<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
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 Section 240.14a-11(c) or Section 240.14a-12
ARV ASSISTED LIVING, 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
ARV ASSISTED LIVING, INC.
June 4, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
ARV Assisted Living, Inc. (the "Company") to be held on Thursday, July 1, 1999,
at 9:00 a.m. local time, at the Airport Hilton, 18800 MacArthur Blvd., Irvine,
California 92715.
At the Annual Meeting, you will be asked to approve the election of two
directors to the Board of Directors of the Company and approve the proposed 1999
Stock Option and Incentive Plan. Details regarding the election of the members
of the Board of Directors of the Company and the new Stock Option and Incentive
Plan are more fully described in the accompanying Proxy Statement, which I urge
you to read carefully.
I hope that you will be able to attend the meeting in person. However,
whether or not you plan to attend the meeting, please mark, sign, date and
return the enclosed proxy card promptly. A prepaid envelope is provided for this
purpose. Your shares will be voted at the meeting in accordance with your proxy,
if given.
I look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Douglas M. Pasquale
Douglas M. Pasquale
President and Chief Executive Officer
<PAGE> 3
ARV ASSISTED LIVING, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 1, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of ARV Assisted Living, Inc., a Delaware corporation (the "Company"),
will be held on July 1, 1999, at 9:00 a.m. local time, at the Airport Hilton,
18800 MacArthur Blvd., Irvine, California 92715, to consider and act upon:
1. The election of two directors to the Company's Board of Directors to
serve for the term of three years or until their respective successors
have been duly elected and qualified;
2. The approval of the 1999 Stock Option and Incentive Plan; and
3. Transacting other business that may properly come before the Annual
Meeting or any postponement or adjournment of the Annual Meeting.
Holders of record of Common Stock of the Company as of the close of
business on May 28, 1999, are entitled to receive notice of, and to vote at, the
Annual Meeting. The outstanding Common Stock constitutes the only class of
securities of the Company entitled to vote at the Annual Meeting. Each share of
Common Stock entitles its holder to one vote. At the close of business on May
28, 1999, there were 15,873,498 shares of Common Stock issued and outstanding.
We urge you to review carefully the enclosed materials. Your vote is
important. We encourage all stockholders to attend the meeting in person or by
proxy. If you receive more than one proxy card because your shares are
registered in different names or at different addresses, please mark, sign, date
and return each proxy card so that all of your shares will be represented at the
Annual Meeting.
By Order of the Board of Directors,
/s/ Douglas M. Pasquale
Douglas M. Pasquale
President and Chief Executive Officer
June 4, 1999
IT IS IMPORTANT THAT ALL PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED, INCLUDING BY VOTING
AT THE MEETING.
<PAGE> 4
ARV ASSISTED LIVING, INC.
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
JULY 1, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ARV Assisted Living, Inc. (the "Company") of proxies
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held
at the Airport Hilton, 18800 MacArthur Boulevard, Irvine, California 92715, at
9:00 a.m., local time, on Thursday, July 1, 1999, for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. The principal
executive offices of the Company are located at 245 Fischer Avenue, D-1, Costa
Mesa, California 92626. The Company expects to mail this Proxy Statement and the
accompanying form of proxy to stockholders on or about June 4, 1999.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of the Company's common stock ("Common Stock") at the
close of business on May 28, 1999 are entitled to notice of and to vote at the
Annual Meeting. On that date there were 15,873,498 shares of Common Stock
outstanding.
REVOCABILITY OF PROXIES
Stockholders who submit proxies for use at the Annual Meeting may revoke
them at any time prior to the time they are voted. You may revoke a proxy either
by (i) filing with the Secretary of the Company prior to the Annual Meeting, at
the Company's principal executive offices, either a written revocation or a duly
executed proxy card bearing a later date, or (ii) by attending the Annual
Meeting and voting in person, regardless of whether you have previously given a
proxy. Your presence at the Annual Meeting will not revoke your proxy unless you
vote in person.
QUORUM AND VOTING
Under Delaware law, a quorum must exist in order for action to be taken on
a matter submitted to stockholders. A majority of the outstanding shares
entitled to vote, present in person or represented by proxy, constitutes a
quorum at a meeting of the Company's stockholders.
Shares represented at the Annual Meeting by properly executed proxy cards
in the accompanying form and not revoked will be voted at the Annual Meeting in
the manner directed on the proxy card. If no direction is made with respect to a
proposal, the proxy will be voted FOR such proposal. The Board of Directors
knows of no matters other than those listed in the attached Notice of Annual
Meeting of Stockholders that are likely to be brought before the Annual Meeting.
If, however, any other matters should properly come before the Annual Meeting or
any adjournment of the Annual Meeting, the persons named in the enclosed proxy
will vote all proxies given to them according to their best judgment on such
matters.
SOLICITATION OF PROXIES
Certain of the Company's directors, officers and regular employees will
solicit proxies, without receiving any additional compensation. We will solicit
proxies by personal interview, mail and telephone and the Company will bear the
costs of the solicitation. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of Common Stock for their
expenses in forwarding solicitation materials to such beneficial owners.
1
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
GENERAL
The Company's authorized number of directors is currently 10, consisting of
four Class A positions, three Class B positions and three Class C positions.
Seven directors (three Class A, two Class B and two Class C) currently are
serving on the Board of Directors. As a result, the Company has one vacancy in
each of Class A, Class B and Class C. Each class is elected to a three-year term
and the election of directors is staggered, so that only one class of directors
is elected at each annual meeting of stockholders. The Class B directors' terms
expire at the Annual Meeting.
Stockholders of record as of May 28, 1999 will be entitled to vote on the
election of two Class B directors for three-year terms at the Annual Meeting.
Although three Class B directors are authorized, the Company has named only two
nominees. The reason for this procedure is that the Company is in the process of
determining whether to reduce the authorized number of directors or to seek
additional qualified candidates for the current vacancies on the Board. Proxies
cannot be voted for a greater number of persons than the number of nominees
named in this Proxy Statement.
Directors will be elected by a favorable vote of a plurality of the shares
of voting stock present and entitled to vote, in person or by proxy, at the
Annual Meeting. Abstentions or broker non-votes as to the election of directors
will not affect the election of the candidates receiving a plurality of votes.
If any nominee for director should be unable or decline to serve, the authority
provided in the proxy to vote for the election of directors will be exercised to
vote for a substitute or substitutes. As of the date of this Proxy Statement,
management has no knowledge that any of the nominees will be unable or will
decline to serve. None of the nominees or incumbent directors has a family
relationship with any other nominee or incumbent director or any executive
officer of the Company. The Company's Certificate of Incorporation and Bylaws
contain provisions eliminating or limiting the personal liability of directors
for violations of a director's fiduciary duty to the extent permitted by
Delaware law.
NOMINEES FOR ELECTION TO SERVE UNTIL THE 2002 ANNUAL MEETING OF STOCKHOLDERS
(CLASS B NOMINEES)
The Company's nominees for election to the Board of Directors are as
follows:
DAVID P. COLLINS. Mr. Collins, 61, currently is President and Chief
Executive Office of EuroSenior Living, Lisbon, Portugal. He served the Company
in several capacities between 1981 and 1999, last serving as President of ARV
Assisted Living International, Inc., our wholly owned subsidiary, from 1998 to
January 1999. From 1985 until January 1998, Mr. Collins served as the Senior
Executive Vice President of the Company, responsible for investor relations and
for capital formation for the Company and affiliated entities. He has served as
a Director of the Company continuously since 1985.
JOHN A. MOORE. Mr. Moore, 37, is a Principal and Chief Financial Officer of
Lazard Freres Real Estate Investors LLC, a position he has held since 1998. From
1996 to 1998, he was Executive Vice President and Chief Financial Officer of
World Financial Properties, a private real estate company based in New York
City. From 1988 to 1996, Mr. Moore served as Senior Vice President, Finance, for
New York City-based Olympia & York Companies (USA). He is currently a director
of The Rubenstein Company.
2
<PAGE> 6
INCUMBENT DIRECTORS
<TABLE>
<CAPTION>
YEAR FIRST BECAME
A DIRECTOR OF
NAME AGE POSITION THE COMPANY CLASS
---- --- -------- ----------------- -----
<S> <C> <C> <C> <C>
Douglas M. Pasquale....... 44 President and Chief 1998 A
Executive Officer,
Director
John A. Booty............. 60 Director 1985 A
Robert P. Freeman......... 54 Director 1997 A
Maurice J. DeWald......... 59 Director 1995 C
Murry N. Gunty............ 32 Director 1997 C
Kenneth M. Jacobs......... 40 Director 1997 B
</TABLE>
DOUGLAS M. PASQUALE. Mr. Pasquale was appointed Chief Executive Officer of
the Company on March 29, 1999. He joined us as President and Chief Operating
Officer on June 1, 1998. Prior to joining the Company, Mr. Pasquale was employed
for 12 years by Richfield Hospitality Services, Inc., and Regal Hotels
International-North America, a leading hotel ownership and hotel management
company based in Englewood, CO. He served as its President and Chief Executive
Officer from 1996 to 1998 and as chief financial officer from 1994 to 1996.
JOHN A. BOOTY. Mr. Booty, one of our founders, retired in September 1996
after serving as President since the Company's inception in 1985. Since his
retirement he has served as a consultant to the Company. He also served as
interim President from October 1997 to January 1998 and as interim Chief
Executive Officer from October 1997 to December 1997. Mr. Booty has expressed
his intentions to retire from the Company's Board in 1999.
ROBERT P. FREEMAN. Mr. Freeman, a private investor, was a Principal and
Chief Investment Officer of Lazard Freres Real Estate Investors L.L.C.
("LFREI"), as well as a Managing Director of Lazard Freres & Co. LLC, from 1992
through April 1999. He currently is a director of American Apartment
Communities, Atlantic American Properties Trust, Commonwealth Atlantic
Properties, The Fortress Group and Kapson Senior Quarters Corp. Mr. Freeman was
designated as a director by Prometheus Assisted Living LLC ("Prometheus")
pursuant to the Stockholders Agreement, which is more fully described below. See
"Certain Relationships and Related Transactions."
MAURICE J. DEWALD. Mr. DeWald is Chairman and Chief Executive Officer of
Verity Financial Group, Inc., a firm he founded in 1992. He currently is a
director of Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of California and
Monarch Funds.
MURRY N. GUNTY. Mr. Gunty, a private investor, was a Principal of LFREI
from 1995 through April 1999. From 1993 to 1995, he was associated with J.E.
Robert Company, a real estate investment company. He is currently a director of
Atlantic American Properties Trust, Kapson Senior Quarters Corp., The Fortress
Group, and The Rubenstein Company. Mr. Gunty was designated as a director by
Prometheus pursuant to the Stockholders Agreement, which is more fully described
below. See "Certain Relationships and Related Transactions."
