<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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ADVOCAT INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(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
ADVOCAT INC.
277 MALLORY STATION ROAD, SUITE 130
FRANKLIN, TENNESSEE 37067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 2000
Notice is hereby given that the Annual Meeting of Stockholders of
Advocat Inc. (the "Company") will be held at 1800 AmSouth Center, Nashville,
Tennessee on July 27, 2000, at 9:00 a.m. Central Daylight Time, for the
following purposes:
1. To elect two Class 3 directors and one Class 2 director to hold office
for a three (3) year term and a two (2) year term, respectively, until
their successors are duly elected and qualified;
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on June 19, 2000 will be
entitled to vote at the meeting.
The Company's Board of Directors urges all stockholders of record to
exercise their right to vote at the meeting personally or by proxy. Accordingly,
we are sending you the accompanying Proxy Statement and the enclosed proxy card.
Your attention is directed to the Proxy Statement accompanying this
notice for a statement regarding matters to be acted upon at the meeting.
By Order of the Board of Directors,
James F. Mills, Jr.
Secretary
Franklin, Tennessee
June 21, 2000
YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS IS IMPORTANT.
TO ENSURE YOUR REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD. SHOULD YOU
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED IN THE
MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT.
1
<PAGE> 3
ADVOCAT INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Advocat Inc., a Delaware corporation,
with its principal offices at 277 Mallory Station Road, Suite 130, Franklin,
Tennessee 37067 (together with its subsidiaries, "Advocat" or the "Company"), to
be used at the Annual Meeting of Stockholders to be held on July 27, 2000, at
9:00 a.m. Central Daylight Time and at any adjournment thereof, for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders. The
Proxy Statement and form of proxy are being mailed to stockholders on or about
June 27, 2000.
A stockholder who executes a proxy has the right to revoke the proxy at
any time before it is voted by giving written notice of revocation to the
Secretary of the Company, by executing a proxy bearing a later date, or by
attending the Annual Meeting of Stockholders and voting in person. Proxies will
be voted in accordance with instructions noted on the proxies. Unless otherwise
specifically instructed in the proxies, it is the intention of the persons named
in the proxy to vote all proxies received by them FOR THE ELECTION OF THE
NOMINEES NAMED HEREIN WHO ARE STANDING FOR ELECTION AS CLASS 3 DIRECTORS and ONE
CLASS 2 DIRECTOR. Management does not know of any other matters that will be
presented for action at the Annual Meeting of Stockholders. If any other matter
does come before the meeting, however, the persons appointed in the proxy will
vote in accordance with their best judgment on such matter.
The cost of this proxy solicitation will be borne by the Company. It is
contemplated that proxies will be solicited solely by mail. Banks, brokers and
other custodians will be requested to forward proxy soliciting materials to
their customers where appropriate, and the Company will reimburse such banks,
brokers, and custodians for their reasonable out-of-pocket expenses in sending
the proxy materials to beneficial owners of the Company's shares.
SUMMARY OF MATTERS TO BE CONSIDERED
At the Annual Meeting of Stockholders, the stockholders of the Company
will be asked to vote on the election of two nominees to serve as Class 3
directors for a three-year term and until their successors are duly elected and
qualified and one nominee to serve as a Class 2 director for a two-year term and
until his successor is duly elected and qualified (see "Proposal 1: Election of
Directors").
VOTING
Stockholders of record as of June 19, 2000 will be entitled to vote at
the annual meeting. At the close of business on that day, there were outstanding
5,491,621 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"). Each share of Common Stock is entitled to one vote, which may
be given in person or by proxy authorized in writing. The Company has no other
classes of voting stock issued. The Company has the authority to issue shares of
preferred stock in one or more series, although no series of preferred stock has
been designated or issued.
2
<PAGE> 4
To vote by proxy, a stockholder should complete, sign, date and return
the enclosed proxy to the Secretary of the Company. The Board of Directors urges
you to complete the proxy card whether or not you plan to attend the meeting. If
you attend the meeting in person, you may, if you wish, vote in person on all
matters brought before the meeting even if you have previously delivered your
proxy. Any stockholder who has given a proxy may revoke it any time prior to its
exercise by filing an instrument revoking it with the Secretary of the Company,
by duly executing a proxy bearing a later date, or by attending the meeting and
voting in person. The mere presence at the meeting of a stockholder who has
appointed a proxy will not revoke the appointment.
The director nominees will be elected by a plurality of the votes cast
by the holders of the Common Stock present or represented and entitled to vote
at the annual meeting. All other matters submitted to the stockholders will be
approved by the affirmative vote of a majority of the shares present or
represented and entitled to vote at the Annual Meeting of Stockholders.
Abstentions and broker non-votes will not be counted as affirmative votes, but
will be counted for purposes of determining the presence or absence of a quorum.
Abstentions and broker non-votes have no legal effect on the election of
directors. On matters requiring majority vote for approval, abstentions, and
broker non-votes have the effect of negative votes.
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The table below sets forth, as of March 31, 2000, the number and
percentage of outstanding shares of the Company's Common Stock owned by all
persons known to the Company to be holders of 5% or more of such securities, by
each director, by each of the executive officers named in the Summary
Compensation Table herein, and by all directors and executive officers of the
Company as a group. Unless otherwise indicated, all holdings are of record and
beneficial.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY SHARES OF TOTAL
NAME OWNED(1) OUTSTANDING(2)
---- -------- --------------
<S> <C> <C>
Charles W. Birkett, M.D. (3) ................................... 344,882 6.0%
Mary Margaret Hamlett (4) ...................................... 240,715 4.3%
Paul Richardson (5) ............................................ 225,620 4.1%
Edward G. Nelson (6) ........................................... 23,000 *
William C. O'Neil, Jr. (6) ..................................... 20,000 *
J. Bransford Wallace (7) ....................................... 17,000 *
Charles H. Rinne (8) ........................................... 16,667 *
All directors and executive officers as a group (7 persons) (10) 887,884 16.2%
</TABLE>
* less than 1%
(1) Unless otherwise indicated, the persons or entities identified in this
table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, subject to community property
laws, where applicable.
3
<PAGE> 5
(2) The percentages shown are based on 5,491,693 shares of Common Stock
outstanding plus, as to each individual and group listed, the number of
shares of Common Stock deemed to be owned by such holder pursuant to
Rule 13d-3 under the Exchange Act, assuming exercise of options held by
such holder that are exercisable within 60 days of March 31, 2000.
