to be
presented for action at the next annual meeting is not received prior to
December 14, 2006 proxies solicited by the Board of Directors in connection with
the annual meeting will be permitted to use their discretionary voting authority
with respect to the proposal, whether or not the proposal is discussed in the
proxy statement for the annual meeting.
REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP served as the Company's registered public accounting firm for fiscal
2005. As set forth in the Forms 8-K and 8-K/A filed with the SEC on March 20,
2006 and March 24, 2006, respectively, on March 14, 2006, the Audit Committee
dismissed KPMG LLP as the registered public accounting firm for fiscal 2006 and
approved the appointment of Deloitte & Touche LLP as its new registered public
accounting firm for fiscal 2006.
KPMG LLP's audit reports on the consolidated financial statements of the Company
for the fiscal years ended December 31, 2005 and December 31, 2004 contain no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles, except as follows. As
previously disclosed in the Forms 8-K and 8-K/A filed with the SEC on March 20,
2006 and March 24, 2006, respectively, KPMG LLP's report on the consolidated
financial statements of the Company as of and for the year ended December 31,
2004 states that "the Company has restated it financial statements as of
December 31, 2004 and 2003 and for each of the years in the three year period
ending December 31, 2004" and "the Company changed its method of accounting for
variable interest entities in accordance with Financial Accounting Standards
Board Interpretation No. 46(R), `Consolidation of Variable Interest Entities'."
On June 10, 2005, after consultation with KPMG LLP and the SEC, the Company
filed certain amended and restated financial information on Form 10-K/A
restating its previously issued consolidated financial statements for the fiscal
years ended December 31, 2004, 2003 and 2002 and for the quarterly periods for
the fiscal years ended December 31, 2004 and 2003. These restatements
reclassified certain entrance fee refund obligations from long-term liabilities,
in accordance with long-standing industry understanding and practice, to current
liabilities in accordance with SFAS No. 78, Classification of Obligations That
Are Callable by the Creditor, since certain residency and care agreements at the
Company's entry fee communities may be terminated by residents upon thirty days
notice, and many of these agreements require that a portion of the original
entrance fee be refunded within a specified number of days (less than one year)
after the agreement is terminated. In connection with the reclassification of
certain entrance fee liabilities, the Company also reclassified: (1) certain
tenant deposits from long-term liabilities to current liabilities; (2) gain
(loss) on sale of assets to operating income or loss (from other income or
expense); and (3) certain entrance fee, accrued interest and other items on the
statement of cash flows. Finally, the Company adjusted its straight-line lease
accounting for certain leases, which decreased lease expense in 2004, 2003 and
2002 by $1.2 million, $1.2 million, and $0.4 million, respectively, and the
related deferred tax impact. The Company's Audit Committee discussed the
restatement with KPMG LLP, and the Audit Committee has authorized KPMG LLP to
fully respond to the inquiries of the Company's successor principal accountants
concerning the subject matter thereof.
The audit reports of KPMG LLP on management's assessment of the effectiveness of
internal control over financial reporting and the effectiveness of internal
control over financial reporting as of December 31, 2005 and 2004 did not
contain an adverse opinion or disclaimer of opinion and was not qualified or
modify as to uncertainty, audit scope or accounting principles, except that, as
previously disclosed in Forms 8-K and 8-K/A filed with the SEC on March 20, 2006
and March 24, 2006, respectively, KPMG LLP's report as of December 31, 2004
indicates that the Company did not maintain effective internal control over
financial reporting as of December 31, 2004 because of the effect of a material
weakness on the achievement of the objectives of the control criteria.
Specifically, KPMG LLP reported that "the Company's policies and procedures
29
related to its financial reporting processes did not provide for effective
management research and review by adequately qualified personnel of interim and
annual financial statement classifications prior to issuance of the related
financial statements," and that "the Company lacked adequate personnel resources
possessing sufficient expertise to effectively perform a review of interim and
annual financial information prior to issuance." KPMG LLP also reported that
"the Company's policies and procedures did not provide for the proper
application of US generally accepted accounting principles for certain lease
agreements that provide for variable lease payments over the terms of such lease
agreements." As a result of the aforementioned material weaknesses in internal
control over financial reporting as of December 31, 2004, the Company failed to
properly reflect certain transactions which resulted in the restatement of the
Company's previously issued consolidated financial statements as of December 31,
2004 and 2003, and for each of the years in the three-year period ended December
31, 2004, and the unaudited financial information for each of the quarterly
periods in 2004 and 2003.
For the two most recent fiscal years ended December 31, 2005 and 2004 and
through March 14, 2006, there were no disagreements between the Company and KPMG
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of KPMG LLP, would have caused KPMG LLP to make reference to
the subject matter of the disagreement in connection with its report or
reportable events, except that KPMG LLP advised the Company of the material
weaknesses described above.
The Company requested that KPMG LLP furnish it with a letter addressed to the
SEC stating whether or not it agrees with the above statements. A copy of that
letter, dated March 24, 2006, has been filed as Exhibit 16.1 to the Form 8-K/A
filed March 24, 2006.
The Company has been informed that representatives of KPMG LLP and Deloitte &
Touche LLP plan to attend the annual meeting. Such representatives will have the
opportunity to make a statement if they desire to do so and will be available to
respond to questions by the shareholders.
Fees Billed to the Company by KPMG LLP During 2005 and 2004
Audit Fees. Audit fees include fees paid by the Company to KPMG LLP in
connection with the annual audit of the Company's consolidated financial
statements, including its audit of internal controls over financial reporting,
and KPMG LLP's review of the Company's interim financial statements. Audit fees
also include fees for services performed by KPMG LLP that are closely related to
the audit and in many cases could only be provided by the Company's registered
public accounting firm. Such services include comfort letters and consents
related to registration statements filed with the Securities and Exchange
Commission and other capital-raising activities. The aggregate fees billed to
the Company by KPMG LLP for audit services rendered to the Company and its
subsidiaries for the years ended December 31, 2005 and December 31, 2004 were
$880,500 and $1,059,000, respectively.
Audit-Related Fees. Audit-related services include due diligence and audit
services related to mergers and acquisitions, accounting consultations, internal
control review, employee benefit plan audits and certain attest services. The
aggregate fees billed to the Company by KPMG LLP for audit-related services
rendered to the Company and its subsidiaries for the years ended December 31,
2005 and December 31, 2004 were $309,000 and $218,600, respectively.
Tax Fees. Tax fees include corporate tax compliance and counsel and advisory
services. The aggregate fees billed to the Company by KPMG LLP for the tax
related services rendered to the Company and its subsidiaries for the years
ended December 31, 2005 and December 31, 2004 were $43,470 and $104,600
respectively.
All Other Fees. For the years ended December 31, 2005 and 2004, KPMG LLP did not
bill any fees to the Company for any other services, other than those set forth
above.
The Audit Committee of the Board of Directors has considered whether the
provision of non-audit services by KPMG LLP is compatible with maintaining the
auditor's independence.
The Audit Committee has also adopted a formal policy concerning approval of
audit and non-audit services to be provided by the Company's registered public
accounting firm. The policy requires that all services that KPMG LLP, the
30
Company's registered public accounting firm, may provide to the Company,
including audit services and permitted audit-related and non-audit services, be
pre-approved by the committee. The Audit Committee approved all audit and
non-audit services provided by KPMG LLP during the year ended December 31, 2005
prior to KPMG performing such services.