KENNETH M. JACOBS. Mr. Jacobs is a Managing Director in the Banking Group
of Lazard Freres & Co. LLC, a position he has held since 1991. He was designated
as a director by Prometheus pursuant to the Stockholders Agreement, which is
more fully described below. See "Certain Relationships and Related
Transactions." Mr. Jacobs' term expires at the Annual Meeting.
During the year ended December 31, 1998, there were 13 meetings of the
Board and each director attended at least 75% of the meetings of the Board and
of the meetings of the committees of which he was a member.
3
<PAGE> 7
INFORMATION ON COMMITTEES OF THE BOARD AND MEETINGS
The Board established a Compensation Committee and an Audit Committee at or
about the time of the initial public offering of our Common Stock in October
1995. In addition, our Board has occasionally appointed special committees of
one or more directors to analyze and/or take action on items of interest to the
Board.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for directors and executive officers, administers the 1995 Stock
Option and Incentive Plan (the "1995 Stock Option Plan") and recommends policies
relating to benefit plans. During the year ended December 31, 1998, the
Compensation Committee consisted of John J. Rydzewski, Maurice J. DeWald and
Robert P. Freeman. The Compensation Committee met 11 times during the year ended
December 31, 1998 and at least two members were in attendance at every meeting.
As of May 28, 1999, the Compensation Committee consisted of Maurice J. DeWald
and Robert P. Freeman.
The Audit Committee reviews our accounting practices, internal accounting
controls and financial results and oversees the engagement of our independent
auditors. The Audit Committee, during the year ended December 31, 1998,
consisted of Maurice J. DeWald, R. Bruce Andrews and Murry N. Gunty. The Audit
Committee met two times in the year ended December 31, 1998 and at least two
members were in attendance at every meeting. As of May 28, 1999, the Audit
Committee consisted of Maurice J. DeWald and Murry N. Gunty.
COMPENSATION OF DIRECTORS
Prior to January 28, 1998, non-employee directors received $12,000 as an
annual retainer, paid quarterly in advance, and $500 for each meeting of the
Board or committee of the Board that they attended. Commencing January 28, 1998,
the annual retainer was increased to $18,000 and the fee per meeting to $1,000.
In addition, an annual committee chairmanship fee of $3,000 was added as of
January 28, 1998.
In October 1995, the Company established the 1995 Stock Option Plan, which
upon the adoption of the 1999 Stock Option and Incentive Plan will be replaced.
The 1995 Stock Option Plan provided, among other things, that each non-employee
director who is initially elected or appointed to the Board would, upon such
election or appointment, automatically be granted an option to purchase 10,000
shares of Common Stock, vesting at the rate of 2,500 per year measured from the
date of grant, at an exercise price equal to the fair market value of the Common
Stock on the date of grant. In addition, every fourth year following the date on
which a non-employee director is elected or appointed, on the date of the annual
meeting of the stockholders of the Company, if the person has continuously
served as a non-employee director, he or she would automatically receive an
option to purchase 10,000 shares of Common Stock, at an exercise price equal to
the fair market value of the Common Stock on the date of grant, vesting at the
rate of 2,500 per year measured from the date of grant. In addition, as of
January 28, 1998, each non-employee director participates in a stock-based cash
compensation plan that is intended to provide compensation on a deferred basis
and link the directors' interests more directly with those of our stockholders.
Under the plan, 2,500 "stock units" (each stock unit is deemed to be equivalent
to one outstanding share of Common Stock) are credited on each January 1 to each
non-employee director who served as a non-employee director for the entire
preceding calendar year. Stock units are payable in cash based on the fair
market value of the Common Stock at the time the payment is triggered and are
fully vested at the time of crediting. Stock units become payable on the first
to occur of:
- three years after the date such stock units were first credited;
- a change of control of the Company, as defined by the plan;
- the director is no longer serving as a member of our Board of Directors
(for any reason); or
- termination of the plan.
In addition to the fees described above, John A. Booty received $5,000 in
consulting fees during 1998 for consulting services rendered to the Company.
4
<PAGE> 8
THE COMPANY'S EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of May 28, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Douglas M. Pasquale.................. 44 President and Chief Executive Officer and
Director
Abdo H. Khoury....................... 49 Senior Vice President, Chief Financial Officer
and Secretary
Robertson K. Chandler................ 42 Senior Vice President, Operations
Patricia J. Gifford.................. 51 Senior Vice President, Chief Medical Officer
Laura J. Loda........................ 42 Senior Vice President, Human Resources
</TABLE>
For a description of Mr. Pasquale's background, see "Incumbent Directors"
above. Biographical information for Mr. Khoury, Mr. Chandler, Dr. Gifford and
Ms. Loda is provided below:
ABDO H. KHOURY. Mr. Khoury was appointed Senior Vice President, Chief
Financial Officer and Secretary on March 30, 1999. Previously he had served the
Company as Vice President, Asset Strategy and Treasury, since January 1999, and
as President of the Apartment Division since coming to the Company in May 1997.
Mr. Khoury's prior background includes more than 25 years in accounting and real
estate. He was a principal with Financial Performance Group in Newport Beach,
CA, from 1991 to 1997.
ROBERTSON K. CHANDLER. Mr. Chandler was appointed Senior Vice President,
Operations, in February 1999. Previously he was Vice President of Operations,
Home Care and Hospice, with Mariner Specialty Health Services in Longmont, CO,
from 1997 to 1999. From 1993 to 1997, he was Chief Operating Officer and a
Director of Colorado Home Care, a home care agency headquartered in Broomfield,
CO.
PATRICIA J. GIFFORD, M.D. Dr. Gifford, a geriatrician, was appointed Senior
Vice President and Chief Medical Officer in June 1998. Prior to joining the
Company she served as medical director for the Monarch Healthcare medical group,
an independent practice association of primary care physicians in Southern
California. She joined Monarch in 1996 as clinical director, Subacute Service.
From 1995 to 1998, Dr. Gifford also served as medical director of Wellness and
Geriatrics for Saddleback Memorial Medical Center in Laguna Hills, CA, a role
that became a part-time position when she joined Monarch. From 1995 to 1997, she
also served part-time as medical director of the Freedom Village Continuing Care
Residential Community in Lake Forest, CA. Dr. Gifford was clinical director of
Geriatrics at Huntington Memorial Hospital in Pasadena, CA from 1990 to 1995.
LAURA J. LODA. Ms. Loda joined the Company as Vice President, Human
Resources in June 1998. She was promoted to Senior Vice President in February
1999. Previously, she served as Director of Corporate Human Resources for Taco
Bell, an Irvine, CA-based fast food operation of Tricon Global Restaurants, from
1996 to 1998. From 1993 to 1996, Ms. Loda was Director of Compensation for Gap,
Inc., an international clothing chain based in San Francisco.
5
<PAGE> 9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation earned by the Chief Executive Officer and the four next most highly
compensated executive officers whose annual salary and bonus exceeded $100,000,
and two additional individuals (the "Named Executive Officers"), for the year
ended December 31, 1998, the nine-month period ended December 31, 1997 and the
fiscal year ended March 31, 1997. In October 1997, the Company changed its
fiscal year end from March 31 to December 31. Accordingly, the nine-month period
ended December 31, 1997 (denoted below as 1997T) is the transition period
beginning April 1, 1997 and ending December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------ ALL
ANNUAL COMPENSATION SECURITIES OTHER
--------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS (2)(3)(4)
--------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Howard G. Phanstiel 1998 $354,167 $189,578 100,000 $1,008,360
Chairman and Chief Executive Officer 1997T 16,186 -- 150,000 685
(appointed December 5, 1997 and 1997 -- -- -- --
resigned March 23, 1999)
Douglas M. Pasquale 1998 175,000 137,500 150,000 4,586
President and Chief Operating Officer 1997T -- -- -- --
(appointed June 1, 1998) 1997 -- -- -- --
Sheila M. Muldoon 1998 185,000 37,500 25,000 194,249
Senior Vice President, 1997T 132,250 15,583 -- 4,502
General Counsel and Secretary 1997 156,981 7,000 20,000 2,624
(resigned March 19, 1999)
Abdo H. Khoury 1998 125,000 17,314 7,500 8,868
Vice President, Asset Strategy 1997T 30,000 3,000 22,500 60,983
and Treasury 1997 -- -- -- --
Patricia J. Gifford 1998 108,333 30,000 30,000 2,229
Vice President, Chief Medical 1997T -- -- -- --
Officer (appointed June 12, 1998) 1997 -- -- -- --
Graham P. Espley-Jones 1998 122,500 -- 10,000 602,738
Executive Vice President and 1997T 149,587 33,242 -- 7,303
Chief Financial Officer 1997 193,882 -- 10,000 7,226
(resigned July 31, 1998)
Eric K. Davidson 1998 134,135 25,783 5,000 45,439
Senior Vice President 1997T 112,500 33,783 -- 6,149
(resigned September 30, 1998) 1997 132,230 6,167 20,000 5,741
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned by the executive officers.
The amounts do not include the value of certain perquisites that in the
aggregate did not exceed the lesser of either $50,000 or 10 percent of the
total annual salary and bonus reported for the Named Executive Officer.
(2) Includes payments for consulting services provided (after resignation)
during the year ended December 31, 1998, by Mr. Espley-Jones of $30,648.
During the nine-month period ended December 31, 1997, we paid consulting
fees to Mr. Khoury for services prior to his employment of $59,624.
(3) Includes premiums for term life, medical, dental and disability insurance
purchased for the benefit of certain of the Named Executive Officers in the
following amounts: Mr. Phanstiel -- $8,360, $685 and $0; Mr.
Pasquale -- $4,586, $0 and $0; Ms. Muldoon -- $9,249, $4,502 and $2,624; Mr.
Khoury -- $8,868, $1,359 and $0; Dr. Gifford -- $2,229, $0 and $0; Mr.
Espley-Jones -- $7,859, $7,303 and $7,226; and Mr. Davidson -- $6,687,
$6,149 and $5,741 for the year ended December 31, 1998, the nine-month
period ended December 31, 1997, and the fiscal year ended March 31, 1997,
respectively. These amounts represent insurance premiums we paid over what
we pay for other similarly situated employees.
6
<PAGE> 10
(4) Includes payments and accruals in accordance with Separation Agreements (see
"-- Employment Agreements"): Mr. Phanstiel -- $1,000,000; Ms.
Muldoon -- $185,000; Mr. Espley-Jones -- $564,231 and Mr.
Davidson -- $38,752.
Option Grants in Last Fiscal Year.
The following table sets forth certain information regarding options
granted during the year ended December 31, 1998 to the Named Executive Officers,
except Graham P. Espley-Jones and Eric K. Davidson, who received no option
grants during the year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE DATE 5% 10%
---- ---------- -------------- --------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
January 1,
Howard G. Phanstiel.... 100,000 11.9% $16.00 2008 $1,006,231 $2,549,988
Douglas M. Pasquale.... 150,000 17.9% 11.13 June 1, 2008 1,049,940 2,660,753
Sheila M. Muldoon...... 25,000 3.0% 13.75 March 19, 2008 216,183 547,849
Patricia J. Gifford.... 30,000 3.6% 11.75 June 15, 2008 221,685 561,794
Abdo H. Khoury......... 7,500 0.9% 13.75 March 19, 2008 64,855 164,355
</TABLE>
- ---------------
(1) These options were granted for a term of 10 years, subject to termination in
certain events related to termination of employment, and become exercisable
in four annual installments beginning in 2001.