(3) Includes 85,000, 50,000, 50,000 and 50,000 shares purchasable upon
exercise of options at exercise prices of $9.50, $9.75, $10.0625 and
$1.8125 per share, respectively, issued under the Key Personnel Plan
and 15,000, 1,000, 1,000, 1,000, 1,000, 667, and 333 shares purchasable
upon exercise of options at exercise prices of $9.50, $13.125, $11.125,
$7.125, $8.3125, $5.5625 and $.15 per share, respectively, issued under
the 1994 Nonqualified Stock Option Plan for Directors (the "Director
Plan").
(4) Includes 65,000, 20,000, and 25,000 shares purchasable upon exercise of
options at exercise prices of $9.50, $9.75, and $10.0625 per share,
respectively, issued under the Key Personnel Plan and 15,000, 1,000,
1,000, 1,000, 1,000, and 1,000 shares purchasable upon exercise of
options at exercise prices of $9.50, $13.125, $11.125, $7.125, $8.3125,
and $5.5625 per share, respectively, issued under the Director Plan.
Ms. Hamlett resigned as Director, Executive Vice President, Secretary
and Chief Financial Officer effective June 30, 1999.
(5) Includes 85,000, 30,000, 25,000 and 13,333 shares purchasable upon
exercise of options at exercise prices of $9.50, $9.75, $10.0625 and
$1.8125 per share, respectively, issued under the Key Personnel Plan
and 15,000, 1,000, 1,000, 1,000, 1,000, 667 and 333 shares purchasable
upon exercise of options at exercise prices of $9.50, $13.125, $11.125,
$7.125, $8.3125, $5.5625 and $.15 per share, respectively, issued under
the Director Plan.
(6) Includes 15,000, 1,000, 1,000, 1,000, 1,000, 667, and 333 shares
purchasable upon exercise of options at exercise prices of $9.50,
$13.125, $11.125, $7.125, $8.3125, $5.5625 and $.15 per share,
respectively, issued under the Director Plan.
(7) Includes 15,000, 1,000, 667 and 333 shares purchasable upon exercise of
options at an exercise price of $9.25, $8.3125, $5.5625, and $.15 per
share issued under the Director Plan. Mr. Wallace was elected to fill a
vacancy on the Board of Directors on February 24, 1997.
(8) Includes 16,667 shares purchasable upon exercise of options at an
exercise price of $1.875 issued under the Key Personnel Plan.
(9) Includes 8,333 shares purchasable upon exercise of options at an
exercise price of $1.75 per share issued under the Key Personnel Plan.
(10) Includes 405,000 and 97,000 shares purchasable upon exercise of options
issued under the Key Personnel Plan and the Director Plan,
respectively.
4
<PAGE> 6
EXECUTIVE OFFICERS
The following table sets forth, as of January 1, 2000, the Company's
executive officers:
<TABLE>
<CAPTION>
NAME OF OFFICER AGE OFFICER SINCE POSITION WITH THE COMPANY
--------------- --- ------------- -------------------------
<S> <C> <C> <C>
Dr. Charles W. Birkett 63 Inception Chief Executive Officer and Chairman of the Board of
Directors of the Company; President, Chief Executive
Officer and a Director of Diversicare from September
1991 to May 1994; Director of Counsel Corporation
from 1983 to May 1994; Chairman of the Board of
Directors and Chief Executive Officer of Diversicare
Management Services ("DMS") from September 1991
to present; Chairman of the Board of Directors and
Chief Executive Officer of Diversicare Leasing Corp.
("DLC") from May 1994 to present; and President of
Diversicare Incorporated ("DINC") from February
1980 to May 1994.
Paul Richardson 5 Inception Executive Vice President and a Member of the Board
of Directors of the Company; President and Chief
Executive Officer of the Company's Canadian
operating subsidiary; President and Chief Operating
Officer of the Company from May 1994 through
February 1997; Executive Vice President of
Diversicare from September 1991 to May 1994;
President of DMS from November 1991 through
February 1997; President of DLC from May 1994
through February 1997; Executive Vice President of
DINC from March 1991 to May 1994.
Richard B. Vacek, Jr. 5 August 16, 1999 Executive Vice President, Chief Financial Officer and
Secretary since August 16, 1999. From 1989 to 1999,
Mr. Vacek was Director, Executive Vice President and
Chief Financial Officer for Horace Small Apparel
PLC. From 1984 to 1989 he was Director, Senior
Vice President and Chief Financial Officer of
Cambridge Group, Inc. Mr. Vacek is a certified public
accountant. Mr. Vacek resigned from the Company
effective January 28, 2000.
Charles H. Rinne 5 June 28, 1999 President and Chief Operating Officer since June
1999. From 1996 to 1999 Mr. Rinne was Executive
Vice President and Chief Operational Officer for
Britthaven Inc. Mr. Rinne was Director of Operations
at Hillhaven Inc. from 1994 to 1996; President at
Senior Dynamics Inc. from 1991 to 1994, and Senior
Vice President at Sterling Care Inc. from 1989 to
1991.
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
NAME OF OFFICER AGE OFFICER SINCE POSITION WITH THE COMPANY
--------------- --- ------------- -------------------------
<S> <C> <C> <C>
James F. Mills, Jr. 53 January 31, 2000 Vice President and Corporate Controller since
January 1, 2000. Mr. Mills became Acting Chief
Financial Officer of the Company on January 28,
2000, and was appointed Senior Vice President and
Chief Financial Officer on May 23, 2000. Mr. Mills
was Vice President and Corporate Controller for
Horace Small Apparel, PLC from 1995 through 1999.
