<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
American Retirement Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
<PAGE> 2
AMERICAN RETIREMENT CORPORATION
111 WESTWOOD PLACE, SUITE 402
BRENTWOOD, TENNESSEE 37027
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
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 Loews Vanderbilt Plaza Hotel,
2100 West End Avenue, Nashville, Tennessee, on Wednesday, May 12, 1999, at 11:00
a.m., local time, for the following purposes:
1. To elect four Class II directors to serve for a term of three
years;
2. To consider and vote upon an amendment to the company's
corporate charter to increase the number of shares of common
stock the company is authorized to issue from 50 million to 200
million;
3. To consider and vote upon the company's 1997 Stock Incentive
Plan, as amended to increase the number of shares of common
stock reserved and authorized for issuance pursuant to the plan,
to increase the number of shares of common stock that may be
issued under the plan pursuant to "incentive stock options," and
to increase the maximum number of shares of common stock that
may be issued to certain employees under the plan in any single
fiscal year; and
4. To transact such other business as may properly come before the
meeting.
Each of the matters to be considered at the annual meeting is more fully
described in the attached proxy statement.
Shareholders of record at the close of business on March 24, 1999 are
entitled to notice of and to vote at the meeting and any adjournment or
postponement.
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,
GEORGE T. HICKS
SECRETARY
Brentwood, Tennessee
March 31, 1999
<PAGE> 3
AMERICAN RETIREMENT CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
This proxy statement contains information related to the annual
meeting of shareholders of American Retirement Corporation 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 March 31, 1999.
At the annual meeting, shareholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of four
Class II directors, consideration of an amendment to the company's corporate
charter to increase the number of shares of common stock the company is
authorized to issue, and consideration of the company's 1997 Stock Incentive
Plan, as amended. In addition, the company's management will report on the
performance of the company during fiscal 1998 and respond to questions from
shareholders.
Shareholders of record on the record date, March 24, 1999, 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, 17,118,385 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 other
than the 1997 Stock Incentive Plan. Broker non-votes will not be counted as
present for purposes of determining a quorum to consider the 1997 Stock
Incentive 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. The amendment to the
company's corporate charter and the stock incentive 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. Abstentions and broker
non-votes will not be counted as votes for or against any director nominee or
the amendment to the company's charter. Pursuant to the rules of the New York
Stock Exchange, however, abstentions will have the effect of a vote against the
1997 Stock Incentive Plan. Broker non-votes will not be counted as votes for or
against the 1997 Stock Incentive Plan.
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 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.
<PAGE> 4
PROPOSAL ONE: 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. The current board of
directors is comprised of 12 members. At each annual meeting of shareholders,
directors comprising one class are elected for a three-year term. The terms of
the four Class II directors will expire at the annual meeting. The board of
directors has nominated Frank M. Bumstead, Clarence Edmonds, Robert G. Roskamp,
and Nadine C. Smith, all of whom are currently serving as directors of the
company, to be reelected to serve until the annual meeting of shareholders in
2002 and until their successors are duly elected and qualified. The terms of the
Class I and Class III directors will expire at the annual meeting in 2001 and
2000, 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 II directors and with respect to the Class I and
Class III directors (who are not being elected at the annual meeting) is set
forth below.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" ALL OF THE
DIRECTOR NOMINEES.
<TABLE>
<CAPTION>
Name Age Principal Occupation/Directorships Director Since
- ---- --- ---------------------------------- --------------
<S> <C> <C> <C>
DIRECTOR NOMINEES
Class II Directors
(Terms Expire 2002)
Frank M. Bumstead 57 Since 1989, Mr. Bumstead has been president and a principal 1997
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 vice chairman and a director of Response Oncology, Inc., a physician
practice management company specializing in oncology, and a director
of TBA Entertainment, Inc., an entertainment marketing and artist
management company. He is also a director of Syntroleum
Corporation, a natural gas processor and real estate company.
Mr. Bumstead also serves as a director, secretary, and treasurer of
Imprint Records, Inc., a music recording company.
Clarence Edmonds 65 Mr. Edmonds has served as a director of the company since its 1997
inception and as a director of various of the company's predecessors
since 1987. Mr. Edmonds has served in various capacities, including
vice president and treasurer, of Massey Company, an investment
services firm, since 1969. Mr. Edmonds is a certified public
accountant.
Robert G. Roskamp 60 Mr. Roskamp is president of Roskamp Management Company, LLC, a 1998
manager and developer of senior living communities. Mr. Roskamp
has served as a consultant to the company since July 1998. Prior to
July 1998, Mr. Roskamp served as chief executive officer and chairman
of the board of Freedom Group, Inc., which was acquired by the
company in July 1998.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Nadine C. Smith 41 Since 1997, Ms. Smith has been president and chief executive officer of 1997
Enidan Capital Corporation, the general partner of Enidan Capital
Partners, L.P., an investment company that makes equity investments in
public and privately-held companies. Prior to co-founding Enidan, Ms.
Smith was managing general partner of NC Smith & Co., a financial
and management consulting firm, from 1990 to 1997. Ms. Smith is a
director of UTI Energy Corp., a contract drilling company, and also
serves on the boards of several privately-held companies.
CONTINUING DIRECTORS
Class I Directors
(Terms Expire 2001)
Jack O. Bovender, Jr. 53 Mr. Bovender has been president and chief operating officer of 1997
Columbia/HCA Healthcare Corporation since August 1997. From
March 1994 to August 1997, Mr. Bovender was retired. Prior to
March 1994, Mr. Bovender worked for Hospital Corporation of
America, a predecessor to Columbia/HCA, for over 18 years in various
capacities, including executive vice president and chief operating
officer. Mr. Bovender is a director of America Service Group, Inc., a
provider of managed health care services to correctional facilities.
Christopher J. Coates 48 Mr. Coates has served as president and chief operating officer of the 1998
company and its predecessors since January 1993. From 1988 to 1993,
Mr. Coates served as chairman of National Retirement company, a
senior living management company acquired by a subsidiary of the
Company in 1992. From 1985 to 1988, Mr. Coates was senior director
of the Retirement Housing Division of Radice Corporation, following
that company's purchase in 1985 of National Retirement Consultants, a
company formed by Mr. Coates.
Daniel K. O'Connell 70 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 1990, Mr. O'Connell worked for
Ryder System, Inc. for over 25 years in various capacities, including
legal counsel and chief financial officer.
Lawrence J. Stuesser 56 Since June 1996, Mr. Stuesser has been the president and chief 1997
executive officer and a director of Computer People, Inc., an
information technology professional services and staffing company and
a subsidiary of Delphi Group plc, of which Mr. Stuesser also serves as
a director. From August 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 chairman of the board of Curative Health Services, Inc., a
disease management company in the chronic wound care market, and a
director of IntegraMed America, Inc., a disease management company
in the assisted reproductive therapy market.
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Class III Directors
(Terms Expire 2000)
W.E. Sheriff 56 Mr. Sheriff has served as chairman and chief executive officer of the 1997
company and its predecessors since April 1984. Mr. Sheriff serves on
the boards of several privately-held companies and various educational
and charitable organizations. Mr. Sheriff also is a member of the
National Association for Senior Living Industries, the American
Association of Homes and Services for the Aging, and the American
Senior Housing Association.
H. Lee Barfield II 52 Mr. Barfield has served as a director of the company since its inception 1997
and as a director of various of the company's predecessors since 1978.
Mr. Barfield is a member in the law firm of Bass, Berry & Sims PLC,
the Company's outside general counsel, and has served in various
capacities for that firm since 1974.
Robin G. Costa 32 Since January 1998, Ms. Costa has served as president of Maddox 1997
Companies, a group of over 40 entities involved in oil and gas
exploration, real estate development and investment, and other
investments. Ms. Costa has served in various capacities for the
Maddox Companies since 1985, including as chief operating officer
from 1994 to January 1998 and secretary and treasurer from 1992 to
1994.
John A. Morris, Jr., M.D. 52 Dr. Morris has served in varying capacities of the medical profession 1997
since 1977 and is currently a Professor of Surgery and the Director of
the Division of Trauma and Surgical Critical Care at the Vanderbilt
University School of Medicine, the Medical Director of the Life Flight
Air Ambulance Program at Vanderbilt University Hospital, and an
Associate in the Department of Health Policy and Management at Johns
Hopkins University. Dr. Morris is also chairman of the board of Sirrom
Capital Corporation, a small business investment company.
</TABLE>
The board of directors holds regular quarterly meetings and meets on
other occasions when required by special circumstances. The board of directors
met seven times during 1998. 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, with the exception of Mr. Bovender.
The board of directors has standing executive, audit, and
compensation committees. The membership and functions of the committees are as
follows:
Executive Committee -- This committee is authorized generally to act
on behalf of the board of directors between scheduled meetings of the
board, subject to certain limitations established by the board and
applicable corporate law. Members of the executive committee are
Messrs. Bovender, Bumstead, Roskamp, and Sheriff and Dr. Morris. The
executive committee met six times during 1998.
Audit Committee -- This committee makes recommendations to the board
of directors with respect to the company's financial statements and
the appointment of independent accountants, reviews significant audit
and accounting policies and practices, meets with the company's
independent public accountants concerning, among other things, the
scope of audits and reports, reviews the performance of the overall
accounting and financial controls of the company, and oversees the
corporate
4
<PAGE> 7
compliance activities of the company. Members of the audit committee are
Messrs. Barfield and Edmonds and Ms. Costa. The audit committee met
three times during 1998.
Compensation Committee -- This committee has the responsibility for
reviewing and approving the salaries, bonuses, and other compensation
and benefits of executive officers, advising management regarding
benefits and other terms and conditions of compensation, and
administering the company's stock incentive, stock purchase, 401(k), and
other executive compensation plans. Members of the compensation
committee are Messrs. O'Connell and Stuesser and Ms. Smith. The
compensation committee met three times during 1998.
Mr. Roskamp was appointed as a director of the company in August 1998
pursuant to a Shareholder's Agreement between the company and Mr. Roskamp. Under
this agreement, the company has agreed to use its best efforts to cause Mr.
Roskamp or his designee to be recommended to the company's shareholders for
election as a director at each annual meeting at which Class II directors stand
for reelection for so long as Mr. Roskamp or his permitted transferees own
greater than 411,000 shares of common stock and the shares of common stock owned
by Mr. Roskamp and his affiliates constitute 1% or more of the outstanding
common stock.
COMPENSATION OF DIRECTORS
Directors who are employees of the company do not receive additional
compensation for serving as directors of the company. Non-employee directors are
entitled to an annual retainer of $12,000 payable, in arrears, on the date of
each annual meeting of shareholders. Non-employee directors are also entitled to
a fee of $500 for each board meeting attended and $250 for each committee
meeting attended that is not on the same day as a meeting of the board of
directors. All directors are entitled to reimbursement for their actual
out-of-pocket expenses incurred in connection with attending meetings.
In addition, non-employee directors receive options to purchase shares
of common stock pursuant to the company's 1997 Stock Incentive Plan. Options to
purchase 9,000 shares of common stock were automatically granted to each person
serving as a non-employee director of the company on the date of the company's
initial public offering. Any person who was not previously a member of the board
of directors and who is elected or appointed a non-employee director prior to
the date of the annual meeting of shareholders of the company in the year 2000
will automatically be granted an option to purchase 7,000 shares of common stock
if such non-employee director's service begins prior to May 30, 1999 and 5,000
shares of common stock if such non-employee director's service begins
thereafter. The board of directors may, in its discretion, increase or decrease
the number of shares subject to such option to reflect the extent to which such
non-employee director's expected service may exceed two years or may be less
than one year. Options granted to non-employee directors prior to the annual
meeting of shareholders in the year 2000 shall vest with respect to 5,000 shares
on the date of the first annual meeting of shareholders following the date of
grant, 2,000 shares on the date of the second annual meeting of shareholders
following the date of grant, and any remaining shares on the date of the third
annual meeting of shareholders following the date of grant.