(2) In 1998, we granted options to employees to purchase an aggregate of 837,500
shares under the 1995 Stock Option Plan and this number was used in
calculating the percentage set forth in this column. During 1998, options to
purchase 773,452 shares under the 1995 Stock Option Plan were canceled due
to termination of employment.
(3) Assumed rates of stock price appreciation are calculated based on
requirements promulgated by the Securities and Exchange Commission and are
for illustrative purposes only. Actual stock prices will vary from time to
time based upon market factors and our financial performance. There can be
no assurance that the assumed rates of appreciation will be achieved.
Aggregated Option Exercises and Fiscal Year-End Option Values.
None of the Named Executive Officers exercised options during the year
ended December 31, 1998. The following table sets forth certain information
regarding options held as of the end of such fiscal year by the Named Executive
Officers, except for Graham P. Espley-Jones and Eric K. Davidson, who held no
options at the end of such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard G. Phanstiel.............. -- -- -- 250,000 $-- $--
Douglas M. Pasquale.............. -- -- -- 150,000 -- --
Sheila M. Muldoon................ -- -- 10,000 45,000 -- --
Patricia J. Gifford.............. -- -- -- 30,000 -- --
Abdo H. Khoury................... -- -- -- 30,000 -- --
</TABLE>
- ---------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities on that date exceeds the exercise price of the option. Based on
the last sale price of $6.13 per share of Common Stock on December 31, 1998
(as reported on the American Stock Exchange), none of the options held by
the Named Executive Officers were "in the money" at year end.
7
<PAGE> 11
Employment Agreements.
We have entered into employment agreements with each of the Named Executive
Officers.
On December 5, 1997, we entered into an employment agreement with Howard G.
Phanstiel, which was amended and restated as of December 21, 1998. Mr.
Phanstiel's employment agreement required him to devote his full productive time
to the Company during the term of the agreement, unless otherwise permitted by
the Board, and to refrain from competing with us in the business of assisted
living or long-term healthcare for a period of one year following expiration of
the term of the agreement.
Mr. Phanstiel's employment agreement as amended provided for a base salary,
performance-based increases in the base salary each year beginning in 1999, a
guaranteed bonus of $93,750 payable July 1, 1998, 1999, 2000 and 2001, and
additional bonuses based on the achievement of agreed-upon targets in the range
of 30% to 90% of his base salary. Mr. Phanstiel was granted an option to
purchase 150,000 shares of Common Stock upon the execution of his employment
agreement and, as of January 2, 1998, received an additional option to purchase
100,000 shares of Common Stock. Mr. Phanstiel's employment agreement provided
that we could terminate Mr. Phanstiel without cause by making him the following
payments:
- an amount equal to the greater of (1) two times the sum of his current
annual base salary plus target bonus (defined as 60% of his then current
base salary); or (2) the sum of his current annual base salary divided by
12 and multiplied by the number of remaining months from termination
until December 5, 2001, plus target bonuses through that date; and
- payment of premiums for COBRA benefits for the maximum period of
eligibility.
The agreement further provided that if Mr. Phanstiel voluntarily terminated
his employment, he would receive a lump-sum payment equal to three months base
salary. The covenant not to compete discussed above would not be applicable,
however, in the event severance pay was waived by Mr. Phanstiel. On March 24,
1999, Mr. Phanstiel resigned as Chief Executive Officer and Chairman of the
Board pursuant to a Separation and Mutual General Release Agreement entered into
as of March 23, 1999, that varied from the terms of employment termination under
his employment agreement, as amended. ARV agreed to pay to Mr. Phanstiel
severance of $1,000,000 in equal installments over a twelve-month period.
Payment of the severance may be accelerated in the event ARV receives cumulative
net proceeds from asset sales or mortgage refinancings in excess of certain
stated amounts, or if the Company's unrestricted cash balance exceeds a stated
amount for 90 days. Because he did not waive severance pay, the covenant not to
compete is effective. In the event of a "change of control" as defined in his
amended and restated employment agreement, ARV will accelerate the full
severance payment or any remaining portion within 10 days. ARV also pays COBRA
premiums for the maximum period for which coverage is available in order to
continue the same coverage under ARV's health insurance plan which existed as of
March 23, 1999, unless Mr. Phanstiel and his family are otherwise covered by
another health insurance plan. The agreement contains a mutual release of
claims, and standard non-disparagement, non-solicitation and confidentiality
provisions.
On June 1, 1998, we entered into an employment agreement with Douglas M.
Pasquale. Mr. Pasquale's employment agreement has an initial termination date of
June 1, 2001; provided, however, that if we have not given Mr. Pasquale written
notice of our intent to terminate the agreement at least two years prior to the
termination date, the term will automatically be extended for successive periods
of one year. Mr. Pasquale's employment agreement requires him to devote his full
productive time to the Company during the term of the agreement, unless
otherwise permitted by the Board, and to refrain from competing with us in the
business of assisted living or long-term healthcare for a period of one year
following expiration of the term of the agreement.
Mr. Pasquale's employment agreement provides for a base salary,
performance-based increases in the base salary each year beginning in 1999, a
guaranteed bonus of 37.5% of his base salary, and additional bonuses based on
the achievement of agreed-upon targets. Mr. Pasquale was granted an option to
purchase 150,000 shares of Common Stock upon the execution of his employment
agreement and an additional 100,000 shares as of January 2, 1999. Mr. Pasquale's
employment agreement was renegotiated in light of his promotion to Chief
Executive Officer and the option to acquire 100,000 shares has not been issued.
Certain of
8
<PAGE> 12
Mr. Pasquale's stock options are conditional. See "Proposal to Approve the 1999
Stock Option and Incentive Plan -- Options Granted Subject to Stockholder
Approval of the 1999 Plan." Mr. Pasquale's employment agreement provides that we
may terminate Mr. Pasquale without cause by making him a payment equal to:
- his accrued base salary; plus
- his accrued vacation pay; plus
- three times the sum of his current annual base salary plus target bonus,
plus any accrued minimum and additional bonus; plus
- the payment of premiums for COBRA benefits for the maximum period of
eligibility and the payment of certain other miscellaneous amounts.
In addition, upon termination without cause, Mr. Pasquale's stock options
would fully vest.
The agreement further provides that if Mr. Pasquale voluntarily terminates
his employment, he will receive a lump-sum payment equal to three months base
salary. The covenant not to compete discussed above is not applicable, however,
in the event severance pay is waived by Mr. Pasquale.
On April 23, 1997, we entered into a written employment agreement, as
amended, with Ms. Muldoon. The agreement required Ms. Muldoon to devote her full
productive time to the Company during the term of the agreement, unless
otherwise permitted by the Board, and to refrain from competing with us in the
business of assisted living or long-term healthcare for a period of one year
following expiration of the term of the agreement. The agreement included
provisions for a base salary paid on a monthly basis, annual increases in Base
Salary and bonuses no later than December 31 of each year, both as determined at
the discretion of the Compensation Committee after receiving recommendations
from our management. Ms. Muldoon also was granted certain stock options. We had
the right to terminate Ms. Muldoon without cause by making her a cash payment
equal to one year's base salary. On March 19, 1999, Ms. Muldoon resigned as our
Senior Vice President and General Counsel pursuant to a Separation and Mutual
General Release Agreement. She received payment for all accrued vacation and
unpaid salary and continued to advise us under the terms of a consulting
agreement. ARV agreed to pay severance to Ms. Muldoon in the sum of $185,000,
payable $92,500 within 10 days of the date of the agreement entered into on
March 17, 1999, and $92,500 on May 31, 1999, the date on which her consulting
agreement expired. The agreement contains a mutual release of claims, and
standard non-disparagement, non-solicitation and confidentiality provisions.
In 1998, we entered into a written employment agreement with Mr. Khoury.
The term of the agreement continues until either party terminates it in
accordance with the agreement. His agreement was amended in 1999. As amended,
the agreement requires Mr. Khoury to devote his full productive time to the
Company during the term of the Agreement, except as otherwise permitted by the
consent of the President and/or Chief Executive Officer and the Board of
Directors. Under Mr. Khoury's agreement, his base salary may be increased
effective each January 1st, commencing in 2000, based on his and the Company's
performance results and his annual performance and salary review. Mr. Khoury may
also receive an annual discretionary bonus determined by the Board based on the
Company's earnings and other criteria as may be determined by the Compensation
Committee. The target established by the Company for this bonus is 30% of his
base salary. Mr. Khoury may also receive certain bonuses based upon the sale of
certain assets of the Company's apartment division. If the Company terminates
Mr. Khoury other than for cause, the Company is required to pay Mr. Khoury the
following amounts:
- his accrued base salary;
- his accrued vacation pay;
- his bonus, if any, for the calendar year ending before the date of
termination (if not yet paid);
- one year's current base salary; and
- certain other miscellaneous amounts.
9
<PAGE> 13
If the Company requires Mr. Khoury to change the location of his employment
to a location outside Orange County, California, Mr. Khoury has the right to
treat such requirement as termination without cause. Pursuant to his employment
agreement, in addition to the options described in the tables above, the Company
granted Mr. Khoury options to purchase 100,000 shares of Common Stock at an
exercise price of $3.00 per share in 1999.
In 1998, we also entered into a written employment agreement with Dr.
Gifford. The agreement has an initial two-year term, unless earlier terminated
in accordance with the agreement. The agreement requires her to devote her full
productive time to the Company during the term of the Agreement, except as
otherwise permitted by the consent of the Board. Under Dr. Gifford's agreement,
her base salary is required to be increased effective each January 1st. Dr.
Gifford may also receive an annual discretionary bonus determined by the
Company's management based on the Company's earnings and other criteria as may
be determined by the Compensation Committee. The target established by the
Company for this bonus is 25% of her base salary. If the Company terminates Dr.
Gifford without cause, the Company is required to pay Dr. Gifford the following
amounts:
- her accrued base salary;
- her accrued vacation pay;
- an amount equal to the remaining amount of her base salary that would be
paid if employment continued through the end of the initial two-year term
of the agreement; and
- certain other miscellaneous amounts.
As mutually agreed between Mr. Espley-Jones and the Company, Mr.
Espley-Jones resigned as Executive Vice President and Chief Financial Officer of
the Company effective July 31, 1998. As required under his Employment Agreement,
as amended, Mr. Espley-Jones was paid the sum of $564,200, for his accrued
vacation, unpaid salary and the salary that would have been paid during the
balance of the term under his agreement, through September 30, 2000. The Company
also pays COBRA premiums for the maximum period for which coverage is available
in order to continue the same coverage under the Company's health insurance plan
which existed as of July 31, 1998, unless Mr. Espley-Jones and his family are
otherwise covered by another health insurance plan.