From 1985 through 1995 he was Vice President of
Finance ans Senior Vice President of Operations for
Globe Business Furniture, Inc. Mr. Mills is a certified
public accountant.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the services in all
capacities to the Company for the three fiscal years ended December 31, 1999, of
the individual who served as the Company's chief executive officer during the
1999 fiscal year and of the other individuals who served the Company as
executive officers as of the end of the 1999 fiscal year or during the 1999
fiscal year and met the reporting requirements.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------------------- -----------------------------------------------------
Awards Payouts
----------------------- --------------------------
Other Securities
Annual Restricted Underlying All Other
Name and Principal Compensation Stock Options/ LTIP Compensation
Position Year (1) Salary($) Bonus($) ($)(1) Awards($) SARs(#) Payouts($) ($)(2)
-------- -------- --------- -------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Charles W. Birkett(3)(4) 1999 325,000 -- -- -- 76,000
Chairman of the Board 1998 325,000 -- -- -- 51,000 -- 22,308
of Directors, Chief 1997 275,625 -- -- -- 1,000 -- 19,697
Executive Officer,
President and Chief
Operating Officer
Paul Richardson(3) 1999 106,060 12,438 -- -- 21,000 -- 4,940
Executive Vice President, 1998 94,256 10,436 -- -- 26,000 -- 4,933
Director, and Chief 1997 105,847 11,012 -- -- 1,000 -- 5,236
Executive Officer of the
Company's Canadian
operating subsidiary
Mary Margaret Hamlett(5) 1999 90,000 -- -- -- -- -- 256,284
Executive Vice President, 1998 180,000 -- -- -- 26,000 -- 11,225
Chief Financial Officer, 1997 165,375 -- -- -- 1,000 -- 10,312
Secretary, and Director
Charles H. Rinne(4) 1999 108,173 -- -- -- 50,000 -- 242
President and Chief
Operating Officer
</TABLE>
(1) Perquisites for each executive officer are in amounts that do not
require disclosure.
(2) Includes matching contributions made under the Company's Supplemental
Executive Retirement Plan (at 6% of salary) for Dr. Birkett, $6,000,
$19,500 and $16,538 for 1999, 1998 and 1997, respectively, and for Ms.
Hamlett, $4,154, $10,773 and $9,910 for 1999, 1998 and 1997,
respectively. The 1999 amounts also include 10% matching contributions
of $1,000 each for Dr. Birkett and Ms. Hamlett under the Company's 401K
plan. In the case of Mr. Richardson, a Canadian citizen, the amounts
include contributions to Mr. Richardson's Registered Retirement Savings
Plan of $4,543, $4,545 and $4,874 for 1999, 1998 and 1997,
respectively. The amount for Ms. Hamlett also includes $249,737 in
severance benefits of which $104,912 was accrued but unpaid as of
December 31, 1999. The remaining amounts for each individual include
payments for life insurance benefits as well as other miscellaneous
benefits.
(3) Effective March 1, 1997, Mr. Richardson resigned as President and Chief
Operating Officer of the Company and was replaced in those capacities
by Dr. Birkett.
(4) Effective June 28, 1999, Dr. Birkett resigned as President and Chief
Operating Officer of the Company and was replaced in these capacities
by Mr. Rinne.
(5) Ms. Hamlett resigned her positions with the Company and as a Director
effective June 30, 1999.
6
<PAGE> 8
EMPLOYMENT AGREEMENTS
On May 14, 1994, the Company entered into employment agreements with
each of Dr. Birkett and Mr. Richardson. Dr. Birkett serves as Chief Executive
Officer of the Company and Mr. Richardson serves as Executive Vice President of
the Company and as President and Chief Executive Officer of the Company's
Canadian operating subsidiary. The Employment Agreements for Dr. Birkett and Mr.
Richardson provide for a base annual salary of $250,000 and $175,000,
respectively, which salaries are subject to change by the Company's Compensation
Committee. For the year 2000, Dr. Birkett's base annual salary remained at
$325,000. Effective January 1, 2000, Mr. Richardson's base annual salary was
increased to $158,620 Canadian ($103,653 U.S. at the December 31, 1999 exchange
rate). The initial term of the employment agreement for Dr. Birkett expired on
the third anniversary of the date of execution thereof. The initial term of the
employment agreements for Mr. Richardson expired on the second anniversary of
the date of execution thereof. The employment agreements renew automatically for
one-year periods unless 30 days notice is given by either the Company or the
employee.
On June 28, 1999, the Company entered into an employment agreement with
Mr. Rinne (the "Rinne Employment Agreement") to serve as President of the
Company. The Rinne Employment Agreement has an initial term that ends on June
28, 2000 and renews automatically for one-year periods unless 30 days notice is
given by either the Company or the employee. The Rinne Employment Agreement
provides for a base salary of $225,000 which is subject to change by the
Company's Compensation Committee.
In addition, each of the employment agreements may be terminated by the
Company without cause at any time and by the employee as a result of
"constructive discharge" (e.g., a reduction in compensation or a material change
in responsibilities) or a "change in control" (e.g., certain tender offers,
mergers, sales of substantially all of the assets or sales of a majority of the
voting securities). In the event of a termination by the Company without cause,
at the election of the employee upon a constructive discharge or change in
control, or upon the Company giving notice of its intent not to renew his
employment agreement, Dr. Birkett shall be entitled to receive a lump sum
severance payment in an amount equal to 30 months of his monthly base salary. In
the event of a termination by the Company without cause, at the election of the
employee upon a constructive discharge or change in control or upon the Company
giving notice of its intent not to renew their respective employment agreements,
Mr. Richardson and Mr. Rinne shall be entitled to receive a lump sum severance
payment in an amount equal to 24 months of his monthly base salary. Furthermore,
upon such termination, each employee may elect to require the Company to
repurchase options granted to him under the Key Personnel Plan for a purchase
price equal to the difference between the fair market value of the Common Stock
at the date of termination and the stated option exercise price, provided that
such fair market value is above the stated option price. In the event that an
employment agreement is terminated earlier by the Company for cause (as defined
therein), or by the employee other than upon a constructive discharge or a
change in control, the employee shall not be entitled to any compensation
following the date of such termination other than the pro rata amount of his
then current base salary through such date. Upon termination of employment,
other than in the case of termination by the Company without cause or at the
election of the employee upon a constructive discharge or upon a change in
control, the terminated employee is prohibited from competing with the Company
for 12 months.
7
<PAGE> 9
On June 30, 1999, the Company entered into a Separation Agreement with
Ms. Hamlett. Pursuant to the Separation Agreement, Ms. Hamlett resigned her
position as Director, Chief Financial Officer, Executive Vice President and
Secretary of the Company. The Company agreed (i) to pay Ms. Hamlett a sum equal
to one hundred percent (100%) of her annual base salary, including monthly auto
allowance, as in effect on the Effective Date, in twelve (12) equal monthly
installments, less the usual and customary withholdings; (ii) that all Options
issued to Ms. Hamlett under the Option Agreements are fully vested as of the
Effective Date, and Ms. Hamlett would have eighteen (18) months to exercise such
options; (iii) to pay Ms. Hamlett accrued but unpaid salary, including accrued
but unpaid vacation pay, due from the Company through the Effective Date; (iv)
to continue providing Ms. Hamlett employee benefits and perquisites to which she
is entitled on the Effective Date for twelve (12) months; or until Ms. Hamlett
begins receiving similar benefits and perquisites from another employer,
whichever is earlier; and (v) to provide continuing coverage under the Company's
directors and officers insurance plan.