On the date of each annual meeting of the shareholders of the company
beginning with the annual meeting of shareholders held in the year 2000, each
non-employee director who will continue as a director following such meeting
will receive an option to purchase 3,000 shares of common stock. Such options
will 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 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 such options
are ten years from the date of grant. The exercise price may be paid in cash,
shares of common stock, 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.
5
<PAGE> 8
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 four nominees for
director), each of the executive officers named in the Summary Compensation
Table beginning on page nine 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.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership(1)(2) Class%
- -------------------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
W.E. Sheriff 670,217(3) 3.9
Christopher J. Coates 272,727 1.6
George T. Hicks 176,665 1.0
H. Todd Kaestner 185,690 1.1
James T. Money 181,125 1.1
H. Lee Barfield II 627,577(4) 3.7
Jack O. Bovender, Jr. 7,000 *
Frank M. Bumstead 12,000 *
Robin G. Costa 1,387,037(5)(6) 8.1
Clarence Edmonds 372,073(7) 2.2
John A. Morris, Jr., M.D. 365,490(8) 2.1
Daniel K. O'Connell 27,000 *
Robert G. Roskamp 827,000 4.8
Nadine C. Smith 38,956 *
Lawrence J. Stuesser 74,547(9) *
Dresdner RCM Global Investors LLC 1,710,632(10)(11) 10.0
Capital Guardian Trust Company 1,516,000(10)(12) 8.9
DMAR Limited Partnership 1,372,037(5) 8.0
Wellington Management Company, LLP 1,093,750(10)(13) 6.4
Chartwell Investment Partners 1,032,754(10)(14) 6.0
Palisade Capital Management, L.L.C. 986,201(10)(15) 5.5
All directors and executive officers as a group (18 persons) 5,439,724 31.3
</TABLE>
- -------------------
* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares
of common stock that certain persons presently have the right to acquire
pursuant to the conversion provisions of the company's 5 3/4%
Convertible Subordinated Debentures Due 2002 ("conversion shares") are
deemed outstanding for the purpose of computing such person's percentage
ownership, but not deemed outstanding for the purpose of computing the
percentage ownership of the other persons shown in the table. Likewise,
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 Stock Incentive Plan
that the following persons are entitled to exercise within 60 days of
the date hereof: Mr. Sheriff, 40,000; Mr. Coates, 30,000; each of
Messrs. Hicks, Kaestner, and Money, 23,333; each of Messrs. Downs and
McKnight, 13,333; each of Mses. Costa and Smith, Dr. Morris, and Messrs.
Barfield, Bovender, Bumstead, Edmonds, O'Connell, and Stuesser, 7,000;
Mr. Roskamp, 5,000; and directors and executive officers as a group (18
persons), 234,665.
(3) Includes 331,353 shares, including 4,166 conversion shares, beneficially
owned by a family limited partnership in which Mr. Sheriff is a general
partner.
(4) Includes 2,916 conversion shares. Also includes 473,065 shares
beneficially owned by Mr. Barfield's wife, Mary Louise Frist Barfield.
(5) Address: 3833 Cleghorn Avenue, Suite 400, Nashville, Tennessee 37215.
(6) Includes 1,372,037 shares beneficially owned by DMAR Limited
Partnership. Ms. Costa is President of Margaret Energy, Inc., the
general partner of DMAR. Also includes an aggregate of 8,000 shares
beneficially owned by trusts as to which Ms. Costa exercises voting and
dispositive power.
(7) Includes 4,166 conversion shares, 335,888 shares owned by The Jack C.
Massey Foundation, of which Mr. Edmonds serves as a co-trustee, 5,000
shares beneficially owned by a trust of which Mr. Edmonds and his wife
serve as co-trustees and lifetime beneficiaries, and 20,019 shares
beneficially owned by Mr. Edmonds's wife. Mr. Edmonds disclaims
beneficial ownership of his wife's shares.
(8) All shares are beneficially owned by partnerships owned and controlled
by Dr. Morris, his brother, and other members of Dr. Morris's family.
(9) Includes 67,547 shares beneficially owned by a corporation, of which Mr.
Stuesser is a director and 50% shareholder.
(10) Based solely upon information set forth in a Schedule 13G filed with the
Securities and Exchange Commission.
6
<PAGE> 9
(11) Address: Four Embarcadero Center, San Francisco, California 94111.
Dresdner RCM, an investment advisor, reported that it has sole voting
power with respect to 1,396,132 shares of common stock, sole dispositive
power with respect to 1,686,032 shares, and shared dispositive power with
respect to 102,000 shares.
(12) Address: 11100 Santa Monica Boulevard, Los Angeles, California 90025.
Capital Guardian, a bank, reported that it has sole voting power with
respect to 1,474,000 shares of common stock and sole dispositive power
with respect to 1,516,000 shares.
(13) Address: 75 State Street, Boston, Massachusetts 02109. Wellington, an
investment adviser, reported that it has shared voting power with respect
to 355,333 shares of common stock and shared dispositive power with
respect to 1,093,750 shares.
(14) Address: 1235 Westlakes Drive, Suite 330, Berwyn, Pennsylvania 19312.
Chartwell Investment Partners is an investment advisor. Includes 673,501
conversion shares.
(15) Address: One Bridge Plaza, Suite 695, Fort Lee, New Jersey 07025.
Palisade Capital Management, L.L.C. is an investment advisor. Includes
673,501 conversion shares.
7
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid or accrued
by the company's predecessor, American Retirement Communities, L.P., during the
year ended December 31, 1996 and by the company during 1997 and 1998, including
amounts paid by the predecessor for the period from January 1, 1997 through May
29, 1997, 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").
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ---------------------------
--------------------------- Securities Underlying All Other
Name and Principal Positions Fiscal Year Salary($) Bonus($) Options(#) Compensation($)
- ------------------------------------ ----------- ------------- ------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
W.E. Sheriff, 1998 237,667 225,000(1) 90,000(2)
Chairman and Chief Executive 1997 221,500 -- 60,000 86,500
Officer 1996 212,400 30,515 -- 84,000
Christopher J. Coates, 1998 178,667 60,000 8,604(3)
President and Chief Operating 1997 168,000 15,000 45,000 8,549
Officer 1996 153,400 22,038 -- 11,033
George T. Hicks, 1998 130,000 42,000 6,146(3)
Executive Vice President - 1997 120,000 15,000 35,000 5,870
Finance, Chief Financial 1996 100,300 14,410 -- 7,214
Officer, Treasurer, and
Secretary
H. Todd Kaestner, 1998 140,000 42,000 6,658(3)
Executive Vice President - 1997 130,000 15,000 35,000 6,296
Corporate Development 1996 106,200 15,257 -- 7,637
James T. Money, 1998 126,667 42,000 6,146(3)
Executive Vice President - 1997 120,000 15,000 35,000 5,870
Development Services 1996 100,300 14,410 -- 7,214
</TABLE>
- -----------------
(1) Options with respect to 25,000 of these shares are contingent upon
shareholder approval of Proposal Three.
(2) Reflects insurance premiums paid by the company for insurance policies
benefiting Mr. Sheriff.
(3) Reflects contributions by the company under the company's Section 162
deferred compensation plan.
8
<PAGE> 11
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted in 1998 to the named executive officers. None of the named executive
officers were granted stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------
Percent of
Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal or Base Expiration -----------------------------------
Name Granted(#)(1) Year(%) Price($/Sh) Date 5%($) 10%($)
- ---------------------- ----------------- -------------- ------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
W.E. Sheriff 225,000(2) 23.7 16.0625 8/13/08 2,272,864 5,759,885
Christopher J. Coates 60,000 6.3 16.0625 8/13/08 606,097 1,535,969
George T. Hicks 42,000 4.4 16.0625 8/13/08 424,268 1,075,179
H. Todd Kaestner 42,000 4.4 16.0625 8/13/08 424,268 1,075,179
James T. Money 42,000 4.4 16.0625 8/13/08 424,268 1,075,179
</TABLE>
- -----------------
(1) All options granted in 1998 to the named executive officers vest and
become exercisable in three equal, annual installments beginning August
13, 1999.
(2) Options with respect to 25,000 of these shares are contingent upon
shareholder approval of Proposal Three.
FISCAL YEAR-END OPTION VALUES
The following table provides information as to the number and value
of the unexercised options held by the named executive officers at December 31,
1998. None of the named executive officers exercised options during 1998. None
of the named executive officers has held or exercised stock appreciation rights.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money
Fiscal Year-End(#) Options at Fiscal Year-End($)(1)
--------------------------------------- ----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ----------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
W.E. Sheriff 20,000 265,000(2) 33,750 67,500
Christopher J. Coates 30,000 75,000 50,625 25,313
George T. Hicks 23,333 53,667 39,374 19,688
H. Todd Kaestner 23,333 53,667 39,374 19,688
James T. Money 23,333 53,667 39,374 19,688
</TABLE>
- -----------------
(1) Based on the closing price of the company's common stock on the New York
Stock Exchange on December 31, 1998 ($15.6875).
(2) Options with respect to 25,000 of these shares are contingent upon
shareholder approval of Proposal Three.
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<PAGE> 12
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 of non-employee directors. The current members of the
compensation committee are Ms. Smith and Messrs. O'Connell and Stuesser. 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, stock purchase plan, 401(k)
plan, and other compensation plans maintained by the company.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS
The objectives of the company's executive compensation program are to:
- attract, motivate, and retain the executives responsible for the
success of the company;
- reward key executives based upon corporate and individual
performance; and
- provide incentives designed to maximize shareholder value.
The compensation committee reviews 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 business strategy, corporate culture,
and operating performance. The compensation committee also reviews the
compensation policies of similar companies in the senior living industry to
ensure that the company's compensation policies are competitive with other
companies in the industry. The three primary components of the company's
executive officer compensation program are a base salary, the potential for a
performance-based annual bonus, and periodic grants of stock options.
BASE SALARIES. Base salaries for the company's executive officers, as
well as changes in such salaries, are based upon a number of factors, including:
- recommendations by the chief executive officer;
- annual base salaries of similarly situated executives at
companies the committee deems to be comparable to the company;
- the nature of the executive officer's position;
- the committee's subjective determination of the executive
officer's contribution to the performance of the company;
- the experience of the officer; and
- the term of the officer's employment with the company.
The chief executive officer reviews all salary recommendations with the
compensation committee, which then approves or disapproves such recommendations.
In August 1998, the compensation committee reviewed the base salaries
for the company's executive officers. Based upon a review of the base
compensation payable to executive officers of comparable companies and
discussions with the company's chief executive officer, the committee determined
that the base compensation levels for the company's executive officers were
lower than the average base compensation levels of executives with similar
responsibilities at comparable companies. As a result of this review, the
compensation committee approved increases in the base salaries of the company's
executive officers averaging approximately 20%.
ANNUAL BONUSES. Annual bonuses for fiscal 1998 were accrued on behalf
of executive officers of the company pursuant to the company's 1998 Officers'
Incentive Compensation Plan. The 1998 Officers' Incentive Compensation Plan
provided for the payment of bonuses based upon the attainment of certain
earnings per share targets. Based upon the attainment of those earnings targets
for 1998, the executive officers will receive cash bonuses in 1999 for services
rendered in 1998 equal to approximately 30% of their base salaries. The
committee has approved a similar
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<PAGE> 13
officers' compensation plan for 1999 that provides for the payment of bonuses
based upon the attainment of 1999 earnings per share targets.
STOCK OPTIONS. 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 to the company's executive officers. The terms
of these options, 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. Awards of stock
options to executive officers have been historically at then-current market
prices and with periodic vesting over three years.