Change in Control Arrangements
To better assure that the Named Executive Officers would continue to
provide independent leadership consistent with our best interests in the event
of an actual or threatened change of control of the Company, the employment
agreement of each of the Named Executive Officers provides certain protections
in the event of a change in control. For Mr. Khoury and Dr. Gifford, a "change
in control" is defined to include the following events:
- Change in Ownership of the Company: for Mr. Khoury, the date that any
person or group acquires ownership of 50% or more of the voting power of
the Company's outstanding voting securities; for Dr. Gifford, the date
that any person or group acquires possession of more than 50% of the
total fair market value or of the total voting power of the Company's
capital stock;
- Change in Effective Control of the Company: either (a) a person or group
acquires ownership of capital stock of the Company possessing 50% or more
of the total voting power of the Company's capital stock or (b) a
majority of the members of the Board are replaced during any 12-month
period by directors whose appointment or election was not endorsed by a
majority of the members of the Board prior to the date of such
appointment or election; and
- Change in Ownership of a Substantial Portion of the Company's Assets: the
date on which any person or group acquires assets from the Company that
have a total fair market value equal to or greater than 33 1/3% of the
total fair market value of all of the Company's assets immediately prior
to such acquisition.
10
<PAGE> 14
Following a change in control, if Mr. Khoury terminates his employment with
the Company for any reason within the period beginning six months after the
change in control and ending nine months after the change of control, or if his
employment is terminated by the Company (with or without cause) within nine
months after the change in control, the Company is required to pay him the sum
of the following amounts:
- his accrued base salary;
- his accrued vacation pay;
- his bonus, if any, for the calendar year ending prior to the date of
termination (if not yet paid);
- a salary payment equal to one and one-half times his base salary if he
terminated his employment, or two times his base salary if the Company
terminated his employment; and
- certain other miscellaneous payments.
In addition, as of the date of the change in control, his stock options become
fully vested, regardless of whether he remains employed by the Company.
Following a change in control, if Dr. Gifford's employment is terminated
either voluntarily or involuntarily within three months of the change in
control, the Company is required to pay her the following amounts:
- her accrued base salary;
- her accrued vacation pay;
- an amount equal to two times her base salary; and
- certain other miscellaneous payments.
In addition, as of the date of the change in control, her stock options become
fully vested.
Mr. Pasquale's employment agreement also provides for certain protections
in the event of a change in control. Mr. Pasquale's employment agreement defines
a "change in control" as any of the following:
- the acquisition by any person or group of greater than 50% of the
combined voting power of our outstanding voting securities;
- the acquisition by any person other than Prometheus Assisted Living LLC,
an affiliate of Lazard Freres Real Estate Investors, LLC, of greater than
20% of our outstanding voting securities;
- the replacement of a majority of the members of the Board during any 12
month period by directors whose appointment or election was not endorsed
by a majority of the members of the Board prior to the date of such
appointment or election; or
- the date on which any person acquired assets from us that have total fair
market value equal to or more than 33 1/3% of the total fair market value
of all of our assets.
Following a change in control, if Mr. Pasquale terminates his employment
for any reason within the period beginning six months after the change in
control and ending 12 months after the change of control, or if his employment
is terminated by the Company (with or without cause) at any time during the
12-month period following the change in control, then the Company is required to
pay him three times the sum of his base salary and target bonus, in addition to
certain other miscellaneous payments. In addition, as of the date of the change
in control, his stock options become fully vested, regardless of whether he
remains employed by the Company.
11
<PAGE> 15
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND PERFORMANCE GRAPH
SHALL NOT BE DEEMED FILED FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, NOR SHALL
EITHER OF THEM BE DEEMED TO BE SOLICITING MATERIAL OR INCORPORATED BY REFERENCE
BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILINGS OF THE COMPANY PURSUANT TO EITHER OF SUCH ACTS, EXCEPT TO THE EXTENT
THE COMPANY SPECIFICALLY INCORPORATES SUCH REPORT OR GRAPH BY REFERENCE THEREIN.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions regarding compensation of our executive officers, including those
related to stock and stock options, are considered by the Compensation
Committee, based upon the recommendations and analysis performed by our senior
management. The Compensation Committee (the "Committee") is currently composed
of Maurice J. DeWald and Robert P. Freeman. Until January 12, 1999, when he
resigned from our Board of Directors, the Committee was chaired by John J.
Rydzewski. Subsequent to January 12, 1999, Maurice J. DeWald has chaired the
Committee.
In the recent past, ARV has undergone a period of transition. A new
professional management team was retained over the past year to develop and
implement strategies for growth and profitability, implement needed management
systems and processes, and build value for shareholders. Uncertainty resulting
from a number of issues negatively influenced the effectiveness of ARV's
compensation arrangements and increased the difficulty of attracting and
retaining qualified key employees.
Existing compensation practices had evolved on an "ad hoc" basis. The terms
and provisions of senior management hiring packages had been individually
negotiated and varied from one individual to another. Increases in base salary,
bonus and stock option programs were based on recommendations of management
without any strict criteria regarding company performance or industry standards.
Compensation Study
In the fall of 1998, the Committee retained a nationally known compensation
consulting firm to review our compensation programs. Objectives of the study
included:
- an assessment of ARV's current compensation practice;
- recommendations for a philosophical underpinning and framework for the
design and administration of an appropriate compensation program going
forward; and
- a review of existing employment agreements to assess market
competitiveness.
Key recommendations arising from the study included:
- adoption of a compensation framework for ARV's senior management team
that will help to manage the level, mix and focus of compensation
appropriately going forward;
- establishment of base salary grades for corporate office employees to
provide a more consistent basis for the administration of individual
salary levels;
- formalization of annual bonus opportunities in the form of a basic
management incentive plan that provides specified incentive opportunities
contingent on the level of achievement against pre-established goals and
performance objectives supporting ARV's business objectives; and
- adoption of consistent guidelines for the award of stock options to key
employees.
The review of the employment agreements in force found that base salary
practices were within the competitive range of industry practice. Formal salary
ranges have been adopted to provide continuing consistent, competitive
administration. Pursuant to the consultant's recommendation, a formal bonus
program has been implemented which follows general industry competitive
practice. Stock option guidelines have been developed to administer competitive
grants on a go-forward basis.
12
<PAGE> 16
Employment Agreements for Named Executive Officers
The basic compensation for Howard G. Phanstiel, Chief Executive Officer and
Chairman of the Board, was as specified in his employment agreement, which was
approved by the Committee on December 5, 1997, and amended as of December 21,
1998, again as approved by the Committee. Under Mr. Phanstiel's amended
employment agreement, there was no set term of employment. However, upon
termination of the agreement without cause, Mr. Phanstiel was to receive the
greater of (i) an amount equal to two years base pay and target bonus, or (ii)
an amount equal to the sum of Mr. Phanstiel's then monthly base pay times the
number of months remaining until December 5, 2001, plus a target bonus through
such termination date. For purposes of termination, "target bonus" was defined
as 60% of Mr. Phanstiel's base pay. Pursuant to the terms of a separation
agreement, Mr. Phanstiel resigned as Chief Executive Officer and Chairman of the
Board in March 1999.
The basic compensation level for Douglas M. Pasquale as President and Chief
Operating Officer is specified in his employment agreement, which was approved
by the Committee on June 1, 1998. Mr. Pasquale's employment agreement has an
initial termination date of June 1, 2001; provided, however, that if the Company
does not notify Mr. Pasquale in writing of its intent to terminate the agreement
at least two years before the termination date, the term will automatically be
extended for successive periods of one year. Mr. Pasquale's employment agreement
was renegotiated in light of his promotion to Chief Executive Officer following
the resignation of Howard G. Phanstiel.
The basic compensation for Graham Espley-Jones for the fiscal year 1998 was
set prior to the Company's initial public offering and prior to the creation of
the Committee. As a privately-held company, the Company's compensation
procedures were determined by the Board of Directors and were informal.
Commencing on October 1, 1995, Mr. Espley-Jones, then our Chief Financial
Officer, entered into a three-year employment agreement ending September 30,
1998, subject to automatic renewal unless otherwise notified. During the fiscal
year ended March 31, 1997 and in July of 1997, Mr. Espley-Jones' agreement was
amended to state that he receive at least two years notice prior to the
termination date. Under a separation agreement with the Company, Mr.
Espley-Jones resigned as Chief Financial Officer effective July 31, 1998.
Following his resignation, the Company and Mr. Espley-Jones entered into a
consulting agreement under which Mr. Espley-Jones was paid an hourly rate (with
an incentive compensation component for successful completion of stated
objectives within the stated time frame) for services rendered. The consulting
agreement was terminated in February 1999.
The basic compensation level for Patricia J. Gifford, M.D. is specified in
her employment agreement, which was approved by the Committee on June 15, 1998.
Dr. Gifford's employment agreement has an initial termination date of June 15,
2000. Under this agreement, she may be terminated without cause upon payment to
her of an amount equal to the remaining amount of her base salary that would
have been paid if employment continued through the end of the initial two-year
term, along with certain other payments.
The compensation levels for the remaining Named Executive Officers, Sheila
M. Muldoon, Eric K. Davidson and Abdo Khoury, each of whom were given written
employment agreements, were examined yearly when the Compensation Committee
reviewed the compensation of all officers and highly compensated employees of
the Company. Ms. Muldoon's agreement, as amended, commenced April 23, 1997.
Under this agreement, she could be terminated without cause upon payment to her
of an amount equal to 12 months base salary. Pursuant to the terms of a
separation agreement and consulting agreement, Ms. Muldoon resigned as Senior
Vice President, Secretary and General Counsel in March 1999 and acted as Special
Counsel to the President until May 31, 1999. Mr. Davidson's agreement, as
amended, also commenced April 23, 1997. Under this agreement, he was entitled to
receive an amount equal to three months base salary when he resigned voluntarily
on September 30, 1998. Mr. Khoury's agreement commenced December 5, 1997, and
was re-evaluated since his promotion to Senior Vice President, Chief Financial
Officer and Secretary in March 1999.
Fiscal 1998 Executive Compensation Components
Executive compensation consists of three components: base salary, bonus and
long-term incentive awards.
13
<PAGE> 17
Base Salary. Base salaries for the Named Executive Officers were
established in their respective employment contracts, resulting in payment,
during Fiscal 1998 of $354,167, $175,000, $122,500, $108,333, $185,000, $125,000
and $134,135 to Mr. Phanstiel, Mr. Pasquale, Mr. Espley-Jones, Dr. Gifford, Ms.
Muldoon, Mr. Khoury and Mr. Davidson, respectively. The salaries of all Named
Executive Officers are subject to performance-based increases in each year.