OPTION GRANTS
The table below provides information on grants of stock options
pursuant to the Key Personnel Plan and the Director Plan during the fiscal year
ended December 31, 1999, to the named executive officers reflected in the
Summary Compensation Table. The Company grants no stock appreciation rights.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rate of
Number of Percent of Stock Price
Securities Total Options/ Exercise Market Appreciation for
Underlying SARs Granted of Base Price on Options Term(2)(3)
Options to Employees Price Date of Expiration --------------------
Name granted (1) in Fiscal Year ($/Share) Grant Date 5% 10%
---- ----------- -------------- --------- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Dr. Charles W. Birkett 75,000 34.88% 1.8125 1.8125 05/14/09 85,490 216,649
1,000(2) 0.47 5.5625 5.5625 12/31/08 3,498 8,865
Charles H. Rinne 50,000 23.26 1.8750 1.8750 06/28/09 58,959 149,413
Mary Margaret Hamlett -0- N/A N/A N/A N/A N/A N/A
Paul Richardson 20,000 9.30 1.8125 1.8125 05/14/09 22,797 57,773
1,000(2) 0.47 5.5625 5.5625 12/31/08 3,498 8,865
</TABLE>
(1) The dollar amounts under these columns result from calculations
assuming the indicated growth rates in accordance with Securities and
Exchange Commission regulations and are not intended to forecast the
actual appreciation of the Common Stock.
(2) Granted pursuant to automatic grants to directors under the Director
Plan.
8
<PAGE> 10
OPTION EXERCISES AND VALUES
The table below provides information as to exercises of options under
the Key Personnel Plan and the Director Plan by the named executive officers
reflected in the Summary Compensation Table and the year-end value of
unexercised options held by such officers. The Company has granted no stock
appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SECURITIES OPTIONS/SARS /SARS
UNDERLYING AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
OPTIONS VALUE -------------------------- --------------------------
NAME EXERCISED(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Charles W. Birkett -0- -0- 213,333 67,667 -0- -0-
Paul Richardson -0- -0- 158,334 22,666 -0- -0-
Mary Margaret Hamlett(2) -0- -0- 130,800 -0- -0- -0-
Charles H. Rinne -0- -0- 16,667 33,333 -0- -0-
</TABLE>
(1) Options are classified as "in-the-money" if the market value of the
underlying Common Stock exceeds the exercise price of the option. The
value of such in-the-money options is the difference between the option
exercise price and $.14, the per-share market value of the underlying
Common Stock as of December 31, 1999. such amounts may not necessarily
be realized. Actual values that may be realized, if any, upon the
exercise of options will be based on the per-share market price of the
Common Stock at the time of exercise and are thus dependent upon future
performance of the Common Stock.
(2) Ms. Hamlett resigned effective June 30, 1999. Upon her resignation, Ms.
Hamlett's options became fully vested and may be exercised through
December 31, 2000.
COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Company's senior executives, except
for decisions related to awards under the Company's Director Plan, are made by
the Compensation Committee of the Company's Board of Directors. Each member of
the Compensation Committee is a non-employee director. It is the responsibility
of the Compensation Committee to assure the Board that the executive
compensation programs are reasonable and appropriate, meet their stated purpose
and effectively serve the needs of the Company's stockholders and the Company.
Pursuant to rules adopted by the Securities and Exchange Commission designed to
enhance disclosure of corporate policies toward executive compensation, set
forth below is a report submitted by directors Nelson and O'Neil in their
capacity as the Compensation Committee.
Compensation Philosophy and Policies for Executive Officers
The Company believes that the executive compensation program should
align the interests of stockholders and executives. The Company's primary
objective is to provide high quality patient care while maximizing stockholder
value. The Compensation Committee seeks to forge a strong link between the
Company's strategic business goals and its compensation goals.
9
<PAGE> 11
The Company's executive compensation program is consistent with the
Company's overall philosophy for all management levels. The Company believes
that the more employees are aligned with the Company's strategic objectives, as
stated below, the greater the Company's success on both a short-term and
long-term basis.
The Company's executive compensation program has been designed to
support the overall Company strategy and objective of creating stockholder value
by:
- Emphasizing pay for performance by having a significant
portion of executive compensation "at risk."
- Directly aligning the interest of executives with the
long-term interest of stockholders by awarding stock options
at current market prices, which have value to the executives
only through stock appreciation over the long run.
- Providing compensation opportunities that attract and retain
talented and committed executives on a long-term basis.
- Appropriately balancing the Company's short-term and long-term
business, financial and strategic goals.
The Company's strategic goals are:
- Profitability: To maximize financial returns to its
stockholders, in the context of providing high quality
service.
- Quality: To achieve leadership in the provision of relevant
and high quality health services.
- Growth: To expand the operations of the Company in such a
manner as not to imperil the achievement of other objectives.
- Stability: To be seen as a desirable employer and a
responsible corporate citizen.
Currently, the Company's executive compensation program is composed of
three components: base salary, annual cash incentive (i.e., bonus) and long-term
incentive opportunity through nonqualified stock options. When the Company or
the individual business units meet or exceed their respective annual operating
goals, the annual executive pay targets (i.e., base salary plus incentive) are
intended to be market competitive with similar U.S. public health care companies
having similar revenues.
Base Salary
The base salaries of the Company's executives are listed in the Summary
Compensation Table in this Proxy Statement and are evaluated annually. In
evaluating appropriate pay levels and salary increases for Company executives,
the Compensation Committee considers achievement of the Company's strategic
goals, level of responsibility, individual performance, internal equity and
external pay practices. Regarding external pay practices, the Compensation
Committee seeks to confirm base salaries for all executive officers at the
market rate, as determined from information gathered by the Company from an
independent compensation consulting firm and other outside sources.
10
<PAGE> 12
Annual Incentives
Annual incentive (bonus) awards are designed to focus management
attention on key operational goals for the current fiscal year. The key
operational goals are specific to each executive's area of responsibility.