In August 1998, the compensation committee considered the amount of
stock option holdings by the company's senior executives in relation to the
holdings by senior executives of comparable companies. As a result of this
analysis and based upon the recommendation of the chief executive officer, the
compensation committee granted stock options to purchase an aggregate of 411,000
shares to the company's executive officers. The options vest over a three-year
period and are exercisable at the market price of the common stock on the date
of grant. The size of the option grants was determined by the compensation
committee based upon an analysis of comparable companies, the recommendations of
the company's chief executive officer, a subjective assessment of each executive
officer's performance, and his or her respective level in the organization.
SECTION 162 DEFERRED COMPENSATION PLAN. In addition, the company
maintains a non-qualified deferred compensation plan that allows executive
officers who are deemed "highly compensated" under Internal Revenue Service
guidelines to make after-tax contributions to an investment account established
in such executive officer's name. The company makes additional contributions at
the discretion of the committee. For 1998, the company made quarterly
contributions equal to 4% of the participating executive officers' gross
earnings.
CHIEF EXECUTIVE OFFICER COMPENSATION
In establishing the compensation of W.E. Sheriff, the company's chief
executive officer, the compensation committee utilized the same compensation
policies applicable to executive officers in general. For 1998, Mr. Sheriff's
annual base salary was increased by approximately 22%. Based upon the
achievement of the earnings per share targets set forth in the 1998 Officers'
Incentive Compensation Plan and the committee's subjective assessment of Mr.
Sheriff's individual performance, the compensation committee approved a cash
bonus to Mr. Sheriff that was to be paid in 1999 for services rendered in 1998
equal to $_____, or approximately __% of his base salary. The compensation
committee also awarded Mr. Sheriff an option to purchase 225,000 shares of
common stock. The option vests over a three-year period and is exercisable at
the market price of the common stock on the date of grant.
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. Under the regulations, executive compensation pursuant
to the 1997 Stock Incentive Plan should qualify as "performance based"
compensation and therefore be excluded from the $1.0 million limit; provided,
however, that if Proposal Three is not approved, the company will not be
permitted to deduct compensation realized by certain of the company's officers
in connection with their exercise of awards granted under the plan after the
date of the annual meeting. Other forms of compensation provided by the company,
however, are not excluded from such limit. The Company currently anticipates
that compensation of its executive officers will be deductible under Section
162(m) because executive officer compensation is presently below the $1.0
million limit and because the company intends to continue to utilize performance
based compensation in future periods.
DANIEL K. O'CONNELL NADINE C. SMITH LAWRENCE J. STUESSER
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<PAGE> 14
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENTS
The company has agreed to develop ten assisted living residences for
an unaffiliated third-party. Following completion of construction, these
residences will be leased to affiliates of John Morris, a director of the
company. The company has agreed to manage such residences pursuant to management
agreements that provide for the payment of management fees to the company based
on a percentage of the gross revenues of each residence and require the company
to pay operating losses above a specified amount. During 1998, the company did
not make any payments for operating losses pursuant to the management
agreements.
BAHIA OAKS LODGE TRANSACTION
In June 1998, the company entered into an agreement to operate Bahia
Oaks Lodge, a senior living community located in Sarasota, Florida. In
connection with the execution of the agreement, an unaffiliated special purpose
entity purchased the community from a general partnership in which Mr. Roskamp
owns a 43% interest. The aggregate consideration paid by such unaffiliated
special purpose entity to acquire the community was $9.0 million and the special
purpose entity assumed approximately $3.8 million of mortgage indebtedness
associated with the community.
FREEDOM GROUP TRANSACTION
In July 1998, the company consummated the acquisition of Freedom
Group, Inc. and certain entities affiliated with Freedom Group and Robert G.
Roskamp, Freedom Group's founder and chairman, and certain related transactions.
The aggregate consideration paid at closing by the company in the transactions
was $23.2 million of cash and 1,370,000 shares of common stock. The company also
paid an additional $1.5 million in connection with the execution of two
management agreements and $4.0 million in connection with the acquisition of
options to purchase two communities. Pursuant to such transactions, Robert G.
Roskamp, a director of the company, received approximately $5.0 million in cash
and 822,000 shares of common stock in exchange for his ownership interest in
Freedom Group.
As part of the transactions with Freedom Group, the company entered
into a 20-year management agreement, with two ten-year renewal options, for
Freedom Plaza, a retirement community located in Peoria, Arizona. The owners of
the community include a charitable foundation of which Mr. Roskamp is a
director. Pursuant to the management agreement, the company receives a
management fee equal to all revenue from the community that is in excess of
operating expenses, refunds of entrance fees, capital expenditure reserves, debt
service, and certain payments to the community's owners.
The company also entered into a 20-year management agreement, with
two ten-year renewal options, for Freedom Square, a retirement community located
in Seminole, Florida. In connection with the management agreement, the company
paid a $1.2 million fee to the owner of the community, a general partnership in
which Mr. Roskamp owns a 98.0% interest and Frank L. Herold, an officer of the
company, owns a 2.0% interest, and assumed Freedom Group's existing guaranty of
approximately $19.9 million of the mortgage debt associated with the community.
Pursuant to the management agreement, the company receives a management fee
equal to all revenue from the community that is in excess of operating expenses,
refunds of entrance fees, capital expenditure reserves, debt service, and
certain payments to the community's owner. The company also acquired an option
to purchase Freedom Square upon the occurrence of certain events, including the
expiration of the agreement, for a formula purchase price.
The company also entered into a three-year management agreement for
Freedom Village Brandywine, a retirement community located in Brandywine,
Pennsylvania that is owned by a partnership in which Mr. Roskamp owns a 70.0%
interest. Pursuant to the management agreement, the company receives a
management fee equal to 5.0% of the gross revenues of the community. The company
paid a non-refundable deposit of $2.0 million to acquire an option to purchase
the Freedom Village Brandywine community for a purchase price of $14.0 million,
plus the assumption of certain specified liabilities. The company's deposit will
be credited against the purchase price if the company exercises its purchase
option. In connection with the execution of the Freedom Village Brandywine
management and option agreements, the company assumed Freedom Group's existing
guaranty of approximately $42.1 million of the mortgage
12
<PAGE> 15
debt associated with the community, $7.3 million of which was outstanding at
December 31, 1998. The company also assumed Freedom Group's remaining
development obligations relating to Freedom Village Brandywine. In return for
its development services and costs associated therewith, the company received a
fee of $200,000.
Pursuant to the transactions with Freedom Group, the company also
entered into an agreement to provide development services related to the
development and construction of a proposed retirement community to be known as
the Sarasota Bay Club in Sarasota, Florida, which is currently in the
development and planning phase. The Sarasota Bay Club is owned by a limited
liability company in which Mr. Roskamp owns a 57.5% interest. In return for its
development services and costs associated therewith, the company will receive a
development fee of $2.4 million. The company will manage the Sarasota Bay Club
following its completion pursuant to a five-year management agreement that
provides for a management fee equal to 5.0% of the gross revenues of the
community. In consideration of the company's payment of a $2.0 million
fully-refundable deposit, the company acquired a right of first refusal for the
Sarasota Bay Club and an option to purchase the community for a price to be
negotiated. The company will receive a credit against the purchase price in the
amount of its deposit if the company exercises its right of first refusal or
purchase option.
In connection with the transactions with Freedom Group, Mr. Roskamp
entered into a three-year consulting agreement with the company that provides
for annual payments of $150,000 to Mr. Roskamp. In addition, pursuant to a
shareholder's agreement entered into by the company and Mr. Roskamp, the company
caused Mr. Roskamp to be elected to the board of directors of the company and to
the executive committee of the board of directors and has agreed to use its best
efforts to cause Mr. Roskamp or his designee to be recommended to the company's
shareholders for election as a director at each annual meeting at which Class II
directors stand for reelection for so long as Mr. Roskamp or his permitted
transferees own greater than 411,000 shares of common stock and the shares of
common stock owned by Mr. Roskamp and his affiliates constitute 1% or more of
the outstanding common stock. The company also granted certain contractual
registration rights to Mr. Roskamp.
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 1998 its officers, directors, and
greater than ten percent beneficial owners were in compliance with all
applicable filing requirements, except that Mr. Sheriff filed one late report
relating to two transactions.
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<PAGE> 16
PERFORMANCE GRAPH
The following graph compares the cumulative returns of $100 invested
on May 30, 1997, the date of the company's initial public offering, in (a) the
company; (b) the Standard and Poor's 500 Stock Index; and (c) a self-constructed
peer group, as described below, assuming reinvestment of all dividends.
- ----------------
* The company's self-constructed peer group is composed of the following
senior living companies:
-----------------------------------------.
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<PAGE> 17
PROPOSAL TWO: AMENDMENT TO THE COMPANY'S CHARTER
On February 26, 1999, the board of directors approved and directed
that the shareholders consider an amendment to the company's corporate charter
that would amend the charter to increase the number of authorized shares of
common stock from 50 million to 200 million. If approved, the amendment will
become effective upon the filing of Articles of Amendment to the company's
charter with the Secretary of State of the State of Tennessee, which filing is
expected to take place shortly after the annual meeting. The board of directors
believes that the charter amendment is in the best interest of the company and
all of its shareholders.
Except as set forth below, the relative rights of the holders of the
company's common stock under the company's charter would remain unchanged.
Article 8, Section (a) of the company's charter, as amended by the charter
amendment, is set forth below. The remainder of Article 8 will remain unchanged.
"a. Two hundred million (200,000,000) shares of common stock, par
value $.01 per share, which shall be entitled to one vote per share
and, upon dissolution of the corporation, shall be entitled to
receive the net assets of the corporation."
As of March 24, 1999, there were (i) 17,118,385 shares of common
stock issued and outstanding; (ii) ________ shares reserved for issuance upon
the exercise of outstanding stock options; (iii) ________ shares reserved for
issuance to employees pursuant to the company's Employee Stock Purchase Plan;
and (iv) 5,749,168 shares reserved for issuance upon the conversion of the
company's 5 3/4% Convertible Subordinated Debentures due 2002. Accordingly, as
of March 24, 1999, a balance of _______ authorized shares of common stock were
available for future issuance.
The board of directors believes that it is in the best interest of
the company and all of its shareholders to approve the charter amendment because
it would give the company the necessary flexibility to issue common stock in
connection with stock dividends and splits, acquisitions, equity financings, and
employee benefit plans, and for other general corporate purposes. These future
issuances would be at the discretion of the board of directors without the
expense and delay incidental to obtaining shareholder approval, except as may be
required by applicable law or by the rules of any stock exchange or over the
counter market on which the company's securities may then be listed. For
example, the NYSE, on which the company's common stock is authorized for
listing, currently requires shareholder approval as a prerequisite to the
issuance of securities in several instances, including in connection with
acquisitions in which the present or potential issuance of shares of common
stock could result in an increase in the number of shares of common stock
outstanding by 20% or more. Holders of the company's common stock have no
preemptive rights to subscribe to any additional securities of any class that
the company may issue.
Except for the shares of common stock issuable pursuant to
outstanding options and convertible debentures and the company's Employee Stock
Purchase Plan, the company currently has no definitive understanding,
arrangement, or agreement with respect to the issuance of additional shares of
common stock. The charter amendment is not being proposed in response to any
effort known by management to acquire control of the company. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
THE CHARTER AMENDMENT WILL BE APPROVED IF THE NUMBER OF SHARES OF
COMMON STOCK VOTED IN FAVOR OF THE CHARTER AMENDMENT EXCEEDS THE NUMBER OF
SHARES OF COMMON STOCK VOTED AGAINST IT.
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<PAGE> 18
PROPOSAL THREE: APPROVAL OF THE 1997 STOCK INCENTIVE PLAN, AS AMENDED
INTRODUCTION
Section 162(m) of the Internal Revenue Code generally disallows a
corporate deduction for compensation over $1.0 million paid to a company's chief
executive officer and any of the four other most highly compensated officers.