PROXY SOLICITATION COSTS
The enclosed form of proxy is solicited on behalf of the Board of Directors of
the Company. The cost of solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling, and mailing this
proxy statement. Such solicitation will be made by mail and may also be made by
the Company's regular officers or employees personally or by telephone or
facsimile. The Company may reimburse brokers, custodians, and their nominees for
their expenses in sending proxies and proxy materials to beneficial owners.
FINANCIAL STATEMENTS AVAILABLE
A copy of the Company's 2005 Annual Report containing audited financial
statements accompanies this proxy statement. The annual report does not
constitute a part of the proxy solicitation material.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 may be obtained, without charge, by any shareholder to whom
this proxy statement is sent, upon written request to George T. Hicks,
Secretary, American Retirement Corporation, 111 Westwood Place, Suite 200,
Brentwood, Tennessee 37027.
The Company's Internet website is http://www.arclp.com. The Company makes
available free of charge through its website the Company's Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after it
electronically files or furnishes such materials to the Securities and Exchange
Commission. The Company also makes available through its website the charters of
each of the committees of the Board of Directors and the Company's Code of
Ethics for Senior Executive and Financial Officers. Information contained on the
Company's website is not part of this proxy statement.
DELIVERY OF SHAREHOLDER DOCUMENTS
The rules of the Securities and Exchange Commission allow the Company to send a
single copy of the proxy statement and annual report to shareholders to any
household at which two or more shareholders reside if the Company believes the
shareholders are members of the same family, unless the Company has received
contrary instructions from a shareholder. This process, known as "householding,"
reduces the volume of duplicate information received at your household and helps
reduce the Company's expenses. The rules apply to the Company's annual reports
and proxy statements. Each shareholder in the household will continue to receive
a separate proxy card.
If your shares are registered in your own name and you would like to receive
your own set of the Company's annual disclosure documents this year or in future
years, or if you share an address with another shareholder and together both of
you would like to receive only a single set of the Company's annual disclosure
documents, please contact the Company's corporate secretary by calling
615-221-2250 or writing to the Company at American Retirement Corporation, 111
Westwood Place, Suite 200, Brentwood, Tennessee 37027, Attention: Corporate
Secretary. If a bank, broker or other nominee holds your shares, please contact
your bank, broker or other nominee directly. The Company will deliver promptly
upon oral or written request a separate copy of the proxy statement or annual
report to shareholders to a shareholder at a shared address to which a single
copy of the documents was delivered.
31
APPENDIX A
----------
AMERICAN RETIREMENT CORPORATION
DIRECTOR NOMINATIONS POLICY
PURPOSE
The purpose of this Director Nominations Policy is to:
o Establish the process by which individuals qualified to become
members of the Board of Directors of American Retirement Corporation (the
"Company") are identified and recommended to the Board of Directors for
selection; and
o Establish the process by which director nominees may be submitted by
the shareholders of the Company and to further establish the process by which
such director nominees will be considered for selection by the Board of
Directors.
AUTHORITY AND RESPONSIBILITIES
The Nominating and Corporate Governance Committee of the Board of Directors of
the Company (the "Nominating Committee") shall:
o Identify individuals qualified to become members of the Board of
Directors consistent with criteria approved by the Board of Directors;
o Recommend for selection by the Board of Directors director nominees
for the next annual meeting of shareholders and, when necessary, director
nominees to fill any vacancies on the Board of Directors;
o Develop and implement any screening process deemed necessary or
appropriate to identify qualified candidates;
o Evaluate and consider candidates proposed by management, by any
director or by any shareholder, in accordance with procedures established by the
Nominating Committee from time to time;
o At least annually review with the Board of Directors the appropriate
skills and characteristics required of members of the Board of Directors, which
at a minimum will include professional integrity and sound judgment and
sufficient time available to devote to Board activities;
o At least annually review and determine any specific qualities or
skills that one or more directors must possess;
o As and to the extent the Nominating Committee deems appropriate,
exercise sole authority to retain and terminate any search firm to be used to
identify director candidates, including sole authority to approve the search
firm's fees and other retention terms;
o Conduct an annual evaluation of its own performance and report the
results of such evaluation to the Board of Directors;
o Annually review and assess the adequacy of this Director Nominations
Policy and recommend any proposed changes to the Board of Directors for
approval; and
o Perform any other activities consistent with this Director
Nominations Policy, the Company's Charter and Bylaws and applicable law as the
Nominating Committee or the Board of Directors deem appropriate.
A-1
SHAREHOLDER NOMINEES
The Nominating Committee will consider director candidates recommended by
shareholders of the Company. There are no differences in the manner in which the
Nominating Committee evaluates nominees for director based on whether the
nominee is recommended by a shareholder. A shareholder that desires for the
Nominating Committee to consider a nomination for director must comply with the
notice, timing and other requirements provided for in the Company's Bylaws.
A-2
Appendix B
----------
AMERICAN RETIREMENT CORPORATION
2006 STOCK INCENTIVE PLAN
B-1
TABLE OF CONTENTS
Section 1 Purpose........................................................................1
Section 2 Definitions....................................................................1
Section 3 Administration.................................................................4
Section 4 Shares Available For Awards....................................................5
Section 5 Eligibility....................................................................6
Section 6 Stock Options And Stock Appreciation Rights....................................6
Section 7 Restricted Shares And Restricted Share Units...................................7
Section 8 Performance Awards.............................................................9
Section 9 Other Stock-Based Awards.......................................................9
Section 10 Non-Employee Director And Outside Director Awards..............................9
Section 11 Provisions Applicable To Covered Officers And Performance Awards...............9
Section 12 Termination Of Employment.....................................................11
Section 13 Change In Control.............................................................11
Section 14 Amendment And Termination.....................................................11
Section 15 General Provisions............................................................12
Section 16 Term Of The Plan..............................................................14
B-2
AMERICAN RETIREMENT CORPORATION
2006 STOCK INCENTIVE PLAN
Section 1. Purpose.
This plan shall be known as the "American Retirement Corporation 2006
Stock Incentive Plan" (the "Plan"). The purpose of the Plan is to promote the
interests of American Retirement Corporation (the "Company") and its
shareholders by (i) attracting and retaining key officers, employees and
directors of, and consultants to, the Company and its Subsidiaries and
Affiliates; (ii) motivating such individuals by means of performance-related
incentives to achieve long-range performance goals; (iii) enabling such
individuals to participate in the long-term growth and financial success of the
Company; (iv) encouraging ownership of stock in the Company by such individuals;
and (v) linking their compensation to the long-term interests of the Company and
its shareholders. With respect to any awards granted under the Plan that are
intended to comply with the requirements of "performance-based compensation"
under Section 162(m) of the Code, the Plan shall be interpreted in a manner
consistent with such requirements.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by the Company, (ii) any entity in which the Company has a
significant equity interest, (iii) an affiliate of the Company, as defined in
Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any entity
in which the Company has at least twenty percent (20%) of the combined voting
power of the entity's outstanding voting securities, in each case as designated
by the Board as being a participating employer in the Plan.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Share Award, Restricted Share Unit, Performance Award, Other Stock-Based Award
or other award granted under the Plan, whether singly, in combination or in
tandem, to a Participant by the Committee (or the Board) pursuant to such terms,
conditions, restrictions and/or limitations, if any, as the Committee (or the
Board) may establish.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean, unless otherwise defined in the applicable Award
Agreement, (A) the Participant engages in material acts or omissions
constituting dishonesty or intentional wrongdoing or malfeasance which are
demonstrably injurious to the Company; (B) the Participant is convicted of a
felony involving fraud or dishonesty; or (C) the Participant materially fails to
satisfy the reasonable conditions and requirements of his employment with the
Company, and such breach or failure by its nature is incapable of being cured,
or such breach or failure remains uncured for more than 30 days following
receipt by the Participant of written notice from the Company specifying the
nature of the breach or failure and demanding the cure thereof. Notwithstanding
the generality of the foregoing, Good Cause shall not exist with respect to any
act or omission by a Participant who acted in good faith and in a manner he
reasonably believed to be in the best interest of the Company. Any determination
of Cause for purposes of the Plan or any Award shall be made by the Committee in
its sole discretion. Any such determination shall be final and binding on a
Participant.