Specific weighting is assigned for identified financial, strategic and
management practices goals. At least 80% of the available bonus percentage for
each executive is tied to Company profitability, generally defined by
achievement of the annual budget as approved by the Board of Directors.
Company executives may earn a bonus of up to 35% of their annual base
salaries based upon achievement of their specific operational goals and
achievement by the Company or business unit of its financial targets. At the end
of the year, performance against these goals is determined on an arithmetic
scale with the pre-established weighting.
With the exception of Mr. Richardson, no bonuses were awarded to the
Company's named executives with respect to 1999, 1998 and 1997. Mr. Richardson
was awarded bonuses with respect to his role as Chief Executive Officer of the
Company's Canadian operating subsidiary of $12,438, $10,436 and $11,012 for
1999, 1998 and 1997, respectively.
Long-Term Incentives
The Company's long-term incentive compensation program consists of
nonqualified stock options which are related to improvement in long-term
stockholder value. Stock option grants provide an incentive that focuses the
executive's attention on managing the Company from the perspective of an owner
with an equity stake in the business. These grants also focus operating
decisions on long-term results that benefit the Company and long-term
stockholders.
The option grants to executive officers offer the right to purchase
shares of Common Stock at their fair market value on the date of the grant.
These options will have value only if the Company's stock price increases. The
number of shares covered by each grant is intended to reflect the executive's
level of responsibility and past and anticipated contributions to the Company.
In 1999, the Compensation Committee awarded grants under the Key
Personnel Plan to Dr. Birkett, Mr. Richardson, Mr. Rinne and Mr. Vacek of
75,000, 20,000, 50,000 and 25,000, respectively.
Chief Executive Officer Compensation
Securities and Exchange Commission regulations require corporate
compensation committees to disclose the bases for the compensation of a
corporation's chief executive officer relative to such corporation's
performance.
Dr. Birkett, the Company's Chief Executive Officer, is eligible to
participate in the same executive compensation plans that are available to the
other senior executive officers, which plans are described above. The
Compensation Committee's general approach in setting Dr. Birkett's annual
compensation is derived from the same considerations described above: to be
competitive with the compensation plans of other U.S. public health care
corporations of similar size while having a large percentage of his annual
incentive compensation based upon specific, corporate-wide operating performance
criteria.
11
<PAGE> 13
Tax Regulation as to Limited Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a tax deduction to public companies for executive
compensation in excess of $1.0 million. It is not anticipated that the Company
will pay any of its executive officers compensation in excess of $1.0 million in
2000 and, accordingly, to date the Company has not adopted a policy in this
regard.
THE FOREGOING REPORT IS SUBMITTED BY ALL OF THE MEMBERS OF THE
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS, WHOSE MEMBERS ARE AS
FOLLOWS: EDWARD G. NELSON AND WILLIAM C. O'NEIL, JR.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company's review of the copies of Forms 3, 4 and 5
furnished to it and any amendments thereto, or written representations from
certain reporting persons that no Form 5's were required for such persons, the
Company believes that, during the 1999 fiscal year, its executive officers,
directors and greater than 10% stockholders complied with all applicable Section
16(a) filing requirements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of directors Nelson and
O'Neil. Former director Morris A. Perlis, an affiliate of Counsel Corporation
(together with various of its subsidiaries, "Counsel"), served on the
Compensation Committee through May 1995. Former directors Silber and Sonshine
are officers and directors of Counsel and certain of its subsidiaries. Mr.
Silber and Mr. Sonshine resigned as Directors of the Company on November 26,
1996, at which time the size of the Board of Directors was reduced from eight to
six members. Ms. Hamlett resigned as Director of the Company effective June 30,
1999, at which time the size of the Board of Directors was reduced from six to
five members.
COUNSEL CORPORATION RELATIONSHIP
Advocat was organized in 1994 with the transfer of the long-term care
business of Counsel and Diversicare Inc. ("Diversicare") to the Company. In an
initial public offering on May 10, 1994 (the "Offering"), 100% of the Company's
Common Stock was sold to the public. Following the Offering, neither Counsel nor
Diversicare retained any ownership interest in the Company. Various agreements
among the parties (the "Transfer Agreements") governed the Offering and the
transfer of certain assets of Counsel and Diversicare to the Company. The
Transfer Agreements and certain subsequent agreements and amendments continue to
govern various other matters between the Company and Counsel.
12
<PAGE> 14
Pursuant to the Transfer Agreements, the Company received the
outstanding capital stock of a Counsel subsidiary that held the general
partnership interest in a nursing home partnership managed by Advocat and
leasehold interests in all of the nursing homes and retirement centers then
owned or leased by Counsel. Eleven facilities owned by Counsel are now leased by
the Company under three separate leases as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF INITIAL OR CURRENT BASE RENTAL
FACILITIES LOCATION LEASE TERM PAYMENT
---------- -------- ---------- -------
<S> <C> <C> <C>
3 Florida through August 2002 $963,000/year*
3 Texas through May 2004 $205,000/year
5 Canada through May 2004 $935,000/year
</TABLE>
* Subject to yearly increases not to exceed 5% of the prior year's rent.
Pursuant to the Transfer Agreements, Advocat received a management
agreement covering seven Canadian facilities affiliated with Counsel. The
management agreement is for a term of 10 years through April 2004, with base
management fees equal to approximately $692,000 per year (at the December 31,
1999 exchange rate) and an additional incentive management fee equal to 11.8% of
net operating income as defined. Management fees generated under this contract
in 1999 were approximately $1.2 million.
Pursuant to the Transfer Agreements, the Company received the leases
and all leasehold rights and obligations thereunder previously held by Counsel
with respect to 19 nursing homes and two assisted living facilities leased from
Omega Healthcare Investors, Inc. ("Omega") under a master lease. In connection
therewith, Advocat provided a replacement security deposit letter of credit in
the amount of $3.8 million in favor of Omega, assumed all future obligations
with respect to the master lease, and agreed to indemnify Counsel and its
affiliates with respect to any obligations related to the master lease. The
Company also leases from Counsel three Florida facilities encumbered by a
participating mortgage in favor of Omega.
The Company owns all of the outstanding stock of Diversicare General
Partner, Inc. ("DGPI"), the corporate General partner of Texas Diversicare
Limited Partnership, a Texas limited partnership ("TDLP"), which owns six
nursing homes. At the time of the Offering, Counsel and various affiliates owned
approximately 31% of the limited partnership interests of TDLP. The Company also
received a mortgage on the TDLP properties of approximately $7.3 million, which
mortgage calls for monthly principal and interest payments of $73,500. The
mortgage balance at December 31, 1999 was approximately $6.7 million.