The $1.0 million limitation applies to amounts realized on the exercise of stock
options and other awards, unless, among other conditions, the awards are granted
pursuant to a plan that has been approved by the company's public shareholders.
Although the 1997 Stock Incentive Plan was approved by the company's sole
shareholder prior to the company's initial public offering, the plan has not
been approved by the company's public shareholders. The board of directors is
submitting the 1997 Stock Incentive Plan, as amended as described below, for
approval by the company's shareholders to ensure compliance with Section 162(m)
of the Internal Revenue Code. The plan, as amended, is set forth in Appendix A
to this proxy statement.
The 1997 Stock Incentive Plan initially authorized 1,093,750 shares
of common stock for issuance, which equaled 10% of the number of shares of
common stock outstanding on the date of the closing of the company's initial
public offering. The plan currently provides that such number will be
automatically increased by ten percent of the number of shares of common stock
issued in any "equity issuance," as defined in the plan. Giving effect to such
equity issuances, the plan currently authorizes 1,707,458 shares of common stock
for issuance thereunder. The board of directors of the company has reviewed the
company's stock-based incentive compensation arrangements and concluded that the
plan does not currently authorize a sufficient number of shares to provide
flexibility with respect to stock-based compensation or to establish appropriate
long-term incentives to achieve the company's objectives. Options to purchase an
aggregate of _______ shares are currently outstanding under the plan and options
relating to an aggregate of _________ shares of common stock have been
exercised. Accordingly, _________ shares of common stock are currently available
for issuance under the plan.
The plan provides that "incentive stock options," as defined in
Section 422 of the Internal Revenue Code, may not be issued after 1,093,750
shares of common stock have been issued under the plan. The plan also provides
that no officer of the company or other person whose compensation may be subject
to the limitations on deductibility under Section 162(m) of the Internal Revenue
Code will be eligible to receive awards under the plan relating to in excess of
200,000 shares of common stock in any fiscal year.
In order to provide the company with greater flexibility to adapt to
changing economic and competitive conditions, and to further employment goals
and expansion plans through stock-based compensation strategies that will
attract and retain those employees who are important to the long-term success of
the company, the board of directors of the company has proposed amendments to
the plan to (i) increase the number of shares of common stock authorized for
issuance under the plan by providing that the maximum number of shares of common
stock authorized for issuance under the plan shall be equal to 15% of the number
of shares of common stock outstanding on the date of the company's initial
public offering and that such number shall be increased automatically by 15% of
the number of shares of common stock issued in any equity issuance after the
date of the company's initial public offering; provided, however, that the
maximum number of shares of common stock that may be issued under the plan will
be decreased by the number of shares of common stock, if any, issuable pursuant
to options assumed by the company that are granted pursuant to option plans
assumed by the company in connection with acquisitions; (ii) increase the limit
on the number of incentive stock options that may be granted pursuant to the
plan to 3,500,000 shares; and (iii) increase to 500,000 shares the maximum
number of shares that may be granted to persons whose compensation may be
subject to Section 162(m) of the Internal Revenue Code.
If the plan, as amended, is approved by the shareholders of the
company, the amendments to the plan will become effective as of the date of the
annual meeting. If the amended plan is not approved by the company's
shareholders, the plan and options previously granted or granted in the future
under the plan will not be affected. The company will not, however, be permitted
to deduct compensation realized by certain employees in connection their
exercise of awards granted under the plan after the date of the annual meeting
of the company's shareholders held in the year 2000. The board of directors
believes that it is in the best interest of the company and its shareholders to
approve
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<PAGE> 19
the plan, as amended. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" APPROVAL OF THIS PROPOSAL.
SUMMARY OF THE MATERIAL PROVISIONS OF THE 1997 STOCK INCENTIVE PLAN, AS AMENDED
The following summary of the material provisions of the 1997 Stock
Incentive Plan, as proposed to be amended, is qualified in its entirety by
reference to the text of the plan as set forth in Appendix A to this proxy
statement.
Under the 1997 Stock Incentive Plan, the compensation committee of
the board of directors of the company has the authority to grant to officers,
other key employees, and consultants of the company the following types of
awards: (1) stock options; (2) stock appreciation rights; (3) restricted stock;
and/or (4) other stock-based awards. The compensation committee has the power to
delegate authority to the company's Chief Executive Officer or to a committee
comprised of executive officers of the company to grant, on behalf of the
compensation committee, stock options, subject to such guidelines as the
compensation committee may determine from time to time.
The aggregate number of shares of common stock that may be issued
under the plan is 2,561,187 shares, plus fifteen percent (15%) of the number of
shares of common stock issued in any equity issuance; provided, however, that
the maximum number of shares of common stock that may be issued under the plan
will be decreased by the number of shares of common stock issuable pursuant to
options assumed by the company that are granted pursuant to option plans assumed
by the company in connection with acquisitions; provided further, that incentive
stock options may not be issued after 3,500,000 shares of common stock have been
issued under the plan.
The maximum number of shares of common stock for which awards may be
made under the plan to any officer of the company or other person whose
compensation may be subject to the limitations on deductibility under Section
162(m) of the Internal Revenue Code is 500,000 during any single fiscal year.
Any shares as to which an option or other award expires, lapses unexpired, or is
forfeited, terminated, or canceled may become subject to a new option or other
award. The plan will terminate on, and no award may be granted later than, May
30, 2007, but the exercise date of awards granted prior to such tenth
anniversary may extend beyond such date.
The plan also provides for automatic grants of non-qualified stock
options to non-employee directors of the company. Options to purchase 9,000
shares of common stock were automatically granted to each person serving as a
non-employee director on the date of the company's initial public offering. Any
person who was not previously a member of the board of directors and who is
elected or appointed a non-employee director prior to the date of the annual
meeting of shareholders of the company in the year 2000 will automatically be
granted an option to purchase 7,000 shares of common stock if such director's
service begins prior to May 30, 1999 and 5,000 shares of common stock if such
director's service begins thereafter. The board of directors may, in its
discretion, increase or decrease the number of shares subject to such option to
reflect the extent to which such non-employee director's expected service may
exceed two years or may be less than one year. Options granted to non-employee
directors prior to the annual meeting of shareholders in the year 2000 will vest
with respect to 5,000 shares on the date of the first annual meeting of
shareholders following the date of grant, 2,000 shares on the date of the second
annual meeting of shareholders following the date of grant, and any remaining
shares on the date of the third annual meeting of shareholders following the
date of grant.
On the date of each annual meeting of shareholders of the company
beginning with the annual meeting of shareholders held in the year 2000, unless
the plan has been terminated, each non-employee director who will continue as a
director following the meeting will receive an option to purchase 3,000 shares
of common stock, which will vest on the date of the next annual meeting of the
company's shareholders.
All options automatically 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. Non-employee directors will not be
able to transfer or assign their options without the prior written consent of
the board of directors of the company other than (i) transfers by the optionee
to a member of his or her immediate family or a trust for the benefit of the
optionee or a member of his or her immediate family or (ii) transfers by will or
by the laws of descent and distribution. Options
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<PAGE> 20
automatically granted to non-employee directors will have a term of ten years
from the date of grant. The exercise price may be paid in cash, shares of common
stock, or a combination thereof.
Incentive stock options and non-qualified stock options may be
granted for such number of shares as the compensation committee may determine
and may be granted alone, in conjunction with, or in tandem with, other awards
under the plan or cash awards outside the plan. A stock option will be
exercisable at such times and subject to such terms and conditions as the
compensation committee will determine. In the case of an incentive stock option,
however, the term will be no more than ten years after the date of grant (five
years in the case of incentive stock options for certain 10% shareholders). The
option price for an incentive stock option will not be less than 100% (110% in
the case of certain 10% shareholders) of the fair market value of common stock
as of the date of grant and for any non-qualified stock option will not be less
than 50% of the fair market value as of the date of grant. Incentive stock
options granted under the plan may not be transferred or assigned other than by
will or by the laws of descent and distribution. Nonqualified stock options may
not be transferred or assigned without the prior written consent of the
compensation committee other than (i) transfers by the optionee to a member of
his or her immediate family or a trust for the benefit of the optionee or a
member of his or her immediate family or (ii) transfers by will or by the laws
of descent and distribution.
Stock appreciation rights may be granted under the plan in
conjunction with all or part of a stock option and will be exercisable only when
the underlying stock option is exercisable. Once a stock appreciation right has
been exercised, the related portion of the stock option underlying the stock
appreciation right will terminate. Upon the exercise of a stock appreciation
right, the company will pay to the employee or consultant in cash, common stock,
or a combination thereof (the method of payment to be at the discretion of the
compensation committee) an amount equal to the excess of the fair market value
of common stock on the exercise date over the option price, multiplied by the
number of stock appreciation rights being exercised. Stock appreciation rights
may not be transferred or assigned other than to the extent the underlying
option is transferrable or assignable.
Restricted stock awards may be granted alone, in addition to, or in
tandem with other awards under the plan or cash awards made outside the plan.
The provisions attendant to a grant of restricted stock may vary from
participant to participant. In making an award of restricted stock, the
compensation committee will determine the periods during which the restricted
stock is subject to forfeiture and may provide such other awards designed to
guarantee a minimum value for such stock. The compensation committee may also
impose such other conditions and restrictions on the shares of restricted stock
as it deems appropriate, including the attainment of specified performance goals
or such other factors as the compensation committee may determine. The
compensation committee may provide that such restrictions will lapse with
respect to specified percentages of the awarded shares of restricted stock on
successive future dates. During the restriction period, the employee or
consultant may not sell, transfer, pledge, or assign the restricted stock, but
will be entitled to vote the restricted stock and to receive, at the election of
the compensation committee, cash or deferred dividends.
The compensation committee also may grant other types of awards, such
as convertible preferred stock, convertible debentures, or other exchangeable
securities that are valued, as a whole or in part, by reference to or otherwise
based on common stock. These awards may be granted alone, in addition to, or in
tandem with, stock options, stock appreciation rights, restricted stock, or cash
awards outside of the plan. Awards will be made upon such terms and conditions
as the compensation committee may determine.
If there is a change of control or a potential change of control of
the company, stock appreciation rights, and any stock options that are not then
exercisable, will become fully exercisable and vested and the restrictions and
deferral limitations applicable to restricted stock and other stock-based awards
shall lapse and such shares and awards will be deemed fully vested. For purposes
of the plan, a change of control is defined generally to include (i) any person
or entity, other than the company or a wholly-owned subsidiary of the company,
becoming the beneficial owner of the company's securities having 35% or more of
the combined voting power of the then outstanding securities that may be cast
for the election of directors; (ii) in connection with a cash tender, exchange
offer, merger, or other business combination, sale of assets, or contested
election, less than a majority of the combined voting power of the then
outstanding securities of the company entitled to vote generally in the election
of directors being 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
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<PAGE> 21
prior to such transaction; and (iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the board of
directors ceasing to constitute at least a majority thereof, unless the election
of each director 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. Stock options,
stock appreciation rights, restricted stock, and other stock-based awards will,
unless otherwise determined by the compensation committee in its sole
discretion, be cashed out on the basis of the change in control price (as
defined in the plan and as described below). The change of control price will be
the highest price per share paid in any transaction reported on the New York
Stock Exchange or paid or offered to be paid in any bona fide transaction
relating to a change in control or potential change in control at any time
during the immediately preceding 60-day period, as determined by the
compensation committee.
The board of directors of the company may amend, alter, or
discontinue the plan, provided that no amendment may be made that would impair
the rights of an optionee or participant under an award made under the plan
without the participant's consent.