(f) "Change in Control" shall mean, unless otherwise provided in the
applicable Award Agreement, the happening of one of the following:
(i) any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than the Company or a
wholly-owned Subsidiary thereof or any employee benefit plan of the
Company or any of its Subsidiaries, becomes the beneficial owner of the
Company's securities having 50% or more of the combined voting power of
the then outstanding securities of the Company that may be cast for the
B-3
election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business);
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sales of assets or
contested election, or any combination of the foregoing transactions, less
than a majority of the combined voting power of the then outstanding
securities of the Company or any successor corporation or entity entitled
to vote generally in the election of the directors of the Company or such
other corporation or entity after such transaction are held in the
aggregate by the holders of the Company's securities entitled to vote
generally in the election of directors of the Company immediately prior to
such transaction;
(iii) the consummation of a complete liquidation or dissolution of
the Company; or
(iv) during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of each director of
the Company first elected during such period was approved by a vote of at
least two-thirds of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Committee" shall mean a committee of the Board composed of not less
than two Non-Employee Directors, each of whom shall be (i) a "non-employee
director" for purposes of Exchange Act Section 16 and Rule 16b-3 thereunder,
(ii) an "outside director" for purposes of Section 162(m) and the regulations
promulgated under the Code, and (iii) "independent" within the meaning of the
listing standards of the NYSE.
(i) "Consultant" shall mean any consultant to the Company or its
Subsidiaries or Affiliates.
(j) "Covered Officer" shall mean at any date (i) any individual who, with
respect to the previous taxable year of the Company, was a "covered employee" of
the Company within the meaning of Section 162(m); provided, however, that the
term "Covered Officer" shall not include any such individual who is designated
by the Committee, in its discretion, at the time of any Award or at any
subsequent time, as reasonably expected not to be such a "covered employee" with
respect to the current taxable year of the Company and (ii) any individual who
is designated by the Committee, in its discretion, at the time of any Award or
at any subsequent time, as reasonably expected to be such a "covered employee"
with respect to the current taxable year of the Company or with respect to the
taxable year of the Company in which any applicable Award will be paid or
vested.
(k) "Director" shall mean a member of the Board.
(l) "Disability" shall mean, unless otherwise defined in the applicable
Award Agreement, a disability that would qualify as a total and permanent
disability under the Company's then current long-term disability plan.
(m) "Early Retirement" shall mean, unless otherwise provided in an Award
Agreement, retirement of a Participant from active employment with the Company
and any Subsidiary or Affiliate at such a time that the sum of the Participant's
age plus the number of years the Participant has been employed by the Company
equals 65, provided that the Participant has been employed by the Company for at
least ten consecutive years immediately prior to the date of retirement.
(n) "Effective Date" shall have the meaning provided in Section 16.1 of
the Plan.
(o) "Employee" shall mean a current or prospective officer or employee of
the Company or of any Subsidiary or Affiliate.
(p) "Equity Issuance" shall mean an issuance of Shares by the Company
following the Effective Date of this Plan in connection with a private or public
offering, including in connection with an acquisition, merger or similar
B-4
transaction, but excluding issuances of Shares under this Plan or in any other
compensatory transaction with an Employee or Consultant to the Company or its
Subsidiaries or Affiliates.
(q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(r) "Fair Market Value" with respect to the Shares, shall mean, for
purposes of a grant of an Award as of any date, (i) the reported closing sales
price of the Shares on the NYSE, or any other such market or exchange as is the
principal trading market for the Shares, on such date, or in the absence of
reported sales on such date, the closing sales price on the immediately
preceding date on which sales were reported or (ii) in the event there is no
public market for the Shares on such date, the fair market value as determined,
in good faith, by the Committee in its sole discretion, and for purposes of a
sale of a Share as of any date, the actual sales price on that date.
(s) "Good Reason" for a voluntary termination of employment by a
Participant shall exist where: (i) the Participant is assigned by the Company
duties inconsistent with the Participant's position, duties, responsibilities
and status (for compensation or other purposes) with the Company immediately
prior to a Change in Control of the Company, or the Participant is removed from
or not reelected to any of such positions, except in connection with the
termination of his employment; (ii) there is a reduction in the Participant's
rate of base salary or annual cash bonus opportunity; (iii) the Company changes
the principal location in which the Participant is required to perform services
outside a fifty (50) mile radius of such location without the Participant's
consent, except for required travel on the Company's business to an extent
substantially consistent with his previous business travel obligations; or (iv)
the Company has failed to obtain the assumption of the obligations contained in
this Plan by any successor as contemplated in Section 4.2 hereof. A termination
of employment by a Participant following a Change of Control shall be for Good
Reason if one of the occurrences specified in this paragraph shall have
occurred, notwithstanding that the Participant may have other reasons for
terminating employment, including employment by another entity which the
Participant desires to accept.
(t) "Incentive Stock Option" shall mean an option to purchase Shares from
the Company that is granted under Section 6 of the Plan and that is intended to
meet the requirements of Section 422 of the Code or any successor provision
thereto.
(u) "Non-Employee Director" shall mean a member of the Board who is not an
officer or employee of the Company or any Subsidiary or Affiliate.
(v) "Non-Qualified Stock Option" shall mean an option to purchase Shares
from the Company that is granted under Sections 6 or 10 of the Plan and is not
intended to be an Incentive Stock Option.
(w) "Normal Retirement" shall mean, unless otherwise defined in the
applicable Award Agreement, retirement of a Participant from active employment
with the Company or any of its Subsidiaries or Affiliates on or after such
Participant's 60th birthday.
(x) "NYSE" shall mean the New York Stock Exchange.
(y) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(z) "Option Price" shall mean the purchase price payable to purchase one
Share upon the exercise of an Option.
(aa) "Other Stock-Based Award" shall mean any Award granted under Sections
9 or 10 of the Plan.
(bb) "Outside Director" means, with respect to the grant of an Award, a
member of the Board then serving on the Committee.
(cc) "Participant" shall mean any Employee, Director, Consultant or other
person who receives an Award under the Plan.
(dd) "Performance Award" shall mean any Award granted under Section 8 of
the Plan.
B-5
(ee) "Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or other entity.
(ff) "Restricted Share" shall mean any Share granted under Sections 7, 8,
9 or 10 of the Plan and designated as such.
(gg) "Restricted Share Unit" shall mean any unit granted under Sections 7,
8, 9 or 10 of the Plan and designated as such.
(hh) "Retirement" shall mean Normal or Early Retirement.
(ii) "SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
(jj) "Section 16" shall mean Section 16 of the Exchange Act and the rules
promulgated thereunder and any successor provision thereto as in effect from
time to time.
(kk) "Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder and any successor provision thereto as in
effect from time to time.