The Company has provided a cash flow guarantee to TDLP in a Partnership
Services Agreement dated November 2, 1990 (the "TDLP Services Agreement"),
obligating the Company to provide monthly, interest-free loans to TDLP (the
"Cash Flow Loans") to the extent that 99% of Distributable Cash (as defined in
the TDLP Services Agreement) is less than the Guaranteed Monthly Return (as
defined in the TDLP Services Agreement). Any Cash Flow Loans made to TDLP will
be repaid to the extent that 99% of Distributable Cash exceeds the Guaranteed
Monthly Return. The obligation of the Company to TDLP under the cash flow
guarantee terminates on August 31, 2001, and any remaining amounts outstanding
under the Cash Flow Loans will be forgiven on that date. As of December 31,
1999, the outstanding amount of Cash Flow Loans was approximately $5.6 million.
In addition, approximately $1.1 million of
13
<PAGE> 15
management fees due the Company were unpaid at December 31, 1998. Reflecting
payment of these management fees would result in a corresponding increase in the
Cash Flow Loans. Over the life of TDLP through December 31, 1999, the Company
and its predecessors have earned additional management fees in the amount of
approximately $3.0 million and have recognized principal amounts under the
mortgage in the amount of $774,000. These amounts have been recorded as paid,
and there have been corresponding increases to the recorded advances to TDLP as
a result. The Company considers such amounts reversible to the extent they have
been funded with advances to TDLP.
Under TDLP's Amended and Restated Partnership Agreement dated August
30, 1991 (the "TDLP Partnership Agreement"), the limited partners of TDLP have
the right to cause DGPI to repurchase up to 10% of their partnership units
annually for five years (up to a maximum of 50% of the total partnership units
outstanding) beginning in January 1997 (the "Put Option"). The 10% maximum per
year is not cumulative. The purchase price for the partnership units is based on
the "Adjusted Net Unit Price" (as defined in the TDLP Partnership Agreement)
plus DGPI's assumption of a pro rata portion of the Cash Flow Loans and the
mortgage receivable. Units purchased by DGPI under the Put Option do not have
voting rights with respect to any matters coming before TDLP's limited partners.
Pursuant to its repurchase obligation under the Put Option, the Company
purchased 2.6% of the TDLP's partnership units in January 1999 and 10% in both
January 1998 and January 1997 for approximately $160,000, $625,000, and $650,000
in cash, respectively, plus assumption of pro rata portions of the Cash Flow
Loans of $110,000, $320,000, and $270,000, respectively, and the mortgage
receivable of approximately $180,000, $700,000, and $710,000, respectively. No
partnership units were put to the Company for repurchase in January 2000. It is
uncertain whether the Company will be required to repurchase additional
partnership units in January 2001 (and assume additional amounts under the Cash
Flow Loans and mortgage receivable) and to make additional Cash Flow Loans.
Diversicare Canada Management Services Co., Inc., an indirect,
wholly-owned subsidiary of the Company ("DCMS"), manages two facilities owned by
Diversicare VI, an affiliate of Diversicare, pursuant to a Management and
Guaranteed Return Loan Agreement dated as of November 30, 1985, as amended (the
"Guaranteed Return Loan Agreement"), which expires on December 31, 2005. In
connection with the Guaranteed Return Loan Agreement, DCMS loaned Diversicare VI
approximately $800,000 to repay indebtedness to Counsel and, additionally,
$750,000 to make expansions and improvements upon the two managed facilities.
These loans are secured by second, third and fourth mortgage security interests
in the assets of Diversicare VI. Each loan bears interest at 8% and is being
repaid over the life of the Guaranteed Return Loan Agreement. The balance due
from Diversicare VI with respect to these loans totaled approximately $929,000
at December 31, 1999.
Under the Guaranteed Return Loan Agreement, DCMS is entitled to receive
a management incentive fee through the Guarantee Period based on Diversicare
VI's distributable cash and proceeds of sales or refinancings, net of various
expenses and distributions. Pursuant to an Agreement with DCMS dated February 6,
1995, Counsel is entitled to receive 50% of DCMS's incentive management fees
payable under the Guaranteed Return Loan Agreement after payment to DCMS of
$107,000 Canadian (approximately $74,000 U.S.) per year. The Guaranteed Return
Loan Agreement generated revenues to DCMS for the year ended December 31, 1999
of approximately $557,000, including management incentive fees. During the
Guarantee Period, DCMS may not distribute to its shareholder (Diversicare
Leasing Corp., a wholly-owned subsidiary of Advocat) more than 25% of DCMS's
pre-tax profits.
14
<PAGE> 16
Pursuant to the Transfer Agreements, the Company has been granted the
right to offset against payments owed from the Company to Counsel and Counsel
has been granted the right to offset against payments owned from Counsel to the
Company, up to $1.0 million Canadian (approximately $692,000 U.S.) per year to
the extent that either party does not receive the payment of the obligations
owned by either party to the other. The terms of the offset agreement provide
that the party exercising offset rights will not be in default with respect to
its obligations to the other party to the extent such obligations are not paid
pursuant to the provisions of the offset. The obligations of the Company to
Counsel under the leases and management contracts between the Company and
Counsel provide that a default under one agreement constitutes a default under
each of the leases and management contracts.
In February 1996, Counsel made certain claims with respect to the
leases and management contracts to which it and the Company are a party. The
Company's Board of Directors created a special committee of Directors not
affiliated with management of the Company or Counsel to review such claims.
During the year, the special committee reviewed various documentation and met
with representatives from both the Company and Counsel. As a result of the work
of the special committee, Counsel voluntarily withdrew one of the two claims
made against the Company. In November 1996, Mr. Silber and Mr. Sonshine resigned
from the Board of Directors of the Company, and subsequently, the special
committee concluded its review of these matters. In February 1997, the remaining
claim by Counsel was submitted to the American Arbitration Association under the
alternative resolution dispute provisions of the original management contract,
which claim was settled in the Company's favor during 1998.
15
<PAGE> 17
CERTAIN TRANSACTIONS
Mr. Wallace, a director of the Company is Chairman Emeritus of Willis
Corporation ("Willis"). Beginning in early 2000, Willis provides the Company
with substantially all of its liability insurance and provides the Company with
certain bonds required in the operation of the Company's business. The Company
believes the cost of these products and services are consistent with the cost
from an independent third-party. Mr. Wallace abstains from voting with respect
to all transactions between the Company and Willis.