OPTIONS GRANTED UNDER THE 1997 STOCK INCENTIVE PLAN
Because awards under the plan are at the discretion of the
compensation committee, the benefits that will be awarded under the plan to
persons other than non-employee directors are not currently determinable. The
following table shows as to each of the named executive officers, the associates
of such executive officers, as to all executive officers of the company as a
group, as to all current non-employee directors as a group, and as to all other
employees as a group, the aggregate number of shares of common stock subject to
options granted under the plan, excluding options that have been canceled or
forfeited unexercised, and the weighted average per share exercise price. As of
March 24, 1999, the market value of a share of common stock based on the closing
price for such stock on the New York Stock Exchange was $__________.
<TABLE>
<CAPTION>
Average Exercise
Name Options (#) Price Per Share ($)
- -------------------------------------------------------------- ----------- -------------------
<S> <C> <C>
W.E. Sheriff.................................................. 285,000(1) 15.63
Christopher J. Coates......................................... 105,000 15.18
George T. Hicks............................................... 77,000 15.13
H. Todd Kaestner.............................................. 77,000 15.13
James T. Money................................................ 77,000 15.13
Glen Sheriff.................................................. 3,700 20.67
All Current Executive Officers as a Group
(8 persons).............................................. 755,000 15.47
Current Non-Employee Directors................................ 86,000 14.10
All Other Employees as a Group................................ 643,265 15.87
</TABLE>
(1) Options with respect to 25,000 of these shares are contingent upon
shareholder approval of this Proposal Three.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain U.S. Federal income tax
aspects of options awarded under the plan based upon the federal income tax laws
in effect on the date hereof. This summary is not intended to be exhaustive and
the exact tax consequences to any grantee will depend upon his or her particular
circumstances and other facts. The plan participants must consult their tax
advisors with respect to any state, local, and foreign tax considerations or
particular federal tax implications of options granted under the plan.
Incentive Stock Options. Neither the grant nor the exercise of an
incentive stock option will result in taxable income to the employee. The tax
treatment on sale of shares of common stock acquired upon exercise of an
incentive stock option depends on whether the holding period requirement is
satisfied. The holding period is met if the disposition of the employee occurs
(i) at least two years after the date of grant of the option; (ii) at least one
year after the date the
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<PAGE> 22
shares were transferred to the employee; and (iii) while the employee remains
employed by the company or not more than three months after his or her
termination of employment (or not more than one year in the case of a disabled
employee). If the holding period requirement is satisfied, the excess of the
amount realized upon sale of the shares of common stock acquired upon the
exercise of the incentive stock option over the price paid for these shares will
be treated as a long-term capital gain. If the employee disposes of the common
stock acquired upon the exercise of the incentive stock option before the
holding period requirement is met (a "disqualifying disposition"), the excess of
the fair market value of the shares on the date of exercise or, if less, the
fair market value on the date of disposition, over the exercise price will be
taxable as ordinary compensation income to the employee at the time of
disposition, and the company will be entitled to a corresponding deduction. The
balance of the gain, if any, will be a capital gain for the employee. Any
capital gain recognized by the employee will be a long-term capital gain if the
employee's holding period for the shares of common stock at the time of
disposition is more than one year.
Although the exercise of an incentive stock option will not result in
taxable income to the employee, the excess of the fair market value of the
common stock on the date of exercise over the exercise price will be included in
the employee's "alternative minimum taxable income" under the Internal Revenue
Code.
Nonqualified Stock Options. There will be no federal income tax
consequences to the company or to the grantee upon the grant of non-qualified
stock options under the plan. However, upon the exercise of a non-qualified
stock option under the plan, the grantee will recognize ordinary compensation
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares of common stock purchased over the exercise
price. The company will generally be entitled to a tax deduction at such time
and in the same amount that the employee recognizes ordinary income. If the
shares of common stock so acquired are later sold or exchanged, the difference
between the amount realized from such sale or exchange and the fair market value
of such stock on the date of exercise of the option is generally taxable as
long-term or short-term capital gain or loss depending upon whether the shares
of common stock have been held for more than one year after such date.
Exercise with Shares. A grantee who pays the exercise price upon
exercise of an incentive stock option or non-qualified stock option, in whole or
in part, by delivering shares of common stock already owned by him or her will
recognize no gain or loss for federal income tax purposes to the extent of the
fair market value of the shares surrendered, but with respect to shares received
in excess of such exercise price, a grantee will recognize ordinary compensation
income equal to the fair market value of such shares. Shares of common stock
acquired upon exercise that are equal in number to the shares surrendered will
have a tax basis equal to the tax basis of the shares surrendered, and (except
as noted below with respect to disqualifying dispositions) the holding period of
such shares will include the holding period of shares surrendered. In the case
of a non-qualified stock option, the basis of additional shares received upon
exercise of the non-qualified stock option will be equal to the fair market
value of such shares on the date of exercise, and the holding period for such
additional shares will commence on the date the option is exercised. In the case
of an incentive stock option, the tax basis of the additional shares received
will be zero, and the holding period of such shares will commence on the date of
the exchange. If any of the shares received upon exercise of the incentive stock
option are disposed of within two years of the date of the grant of the
incentive stock option or within one year after exercise, the shares with the
lowest (i.e., zero) basis will be deemed to be disposed of first, and such
disposition will be a disqualifying disposition giving rise to ordinary income
as previously discussed above.
Stock Appreciation Rights. No income will be realized by a
participant in connection with the grant of a stock appreciation right. When the
stock appreciation right is exercised, the participant will generally be
required to include as taxable ordinary income in the year of exercise, an
amount equal to the amount of cash and the fair market value of any shares
received. The company will be entitled to a deduction at the time and in the
amount included in the participant's income by reason of the exercise. If the
participant receives common stock upon exercise of a stock appreciation right,
the post-exercise appreciation or deprecation will be treated in the same manner
discussed above under "Non-Qualified Stock Options."
Restricted Stock. A participant receiving restricted stock generally
will recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the stock is no longer subject to forfeiture, less
the consideration paid for the stock. However, a participant may elect, under
Section 83(b) of the Internal Revenue Code within 30 days of the grant of the
stock, to recognize taxable ordinary income on the date of grant equal to the
excess of
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<PAGE> 23
the fair market value of the shares of restricted stock (determined without
regard to the restrictions) over the purchase price of the restricted stock.
Thereafter, if the shares are forfeited, the participant will be entitled to a
deduction, refund, or loss, for tax purposes only, in an amount equal to the
purchase price of the forfeited shares regardless of whether she or he made a
Section 83(b) election. With respect to the sale of shares after the forfeiture
period has expired, the holding period to determine whether the participant has
long-term or short-term capital gain or loss generally begins when the
restriction period expires and the tax basis for such shares will generally be
based on the fair market value of such shares on such date. If the participant
makes an election under Section 83(b), however, the holding period will commence
on the date of grant, the tax basis will be equal to the fair market value of
shares on such date (determined without regard to restrictions), and the company
generally will be entitled to a deduction equal to the amount that is taxable as
ordinary income to the participant in the year that such income is taxable.
Dividends and Dividend Equivalents. Dividends paid on restricted
stock generally will be treated as compensation that is taxable as ordinary
income to the participant, and will be deductible by the company. If the
participant makes a Section 83(b) election, however, the dividends will be
taxable as ordinary income to the participant but will not be deductible by the
company.
Other Stock-Based Awards. The federal income tax treatment of other
stock-based awards will depend on the nature of any such award and the
restrictions applicable to such award. Such an award may, depending on the
conditions applicable to the award, be taxable as an option, an award of
restricted stock, or in a manner not described herein.
The plan is not intended to be a "qualified plan" under Section
401(a) of the Internal Revenue Code.
THE 1997 STOCK INCENTIVE PLAN , AS AMENDED, WILL BE APPROVED IF THE
NUMBER OF SHARES OF COMMON STOCK VOTED IN FAVOR OF THE PLAN EXCEEDS THE
AGGREGATE OF THE NUMBER OF ABSTENTIONS AND SHARES OF COMMON STOCK VOTED AGAINST
IT.
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 2000 and received at the company's executive offices
no later than December 1 , 1999 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 1,
1999 and 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 1, 1999 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.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG LLP, which has been the company's independent certified public
accountants since its organization, has been selected as the independent
certified public accountants of the company for the 1999 fiscal year. The
company has been informed that representatives of KPMG 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.
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<PAGE> 24
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 telecopy. 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 1998 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, 1998 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 402,
BRENTWOOD, TENNESSEE 37027.
22
<PAGE> 25
Appendix A
AMERICAN RETIREMENT CORPORATION
1997 STOCK INCENTIVE PLAN
AS AMENDED
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the American Retirement Corporation 1997 Stock Incentive
Plan (the "Plan") is to enable American Retirement Corporation (the
"Corporation") to attract, retain and reward key employees of and consultants to
the Corporation and its Subsidiaries and Affiliates, and directors who are not
also employees of the Corporation, and to strengthen the mutuality of interests
between such key employees, consultants, and directors by awarding such key
employees, consultants, and directors performance-based stock incentives and/or
other equity interests or equity-based incentives in the Corporation, as well as
performance-based incentives payable in cash. The creation of the Plan shall not
diminish or prejudice other compensation programs approved from time to time by
the Board.
For purposes of the Plan, the following terms shall be defined as set
forth below:
A. "Affiliate" means any entity other than the Corporation and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Corporation directly or indirectly owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
B. "Board" means the Board of Directors of the Corporation.
C. "Cause" has the meaning provided in Section 5(j) of the Plan.
D. "Change in Control" has the meaning provided in Section 10(b) of the
Plan.
E. "Change in Control Price" has the meaning provided in Section 10(d)
of the Plan.
F. "Common Stock" means the Corporation's Common Stock, par value $.01
per share.
G. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
H. "Committee" means the Committee referred to in Section 2 of the
Plan.
I. "Corporation" means American Retirement Corporation, a corporation
organized under the laws of the State of Tennessee or any successor corporation.
J. "Disability" means disability as determined under the Corporation's
Group Long Term Disability Insurance Plan.
<PAGE> 26
K. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Corporation at or before the time of such retirement,
from active employment with the Corporation and any Subsidiary or Affiliate
prior to age 65, in accordance with any applicable early retirement policy of
the Corporation then in effect or as may be approved by the Committee.
L. "Effective Date" has the meaning provided in Section 14 of the Plan.
M. "Equity Issuance" means an issuance of Common Stock by the
Corporation following the Effective Date of this Plan in connection with a
public or private offering, including in connection with an acquisition, merger
or similar transaction, but excluding issuances of Common Stock under this Plan
or in any other compensatory transaction with an officer or employee of, or
consultant to, the Corporation or its Subsidiaries or Affiliates.
N. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
O. "Fair Market Value" means with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in good
faith, the reported closing price of a share of Common Stock on the NYSE or such
other market or exchange as is the principal trading market for the Common
Stock, or, if no such sale of a share of Common Stock is reported on the NYSE or
other exchange or principal trading market on such date, the fair market value
of a share of Common Stock as determined by the Committee in good faith.
P. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
Q. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
R. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act and an outside director within the meaning of Treasury
Regulation Sec. 162-27(e)(3) promulgated under the Code.
S. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
T. "NYSE" means The New York Stock Exchange.
U. "Normal Retirement" means retirement from active employment with the
Corporation and any Subsidiary or Affiliate on or after age 65.
2
<PAGE> 27
V. "Other Stock-Based Award" means an award under Section 8 below that
is valued in whole or in part by reference to, or is otherwise based on, the
Common Stock.
W. "Outside Director" means a member of the Board who is not an officer
or employee of the Corporation or any Subsidiary or Affiliate of the
Corporation.
X. "Outside Director Option" means an award to an Outside Director
under Section 9 below.
Y. "Plan" means this American Retirement Corporation 1997 Stock
Incentive Plan, as amended from time to time.
Z. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 7 of the Plan.
AA. "Restriction Period" has the meaning provided in Section 7 of the
Plan.
BB. "Retirement" means Normal or Early Retirement.