Bonus. Mr. Phanstiel was entitled to a guaranteed bonus of $93,750 and
additional bonuses based on achievement of agreed-upon targets in the range of
$31,250 to $156,250. Mr. Pasquale is entitled to a guaranteed bonus of $112,500
and additional bonuses based on achievement of agreed-upon targets up to a
maximum of $112,500.
For the fiscal year 1998, Dr. Gifford was paid a guaranteed bonus of
$30,000 as stated in her employment agreement.
Regarding the remaining Named Executive Officers, for the fiscal year 1998,
bonuses were awarded at the discretion of management, subject to the approval of
the Committee. In the fiscal year 1998, no bonus was paid to Mr. Espley-Jones.
Bonuses of $37,500, $17,314 and $25,783 were paid to Ms. Muldoon, Mr. Khoury,
and Mr. Davidson, respectively, in recognition of performance in 1998.
Long Term Incentive Awards. Stock options are granted to provide a
long-term incentive opportunity that is directly linked to shareholder value.
Under his employment agreement, Howard G. Phanstiel was granted an option to
purchase 100,000 shares of ARV common stock during the fiscal year 1998, at an
exercise price equal to the market value on the date of grant ($16.00). The
option would have become exercisable in 25% annual increments on October 17,
1999, 2000, 2001 and 2002, respectively. Mr. Phanstiel's options to purchase ARV
stock terminated on his resignation.
As part of his employment agreement, Douglas M. Pasquale was granted an
option to purchase 150,000 shares of common stock during fiscal 1998. The
exercise price is equal to the market value of the Common Stock on the date of
grant ($11.13) and the option becomes exercisable in 25% annual increments on
June 1, 2000, 2001, 2002 and 2003, respectively.
Under her employment agreement, Dr. Gifford was granted an option to
purchase 30,000 shares of common stock during the fiscal year 1998. The exercise
price is equal to the market value of our common stock on the date of the grant
($11.75) and the option becomes exercisable in 25% annual increments on June 15,
2000, 2001, 2002, and 2003, respectively.
Ms. Muldoon and Mr. Khoury were granted options to purchase 25,000 and
7,500 shares, respectively, during the fiscal year 1998. The exercise price is
equal to the market value of our common stock on the date of the grant ($13.75)
and the options become exercisable in 25% annual increments on March 19, 2000,
2001, 2002, and 2003, respectively. Ms. Muldoon's options to purchase ARV stock
terminated on her resignation.
In the fiscal year 1998, we granted stock options to 94 employees, 8 of
whom were hired in that period.
Policy with Respect to Section 162(m)
Section 162(m) of the Code includes potential limitations on the
deductibility for federal income tax purposes of compensation in excess of $1
million paid or accrued with respect to any of the executive officers whose
compensation is required to be reported in the Company's proxy statement.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. For the fiscal year 1998, the Committee does
not contemplate that there will be any such nondeductible compensation.
Additional information concerning the salary, bonus and stock awards for
the Company's Named Executive Officers can be found in the tables appearing
under "Executive Compensation."
THE COMPENSATION COMMITTEE
MAURICE J. DEWALD, Chair
ROBERT P. FREEMAN
14
<PAGE> 18
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
cumulative total stockholder return on the Common Stock against the cumulative
total return of a peer group of nine assisted living companies selected by the
Company (the "Peer Group") and the AMEX Market Value Index, each for the period
from October 19, 1995 to December 31, 1998. The performance graph assumes the
investment of $100 on October 19, 1995 in the Common Stock and in each index
(except the AMEX Market Value Index, which assumes investment on September 30,
1995), and that all dividends were reinvested.
The Peer Group consists of Alternative Living Services, Inc.; Assisted
Living Concepts, Inc.; Carematrix Corporation; Greenbriar Corporation; Emeritus
Corporation; Just Like Home, Inc.; Karrington Health, Inc.; Regent Assisted
Living, Inc.; and Sunrise Assisted Living, Inc. All of the companies in the Peer
Group are weighted by their respective market capitalization. Atria Communities,
Inc. was deleted from the Peer Group in 1998 because it became a private
company.
COMPARISON OF 39 MONTH CUMULATIVE TOTAL RETURN*
AMONG ARV ASSISTED LIVING INC., THE AMEX MARKET VALUE INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
10/19/95 3/96 3/97 12/97 12/98
-------- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
ARV Assisted Living, Inc. 100 121 70 114 44
Peer Group Weighted Average 100 115 84 125 129
AMEX Market Value 100 105 107 130 132
</TABLE>
- ---------------
* $100 INVESTED ON 10/19/95 IN STOCK OR 9/30/95 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
15
<PAGE> 19
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of May 28, 1999 (based on a total of 15,873,498
outstanding shares of Common Stock) by each of our directors, each of the Named
Executive Officers and all executive officers and directors as a group. Except
as otherwise indicated, we believe the persons named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
Amounts and percentages listed below include warrants and options that are
exercisable within 60 days of May 28, 1999.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP OF CLASS
--------------------------------------- ----------------- ----------
<S> <C> <C>
Prometheus Assisted Living LLC(2)....................... 7,595,069 47.9%
Robert P. Freeman(3).................................... 2,500 *
Murry N. Gunty(3)....................................... 2,500 *
Kenneth M. Jacobs(2)(3)................................. 2,500 *
Douglas M. Pasquale(4).................................. 2,000 *
Abdo H. Khoury(4)....................................... 500 *
John A. Booty(5)........................................ 519,356 3.3%
David P. Collins(6)..................................... 513,426 3.2%
Maurice J. DeWald(7).................................... 11,000 *
Patricia J. Gifford..................................... -- --
Howard G. Phanstiel..................................... 32,300 *
Sheila M. Muldoon....................................... 2,000 *
Graham P. Espley-Jones.................................. 127,552 *
Eric K. Davidson........................................ 4,443 *
All directors and executive officers as a group (13
persons)(2)(3)(4)(5)(6)(7)............................ 8,815,146 55.5%
</TABLE>
- ---------------
* Less than 1%.
(1) The address of the Company's directors and executive officers is c/o ARV
Assisted Living, Inc., 245 Fischer Avenue, Costa Mesa, California 92626.
(2) Mr. Jacobs is a Managing Director of Lazard Freres & Co. LLC, the managing
member of LFREI. Mr. Jacobs has shared voting and investment power over the
securities held by Prometheus and may be deemed to beneficially own
Prometheus' shares. Mr. Jacobs disclaims beneficial ownership of Prometheus'
shares except to the extent of his pecuniary interest therein.
(3) Includes options to purchase 2,500 shares which are exercisable within 60
days of May 28, 1999.
(4) Excludes 321,560 shares owned of record by the Company's employee stock
ownership plan (the "ESOP"), of which Messrs. Pasquale and Khoury are
trustees.
(5) Of the 519,356 shares beneficially owned by Mr. Booty, 359,028 shares are
held by the Booty Family Trust (as to which Mr. Booty has shared voting and
investment power), 1,328 shares are held in Mr. Booty's name alone, 79,500
shares are owned by the Karen A. Booty Charitable Remainder Trust of which
Mr. Booty has sole voting and investment power, and the remaining 79,500
shares are owned by the John A. Booty Charitable Remainder Uni Trust (of
which Mr. Booty has sole voting and investment power).
(6) Of the 513,426 shares beneficially owned by Mr. Collins, 98,678 are held of
record by the D & V Collins Family Limited Partnership (as to which Mr.
Collins has shared voting and investment power), 405,755 shares are held by
the Collins Family Community Property Trust (as to which Mr. Collins has
shared voting and investment power), and 8,993 shares held of record by the
ESOP on December 31, 1998.
(7) Includes options to purchase 7,500 shares which are exercisable within 60
days of May 28, 1999.
16
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 25, 1999, the following persons are known to the Company to be
the beneficial owners of more than five percent of the Company's Common Stock.
The numbers shown on the table should be interpreted in light of the related
footnote.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(4)
- -------------- ------------------------------------ -------------------- -----------
<S> <C> <C> <C>
Common Prometheus Assisted Living LLC(1) 7,595,069 47.85%
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Common Dimensional Fund Advisors Inc.(2) 914,700 5.76%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Common Wellington Management Company LLP(3) 957,100 6.03%
75 State Street
Boston, MA 02109
</TABLE>
- ---------------
(1) According to the Schedule 13D/A filed on August 19, 1998 by Prometheus
Assisted Living LLC. LF Strategic Realty Investors II L.P., LFSRI II CADIM
Alternative Partnership L.P. also have voting and dispositive power over the
shares held by Prometheus Assisted Living LLC.
(2) According to the Schedule 13G filed on February 11, 1999 by Dimensional Fund
Advisors, Inc.
(3) According to the Schedule 13F filed on March 31, 1999 by Wellington
Management Company LLP.
(4) Based on 15,873,498 shares of Common Stock issued and outstanding as of May
28, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee consisted of John J. Rydzewski, Robert P.
Freeman and Maurice J. DeWald, who were members of our Board during the year
ending December 31, 1998. Mr. Rydzewski resigned as a member of our Board and
the Compensation Committee as of January 13, 1999. Mr. Freeman has had certain
relationships with Prometheus Assisted Living LLC, the Company's largest
stockholder, which are described below. See "Certain Relationships and Related
Transactions." No member of the Compensation Committee is or was either an
officer or employee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We utilize the services of J&D Design, as well as others, for interior
design work at our communities. The principal of J&D Design is Joan Davidson,
wife of former Senior Vice President Eric Davidson and daughter-in-law of the
former Chairman, President and Chief Executive Officer, Gary Davidson. Services
provided by J&D Design include design work and the purchase of furniture,
fixtures and equipment ("FF&E") for developed assisted living communities and
rehabilitation of existing or newly acquired assisted living communities. We
paid J&D Design approximately $560,000, $755,000 and $431,000 for the year ended
December 31, 1998, the nine-month period ended December 31, 1997 and the fiscal
year ended March 31, 1997, respectively, a portion of which was for design
services and a portion of which was for reimbursement of costs for FF&E.
Mr. R. Bruce Andrews, a former member of our Board of Directors, is
President of Nationwide Health Properties, Inc. ("NHP"), a Health Care REIT. NHP
is the owner of 16 assisted living communities that are leased to the Company.
Of that number, leases for 13 assisted living communities were entered into
prior to November 29, 1995, the date Mr. Andrews became a Board member, and
leases for three assisted living communities were entered into during Mr.
Andrews' tenure as Board member. Lease payments have aggregated approximately
$11.3 million, $8.2 million and $10.3 million for the year ended December 31,
1998, the nine-month period ended December 31, 1997 and the fiscal year ended
March 31, 1997, respectively.