(ll) "Shares" shall mean shares of the common stock, $0.01 par value, of
the Company.
(mm) "Stock Appreciation Right" or "SAR" shall mean a stock appreciation
right granted under Sections 6 or 10 of the Plan that entitles the holder to
receive, with respect to each Share encompassed by the exercise of such SAR, the
amount determined by the Committee and specified in an Award Agreement. In the
absence of such a determination, the holder shall be entitled to receive, with
respect to each Share encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Fair Market Value on the date
of grant.
(nn) "Subsidiary" shall mean any Person (other than the Company) of which
50% or more of its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company.
(oo) "Substitute Awards" shall mean Awards granted solely in assumption
of, or in substitution for, outstanding awards previously granted by a company
acquired by the Company or with which the Company combines.
Section 3. Administration.
3.1 Authority of Committee. The Plan shall be administered by a
Committee of not less than two Non-Employee Directors, who shall be appointed by
and serve at the pleasure of the Board; provided, however, with respect to
Awards to Non-Employee Directors, all references in the Plan to the Committee
shall be deemed to be references to the Board. The initial Committee shall be
the Compensation Committee of the Board. Subject to the terms of the Plan and
applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority in its discretion to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to a Participant; (iii) determine the
number of Shares to be covered by, or with respect to which payments, rights or
other matters are to be calculated in connection with Awards; (iv) determine the
timing, terms, and conditions of any Award; (v) accelerate the time at which all
or any part of an Award may be settled or exercised; (vi) determine whether, to
what extent, and under what circumstances Awards may be settled or exercised in
cash, Shares, other securities, other Awards or other property, or canceled,
forfeited or suspended and the method or methods by which Awards may be settled,
exercised, canceled, forfeited or suspended; (vii) determine whether, to what
extent, and under what circumstances cash, Shares, other securities, other
Awards, other property, and other amounts payable with respect to an Award shall
be deferred either automatically or at the election of the holder thereof or of
the Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) except to the extent
prohibited by Section 6.2, amend or modify the terms of any Award at or after
B-6
grant with the consent of the holder of the Award; (x) establish, amend, suspend
or waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (xi) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan, subject to the exclusive authority
of the Board under Section 14 hereunder to amend or terminate the Plan.
3.2 Committee Discretion Binding. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations, and other decisions
under or with respect to the Plan or any Award shall be within the sole
discretion of the Committee, may be made at any time and shall be final,
conclusive, and binding upon all Persons, including the Company, any Subsidiary
or Affiliate, any Participant and any holder or beneficiary of any Award.
3.3 Action by the Committee. The Committee shall select one of its
members as its Chairperson and shall hold its meetings at such times and places
and in such manner as it may determine. A majority of its members shall
constitute a quorum. All determinations of the Committee shall be made by not
less than a majority of its members. Any decision or determination reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The exercise of an Option or receipt of an Award shall be effective only
if an Award Agreement shall have been duly executed and delivered on behalf of
the Company following the grant of the Option or other Award. The Committee may
appoint a Secretary and may make such rules and regulations for the conduct of
its business, as it shall deem advisable.
3.4 Delegation. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers or managers of the Company or of
any Subsidiary or Affiliate, or to a Committee of such officers or managers, the
authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to or to cancel, modify or waive rights with respect
to, or to alter, discontinue, suspend or terminate Awards held by Participants
who are not officers or directors of the Company for purposes of Section 16 or
who are otherwise not subject to such Section.
3.5 No Liability. No member of the Board or Committee shall be liable
for any action taken or determination made in good faith with respect to the
Plan or any Award granted hereunder.
Section 4. Shares Available For Awards.
4.1 Shares Available. Subject to the provisions of Section 4.2 hereof,
the stock to be subject to Awards under the Plan shall be the Shares of the
Company and the maximum aggregate number of Shares with respect to which Awards
may be granted under the Plan shall be 4,000,000 (which includes 1,019,857
Shares with respect to which awards under the Company's 1997 Stock Incentive
Plan (the "1997 Plan") were authorized but not awarded), of which (i) the number
of Shares with respect to which Incentive Stock Options may be granted shall be
no more than 4,000,000 and (ii) Shares with respect to which Awards other than
Options and SARs may be granted shall be no more than 2,000,000. The aggregate
number of Shares with respect to which Awards may be granted under the Plan, and
the number of Shares with respect to which Awards other than Options and SARs
may be granted shall, upon the consummation of any Equity Issuance, increase
automatically by ten percent (10%) of the number of Shares issued in such Equity
Issuance; provided, that the maximum limit with respect to which Incentive Stock
Options may be granted shall not increase as a result of an Equity Issuance
without shareholder approval. Notwithstanding the foregoing and subject to
adjustment as provided in Section 4.2, the maximum number of Shares with respect
to which Awards may be granted under the Plan shall be increased by the number
of Shares with respect to which Options or other Awards were granted under the
1997 Plan as of the Effective Date of this Plan, but which terminate, expire
unexercised or are forfeited without the delivery of Shares under the terms of
the 1997 Plan after the effective date of this Plan. If, after the effective
date of the Plan, any Shares covered by an Award granted under this Plan, or to
which such an Award relates, are forfeited, or if such an Award otherwise
terminates, expires unexercised or is canceled without the delivery of Shares,
then the Shares covered by such Award, or to which such Award relates, or the
number of Shares otherwise counted against the aggregate number of Shares with
respect to which Awards may be granted, to the extent of any such forfeiture,
termination, expiration or cancellation, shall again become Shares with respect
to which Awards may be granted. Notwithstanding the foregoing and subject to
adjustment as provided in Section 4.2 hereof, no Participant may receive Options
or SARs under the Plan in any calendar year that, taken together, relate to more
than 200,000 Shares.
4.2 Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
B-7
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee, in its sole discretion, to be
appropriate, then the Committee shall, in such manner as it may deem equitable
(and, with respect to Incentive Stock Options, in such manner as is consistent
with Section 422 of the Code and the regulations thereunder and with respect to
Awards to Covered Officers, in such a manner as is consistent with Section
162(m)): (i) adjust any or all of (1) the aggregate number of Shares or other
securities of the Company or its successor (or number and kind of other
securities or property) with respect to which Awards may be granted under the
Plan; (2) the number of Shares or other securities of the Company or its
successor (or number and kind of other securities or property) subject to
outstanding Awards under the Plan; (3) the grant or exercise price with respect
to any Award under the Plan, provided that the number of Shares subject to any
Award shall always be a whole number; and (4) the limits on the number of Shares
that may be granted to Participants under the Plan in any calendar year; (ii) if
deemed appropriate, subject to Section 13, provide for an equivalent award in
respect of securities of the surviving entity of any merger, consolidation or
other transaction or event having a similar effect; or (iii) if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award.
4.3 Substitute Awards. Any Shares issued by the Company as Substitute
Awards in connection with the assumption or substitution of outstanding grants
from any acquired corporation shall not reduce the Shares available for Awards
under the Plan.
4.4 Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of issued Shares which have been reacquired by the Company.
Section 5. Eligibility.
Any Employee, Director or Consultant shall be eligible to be designated a
Participant; provided, however, that Non-Employee Directors shall only be
eligible to receive Awards granted consistent with Section 10.
Section 6. Stock Options And Stock Appreciation Rights.