CC. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
DD. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Corporation all (or a portion)
of a Stock Option in exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Common Stock covered by such Stock
Option (or such portion thereof), subject, where applicable, to the pricing
provisions in Section 6(b)(ii), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
EE. "Stock Option" or "Option" means any option to purchase shares of
Common Stock (including Restricted Stock, if the Committee so determines)
granted pursuant to Section 5 below.
FF. "Subsidiary" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
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<PAGE> 28
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Non-Employee Directors, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. The functions of the Committee specified in the
Plan may be exercised by an existing Committee of the Board composed exclusively
of Non-Employee Directors. The initial Committee shall be the Compensation
Committee of the Board. In the event there are not at least two Non-Employee
Directors on the Board, the Plan shall be administered by the Board and all
references herein to the Committee shall refer to the Board.
The Committee shall have authority to grant, pursuant to the terms of
the Plan, to officers, other key employees and consultants eligible under
Section 4: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted
Stock, and/or (iv) Other Stock-Based Awards.
In particular, the Committee, or the Board, as the case may be, shall
have the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees of and consultants
to the Corporation and its Subsidiaries and Affiliates to whom Stock
Options, Stock Appreciation Rights, Restricted Stock, and/or Other
Stock-Based Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock, and/or Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or more eligible persons;
(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or the shares of Common
Stock relating thereto, based in each case on such factors as the
Committee shall determine, in its sole discretion); and to amend or
waive any such terms and conditions to the extent permitted by Section
11 hereof;
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash or Restricted Stock under Section 5(m) or
(n), as applicable, instead of Common Stock;
4
<PAGE> 29
(f) to determine whether, to what extent, and under what
circumstances Option grants and/or other awards under the Plan are to
be made, and operate, on a tandem basis vis-a-vis other awards under
the Plan and/or cash awards made outside of the Plan;
(g) to determine whether, to what extent, and under what
circumstances shares of Common Stock and other amounts payable with
respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period);
(h) to determine whether to require payment of tax withholding
requirements in shares of Common Stock subject to the award; and
(i) to impose any holding period required to satisfy Section
16 under the Exchange Act.
The Committee shall have the power to delegate authority to the
Corporation's Chief Executive Officer, or to a committee composed of executive
officers of the Corporation, to grant, on behalf of the Committee, Stock Options
exercisable at an exercise price per share equal to the Fair Market Value on the
date of grant, subject to such guidelines as the Committee may determine from
time to time; provided, however that (i) Options may only be granted pursuant to
such delegated authority for the purposes specified by the Committee, which may
include attracting new employees, awarding outstanding performance, or retaining
employees; (ii) the Committee shall specify the maximum number of shares of
Common Stock that may be granted for purposes of attracting any single new
employee at any specified level and the maximum number that may be granted to
any other employee for any other purpose; (iii) Options may not be granted
pursuant to such delegated authority to any officer of the Corporation who is,
or upon consummation of his or her employment with the Corporation will be,
subject to Section 16 under the Exchange Act; (iv) Options to purchase no more
than 50,000 shares in the aggregate and 10,000 shares per individual may be
granted pursuant to such delegated authority in any fiscal year; and (v) a
report of each grant of an Option pursuant to such delegated authority shall be
presented to the Committee at the first meeting of the Committee following such
grant. Options granted pursuant to such delegated authority in accordance
herewith shall be deemed, to the extent permitted under applicable law, to have
been granted by the Committee for all purposes under the Plan.
The Committee shall have the authority to adopt, alter, and repeal such
rules, guidelines, and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan; provided, however, that, to
the extent that this Plan otherwise requires the approval of the Board or the
shareholders of the Corporation, all decisions of the Committee shall be subject
to such Board or shareholder approval Subject to the foregoing, all decisions
made by the Committee pursuant to the provisions of the
5
<PAGE> 30
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Corporation and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, the aggregate number of shares of Common
Stock that may be issued under the Plan shall be 1,640,625 shares. Such number
shall, upon the consummation of any Equity Issuance, increase automatically by
fifteen percent (15%) of the number of shares of Common Stock issued in such
Equity Issuance; provided, however, that Incentive Stock Options may not be
issued after 3,500,000 shares of Common Stock have been issued under the Plan.
The shares of Common Stock issuable under the Plan may consist, in whole or in
part, of authorized and unissued shares or treasury shares. No officer of the
Corporation or other person whose compensation may be subject to the limitations
on deductibility under Section 162(m) of the Code shall be eligible to receive
awards pursuant to this Plan relating to in excess of 500,000 shares of Common
Stock in any fiscal year (the "Section 162(m) Maximum").
(b) If any shares of Common Stock that have been optioned cease to be
subject to a Stock Option, or if any shares of Common Stock that are subject to
any Restricted Stock or Other Stock-Based Award granted hereunder are forfeited
prior to the payment of any dividends, if applicable, with respect to such
shares of Common Stock, or any such award otherwise terminates without a payment
being made to the participant in the form of Common Stock, such shares shall
again be available for distribution in connection with future awards under the
Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure affecting the Common Stock, an appropriate
substitution or adjustment shall be made in the maximum number of shares that
may be awarded under the Plan, in the number and option price of shares subject
to outstanding Options granted under the Plan, in the number of shares
underlying Outside Director Options to be granted under Section 9 hereof, the
Section 162(m) Maximum and in the number of shares subject to other outstanding
awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject to
any award shall always be a whole number. An adjusted option price shall also be
used to determine the amount payable by the Corporation upon the exercise of any
Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Officers, other key employees and Outside Directors of and consultants
to the Corporation and its Subsidiaries and Affiliates who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Corporation and/or its Subsidiaries and Affiliates
6
<PAGE> 31
are eligible to be granted awards under the Plan. Outside Directors are eligible
to receive awards pursuant to Section 9 and not pursuant to any other provisions
of the Plan.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
Any Stock Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options may
be granted only to individuals who are employees of the Corporation or any
Subsidiary of the Corporation.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
Options granted to officers, key employees, Outside Directors and
consultants under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant but shall be not less than 100% (or, in the case
of any employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation or of
any of its Subsidiaries, not less than 110%) of the Fair Market Value
of the Common Stock at grant, in the case of Incentive Stock Options,
and not less than 50% of the Fair Market Value of the Common Stock at
grant, in the case of Non-Qualified Stock Options.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable
more than ten years (or, in the case of an employee who owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation or any of its Subsidiaries or
parent corporations, more than five years) after the date the Option is
granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that
except as provided in Section 5(g) and (h) and Section 10, unless
otherwise determined by the Committee at or after grant, no Stock
Option shall be exercisable prior to the first anniversary date of the
granting of the Option. The Committee may provide that a Stock Option
shall vest over a period of future service at a rate specified at the
time of grant, or that the Stock Option is exercisable only in
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installments. If the Committee provides, in its sole discretion, that
any Stock Option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time at or after
grant, in whole or in part, based on such factors as the Committee
shall determine in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise restrictions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Corporation specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by check, note, or such
other instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, at or (except in the case of an
Incentive Stock Option) after grant, payment in full or in part may
also be made in the form of shares of Common Stock already owned by the
optionee or, in the case of a Non-Qualified Stock Option, shares of
Restricted Stock or shares subject to such Option or another award
hereunder (in each case valued at the Fair Market Value of the Common
Stock on the date the Option is exercised). If payment of the exercise
price is made in part or in full with Common Stock, the Committee may
award to the employee a new Stock Option to replace the Common Stock
which was surrendered. If payment of the option exercise price of a
Non-Qualified Stock Option is made in whole or in part in the form of
Restricted Stock, such Restricted Stock (and any replacement shares
relating thereto) shall remain (or be) restricted in accordance with
the original terms of the Restricted Stock award in question, and any
additional Common Stock received upon the exercise shall be subject to
the same forfeiture restrictions, unless otherwise determined by the
Committee, in its sole discretion, at or after grant. No shares of
Common Stock shall be issued until full payment therefor has been made.
An optionee shall generally have the rights to dividends or other
rights of a shareholder with respect to shares subject to the Option
when the optionee has given written notice of exercise, has paid in
full for such shares, and, if requested, has given the representation
described in Section 13(a).
(e) Transferability of Options. No Non-Qualified Stock Option
shall be transferable by the optionee without the prior written consent
of the Committee other than (i) transfers by the Optionee to a member
of his or her Immediate Family or a trust for the benefit of the
optionee or a member of his or her Immediate Family, or (ii) transfers
by will or by the laws of descent and distribution. No Incentive Stock
Option shall be transferable by the optionee otherwise than by will or
by the laws of descent and distribution and all Incentive Stock Options
shall be exercisable, during the optionee's lifetime, only by the
optionee.
(f) Bonus for Taxes. In the case of a Non-Qualified Stock
Option or an optionee who elects to make a disqualifying disposition
(as defined in Section 422(a)(1) of the Code) of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option, the Committee in
its discretion may award at the time of grant or thereafter the
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right to receive upon exercise of such Stock Option a cash bonus
calculated to pay part or all of the federal and state, if any, income
tax incurred by the optionee upon such exercise.
(g) Termination by Death. Subject to Section 5(k), if an
optionee's employment by the Corporation and any Subsidiary or (except
in the case of an Incentive Stock Option) Affiliate terminates by
reason of death, any Stock Option held by such optionee may thereafter
be exercised, to the extent such option was exercisable at the time of
death or (except in the case of an Incentive Stock Option) on such
accelerated basis as the Committee may determine at or after grant (or
except in the case of an Incentive Stock Option, as may be determined
in accordance with procedures established by the Committee) by the
legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such
other period as the Committee may specify at or after grant) from the
date of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(h) Termination by Reason of Disability. Subject to Section
5(k), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or (except in the case of an
Incentive Stock Option) on such accelerated basis as the Committee may
determine at or after grant (or, except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee), for a period of (i) three years (or such
other period as the Committee may specify at or after grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter, in
the case of a Non-Qualified Stock Option and (ii) one year from the
date of termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter, in the case of
an Incentive Stock Option; provided however, that, if the optionee dies
within the period specified in (i) above (or other such period as the
committee shall specify at or after grant), any unexercised
Non-Qualified Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise period applicable to Incentive Stock
Options, but before the expiration of any period that would apply if
such Stock Option were a Non-Qualified Stock Option, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section
5(k), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Normal or Early Retirement, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to
the
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extent it was exercisable at the time of such Retirement or (except
in the case of an Incentive Stock Option) on such accelerated basis as
the Committee may determine at or after grant (or, except in the case
of an Incentive Stock Option, as may be determined in accordance with
procedures established by the Committee), for a period of (i) three
years (or such other period as the Committee may specify at or after
grant) from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period
is the shorter, in the case of a Non-Qualified Stock Option and (ii)
three months from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period
is the shorter, in the event of an Incentive Stock Option; provided
however, that, if the optionee dies within the period specified in (i)
above (or other such period as the Committee shall specify at or after
grant), any unexercised Non-Qualified Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months from
the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is shorter. In the event of
termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise period
applicable to Incentive Stock Options, but before the expiration of
the period that would apply if such Stock Option were a Non-Qualified
Stock Option, the option will thereafter be treated as a Non-Qualified
Stock Option.
(j) Other Termination. Subject to Section 5(k), unless
otherwise determined by the Committee (or pursuant to procedures
established by the Committee) at or (except in the case of an Incentive
Stock Option) after grant, if an optionee's employment by the
Corporation and any Subsidiary or (except in the case of an Incentive
Stock Option) Affiliate is involuntarily terminated for any reason
other than death, Disability or Normal or Early Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be
exercised, to the extent otherwise then exercisable, for the lesser of
three months or the balance of such Stock Option's term if the
involuntary termination is without Cause. For purposes of this Plan,
"Cause" means (i) a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or (ii) a
participant's willful misconduct or dishonesty, which is directly and
materially harmful to the business or reputation of the Corporation or
any Subsidiary or Affiliate. If an optionee voluntarily terminates
employment with the Corporation and any Subsidiary or (except in the
case of an Incentive Stock Option) Affiliate (except for Disability,
Normal or Early Retirement), the Stock Option shall thereupon
terminate; provided, however, that the Committee at grant or (except in
the case of an Incentive Stock Option) thereafter may extend the
exercise period in this situation for the lesser of three months or the
balance of such Stock Option's term.