The Company owns a 32% equity interest in The Concorde Joint Venture
("Concorde") a retirement home located in Penticton, British Columbia. The
Company also manages Concorde pursuant to a 5 year management agreement which
provides for management fees of 3% of gross revenues plus 5% of operating
income. The Dr. Birkett and Mr. Richardson each own an approximate 4% interest
in Concorde. During 1999, the Concorde paid $60,000 (Canadian) in management
fees to the Company. The Company believes the terms of the management agreement
are consistent with similar management agreements between unrelated parties.
In connection with an acquisition, effective October 1, 1997, the
Company entered into leases with or obtained subleases from the former principal
owners of Pierce Management Group with respect to 14 assisted living facilities,
an office building, and a manager's home. These leases provide for annual
payments of approximately $4.0 million. Effective with the acquisition, Guy
Pierce and A. Steve Pierce entered into a two-year employment agreement and a
three-year consulting agreement, respectively, with the Company. Although his
employment agreement has expired, Guy Pierce continues in the employ of the
Company overseeing the Company's assisted living operations in the United
States.
For a discussion of the relationships between the Company and its other
affiliates, directors, officers, and principal stockholders, please see "Stock
Ownership of Directors, Executive Officers and Principal Holders," "Executive
Officers," "Proposal 1: Election of Directors," "Compensation Committee
Interlocks and Insider Participation" and "Counsel Corporation Relationship."
16
<PAGE> 18
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return of the Company with
that of the S&P Smallcap 600 Index, a peer group index for the last five years.
Cumulative return assumes $100 invested in the Company or respective index on
December 31, 1994 with dividend reinvestment through December 31, 1999. The peer
group includes Beverly Enterprises, Inc.; HCR Manor Care, Inc.; Integrated
Health Services, Inc.; Mariner Post-Acute Network, Inc.; National Healthcare
Corp.; and Sun Healthcare Group, Inc.
To date, the Company has not tied executive compensation to stock
performance. The future impact of stock performance on executive compensation,
if any, will be determined by the Compensation Committee and management.
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ADVOCAT INC. 100.00 84.76 55.24 64.76 41.90 1.18
PEER GROUP 100.00 81.76 93.00 118.14 57.42 23.54
S & P SMALLCAP 600 100.00 129.96 157.67 198.01 203.41 228.64
</TABLE>
17
<PAGE> 19
PROPOSAL 1:
ELECTION OF DIRECTORS
All directors generally hold office for three-year terms and then until
their successors have been duly elected and qualified. The Board of Directors of
the Company is divided into three classes. The term of the Class 1 director will
expire at the 2001 Annual Meeting of Stockholders; the term of the Class 2
director will expire at the 2002 Annual Meeting of Stockholders; and the term of
the Class 3 directors will expire at this Annual Meeting of Stockholders (and in
all cases when their respective successors are duly elected and qualified). At
each annual meeting, successors to the class of directors whose term expires at
such meeting will be elected to serve for a three-year term and until their
successors are duly elected and qualified.
Directors who are not officers, employees or consultants of the Company
(currently directors Nelson, O'Neil and Wallace) receive a director's fee of
$10,000 annually, $1,000 per board meeting attended and $500 per committee
meeting attended (except when held on the same day as board meetings). Directors
who are officers or employees of the Company or its affiliates have not been
compensated separately for services as a director.
The Board of Directors proposes that two nominees indicated below be
elected as a Class 3 directors to serve for a three-year term and one nominee be
elected as a Class 2 Director to serve for a two-year term of two years and
until their successors are duly elected and qualified. Dr. Birkett, Mr.
Richardson and Mr. Nelson are currently Class 3 directors. Should any nominee
for the office of director become unable to accept nomination or election, which
is not anticipated, it is the intention of the persons named in the proxy,
unless otherwise specifically instructed in the proxy, to vote for the election
of such other person as the Board of Directors may recommend.
NOMINEES FOR ELECTION OF CLASS 3 DIRECTORS AND CLASS 2 DIRECTORS
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
--------------- --- -------------- ------------------------------------
<S> <C> <C> <C>
CLASS 3 DIRECTORS:
Charles W. Birkett, M.D. 63 Inception Chief Executive Officer and Chairman of
the Board of Directors of the Company;
President, Chief Executive Officer and a
director of Diversicare from September
1991 to May 1994; Director of Counsel
Corporation from 1983 to May 1994;
Chairman of the Board of Directors and
Chief Executive Officer of DMS from
September 1991 to present; Chairman of the
Board of Directors and Chief Executive
Officer of DLC from May 1994 to present;
and President of DINC from February 1980
to May 1994.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
--------------- --- -------------- ------------------------------------
<S> <C> <C> <C>
Edward G. Nelson 68 Inception Member of the Board of Directors of the
Company; Chief Executive Officer and
President of Nelson Capital Corp., a
merchant banking firm, from January 1985
to present; Director of Central Parking
Systems, Inc., an operator of parking
facilities ("Central Parking"); Director
of Berlitz International, Inc., a language
services company; Director of ClinTrials
Research, Inc. a contract research
organization ("ClinTrials"); Trustee of
Vanderbilt University.
CLASS 2 DIRECTOR:
Paul Richardson(1) 51 Inception Executive Vice President and a Member of the
Board of Directors of the Company; President
and Chief Executive Officer of the Company's
Canadian operating subsidiary; President and
Chief Operating Officer of the Company from
May 1994 through February 1997; Executive
Vice President of Diversicare from September
1991 to May 1994; President of DMS from
November 1991 through February 1997;
President of DLC from May 1994 through
February 1997; Executive Vice President of
DINC from March 1991 to May 1994.
</TABLE>
----------------
(1) Paul Richardson is currently a Class 3 director, however, in order to
equalize the size of the classes of directors as required by the
Company's Certificate of Incorporation, Mr. Richardson will be elected
as a Class 2 director and will serve a two-year term and until his
successor has been duly elected and qualified.
19
<PAGE> 21
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
--------------- --- -------------- ------------------------------------
<S> <C> <C> <C>
CLASS 1 DIRECTOR:
William C. O'Neil, Jr. 65 Inception Member of the Board of Directors of the
Company; Chairman of ClinTrials from
September 1989 to 1998; President and
Chief Executive Officer of ClinTrials from
September 1989 to February 1, 1998;
Director of American HealthWays, a
specialty health care service company;
Director of Sigma Aldrich Corp., a
manufacturer of research chemicals; and
Director of Central Parking.