6.1 Grant. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Participants to whom Options
and SARs shall be granted, the number of Shares subject to each Award, the
exercise price and the conditions and limitations applicable to the exercise of
each Option and SAR. An Option may be granted with or without a related SAR. An
SAR may be granted with or without a related Option. The Committee shall have
the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock
Options, or to grant both types of Options. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and comply
with such rules as may be prescribed by Section 422 of the Code, as from time to
time amended, and any regulations implementing such statute. A person who has
been granted an Option or SAR under this Plan may be granted additional Options
or SARs under the Plan if the Committee shall so determine; provided, however,
that to the extent the aggregate Fair Market Value (determined at the time the
Incentive Stock Option is granted) of the Shares with respect to which all
Incentive Stock Options are exercisable for the first time by an Employee during
any calendar year (under all plans described in subsection (d) of Section 422 of
the Code of the Employee's employer corporation and its parent and Subsidiaries)
exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options.
6.2 Price. The Committee in its sole discretion shall establish the
Option Price at the time each Option is granted. Except in the case of
Substitute Awards, the Option Price of an Option may not be less than one
hundred percent (100%) of the Fair Market Value of the Shares with respect to
which the Option is granted on the date of grant of such Option. Notwithstanding
the foregoing and except as permitted by the provisions of Section 4.2 and
Section 14 hereof, the Committee shall not have the power to (i) amend the terms
of previously granted Options to reduce the Option Price of such Options, or
(ii) cancel such Options and grant substitute Options with a lower Option Price
than the cancelled Options. Except with respect to Substitute Awards, SARs may
not be granted at a price less than the Fair Market Value of a Share on the date
of grant.
6.3 Term. Subject to the Committee's authority under Section 3.1 and the
provisions of Section 6.6, each Option and SAR and all rights and obligations
thereunder shall expire on the date determined by the Committee and specified in
B-8
the Award Agreement. The Committee shall be under no duty to provide terms of
like duration for Options or SARs granted under the Plan. Notwithstanding the
foregoing, no Option or SAR shall be exercisable after the expiration of ten
(10) years from the date such Option or SAR was granted.
6.4 Exercise.
(a) Each Option and SAR shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter. The
Committee shall have full and complete authority to determine, subject to
Section 6.6 herein, whether an Option or SAR will be exercisable in full
at any time or from time to time during the term of the Option or SAR, or
to provide for the exercise thereof in such installments, upon the
occurrence of such events and at such times during the term of the Option
or SAR as the Committee may determine.
(b) The Committee may impose such conditions with respect to the
exercise of Options, including without limitation, any relating to the
application of federal, state or foreign securities laws or the Code, as
it may deem necessary or advisable. The exercise of any Option granted
hereunder shall be effective only at such time as the sale of Shares
pursuant to such exercise will not violate any state or federal securities
or other laws.
(c) An Option or SAR may be exercised in whole or in part at any
time, with respect to whole Shares only, within the period permitted
thereunder for the exercise thereof, and shall be exercised by written
notice of intent to exercise the Option or SAR, delivered to the Company
at its principal office, and payment in full to the Company at the
direction of the Committee of the amount of the Option Price for the
number of Shares with respect to which the Option is then being exercised.
(d) Payment of the Option Price shall be made in cash or cash
equivalents, or, at the discretion of the Committee, (i) by transfer,
either actually or by attestation, to the Company of Shares that have been
held by the Participant for at least six (6) months (or such lesser period
as may be permitted by the Committee), valued at the Fair Market Value of
such Shares on the date of exercise (or next succeeding trading date, if
the date of exercise is not a trading date), together with any applicable
withholding taxes, such transfer to be upon such terms and conditions as
determined by the Committee, or (ii) by a combination of such cash (or
cash equivalents) and such Shares; provided, however, that the optionee
shall not be entitled to tender Shares pursuant to successive,
substantially simultaneous exercises of an Option or any other stock
option of the Company. Subject to applicable securities laws and Company
policy, the Company may permit an Option to be exercised by delivering a
notice of exercise of the Option and simultaneously selling the Shares
thereby acquired, pursuant to a brokerage or similar agreement approved in
advance by proper officers of the Company, using the proceeds of such sale
as payment of the Option Price, together with any applicable withholding
taxes. Until the optionee has been issued the Shares subject to such
exercise, he or she shall possess no rights as a shareholder with respect
to such Shares.
(e) At the Committee's discretion, the amount payable as a result
of the exercise of an SAR may be settled in cash, Shares or a combination
of cash and Shares. A fractional Share shall not be deliverable upon the
exercise of a SAR but a cash payment will be made in lieu thereof.
6.6 Ten Percent Stock Rule. Notwithstanding any other provisions in the
Plan, if at the time an Option is otherwise to be granted pursuant to the Plan,
the optionee or rights holder owns directly or indirectly (within the meaning of
Section 424(d) of the Code) Shares of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of Stock of the
Company or its parent or Subsidiary or Affiliate corporations (within the
meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option to be
granted to such optionee or rights holder pursuant to the Plan shall satisfy the
requirement of Section 422(c)(5) of the Code, and the Option Price shall be not
less than one hundred ten percent (110%) of the Fair Market Value of the Shares
of the Company, and such Option by its terms shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.
B-9
Section 7. Restricted Shares And Restricted Share Units.
7.1 Grant.
(a) Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Participants to whom
Restricted Shares and Restricted Share Units shall be granted, the number
of Restricted Shares and/or the number of Restricted Share Units to be
granted to each Participant, the duration of the period during which, and
the conditions under which, the Restricted Shares and Restricted Share
Units may be forfeited to the Company, and the other terms and conditions
of such Awards. The Restricted Share and Restricted Share Unit Awards
shall be evidenced by Award Agreements in such form as the Committee shall
from time to time approve, which agreements shall comply with and be
subject to the terms and conditions provided hereunder and any additional
terms and conditions established by the Committee that are consistent with
the terms of the Plan.
(b) Each Restricted Share and Restricted Share Unit Award made
under the Plan shall be for such number of Shares as shall be determined
by the Committee and set forth in the Award Agreement containing the terms
of such Restricted Share or Restricted Share Unit Award. Such agreement
shall set forth a period of time during which the grantee must remain in
the continuous employment of the Company in order for the forfeiture and
transfer restrictions to lapse. If the Committee so determines, the
restrictions may lapse during such restricted period in installments with
respect to specified portions of the Shares covered by the Restricted
Share or Restricted Share Unit Award. The Award Agreement may also, in the
discretion of the Committee, set forth performance or other conditions
that will subject the Shares to forfeiture and transfer restrictions. The
Committee may, at its discretion, waive all or any part of the
restrictions applicable to any or all outstanding Restricted Share and
Restricted Share Unit Awards.
7.2 Delivery of Shares and Transfer Restrictions. At the time of a
Restricted Share Award, a certificate representing the number of Shares awarded
thereunder shall be registered in the name of the grantee. Such certificate
shall be held by the Company or any custodian appointed by the Company for the
account of the grantee subject to the terms and conditions of the Plan, and
shall bear such a legend setting forth the restrictions imposed thereon as the
Committee, in its discretion, may determine. Unless otherwise provided in the
applicable Award Agreement, the grantee shall have all rights of a shareholder
with respect to the Restricted Shares, including the right to receive dividends
and the right to vote such Shares, subject to the following restrictions: (i)
the grantee shall not be entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any other restrictive
conditions set forth in the Award Agreement with respect to such Shares; (ii)
none of the Shares may be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of during such restricted period or until after
the fulfillment of any such other restrictive conditions; and (iii) except as
otherwise determined by the Committee at or after grant, all of the Shares shall
be forfeited and all rights of the grantee to such Shares shall terminate,
without further obligation on the part of the Company, unless the grantee
remains in the continuous employment of the Company for the entire restricted
period in relation to which such Shares were granted and unless any other
restrictive conditions relating to the Restricted Share Award are met. Unless
otherwise provided in the applicable Award Agreement, any Shares, any other
securities of the Company and any other property (except for cash dividends)
distributed with respect to the Shares subject to Restricted Share Awards shall
be subject to the same restrictions, terms and conditions as such Restricted
Shares.