(k) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the Code, or,
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without the consent of the optionee(s) affected, to disqualify any
Incentive Stock Option under such Section 422. No Incentive Stock
Option shall be granted to any participant under the Plan if such
grant would cause the aggregate Fair Market Value (as of the date the
Incentive Stock Option is granted) of the Common Stock with respect to
which all Incentive Stock Options are exercisable for the first time
by such participant during any calendar year (under all such plans of
the Company and any Subsidiary) to exceed $100,000. To the extent
permitted under Section 422 of the Code or the applicable regulations
thereunder or any applicable Internal Revenue Service pronouncement:
(i) if (x) a participant's employment is
terminated by reason of death, Disability, or Retirement and
(y) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period
specified under Section 5(g), (h) or (i), applied without
regard to the $100,000 limitation contained in Section 422(d)
of the Code, is greater than the portion of such Option that
is immediately exercisable as an "Incentive Stock Option"
during such post-termination period under Section 422, such
excess shall be treated as a Non-Qualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option
is accelerated by reason of a Change in Control, any portion
of such Option that is not exercisable as an Incentive Stock
Option by reason of the $100,000 limitation contained in
Section 422(d) of the Code shall be treated as a Non-Qualified
Stock Option.
(l) Buyout Provisions. The Committee may at any time offer to
buy out for a payment in cash, Common Stock, or Restricted Stock an
Option previously granted, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time
that such offer is made.
(m) Settlement Provisions. If the option agreement so provides
at grant or (except in the case of an Incentive Stock Option) is
amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the
shares to be issued with respect to the spread value of an exercised
Option take the form of Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value (as determined
by the Committee) of such Restricted Stock determined without regards
to the forfeiture restrictions involved.
(n) Performance and Other Conditions. The Committee may
condition the exercise of any Option upon the attainment of specified
performance goals or other factors as the Committee may determine, in
its sole discretion. Unless specifically provided in the option
agreement, any such conditional Option shall vest six months prior to
its expiration if the conditions to exercise have not theretofore been
satisfied.
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SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted
under the Plan. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such
Stock Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of the grant of such Stock Option. A Stock
Appreciation Right or applicable portion thereof granted with respect
to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject
to such provisions as the Committee may specify at grant where a Stock
Appreciation Right is granted with respect to less than the full
number of shares covered by a related Stock Option. A Stock
Appreciation Right may be exercised by an optionee, subject to Section
6(b), in accordance with the procedures established by the Committee
for such purpose. Upon such exercise, the optionee shall be entitled
to receive an amount determined in the manner prescribed in Section
6(b). Stock Options relating to exercised Stock Appreciation Rights
shall no longer be exercisable to the extent that the related Stock
Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6
of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash
and/or shares of Common Stock equal in value to the excess of
the Fair Market Value of one share of Common Stock over the
option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.
When payment is to be made in shares, the number of shares to
be paid shall be calculated on the basis of the Fair Market
Value of the shares on the date of exercise. When payment is
to be made in cash, such amount shall be calculated on the
basis of the Fair Market Value of the Common Stock on the date
of exercise.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option
would be transferable under Section 5(e) of the Plan.
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(iv) Upon the exercise of a Stock Appreciation Right,
the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Common Stock
to be issued under the Plan.
(v) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a
Potential Change in Control, the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the
Change in Control Price, subject to such terms and conditions
as the Committee may specify at grant.
(vi) The Committee may condition the exercise of any
Stock Appreciation Right upon the attainment of specified
performance goals or other factors as the Committee may
determine, in its sole discretion.
SECTION 7. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued
either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside the Plan. The Committee
shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares of
Restricted Stock to be awarded to any person, the price (if any) to be
paid by the recipient of Restricted Stock (subject to Section 7(b)),
the time or times within which such awards may be subject to
forfeiture, and the other terms, restrictions and conditions of the
awards in addition to those set forth in Section 7(c). The Committee
may condition the grant of Restricted Stock upon the attainment of
specified performance goals or such other factors as the Committee may
determine, in its sole discretion. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to
the Corporation, and has otherwise complied with the applicable terms
and conditions of such award.
(i) The purchase price for shares of Restricted Stock
shall be established by the Committee and may be zero.
(ii) Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the
Committee may specify at grant) after the award date, by
executing a Restricted Stock Award Agreement and paying
whatever price (if any) is required under Section 7(b)(i).
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(iii) Each participant receiving a Restricted Stock
award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be
registered in the name of such participant (or a transferee
permitted by Section 13(h) hereof), and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
(iv) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Corporation until the restrictions thereon shall have lapsed,
and that, as a condition of any Restricted Stock award, the
participant shall have delivered a stock power, endorsed in
blank, relating to the shares of Common Stock covered by such
award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
(i) In accordance with the provisions of this Plan
and the award agreement, during a period set by the Committee
commencing with the date of such award (the "Restriction
Period"), the participant shall not be permitted to sell,
transfer, pledge, assign, or otherwise encumber shares of
Restricted Stock awarded under the Plan. Within these limits,
the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate
or waive such restrictions, in whole or in part, based on
service, performance, such other factors or criteria as the
Committee may determine in its sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 7(c)(i), the participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a
shareholder of the Corporation, including the right to vote
the shares, and the right to receive any cash dividends. The
Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines,
reinvested, subject to Section 14(e), in additional Restricted
Stock to the extent shares are available under Section 3, or
otherwise reinvested. Pursuant to Section 3 above, stock
dividends issued with respect to Restricted Stock shall be
treated as additional shares of Restricted Stock that are
subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such
dividends are issued. If the Committee so determines, the
award agreement may also impose restrictions on the right to
vote and the right to receive dividends.
(iii) Subject to the applicable provisions of the
award agreement and this Section 7, upon termination of a
participant's employment with the Corporation and any
Subsidiary or Affiliate for any reason during the Restriction
Period, all shares still subject to restriction will vest, or
be forfeited, in accordance with the terms and conditions
established by the Committee at or after grant.
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(iv) If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, certificates for an appropriate
number of unrestricted shares shall be delivered to the
participant (or a transferee permitted by Section 13(h)
hereof) promptly.
(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Corporation and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Common Stock to the
recipient of a restricted stock award, subject to such performance,
future service, deferral, and other terms and conditions as may be
specified by the Committee.
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) Administration. Other Stock-Based Awards, including,
without limitation, performance shares, convertible preferred stock,
convertible debentures, exchangeable securities and Common Stock awards
or options valued by reference to earnings per share or Subsidiary
performance, may be granted either alone, in addition to, or in tandem
with Stock Options, Stock Appreciation Rights, or Restricted Stock
granted under the Plan and cash awards made outside of the Plan;
provided that no such Other Stock-Based Awards may be granted in tandem
with Incentive Stock Options if that would cause such Stock Options not
to qualify as Incentive Stock Options pursuant to Section 422 of the
Code. Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at
which such awards shall be made, the number of shares of Common Stock
to be awarded pursuant to such awards, and all other conditions of the
awards. The Committee may also provide for the grant of Common Stock
upon the completion of a specified performance period. The provisions
of Other Stock-Based Awards need not be the same with respect to each
recipient.
(b) Terms and Conditions. Other Stock-Based Awards made
pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Shares subject to awards under this Section 8 and
the award agreement referred to in Section 8(b)(v) below, may
not be sold, assigned, transferred, pledged, or otherwise
encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction,
performance, or deferral period lapses.
(ii) Subject to the provisions of this Plan and the
award agreement and unless otherwise determined by the
Committee at grant, the recipient of an award under this
Section 8 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or interest or dividend
equivalents with respect to the number
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of shares covered by the award, as determined at the time of
the award by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be
deemed to have been reinvested in additional shares of
Common Stock or otherwise reinvested.
(iii) Any award under Section 8 and any shares of
Common Stock covered by any such award shall vest or be
forfeited to the extent so provided in the award agreement, as
determined by the Committee in its sole discretion.
(iv) In the event of the participant's Retirement,
Disability, or death, or in cases of special circumstances,
the Committee may, in its sole discretion, waive in whole or
in part any or all of the remaining limitations imposed
hereunder (if any) with respect to any or all of an award
under this Section 8.
(v) Each award under this Section 8 shall be
confirmed by, and subject to the terms of, an agreement or
other instrument by the Corporation and the participant.
(vi) Common Stock (including securities convertible
into Common Stock) issued on a bonus basis under this Section
8 may be issued for no cash consideration. Common Stock
(including securities convertible into Common Stock) purchased
pursuant to a purchase right awarded under this Section 8
shall be priced at least 85% of the Fair Market Value of the
Common Stock on the date of grant.
SECTION 9. AWARDS TO OUTSIDE DIRECTORS.
(a) The provisions of this Section 9 shall apply only to
awards to Outside Directors in accordance with this Section 9. The
Committee shall have no authority to determine the timing of or the
terms or conditions of any award under this Section 9.
(b) At the date of the Corporation's initial public offering,
each person serving as an Outside Director on such date will receive a
non-qualified stock option to purchase 9,000 shares of Common Stock at
a per share exercise price equal to the initial public offering price.
Such option shall vest and become exercisable with respect to the
following numbers of shares on the following Annual Meeting dates, if
the grantee has been a member of the Board until such date (whether or
not the grantee will remain a director following such meeting): (i)
5,000 shares on the date of the Annual Meeting of Shareholders in 1998,
(ii) 2,000 shares on the date of the Annual Meeting of Shareholders in
1999 and (iii) 2,000 shares on the date of the Annual Meeting of
Shareholders in 2000.
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(c) If any person who was not previously a member of the Board
is elected or appointed an Outside Director following the initial
public offering but prior to the date of the Annual Meeting of
Shareholders of the Corporation in the year 2000, such Outside Director
will receive a non-qualified stock option to purchase 7,000 shares of
Common Stock if such Outside Director's service begins prior to the
second anniversary of the initial public offering and 5,000 shares of
Common Stock if such Outside Director's service begins after the
second anniversary of the initial public offering but prior to the
date of the Annual Meeting of Shareholders in the year 2000. It is
intended that such grant may be increased or decreased to extent
deemed appropriate by the Board, in its sole discretion, to reflect
the extent to which director's expected service prior to the Annual
Meeting of Shareholders in 2000 may exceed two years or may be less
than one full year. The exercise price per share of each option
granted pursuant to this Section 9(c) shall equal the Fair Market
Value per share of Common Stock on the date of grant. Options granted
under this Section 9(c) shall vest and become exercisable with respect
to the following numbers of shares on the following Annual Meeting
dates, if the grantee has been a member of the Board until such date
(whether or not such grantee will remain a director following such
meeting): (i) 5,000 shares (or any smaller number constituting the
entire grant) on the date of the first Annual Meeting of Shareholders
following the date of grant, (ii) 2,000 shares (or any smaller
remaining number of shares) on the date of the second Annual Meeting
of Shareholders following the date of grant and (iii) any remaining
shares on the date of the third Annual Meeting of Shareholders
following the date of grant.
(d) On the date of each Annual Meeting of Shareholders of the
Corporation beginning with the Annual Meeting of Shareholders in 2000,
unless this Plan has been previously terminated, each Outside Director
who will continue as a director following such meeting will receive a
non-qualified stock option to purchase 3,000 shares of Common Stock.