CLASS 2 DIRECTOR:
J. Bransford Wallace 68 February Member of the Board of Directors of the Company;
1997 Chairman Emeritus of Willis Corroon
Corporation, an international provider of
insurance services, from April 1994 to
present; Chairman of Global Retail
operations and Director of Willis Corroon
Group, PLC from October 1990 to January
1994; Director of NationsBank of
Tennessee; founding Chairman of the
Quality Insurance Congress, an
organization emphasizing quality in the
insurance industry; and, Member of the
Board of ESC Strategic Funds, an
investment strategy organization.
</TABLE>
The Board of Directors currently has standing Audit, Executive, and
Compensation Committees. The Board of Directors does not have a nominating
committee.
The Executive Committee presently is composed of three directors:
Birkett, Richardson, and Nelson. The Delaware General Corporation Law and the
Company's Bylaws provide that the Board may designate such a committee from
their number to carry out the functions of the Board as permitted by law.
Between meetings of the Board, the Executive Committee may exercise all powers
of the Board. During 1999, the Executive Committee held no separate meetings.
The Audit Committee presently is composed of three directors: Wallace,
Nelson and O'Neil. Responsibilities of this committee include engagement of
independent auditors, review of audit fees, supervision of matters relating to
audit function, and review and setting of internal policies and procedures
regarding audits, accounts and financial controls. During 1999, the Audit
committee held three meetings.
20
<PAGE> 22
The Compensation Committee presently is composed of two directors:
Nelson and O'Neil. Responsibilities of this committee include approval of
remuneration arrangements for executive officers of the Company, review of
compensation plans relating to executive officers and directors, including
benefits under the Company's compensation plans and general review of the
Company's employee compensation policies. During 1999, the Compensation
Committee held one meeting and unanimously adopted one written consent action.
During the Company's fiscal year ended December 31, 1999, its Board of
Directors held four regular meetings and three special meetings and unanimously
adopted four written consent action. Each director named above, during the
period in which he served in 1999, attended meetings or executed written consent
actions with respect to at least 75% of the meetings and consent actions of the
Board of Directors and of the committees on which he or she served.
A plurality of the shares of Common Stock present or represented by
proxy at the Annual Meeting of Stockholders and entitled to be voted is required
to elect the nominee. THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS
VOTE "FOR" THE NOMINEES LISTED ABOVE.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Arthur Andersen LLP was appointed by the Board
of Directors to serve as the Company's Independent Public Accountants for the
fiscal year ended December 31, 1999. It is expected that Arthur Andersen LLP
will be appointed to serve as the Company's auditor for the current fiscal year.
A representative of that firm will be present at the meeting with the
opportunity to make a statement if he so desires and to respond to questions.
DEADLINE FOR SUBMITTING STOCKHOLDERS PROPOSALS
Any proposal by a stockholder for consideration at the 2001 Annual
Meeting of Stockholders must be received by the Company's principal offices at
277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 no later than
February 27, 2001, if any such proposal is to be eligible for inclusion in the
Company's proxy materials for its 2001 annual meeting. Stockholders who intend
to present a proposal at the 2001 Annual Meeting without inclusion of such
proposal in the Company's proxy materials are required to provide such proposals
to the Company no later than May 14, 2001.
AVAILABILITY OF 10-K
Upon the written request of any record holder or beneficial owner of
the Common Stock entitled to vote at the annual meeting, the Company will
provide without charge, a copy of its Annual Report on Form 10-K for the year
ending December 31, 1999, including financial statements and financial statement
schedules, as filed with the Securities and Exchange Commission ("SEC"). The
request should be mailed to: Secretary, Advocat Inc., 277 Mallory Station Road,
Suite 130, Franklin, Tennessee 37067. A request via facsimile may be submitted
to (615) 771-7409.
21
<PAGE> 23
Additionally, a copy is retrievable free of charge through the EDGAR
system maintained by the SEC. The Company's SEC filings, including the Annual
Report on Form 10-K, can be accessed through the Company's website:
http://www.irinfo.com/avc.
OTHER MATTERS
The management of the Company is not aware of any other matters to be
brought before the Annual Meeting of Stockholders. If other matters are duly
presented for action, it is the intention of the persons named in the enclosed
proxy to vote on such matters in accordance with their judgment.
EACH STOCKHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE MEETING, HE MAY, IF
HE WISHES, REVOKE HIS PROXY AND VOTE HIS SHARES IN PERSON. IN ADDITION, A
STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE SUCH PROXY IS VOTED.
22
<PAGE> 24
PROXY ADVOCAT INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS, JULY 27, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. Charles W. Birkett and Mr. James F.
Mills, Jr., or either of them, as proxies, with power of substitution, to vote
all shares of the undersigned at the Annual Meeting of Stockholders of Advocat
Inc., to be held on July 27, 2000, at 9:00 a.m. Central Daylight Time, at 1800
First American Center, 315 Deaderick Street, Nashville, Tennessee, and at any
adjournments or postponements thereof, in accordance with the following
instructions:
(1) Election of Class 3 Directors:
<TABLE>
<S> <C>
CHARLES W. BIRKETT, M.D. EDWARD G. NELSON
[ ] FOR the nominee listed above [ ] FOR the nominee listed above
[ ] WITHHOLD AUTHORITY to vote for the above [ ] WITHHOLD AUTHORITY to vote for the above
listed nominee listed nominee
</TABLE>
(2) Election of Class 2 Director:
<TABLE>
<S> <C>
PAUL RICHARDSON
[ ] FOR the nominee listed above
[ ] WITHHOLD AUTHORITY to vote for the above listed nominee
</TABLE>
(Continued on reverse side)
(3) In their discretion, or such other matters as may properly come before the
meeting.
[ ] FOR DISCRETION [ ] AGAINST DISCRETION [ ] ABSTAIN
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION
OF DIRECTORS AND IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.
Dated: , 2000
--------------------
--------------------------------
Dated: , 2000
--------------------
--------------------------------
Signature(s) of shareholder(s)
should correspond exactly with
the name(s) printed hereon.
Joint owners should each sign
personally. Executors,
administrators, trustees, etc.,
should give full title and
authority.