7.3 Termination of Restrictions. At the end of the restricted period and
provided that any other restrictive conditions of the Restricted Share Award are
met, or at such earlier time as otherwise determined by the Committee, all
restrictions set forth in the Award Agreement relating to the Restricted Share
Award or in the Plan shall lapse as to the restricted Shares subject thereto,
and a stock certificate for the appropriate number of Shares, free of the
restrictions and restricted stock legend, shall be delivered to the Participant
or the Participant's beneficiary or estate, as the case may be.
7.4 Payment of Restricted Share Units. Each Restricted Share Unit shall
have a value equal to the Fair Market Value of a Share. Restricted Share Units
shall be paid in cash, Shares, other securities or other property, as determined
in the sole discretion of the Committee, upon the lapse of the restrictions
applicable thereto, or otherwise in accordance with the applicable Award
Agreement. Unless otherwise provided in the applicable Award Agreement, a
Participant shall receive dividend rights in respect of any vested Restricted
Stock Units at the time of any payment of dividends to shareholders on Shares.
The amount of any such dividend right shall equal the amount that would be
payable to the Participant as a shareholder in respect of a number of Shares
B-10
equal to the number of vested Restricted Stock Units then credited to the
Participant. Any such dividend right shall be paid in accordance with the
Company's payment practices as may be established from time to time and as of
the date on which such dividend would have been payable in respect of
outstanding Shares. No dividend equivalents shall be paid in respect of
Restricted Share Units that are not yet vested. Except as otherwise determined
by the Committee at or after grant, Restricted Share Units may not be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of, and all Restricted Share Units and all rights of the grantee to such
Restricted Share Units shall terminate, without further obligation on the part
of the Company, unless the grantee remains in continuous employment of the
Company for the entire restricted period in relation to which such Restricted
Share Units were granted and unless any other restrictive conditions relating to
the Restricted Share Unit Award are met.
Section 8. Performance Awards.
8.1 Grant. The Committee shall have sole and complete authority to
determine the Participants who shall receive a Performance Award, which shall
consist of a right that is (i) denominated in cash or Shares (including but not
limited to Restricted Shares and Restricted Share Units), (ii) valued, as
determined by the Committee, in accordance with the achievement of such
performance goals during such performance periods as the Committee shall
establish, and (iii) payable at such time and in such form as the Committee
shall determine.
8.2 Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance goals
to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award, and may amend
specific provisions of the Performance Award; provided, however, that such
amendment may not adversely affect existing Performance Awards made within a
performance period commencing prior to implementation of the amendment.
8.3 Payment of Performance Awards. Performance Awards may be paid in a
lump sum or in installments following the close of the performance period or, in
accordance with the procedures established by the Committee, on a deferred
basis. Termination of employment prior to the end of any performance period,
other than for reasons of death or Disability, will result in the forfeiture of
the Performance Award, and no payments will be made. A Participant's rights to
any Performance Award may not be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of in any manner, except by
will or the laws of descent and distribution, and/or except as the Committee may
determine at or after grant.
Section 9. Other Stock-Based Awards.
The Committee shall have the authority to determine the Participants who
shall receive an Other Stock-Based Award, which shall consist of any right that
is (i) not an Award described in Section 6 or 7 above and (ii) an Award of
Shares or an Award denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, Shares (including, without
limitation, securities convertible into Shares), as deemed by the Committee to
be consistent with the purposes of the Plan. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine the terms and
conditions of any such Other Stock-Based Award.
Section 10. Non-Employee Director And Outside Director Awards. The Board may
provide that all or a portion of a Non-Employee Director's annual retainer,
meeting fees and/or other awards or compensation as determined by the Board, be
payable (either automatically or at the election of a Non-Employee Director) in
the form of Non-Qualified Stock Options, Restricted Shares, Restricted Share
Units, SARs and/or Other Stock-Based Awards, including unrestricted Shares. The
Board shall determine the terms and conditions of any such Awards, including the
terms and conditions which shall apply upon a termination of the Non-Employee
Director's service as a member of the Board, and shall have full power and
authority in its discretion to administer such Awards, subject to the terms of
the Plan and applicable law.
Section 11. Provisions Applicable To Covered Officers And Performance Awards.
11.1 Notwithstanding anything in the Plan to the contrary, unless the
Committee determines that a Performance Award to be granted to a Covered Officer
should not qualify as "performance-based compensation" for purposes of Section
B-11
162(m), Performance Awards granted to Covered Officers shall be subject to the
terms and provisions of this Section 11.
11.2 The Committee may grant Performance Awards to Covered Officers based
solely upon the attainment of performance targets related to one or more
performance goals selected by the Committee from among the goals specified
below. For the purposes of this Section 11, performance goals shall be limited
to one or more of the following Company, Subsidiary, operating unit, business
segment or division financial performance measures:
(a) earnings before interest, taxes, depreciation, amortization
and/or rent;
(b) net operating income or profit (including or excluding entry
fee income);
(c) operating efficiencies (including but not limited to same
store sales and occupancy rates);
(d) return on equity, assets, capital, capital employed or
investment;
(e) after tax or pre-tax operating income;
(f) net income;
(g) earnings or book value per Share (or fully diluted Share);
(h) cash flow(s), operating cash flow(s), cash earnings or net
resale cash flow;
(i) total sales or revenues (including those from specified
sources such as entry fee sales);
(j) capital expenditures or enterprise value;
(k) stock price or total shareholder return;
(l) dividends;
(m) debt reduction;
(n) strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business
expansion goals (such as net move-ins) and goals relating to
acquisitions or divestitures; or
(o) any combination thereof.
Each goal may be expressed on an absolute and/or relative basis, may be based on
or otherwise employ comparisons based on internal targets, the past performance
of the Company or any Subsidiary, operating unit (such as the Company's
communities), business segment or division of the Company (whether or not
consolidated and whether or not created solely for performance measurement
purposes) and/or the past or current performance of other companies, and in the
case of earnings-based measures, may use or employ comparisons relating to
capital, shareholders' equity and/or Shares outstanding, or to assets or net
assets. The Committee may appropriately adjust any evaluation of performance
under criteria set forth in this Section 11.2 to exclude any of the following
events that occurs during a performance period: (i) asset write-downs, (ii)
litigation or claim judgments or settlements, (iii) the effect of changes in tax
law, accounting principles or other such laws or provisions affecting reported
results, (iv) accruals for reorganization and restructuring programs and (v) any
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management's discussion and analysis of financial
condition and results of operations appearing in the Company's annual report to
shareholders for the applicable year.
11.3 With respect to any Covered Officer, the maximum annual number of
Shares in respect of which all Performance Awards may be granted under Section 8
of the Plan is 300,000 and the maximum amount of all Performance Awards that are
settled in cash and that may be granted under Section 8 of the Plan in any year
is $3,000,000.