The exercise price per share of each option granted pursuant to this
Section 9(d) shall equal the Fair Market Value per share of Common
Stock on the date of grant. Such option shall vest and become
exercisable with respect to all 3,000 shares on the date of the next
Annual Meeting of Shareholders of the Corporation if the grantee has
been a member of the Board until such date (whether or not such grantee
will remain a director following such meeting).
(e) No Outside Director Option shall be exercisable prior to
vesting. Each Outside Director Option shall expire, if unexercised, on
the tenth anniversary of the date of grant. The exercise price may be
paid in cash or in shares of Common Stock, including shares of Common
Stock subject to the Outside Director Option.
(f) Outside Director Options shall not be transferable without
the prior written consent of the Board other than (i) transfers by the
optionee to a member of his or her Immediate Family or a trust for the
benefit of optionee or a member of his or her Immediate Family, or (ii)
transfers by will or by the laws of descent and distribution.
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(g) Grantees of Outside Director Options shall enter into a
stock option agreement with the Corporation setting forth the exercise
price and other terms as provided herein.
(h) Upon termination of an Outside Director's service as a
director of the Corporation, (i) all Outside Director Options
theretofore exercisable and held by such Outside Director will remain
vested and exercisable through the expiration date and (ii) all
remaining Outside Director Options held by such Outside Director will
become exercisable and vested and remain so through the expiration
date to the extent of any shares that would have become exercisable
and vested within a period of less than twelve months following the
date of termination of service. Any unvested Outside Director Options
held by the Outside Director on the date of termination of service
will be forfeited to the extent of any shares that would not have
become vested and exercisable until at least twelve months from the
date of termination of service. The Board may, in its sole discretion,
elect to accelerate the vesting of any Outside Director Options in
connection with the termination of service of any individual Outside
Director.
(i) Outside Director Options shall be subject to Section 10.
The number of shares and the exercise price per share of each Outside
Director Option theretofore awarded shall be adjusted automatically in
the same manner as the number of shares and the exercise price for
Stock Options under Section 3(c) hereof at any time that Stock Options
are adjusted as provided in Section 3(c). The number of shares
underlying Outside Director Options to be awarded in the future shall
be adjusted automatically in the same manner as the number of shares
underlying outstanding Stock Options are adjusted under Section 3(c)
hereof at any time that Stock Options are adjusted under Section 3(c)
hereof.
(j) The Board, in its sole discretion, may determine to reduce
the size of any Outside Director Option prior to grant or to postpone
the vesting and exercisability of any Outside Director Option prior to
grant.
SECTION 10. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 10(b); or
(2) a "Potential Change in Control" as defined in Section
10(c), but only if and to the extent so determined by the
Committee or the Board at or after grant (subject to any right
of approval expressly reserved by the Committee or the Board
at the time of such determination),
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(i) Subject to the limitations set forth below in
this Section 10(a), the following acceleration provisions
shall apply:
(a) Any Stock Appreciation Rights, any Stock
Option or Outside Director Option awarded under the
Plan not previously exercisable and vested shall
become fully exercisable and vested.
(b) The restrictions applicable to any Restricted
Stock and Other Stock-Based Awards, in each case to
the extent not already vested under the Plan, shall
lapse and such shares and awards shall be deemed
fully vested.
(ii) Subject to the limitations set forth below in
this Section 10(a), the value of all outstanding Stock
Options, Stock Appreciation Rights, Restricted Stock, Outside
Director Options and Other Stock-Based Awards, in each case to
the extent vested, shall, unless otherwise determined Board or
by the Committee in its sole discretion prior to any Change in
Control, be cashed out on the basis of the "Change in Control
Price" as defined in Section 10(d) as of the date such Change
in Control or such Potential Change in Control is determined
to have occurred or such other date as the Board or Committee
may determine prior to the Change in Control.
(iii) The Board or the Committee may impose
additional conditions on the acceleration or valuation of any
award in the award agreement.
(b) Definition of Change in Control. For purposes of Section
10(a), a "Change in Control" means the happening of any 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 Corporation or a wholly-owned subsidiary thereof or any
employee benefit plan of the Corporation or any of its
Subsidiaries, becomes the beneficial owner of the
Corporation's securities having 35% or more of the combined
voting power of the then outstanding securities of the
Corporation that may be cast for the election of directors of
the Corporation (other than as a result of an issuance of
securities initiated by the Corporation in the ordinary course
of business); or
(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 Corporation or any successor
corporation or entity entitled to vote generally in the
election of the directors of the Corporation or such other
corporation or entity after such transaction are held in the
aggregate by the holders of the Corporation's securities
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entitled to vote generally in the election of directors of
the Corporation immediately prior to such transaction; or
(iii) 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 Corporation's shareholders, of each director
of the Corporation first elected during such period was
approved by a vote of at least two-thirds of the directors
of the Corporation then still in office who were directors
of the Corporation at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 10(a), a "Potential Change in Control" means the happening of
any one of the following:
(i) The approval by shareholders of an agreement by
the Corporation, the consummation of which would result in a
Change in Control of the Corporation as defined in Section
10(b); or
(ii) The acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Corporation or a Subsidiary or any Corporation
employee benefit plan (including any trustee of such plan
acting as such trustee)) of securities of the Corporation
representing 5% or more of the combined voting power of the
Corporation's outstanding securities and the adoption by the
Committee of a resolution to the effect that a Potential
Change in Control of the Corporation has occurred for purposes
of this Plan.
(d) Change in Control Price. For purposes of this Section 10,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the NYSE or such other exchange or market as is
the principal trading market for the Common Stock, or paid or offered
in any bona fide transaction related to a Potential or actual Change in
Control of the Corporation at any time during the 60 day period
immediately preceding the occurrence of the Change in Control (or,
where applicable, the occurrence of the Potential Change in Control
event), in each case as determined by the Committee except that, in the
case of Incentive Stock Options and Stock Appreciation Rights relating
to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such
Stock Appreciation Rights or, where applicable, the date on which a
cash out occurs under Section 10(a)(ii).
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter or discontinue the Plan;
provided, however, that, without the approval of the Corporation's shareholders,
no amendment or alteration may be made
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which would (a) except as a result of the provisions of Section 3(c) of the
Plan, increase the maximum number of shares that may be issued under the Plan or
increase the Section 162(m) Maximum, (b) change the provisions governing
Incentive Stock Options except as required or permitted under the provisions
governing incentive stock options under the Code, (c) amend Section 9 hereof so
as to increase the size of any award (other than as contemplated by Section 3(c)
and Section 9(i) hereof) or otherwise materially increase the benefits to
Outside Directors under Section 9 hereof, or (d) make any change for which
applicable law or regulatory authority (including the regulatory authority of
the NYSE or any other market or exchange on which the Common Stock is traded)
would require shareholder approval or for which shareholder approval would be
required to secure full deductibility of compensation received under the Plan
under Section 162(m) of the Code. No amendment, alteration, or discontinuation
shall be made which would impair the rights of an optionee or participant under
a Stock Option, Stock Appreciation Right, Restricted Stock, Other Stock-Based
Award or Outside Director Option theretofore granted, without the participant's
consent.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices. Solely
for purposes of computing the Section 162(m) Maximum, if any Stock Options or
other awards previously granted to a participant are canceled and new Stock
Options or other awards having a lower exercise price or other more favorable
terms for the participant are substituted in their place, both the initial Stock
Options or other awards and the replacement Stock Options or other awards will
be deemed to be outstanding (although the canceled Stock Options or other awards
will not be exercisable or deemed outstanding for any other purposes).
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Corporation, nothing contained herein shall give
any such participant or optionee any rights that are greater than those of a
general creditor of the Corporation. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or payments in lieu of or with
respect to awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected participant, the existence
of such trusts or other arrangements is consistent with the "unfunded" status of
the Plan.
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SECTION 13. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option or other award under the Plan to represent
to and agree with the Corporation in writing that the optionee or
participant is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which
the Committee deems appropriate to reflect any restrictions on
transfer. All certificates for shares of Common Stock or other
securities delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) The adoption of the Plan shall not confer upon any
employee of the Corporation or any Subsidiary or Affiliate any right to
continued employment with the Corporation or a Subsidiary or Affiliate,
as the case may be, nor shall it interfere in any way with the right of
the Corporation or a Subsidiary or Affiliate to terminate the
employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income
tax purposes with respect to any award under the Plan, the participant
shall pay to the Corporation, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or local taxes
of any kind required by law to be withheld with respect to such amount.
The Committee may require withholding obligations to be settled with
Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Corporation under the Plan shall be conditional on such payment or
arrangements and the Corporation and its Subsidiaries or Affiliates
shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or other types of Plan
awards) at the time of any dividend payment shall only be permissible
if sufficient shares of Common Stock are available under Section 3 for
such reinvestment (taking into account then outstanding Stock Options
and other Plan awards).
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<PAGE> 47
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Tennessee.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any
determination made hereunder in a manner that is not inconsistent with
their legal obligations as members of the Board. In addition to such
other rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may
be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the
performance of his duties; provided that within 60 days after
institution of any such action, suit or proceeding, the Committee
member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may
be applicable under the terms of this Plan or the applicable award
agreement, no Stock Option, Stock Appreciation Right, Restricted Stock
award, or Other Stock-Based Award or other right issued under this Plan
is transferable by the participant without the prior written consent of
the Committee, or, in the case of an Outside Director, the Board, other
than (i) transfers by an optionee to a member of his or her Immediate
Family or a trust for the benefit of the optionee or a member of his or
her Immediate Family or (ii) transfers by will or by the laws of
descent and distribution. The designation of a beneficiary will not
constitute a transfer.
(i) The Committee may, at or after grant, condition the
receipt of any payment in respect of any award or the transfer of any
shares subject to an award on the satisfaction of a six-month holding
period, if such holding period is required for compliance with Section
16 under the Exchange Act.
SECTION 14. EFFECTIVE DATE OF PLAN.
The Plan shall be effective upon the date of the closing of the
Corporation's initial public offering (the "Effective Date"), provided that it
has been approved by the Board of the Corporation and by a majority of the votes
cast by the holders of the Corporation's Common Stock.
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<PAGE> 48
SECTION 15. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock Award,
Other Stock-Based Award or Outside Director Option award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date of
the Plan, but awards granted prior to such tenth anniversary may be extended
beyond that date.
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<PAGE> 49
Appendix B
PROXY AMERICAN RETIREMENT CORPORATION PROXY
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 12, 1999.
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 below on this proxy at the Annual Meeting of
Shareholders of the Company to be held at the Loews Vanderbilt Plaza Hotel, 2100
West End Avenue, Nashville, Tennessee, on Wednesday, May 12, 1999 at 11:00 a.m.,
local time, and any adjournments thereof.
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO
CHOICE IS SPECIFIED, SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES, FOR
THE PROPOSAL TO AMEND THE COMPANY'S CORPORATE CHARTER, AND FOR THE PROPOSAL TO
APPROVE THE COMPANY'S 1997 STOCK INCENTIVE PLAN, AS AMENDED.
[ ] Check here for address change.
New Address:
------------------------------------------
------------------------------------------------------
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(Please date and sign this proxy on the reverse side.)
AMERICAN RETIREMENT CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. Election of Directors: FOR WITHHOLD FOR ALL (Except
Nominee(s)
written below)
Nominees: Frank M. Bumstead,
Clarence Edmonds, Robert G. Roskamp,
and Nadine C. Smith [ ] [ ] [ ]
- -------------------------------------------------------------------------------
2. Proposal to approve the amendment to the Company's corporate charter to
increase the number of shares of common stock authorized for issuance.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the Company's 1997 Stock Incentive Plan, as amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion on any other matter that may properly come before said
meeting or any adjournments thereof.
PLEASE SIGN HERE AND RETURN PROMPTLY
Dated: , 1999
--------------------------------
Signature(s)
---------------------------------
---------------------------------
Please sign exactly as your name appears at
left. If registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians,
attorneys, and corporate officers should
show their full titles.