17
<PAGE> 21
Robert P. Freeman, a Director of the Company, is a private investor. From
1992 through April 1999, Mr. Freeman was a Principal and Chief Investment
Officer of LFREI, the general partner of the managing members of Prometheus
Assisted Living, LLC, as well as a Managing Director of Lazard Freres & Co.,
LLC, the managing member of LFREI. Murry N. Gunty, a Director of the Company, is
a private investor. From 1995 through April 1999, Mr. Gunty was a Principal of
LFREI, the general partner of the managing members of Prometheus Assisted
Living, LLC. Messrs. Freeman and Gunty both serve as Directors of Kapson Senior
Quarters Corp. and The Fortress Group. Kenneth M. Jacobs, also a Director of the
Company, is a Managing Director of Lazard Freres & Co., LLC, the general manager
of the managing members of LFREI. On October 29, 1997, Prometheus committed to
purchase $60,000,000 aggregate principal amount of the Company's 6.75%
Convertible Subordinated Notes due 2007. Pursuant to a related agreement,
Prometheus previously purchased 1,921,012 shares of Common Stock for an
aggregate purchase price of $26,894,168. In connection with these transactions,
the Company entered into a registration rights agreement with Prometheus and an
amended Stockholders Agreement with Prometheus and LFREI. Pursuant to the
registration rights agreement between the Company and Prometheus, the Company
granted Prometheus limited demand registration rights to facilitate the resale
of certain securities owned by it and certain piggyback rights to sell a portion
of its securities in connection with certain offerings of securities of the
Company.
Pursuant to the amended Stockholders Agreement, the Board was expanded to
nine members, and Messrs. Freeman, Gunty and Kenneth Jacobs, each nominees of
Prometheus, were appointed to the Board of Directors. Until the occurrence of a
termination event, at each annual or special meeting of our stockholders,
Prometheus had the right pursuant to the Stockholders Agreement to designate
three nominees to the Board if the Board was a single class or one designee per
class if the Board was divided into three classes. A termination event occurred
if either:
- Prometheus no longer owned at least 5% of the Common Stock on a fully
diluted basis; or
- Prometheus no longer owned Common Stock having a total market value of at
least $25 million.
The Stockholders Agreement, as amended, further provided that during a
standstill period of three years (which period was subject to early termination
in certain circumstances), Prometheus would be subject to certain limitations
and restrictions relating to, among other matters, acquisitions of additional
shares of Common Stock (generally limiting Prometheus to beneficially owning no
more than 49.9% of the shares of Common Stock on a fully diluted basis),
transfers of Common Stock held by Prometheus, and seeking representation on the
Board other than as contemplated by the Stockholders Agreement. In addition,
during the standstill period, Prometheus was required to vote all shares of
Common Stock owned by it representing an aggregate ownership in excess of 35.8%
of the outstanding shares of Common Stock in one of the following two manners:
in accordance with the recommendation of the Board or proportionally in
accordance with the votes of the other holders of Common Stock. Prometheus was
also required to vote its shares of Common Stock in favor of the election of all
directors nominated by our nominating committee, if any, or the Board, provided
such nominations were in accordance with certain provisions of the amended
Stockholders Agreement. Prometheus currently owns 7,595,069 shares, or
approximately 47.9%, of our Common Stock.
On October 21, 1998, we announced that a termination event occurred under
the Stockholder Agreement on October 12, 1998, when the market value of our
Common Stock dropped to a point where LFREI no longer beneficially owned Common
Stock having a market value of at least $25 million. As a result of the
termination event, LFREI's standstill obligations would have terminated on
January 11, 1999. However, on December 7, 1998, the Superior Court of the State
of California, County of Orange issued an order in favor of LFREI's cross
complaint concluding that their standstill obligations terminated as of April
1998.
On August 20, 1998, we paid Lazard Freres Real Estate Investors LLC a
finders fee totaling $418,750 related to our acquisition of interests in 11
assisted living communities from Hillsdale Group, L.P.
To address certain structural issues in connection with tax credit
partnerships, Pacific Demographics Corporation ("Pacific Demographics")
(formerly ARVTC, Inc.), was formed in August 1994 by Messrs. Booty, Collins and
Espley-Jones, as well as three former officers, to provide certain development
services for these partnerships in exchange for cash and deferred development
fees generated by the tax credit
18
<PAGE> 22
partnerships. In order to lessen potential conflicts of interest, in July 1995,
the Company's then principal shareholders, who included but were not limited to
Messrs. Booty, Collins and Espley-Jones sold Pacific Demographics, Inc. to the
Company for $100,000 in cash. In addition, they formed a general partnership,
Hunter Development ("Hunter"), and became co-developers with Pacific
Demographics and retained the right to receive 20% of all developer fees up to a
maximum of $850,000. Subsequently, each of the general partners of Hunter
assigned his interest in Hunter to Redhill Development, LLC. Of the maximum
amount of $850,000 which could be distributed, $300,428 has been distributed to
date of which Messrs. Booty, Collins and Espley-Jones have received $111,627,
$65,714 and $37,153, respectively.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the accounting firm of KPMG Peat
Marwick, LLP, as the independent public accountants of the Company during the
1999 fiscal year. Representatives of KPMG Peat Marwick are expected to be
present at the Annual Meeting with the opportunity to make a statement, if they
desire to do so, and to answer stockholders' questions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities (collectively, "Reporting Persons"), to file
reports on Forms 3, 4 and 5 of stock ownership and changes in ownership with the
Securities and Exchange Commission. Reporting Persons are required to furnish
the Company with copies of all forms that they file. Based on the Company's
review of copies of Forms 3, 4 and 5, and amendments thereto, received by the
Company for the year ended December 31, 1998, or written representations from
certain Reporting Persons that no Forms 5 were required to be filed by those
persons, the Company believes that during Fiscal 1998 all filing requirements
were complied with by the Reporting Persons, except that the Form 4 required for
Graham P. Espley-Jones and the Form 3 required by Douglas M. Pasquale were filed
late due to administrative oversight.
PROPOSAL TO APPROVE THE 1999 STOCK OPTION AND INCENTIVE PLAN
(PROPOSAL NO. 2)
On May 21, 1999, the Board adopted The 1999 Stock Option and Incentive Plan
of ARV Assisted Living, Inc. (the "1999 Plan"), subject to the receipt of
stockholder approval of the 1999 Plan at the Annual Meeting.
The Company currently maintains The 1995 Stock Option and Incentive Plan of
ARV Assisted Living, Inc., which is referred to as the "1995 Plan". The Board
believes that certain technical and clarifying changes are necessary to the 1995
Plan. Rather than amend the 1995 Plan, the Board decided to terminate the 1995
Plan with respect to any additional awards and adopt the 1999 Plan.
As of May 28, 1999, approximately 930,800 shares of Common Stock remained
subject to awards then outstanding under the 1995 Plan and approximately an
additional 1,421,475 shares remained available for grant purposes under the 1995
Plan. If the 1999 Plan is approved by stockholders, the 1995 Plan will be
terminated with respect to any additional awards. The terms of and authority of
the Administrator (as defined below) under the 1995 Plan with respect to
outstanding awards will, however, continue. The aggregate share limit of the
1999 Plan, described in more detail below under "Summary Description of the 1999
Plan -- Limits on Awards; Authorized Shares," is based generally on the
remaining share authority of the 1995 Plan.
The principal terms of the 1999 Plan are summarized below. The following
summary is qualified in its entirety by the full text of the 1999 Plan, a copy
of which is included as Exhibit A to this Proxy Statement. Capitalized terms
used in the summary are used as defined in the 1999 Plan.
19
<PAGE> 23
SUMMARY DESCRIPTION OF THE 1999 PLAN
The purpose of the 1999 Plan is to promote the success of the Company and
the interests of its stockholders by attracting, motivating, retaining and
rewarding selected eligible persons through the grant of awards and incentives
for high levels of individual performance and improved financial performance of
the Company.
AWARDS. The 1999 Plan authorizes stock options, restricted stock, stock
bonuses, stock appreciation rights ("SARs"), and performance shares, as well as
certain other stock-based and cash awards described in the 1999 Plan, responsive
to changing developments in management compensation. The 1999 Plan retains the
flexibility to offer competitive incentives and to tailor benefits to specific
needs and circumstances. Generally, an option or SAR will expire, or other award
will vest, not more than 10 years after the date of grant.
ADMINISTRATION; NO REPRICING. The 1999 Plan will be administered by the
Board or by one or more committees appointed by the Board (the appropriate
acting body is referred to as the "Administrator"). The Administrator is
currently the Company's Compensation Committee.
The Administrator determines the number of shares that are to be subject to
awards and the terms and conditions of such awards, including the price (if any)
to be paid for the shares or the award. Subject to the other provisions of the
1999 Plan, the Administrator has the authority:
- to permit the recipient of any award to pay the purchase price of shares
of Common Stock or the award in cash or by check, the delivery of
previously owned shares of Common Stock, a cashless exercise, or a note
satisfying the requirements of the 1999 Plan;
- to accelerate the receipt or vesting of benefits pursuant to an award;
and
- to make certain adjustments to an outstanding award and authorize the
conversion, succession or substitution of an award.
Any option or SAR granted under the 1999 Plan may not, however, be repriced to
less than the fair market value of the Common Stock on the grant date of the
award without prior stockholder approval.
ELIGIBILITY. Persons eligible to receive awards under the 1999 Plan include
officers or employees of the Company or any of its subsidiaries, directors of
the Company, and certain consultants and advisors to the Company or any of its
subsidiaries. Currently, approximately 50 officers and employees of the Company
and its subsidiaries (including all of the Company's Named Executive Officers)
and each of the non-employee directors of the Company are considered eligible
under the 1999 Plan, subject to the power of the Administrator to determine
eligible persons to whom awards will be granted. Members of the Company's Board
of Directors who are not officers or employees of the Company ("Non-Employee
Directors") are also eligible for certain automatic stock option grants
described below under "Automatic Award Grants to Non-Employee Directors."
TRANSFER RESTRICTIONS. Awards under the 1999 Plan generally are not
transferable by the recipient other than by will or the laws of descent and
distribution and generally are exercisable, during the recipient's lifetime,
only by him or her; any amounts payable or shares issuable pursuant to an award
will be paid only to the recipient or the recipient's beneficiary or
representative. The Administrator may permit certain award transfers that are
for estate or tax planning purposes.
LIMITS ON AWARDS; AUTHORIZED SHARES. The 1999 Plan contains the following
limits:
- The maximum number of shares of Common Stock that may be delivered under
the Plan is equal to:
(a) 2,400,000 shares, plus
(b) 15% of any increase in the total outstanding shares of Common Stock
after June 30, 1999 (other than an increase as a result of the
issuance of shares under the 1995 Plan or the 1999 Plan), minus
20
<PAGE> 24
(c) the number of shares of Common Stock subject to outstanding awards
under the 1995 Plan (approximately 930,800 as of May 28, 1999) that
are actually delivered under that Plan.
As of May 28, 1999, the total number of issued and outstanding shares of
Common Stock was 15,873,498.
- The maximum number of shares that may be delivered under the 1999 Plan
pursuant to options qualified as "incentive stock options" under Section
422 of the Internal Revenue Code ("ISOs") is 1,500,000.