B-12
11.4 To the extent necessary to comply with Section 162(m), with respect
to grants of Performance Awards, no later than 90 days following the
commencement of each performance period (or such other time as may be required
or permitted by Section 162(m) of the Code), the Committee shall, in writing,
(1) select the performance goal or goals applicable to the performance period,
(2) establish the various targets and bonus amounts which may be earned for such
performance period, and (3) specify the relationship between performance goals
and targets and the amounts to be earned by each Covered Officer for such
performance period. Following the completion of each performance period, the
Committee shall certify in writing whether the applicable performance targets
have been achieved and the amounts, if any, payable to Covered Officers for such
performance period. In determining the amount earned by a Covered Officer for a
given performance period, subject to any applicable Award Agreement, the
Committee shall have the right to reduce (but not increase) the amount payable
at a given level of performance to take into account additional factors that the
Committee may deem relevant in its sole discretion to the assessment of
individual or corporate performance for the performance period.
11.5 Unless otherwise expressly stated in the relevant Award Agreement,
each Award granted to a Covered Officer under the Plan is intended to be
performance-based compensation within the meaning of Section 162(m).
Accordingly, unless otherwise determined by the Committee, if any provision of
the Plan or any Award Agreement relating to such an Award does not comply or is
inconsistent with Section 162(m), such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee discretion to increase
the amount of compensation otherwise payable to a Covered Officer in connection
with any such Award upon the attainment of the performance criteria established
by the Committee.
Section 12. Termination Of Employment.
The Committee shall have the full power and authority to determine the
terms and conditions that shall apply to any Award upon a termination of
employment with the Company, its Subsidiaries and Affiliates, including a
termination by the Company with or without Cause, by a Participant voluntarily,
or by reason of death, Disability, Early Retirement or Retirement, and may
provide such terms and conditions in the Award Agreement or in such rules and
regulations as it may prescribe.
Section 13. Change In Control.
Notwithstanding any other provision of the Plan, unless otherwise provided
in an Award Agreement or other contractual agreement between the Company and a
Participant, if, within eighteen (18) months following a Change in Control, a
Participant's employment with the Company (or its successor) is terminated by
reason of the Participant's (a) death; (b) disability; (c) Retirement or Early
Retirement; (d) termination for Good Reason by the Participant; or (e)
involuntary termination by the Company for any reason other than for Cause, all
Awards of such Participant outstanding as of the date of the Change in Control
shall vest, become immediately exercisable and payable and have all restrictions
lifted.
Section 14. Amendment And Termination.
14.1 Amendments to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement for which or with which the Board
deems it necessary or desirable to comply.
14.2 Amendments to Awards. Subject to the restrictions of Section 6.2, the
Committee may waive any conditions or rights under, amend any terms of or alter,
suspend, discontinue, cancel or terminate, any Award theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
materially and adversely affect the rights of any Participant or any holder or
beneficiary of any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary.
B-13
14.3 Adjustments of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4.2 hereof) affecting the Company, any Subsidiary or
Affiliate, or the financial statements of the Company or any Subsidiary or
Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
14.4 Cancellation and Rescission of Awards. The Committee may cancel,
rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid,
or deferred Awards at any time if the Participant is not in compliance with all
applicable provisions of the Award Agreement and the Plan, or if the Participant
engages in any "Detrimental Activity." For purposes of this Section 14.4,
"Detrimental Activity" shall mean: (i) activity that results in termination of
the Participant's employment for Cause; (ii) a willful violation of any rules,
policies, procedures or guidelines of the Company that is materially injurious
to the Company or its Subsidiaries or Affiliates; (iii) the Participant being
convicted of a felony, or engaged in misconduct, which is materially injurious
to the Company, monetarily or to its reputation or otherwise, or which would
damage the Participant's ability to effectively perform his or her duties. The
Committee may provide in an Award Agreement that if during the period beginning
on the grant date of an Award and continuing through a date that is five years
following the later of the exercise or vesting of such Award, the Participant
engages in an activity referred to in the preceding sentence, the Participant
shall forfeit any gain realized on the vesting or exercise of the Award and must
repay such gain to the Company.
Section 15. General Provisions.
15.1 Limited Transferability of Awards. Except as otherwise provided in
the Plan, no Award shall be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant, except by will or the laws
of descent and distribution and/or as may be provided by the Committee in its
discretion, at or after grant, in the Award Agreement or otherwise. No transfer
of an Award by will or by laws of descent and distribution shall be effective to
bind the Company unless the Company shall have been furnished with written
notice thereof and an authenticated copy of the will and/or such other evidence
as the Committee may deem necessary or appropriate to establish the validity of
the transfer.
15.2 Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award may provide the Participant with dividends or dividend
equivalents, payable in cash, Shares, other securities or other property on a
current or deferred basis. All dividend or dividend equivalents which are not
paid currently may, at the Committee's discretion, accrue interest, be
reinvested into additional Shares, or, in the case of dividends or dividend
equivalents credited in connection with Performance Awards, be credited as
additional Performance Awards and paid to the Participant if and when, and to
the extent that, payment is made pursuant to such Award. The total number of
Shares available for grant under Section 4 shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional Shares or
credited as Performance Awards.
15.3. Compliance with Section 409A of the Code. No Award (or modification
thereof) shall provide for deferral of compensation that does not comply with
Section 409A of the Code unless the Committee, at or after the time of grant,
specifically provides that the Award is not intended to comply with Section 409A
of the Code. Notwithstanding any provision of this Plan to the contrary, if one
or more of the payments or benefits received or to be received by a Participant
pursuant to an Award would cause the Participant to incur any additional tax or
interest under Section 409A of the Code, the Committee may reform such provision
to maintain to the maximum extent practicable the original intent of the
applicable provision without violating the provisions of Section 409A of the
Code.
15.4 No Rights to Awards. No Person shall have any claim to be granted any
Award, and there is no obligation for uniformity of treatment of Participants or
holders or beneficiaries of Awards. The terms and conditions of Awards need not
be the same with respect to each Participant.
15.5 Share Certificates. All certificates for Shares or other securities
of the Company or any Subsidiary or Affiliate delivered under the Plan pursuant
to any Award or the exercise thereof shall be subject to such stop transfer
B-14
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations and other requirements of the SEC or any state
securities commission or regulatory authority, any stock exchange or other
market upon which such Shares or other securities are then listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
15.6 Withholding. A Participant may be required to pay to the Company or
any Subsidiary or Affiliate and the Company or any Subsidiary or Affiliate shall
have the right and is hereby authorized to withhold from any Award, from any
payment due or transfer made under any Award or under the Plan, or from any
compensation or other amount owing to a Participant the amount (in cash, Shares,
other securities, other Awards or other property) of any applicable withholding
or other tax-related obligations in respect of an Award, its exercise or any
other transaction involving an Award, or any payment or transfer under an Award
or under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the collection or payment
of such taxes. The Committee may provide for additional cash payments to holders
of Options to defray or offset any tax arising from the grant, vesting, exercise
or payment of any Award.