- The maximum number of shares subject to options and SARs, or all awards,
that are granted under the 1999 Plan during any calendar year to any one
individual is 400,000.
- In no event will grants of awards under the 1999 Plan during any calendar
year to any one individual which are payable only in cash, and not
related to shares, provide for payment of more than $1,000,000.
- In no event will more than 400,000 shares be available under the 1999
Plan for stock bonuses or as time-based restricted stock for nominal or
no consideration other than the amount of the par value thereof. This
limit will not apply, however, to restricted shares of Common Stock
issued principally for past services, in respect of compensation earned
but deferred, or as performance-based awards.
As is customary in incentive plans of this nature, the number and kind of
shares available under the 1999 Plan and the then outstanding stock-based
awards, as well as exercise or purchase prices, performance targets under
certain performance-based awards, and share limits, are subject to adjustment in
the event of certain reorganizations, mergers, combinations, consolidations,
recapitalizations, reclassifications, stock splits, stock dividends, asset sales
or other similar events, or extraordinary dividends or distributions of property
to the stockholders.
The 1999 Plan will not limit the authority of the Board or the
Administrator to grant awards or authorize any other compensation, with or
without reference to the shares of Common Stock, under any other plan or
authority.
STOCK OPTIONS; NO DISCOUNTED OPTIONS. An option is the right to purchase
shares of Common Stock at a future date at a specified price (the "Option
Price"). The Option Price per share will be determined by the Administrator at
the time of grant, but in no case will the Option Price per share be less than
the fair market value of a share of Common Stock on the date of grant.
An option may either be an ISO or a nonqualified stock option. ISO benefits
are taxed differently from nonqualified stock options, as described under
"Federal Income Tax Treatment of Awards under the 1999 Plan" below. ISOs are
also subject to more restrictive terms and are limited in amount by the Code and
the 1999 Plan. Full payment for shares purchased on the exercise of any option
must be made at the time of such exercise in a manner approved by the
Administrator.
STOCK APPRECIATION RIGHTS. An SAR is the right to receive payment of an
amount equal to the excess of the fair market value of a Common Share on the
date of exercise of the SAR over the base price of the SAR. The base price will
be established by the Administrator at the time of grant of the SAR, but will
not be less than the fair market value of a share on the date of grant. SARs may
be granted in connection with other awards or independently.
RESTRICTED STOCK AWARDS. A restricted stock award is an award typically for
a fixed number of shares of Common Stock subject to restrictions. The
Administrator specifies the price, if any, the participant must pay for such
shares and the restrictions (which may include, for example, continued service
only and/or performance standards) imposed on such shares. Generally, restricted
stock awards that are performance-based will not vest earlier than one year
after the applicable award date, or, if the awards vest based on the passage of
time or the performance of services and are not performance-based, no more
rapidly than in three annual installments commencing one year after the
applicable award date.
STOCK BONUSES. The Administrator may grant a stock bonus to any eligible
person to reward exceptional or special services, contributions or achievements
in the manner and on such terms and conditions (including
21
<PAGE> 25
any restrictions on such shares) as determined from time to time by the
Administrator. The number of shares so awarded shall be determined by the
Administrator and may be granted independently or in lieu of a cash bonus.
PERFORMANCE-BASED AWARDS UNDER SECTION 162(M); BUSINESS CRITERIA. The
Administrator may grant to eligible employees Performance-Based Awards designed
to satisfy the requirements for deductibility under Section 162(m) of the Code
(in addition to other awards expressly authorized under the 1999 Plan which may
also qualify as performance-based). These awards will be based on the
performance of the Company and/or one or more of its subsidiaries, divisions,
segments, or units ("Performance-Based Awards").
The Administrator will establish the business criteria on which performance
goals will be awarded. The business criteria are identified in Section 5.2 of
the 1999 Plan. Performance-Based Awards are earned and payable only if
performance reaches specific, preestablished performance goals approved by the
Administrator in advance of applicable deadlines under the Code and while the
performance relating to the goals remains substantially uncertain. Performance
goals may be adjusted to reflect certain changes, including reorganizations,
liquidations and capitalization and accounting changes, to the extent permitted
by Section 162(m).
Performance-Based Awards may be stock-based (payable in stock only or in
cash or stock) or may be cash-only awards (in either case, subject to the limits
described above under "Limits on Awards; Authorized Shares"). Before any
Performance-Based Award is paid, the Administrator must certify that the
performance goals have been satisfied. The Administrator will have discretion to
determine the performance goals and restrictions or other limitations of the
individual awards and may reserve "negative" discretion to reduce payments below
maximum Award limits.
DEFERRALS. The 1999 Plan authorizes the Administrator to permit deferred
payment of awards. The Administrator may determine the form and timing of
payment, vesting, and other terms applicable to deferrals.
AUTOMATIC AWARD GRANTS TO NON-EMPLOYEE DIRECTORS. The 1999 Plan generally
continues the Non-Employee Director automatic stock option grant feature
currently in place under the 1995 Plan. Generally, when a Non-Employee Director
first takes office, he or she receives an automatic grant of a 10-year
nonqualified stock option to purchase 10,000 shares of Common Stock as of that
date and, every fourth year thereafter provided that he or she continues as a
director, an additional 10-year nonqualified stock option to purchase 10,000
shares of Common Stock as of the date of the annual stockholders meeting in that
year. Each automatic Non-Employee Director option is granted at a per share
exercise price equal to 100% of the fair market value of a share on the grant
date.
If the 1999 Plan is approved by shareholders (a) the automatic Non-Employee
Director option grant feature of the 1995 Plan will terminate, and (b) automatic
option grants in connection with the Annual Meeting will be made under the 1999
Plan and not under the 1995 Plan. Thereafter, all automatic Non-Employee
Director option grants will be under the 1999 Plan.
ACCELERATION OF AWARDS; POSSIBLE EARLY TERMINATION OF AWARDS. Unless prior
to a Change in Control Event the Administrator determines that, upon its
occurrence, benefits will not be accelerated, then generally upon the Change in
Control Event each option and stock appreciation right will become immediately
exercisable, restricted stock will vest, and cash and performance-based awards
will become payable. A Change in Control Event under the 1999 Plan generally
includes (subject to certain exceptions) a 50% or more change in ownership,
certain changes in a majority of the Board, certain mergers or consolidations,
or a liquidation of the Company or sale of substantially all of the Company's
assets.
TERMINATION OF OR CHANGES TO THE 1999 PLAN. The Board may amend or
terminate the 1999 Plan at any time and in any manner. Stockholder approval for
any amendment will generally not be required unless (a) the amendment increases
the number of shares available under the 1999 Plan (except that adjustments to
reflect a stock splits or similar changes in capitalization do not require
stockholder approval), (b) the amendment materially increases benefits available
under the 1999 Plan, or (c) shareholder approval for the amendment is required
by law. Unless previously terminated by the Board, the 1999 Plan will terminate
on
22
<PAGE> 26
July 1, 2009. Outstanding awards may be amended, subject, however, to the
consent of the holder if the amendment materially and adversely affects the
holder.
SECURITIES UNDERLYING AWARDS. The market value of a share of Common Stock
as of May 24, 1999 was $3.88 per share. Upon receipt of stockholder approval of
the 1999 Plan, the Company plans to register under the Securities Act of 1933,
the shares of Common Stock available under the 1999 Plan.
FEDERAL INCOME TAX TREATMENT OF AWARDS UNDER THE 1999 PLAN
The federal income tax consequences of the 1999 Plan under current federal
law, which is subject to change, are summarized in the following discussion that
deals with general tax principles applicable to the 1999 Plan. This summary is
not intended to be exhaustive and, among other considerations, does not describe
state, local, or international tax consequences.
With respect to nonqualified stock options, the Company is generally
entitled to deduct and the optionee recognizes taxable income in an amount equal
to the difference between the option exercise price and the fair market value of
the shares at the time of exercise. With respect to ISOs, the Company is
generally not entitled to a deduction nor does the participant recognize income
at the time of exercise. The current federal income tax consequences of other
awards authorized under the 1999 Plan generally follow certain basic patterns:
SARs are taxed and deductible in substantially the same manner as nonqualified
stock options; nontransferable restricted stock subject to a substantial risk of
forfeiture results in income recognition equal to the excess of the fair market
value over the price paid (if any) only at the time the restrictions lapse
(unless the recipient elects to accelerate recognition as of the date of grant);
bonuses, and performance share awards are generally subject to tax at the time
of payment; cash-based awards are generally subject to tax at the time of
payment; and compensation otherwise effectively deferred is taxed when paid. In
each of the foregoing cases, the Company will generally have a corresponding
deduction at the time the participant recognizes income.
If an award is accelerated under the 1999 Plan in connection with a change
in control (as this term is used under the Code), the Company may not be
permitted to deduct the portion of the compensation attributable to the
acceleration ("parachute payments") if it exceeds certain threshold limits under
the Code (and certain related excise taxes may be triggered). Furthermore, if
the compensation attributable to awards is not "performance-based" within the
meaning of Section 162(m) of the Code, the Company may not be permitted to
deduct the aggregate non performance-based compensation in excess of $1,000,000
in certain circumstances.
OPTIONS GRANTED SUBJECT TO STOCKHOLDER APPROVAL OF THE 1999 PLAN
In 1999 the Compensation Committee granted stock options to Mr. Pasquale to
purchase an additional 250,000 shares of Common Stock at a per share Option
Price of $3.00, the fair market value of the Common Stock on the date of grant.
Of those options, options to purchase 150,000 shares were granted under the then
existing share authority of the 1995 Plan (the "1995 Plan Options"). The options
to purchase the remaining 100,000 shares (the "Conditional Options") exceeded
the 1995 Plan's individual annual grant limit and, therefore, were granted under
the 1999 Plan subject to stockholder approval of the 1999 Plan.
The Conditional Options are described in the following table. If the 1999
Plan is not approved by stockholders, the Conditional Options will not be
effective. The 1995 Plan Options are not subject to stockholder approval of the
1999 Plan and are not reflected in the following table.
CONDITIONAL OPTIONS GRANTED
<TABLE>
<CAPTION>
NUMBER OF SECURITIES EXERCISE PRICE
NAME OF OPTIONEE UNDERLYING OPTIONS PER SHARE ($)
---------------- -------------------- --------------
<S> <C> <C>
Douglas M. Pasquale.................. 100,000 $3.00
</TABLE>
- ---------------
(1) The options vest in three substantially equal annual installments, with the
first installment becoming vested on April 14, 2000. The options are
nonqualified stock options and were granted at 100% of the fair market value
of the Common Stock on the date of grant. The options are subject to the
same early
23
<PAGE> 27
termination and other terms of the 1995 Plan described under the "Option
Grants in Last Fiscal Year" table, note 1, under the heading "Executive
Compensation."
Mr. Pasquale is the Chief Executive Officer of the Company. No other
options have been granted subject to stockholder approval of the 1999 Plan.