15.7 Award Agreements. Each Award hereunder shall be evidenced by an Award
Agreement that shall be delivered to the Participant and may specify the terms
and conditions of the Award and any rules applicable thereto. In the event of a
conflict between the terms of the Plan and any Award Agreement, the terms of the
Plan shall prevail. The Committee shall, subject to applicable law, determine
the date an Award is deemed to be granted. The Committee or, except to the
extent prohibited under applicable law, its delegate(s) may establish the terms
of agreements or other documents evidencing Awards under this Plan and may, but
need not, require as a condition to any such agreement's or document's
effectiveness that such agreement or document be executed by the Participant,
including by electronic signature or other electronic indication of acceptance,
and that such Participant agree to such further terms and conditions as
specified in such agreement or document. The grant of an Award under this Plan
shall not confer any rights upon the Participant holding such Award other than
such terms, and subject to such conditions, as are specified in this Plan as
being applicable to such type of Award (or to all Awards) or as are expressly
set forth in the agreement or other document evidencing such Award.
15.8 No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Subsidiary or Affiliate from adopting or
continuing in effect other compensation arrangements, which may, but need not,
provide for the grant of Options, SARs, Restricted Shares, Restricted Share
Units, Other Stock-Based Awards or other types of Awards provided for hereunder.
15.9 No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Subsidiary or Affiliate. Further, the Company or a Subsidiary or Affiliate
may at any time dismiss a Participant from employment, free from any liability
or any claim under the Plan, unless otherwise expressly provided in an Award
Agreement.
15.10 No Rights as Shareholder. Subject to the provisions of the Plan and
the applicable Award Agreement, no Participant or holder or beneficiary of any
Award shall have any rights as a shareholder with respect to any Shares to be
distributed under the Plan until such person has become a holder of such Shares.
Notwithstanding the foregoing, in connection with each grant of Restricted
Shares hereunder, the applicable Award Agreement shall specify if and to what
extent the Participant shall not be entitled to the rights of a shareholder in
respect of such Restricted Shares.
15.11 Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Tennessee without giving
effect to conflicts of laws principles.
15.12 Severability. If any provision of the Plan or any Award is, or
becomes, or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
B-15
15.13 Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation (including
applicable non-U.S. laws or regulations) or entitle the Company to recover the
same under Exchange Act Section 16(b), and any payment tendered to the Company
by a Participant, other holder or beneficiary in connection with the exercise of
such Award shall be promptly refunded to the relevant Participant, holder or
beneficiary.
15.14 No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Subsidiary or Affiliate and a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company or any Subsidiary or Affiliate pursuant to
an Award, such right shall be no greater than the right of any unsecured general
creditor of the Company or any Subsidiary or Affiliate.
15.15 No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities or other property shall be paid or transferred in
lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated or otherwise eliminated.
15.16 Headings. Headings are given to the sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 16. Term Of The Plan.
16.1 Effective Date. The Plan shall be effective as of May 17, 2006
provided it has been approved by the Board and by the Company's shareholders.
16.2 Expiration Date. No new Awards shall be granted under the Plan after
the tenth (10th) anniversary of the Effective Date. Unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted
hereunder may, and the authority of the Board or the Committee to amend, alter,
adjust, suspend, discontinue or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after the tenth (10th)
anniversary of the Effective Date.
B-16
[PLEASE SEE SUPPLEMENTAL PDF OF PROXY CARD ATTACHED]
[CONTENT BELOW REPRESENTS PROXY CARD]
ARC
AMERICAN RETIREMENT
CORPORATION
111 WESTWOOD PLACE
SUITE 200
BRENTWOOD, TN 37027
IMPORTANT NOTICE REGARDING DELIVERY
OF SECURITY HOLDER DOCUMENTS (HH)
AUTO DATA PROCESSING
INVESTOR COMM SERVICES
ATTENTION:
TEST PRINT
51 MERCEDES WAY
EDGEWOOD, NY
11717
VOTE BY INTERNET - www.proxyvote.com
Use the internet to transmit your voting instructions and for
electronic delivery of information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting date. Have your proxy
card in had when you access the web site and follow the instructions to obtain
your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by American Retirement
Corporation in mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically via e-mail
or the internet. To sign up for electronic delivery, please follow the
instructions above to vote using the internet and, when prompted, indicate
that you agree to receive or access shareholder communications electronically
in future years.
VOTE BY PHONE -1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it to American Retirement
Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
123,456,789,012.00000
--->[000000000000]
A/C 1234567890123456789
Page 1 of 2
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS
---------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
===================================================================================================
AMERICAN RETIREMENT CORPORATION 02 0000000000 215168033269
The board of directors recommends that the
shareholders vote "FOR" all of the director
nominees and "FOR" the approval of the
American Retirement Corporation 2006
Stock Incentive Plan.
FOR WITHHOLD FOR ALL To withhold authority to vote for any
ALL FOR ALL EXCEPT individual nominee(s), mark "FOR ALL EXCEPT"
and write the nominee's name on the line below.
[ ] [ ] [ ]
-----------------------------------------------
VOTE ON DIRECTORS
1. Election of Directors: to elect three Class III directors to
serve a term of three years;
01) John C. McCauley, 02) James R. Seward, 03) W.E. Sheriff
VOTE ON PROPOSAL FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Approval of the American Retirement Corporation 2006 Stock Incentive Plan.
3. To transact such other business as may properly come before the meeting.
Shareholder of record at the close of business on March 29, 2006 are entitled to notice of and to vote at the meeting
and any adjournment or postponement thereof.
You can ensure that these shares of common stock are voted at the annual meeting by signing and dated the enclosed proxy and
returning it in the envelope provided. Sending in a signed proxy will not affect your rights to attend the annual meeting
and vote in person. Whether or not you plan to attend, we urge you to sign and date the enclosed proxy and return it promptly
in the envelope provided.
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
For address changes, please check this box and write
them on the back where indicated. [ ] AUTO DATA PROCESSING
INVESTOR COMM SERVICES
ATTENTION:
TEST PRINT
51 MERCEDES WAY
EDGEWOOD, NY
11717
HOUSEHOLDING ELECTION - Please indicate if you
consent to receive certain future investor YES NO
communications in a single package per household [ ] [ ] 123,456,789,012
028913101
35
| |
---------------------------------------------- ---------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date P29859 Signature [JOINT OWNERS] Date
ANNUAL MEETING OF SHAREHOLDERS OF
AMERICAN RETIREMENT CORPORATION
MAY 17, 2006
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON
AS POSSIBLE.
\/ Please detach along perforated line and mail in the envelope provided. \/
--------------------------------------------------------------------------------
PROXY PROXY
AMERICAN RETIREMENT CORPORATION
This proxy is solicited by the Board of Directors for the Annual
Meeting of Shareholders of American Retirement Corporation
(the "Company") to be held on May 17, 2006.
The undersigned hereby appoints W.E. Sheriff and George T. Hicks, and each
of them, as proxies, with full power of substitution, to vote all shares of the
undersigned as shown on the reverse side of this proxy at the Annual Meeting of
Shareholders of the Company to be held at the Embassy Suites Hotel, Nashville
South, 820 Cresent Centre Drive, Franklin, Tennessee 37067, on Wednesday, May
17, 2006 at 11:00 a.m., central time, and any adjournments thereof.
THESE SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NOT
CHOICE IS SPECIFIED, SHARES WILL BE VOTED "FOR" THE ELECTION OF ALL OF THE
DIRECTOR NOMINEES AND "FOR" THE APPROVAL OF THE AMERICAN RETIREMENT CORPORATION
2006 STOCK INCENTIVE PLAN.
--------------------------------------------------------------------------------
ADDRESS CHANGES:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(If you noted any Address Changes, above, please mark corresponding box on the
reverse side.)
(PLEASE DATE AND SIGH THIS PROXY ON THE REVERSE SIDE.)
--------------------------------------------------------------------------------