SPECIFIC BENEFITS
For information regarding options granted to executive officers of the
Company in the year ended December 31, 1998, see the material under the heading
"Executive Compensation" above.
The number, amount and type of awards to be received by or allocated to
eligible persons under the 1999 Plan cannot be determined at this time. The
Administrator has not yet considered any specific awards under the 1999 Plan. If
the 1999 Plan had been in effect in 1998, the Company expects that the grants
would not have been substantially different from those described in the tables
under the heading "Executive Compensation."
VOTE REQUIRED; RECOMMENDATION OF THE BOARD "FOR" THIS PROPOSAL
The Board believes that the 1999 Plan will promote the interests of the
Company and its stockholders and continue to enable the Company to attract,
retain and reward persons important to the Company's success and to provide
incentives based on the attainment of corporate objectives and increases in
stockholder value.
Approval of the 1999 Plan requires the affirmative vote of a majority of
the Common Stock present, or represented, and entitled to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE 1999 PLAN. Proxies solicited by the Board will be so voted unless
stockholders specify otherwise in their proxies. Broker non-votes and
abstentions on this proposal have the effect described on page 2. All members of
the Board are eligible for awards under the 1999 Plan.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 2000 ANNUAL MEETING
Any stockholder intending to submit to the Company a proposal to be
included in our proxy materials relating to the 2000 Annual Meeting must submit
it in time for us to receive it at our principal executive offices no later than
February 4, 2000. In addition, the Company's Certificate of Incorporation
provides that a stockholder may propose other business or nominate a candidate
for director before the Annual Meeting only by delivering notice to the Company
in the manner and within the time limits provided in the Certificate of
Incorporation. The Secretary of the Company must receive written notice at the
Company's principal executive offices not less than 180 days before the
scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting; however, if less than 180 days notice or public
disclosure is given by the Company, then the stockholder notice must be
delivered or received no later than the close of business on the tenth day
following the earlier of the day on which the Company mailed notice of the date
of the scheduled annual meeting or the day on which the Company publicly
disclosed the date of the scheduled Annual Meeting. The notice must also provide
certain other information as required in the Certificate of Incorporation.
Copies of the Certificate of Incorporation are available to stockholders free of
charge upon request to the Company's Secretary.
OTHER MATTERS
The Company is not aware of any matters that may be presented for action by
the stockholders at the Annual Meeting other than those set forth above. If any
other matter properly comes before the Annual Meeting, the persons named in the
accompanying form of proxy intend to vote according to their best judgment.
24
<PAGE> 28
The Annual Report of the Corporation for the fiscal year 1998, including
financial statements, is being mailed to stockholders together with these proxy
materials.
STOCKHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF IT IS MAILED
IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ Douglas M. Pasquale
Douglas M. Pasquale
President and Chief Executive Officer
June 4, 1999
Costa Mesa, California
25
<PAGE> 29
EXHIBIT A
THE 1999 STOCK OPTION AND INCENTIVE PLAN
OF
ARV ASSISTED LIVING, INC.
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. THE PLAN................................................. 1
1.1 Purpose............................................. 1
1.2 Administration and Authorization; Power and
Procedure................................................. 1
1.3 Participation....................................... 2
1.4 Shares Available for Awards; Share Limits........... 2
1.5 Grant of Awards..................................... 3
1.6 Award Period........................................ 3
1.7 Limitations on Exercise and Vesting of Awards....... 3
1.8 No Transferability; Limited Exception to Transfer
Restrictions.............................................. 3
2. OPTIONS.................................................. 4
2.1 Grants.............................................. 4
2.2 Option Price........................................ 4
2.3 Limitations on Grant and Terms of Incentive Stock
Options................................................... 5
2.4 Adjustments to Option Terms; No Repricing Without
Prior Shareholder Approval.......................... 6
2.5 Options and Rights in Substitution for Stock Options
Granted by Other Corporations....................... 6
3. STOCK APPRECIATION RIGHTS (Including Limited Stock
Appreciation Rights)...................................... 6
3.1 Grants.............................................. 6
3.2 Exercise of Stock Appreciation Rights............... 6
3.3 Payment............................................. 7
3.4 Limited Stock Appreciation Rights................... 7
4. RESTRICTED STOCK AWARDS.................................. 7
4.1 Grants.............................................. 7
4.2 Restrictions........................................ 8
4.3 Return to the Corporation........................... 8
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES............... 8
5.1 Grants of Performance Share Awards.................. 8
5.2 Special Performance-Based Share Awards.............. 8
5.3 Grants of Stock Bonuses............................. 9
5.4 Deferred Payments................................... 9
5.5 Cash Bonus Awards................................... 10
6. OTHER PROVISIONS......................................... 10
6.1 Rights of Eligible Persons, Participants and
Beneficiaries............................................. 10
6.2 Effects of Termination of Employment; Termination of
Subsidiary Status; Discretionary Provisions......... 10
6.3 Adjustments; Acceleration........................... 11
6.4 Compliance with Laws................................ 13
6.5 Tax Withholding..................................... 13
6.6 Plan Amendment, Termination and Suspension.......... 14
6.7 Privileges of Stock Ownership; Voting Rights on
Shares.................................................... 14
6.8 Effective Date of the Plan.......................... 14
6.9 Term of the Plan.................................... 14
6.10 Governing Law/Construction/Severability............. 15
6.11 Captions............................................ 15
6.12 Non-Exclusivity of Plan............................. 15
6.13 No Restriction on Corporate Powers.................. 15
6.14 Effect on Other Benefits............................ 15
</TABLE>
i
<PAGE> 31
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7. DEFINITIONS.............................................. 16
8. NON-EMPLOYEE DIRECTOR OPTIONS............................ 19
8.1 Participation....................................... 19
8.2 Annual Options Grants............................... 19
8.3 Option Price........................................ 20
8.4 Option Period and Exercisability.................... 20
8.5 Termination of Directorship......................... 20
8.6 Adjustment; Accelerations; Terminations............. 20
8.7 Acceleration Upon a Change in Control Event......... 20
8.8 Amendment to Outstanding Awards..................... 20
</TABLE>
ii
<PAGE> 32
THE 1999 STOCK OPTION AND INCENTIVE PLAN
OF
ARV ASSISTED LIVING, INC.
1. THE PLAN.
1.1 PURPOSE. The purpose of this Plan is to promote the success of the
Company and the interests of its shareholders by attracting, motivating,
retaining and rewarding directors, officers, employees and other eligible
persons with awards and incentives for high levels of individual performance and
improved financial performance of the Company. Capitalized terms used herein are
defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
1.2.1 COMMITTEE. This Plan will be administered by and all Awards
will be authorized by the Committee. Action of the Committee with respect
to the administration of this Plan will be taken pursuant to a majority
vote or by written consent of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to
the express provisions of this Plan and any express limitations on any
authority delegated by the Board, the Committee will have the authority to:
(a) determine eligibility and the particular Eligible Persons who
will receive Awards;
(b) grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of securities to be
offered or awarded to any of such persons, and determine the other
specific terms and conditions of Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which
Awards will become exercisable or will vest, or determine that no
delayed exercisability or vesting is required, and establish the events
of termination or reversion of Awards;
(c) approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
(d) construe and interpret this Plan and any Award or other
agreements defining the rights and obligations of the Company and
Participants under this Plan, further define the terms used in this
Plan, and prescribe, amend and rescind rules and regulations relating to
the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Persons, subject to any required consent under
Section 6.6;
(f) accelerate or extend the exercisability or extend the term of
any or all outstanding Awards within the maximum ten-year term of Awards
under Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Section 8 shall be
automatic and, to the maximum extent possible, self-effectuating.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of,
the Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of that entity
or body and will be conclusive and binding upon all persons. Subject only
to compliance with the express provisions hereof, the Board and Committee
may act in their absolute discretion in matters within their authority
related to this Plan.
<PAGE> 33
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking
or not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts,
including employees of and professional advisors to the Corporation.
1.2.5 NO LIABILITY. No director, officer or agent of the Company will
be liable for any action, omission or decision under this Plan taken, made
or omitted in good faith.
1.2.6 BIFURCATION OF PLAN ADMINISTRATION. Subject to the limits of
the definition of "Committee" in Section 7, the Board may delegate
different levels of authority to different Committees with administration
and grant authority under this Plan, provided that each designated
Committee granting any Awards hereunder shall consist exclusively of a
member or members of the Board. A majority of the members of the acting
Committee shall constitute a quorum. The vote of a majority of a quorum or
the unanimous written consent of the Committee shall constitute action by
the Committee.
1.2.7 DELEGATION. A Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of
the Company.
1.3 PARTICIPATION. Discretionary Awards may be granted by the Committee
only to those persons that the Committee determines to be Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.3, the
capital stock that may be delivered under this Plan will be shares of the
Corporation's authorized but unissued Common Stock and any shares of its
Common Stock held as treasury shares. The shares may be delivered for any
lawful consideration.
1.4.2 AGGREGATE SHARE LIMIT. The maximum number of shares of Common
Stock that may be delivered pursuant to Awards granted to Eligible Persons
under this Plan (the "SHARE LIMIT") will not exceed:
(a) 2,400,000 shares of Common Stock, plus
(b) 15% of any increase in the total outstanding shares of Common
Stock after June 30, 1999 (other than an increase as a result of the
issuance of shares under this Plan or the 1995 Plan), minus
(c) the aggregate number of shares of Common Stock delivered
pursuant to options granted under the 1995 Plan that are outstanding on
the Effective Date of this Plan.
The Share Limit may not contract if shares are reacquired by the Company
after an increase has occurred, but neither shall the Share Limit
increase if the reacquired shares are reissued.
1.4.3 ISO SHARE LIMIT. The maximum number of shares of Common Stock
that may be delivered pursuant to Incentive Stock Options granted under
this Plan will not exceed 1,500,000 shares.
1.4.4 INDIVIDUAL SHARE LIMITS. The maximum number of shares of Common
Stock subject to those Options and Stock Appreciation Rights that are
granted under this Plan during any calendar year to any one individual will
be limited to 400,000 and the maximum individual limit on the number of
shares of Common Stock in the aggregate subject to all Awards that are
granted under this Plan during any calendar year to any one individual will
be 400,000.
1.4.5 RESTRICTED STOCK AND STOCK BONUS LIMIT. In no event shall more
than 400,000 shares of Common Stock be available for Awards issued (or
reissued) under this Plan as Stock Bonuses or as time-based Restricted
Stock for nominal or no consideration other than the par value thereof. The
limit in this Section 1.4.5 does not apply to shares issued principally for
past services, in respect of compensation earned but deferred, or as
Performance-Based Awards under Section 5.2.
1.4.6 ADJUSTMENT. Each of the foregoing numerical limits in this
Section 1.4 will be subject to adjustment as contemplated by Section 1.4.7
and Section 6.3.
2
<PAGE> 34
1.4.7 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED
AWARDS. No Award may be granted under this Plan unless, on the date of
grant, the sum of (a) the maximum number of shares of Common Stock issuable
at any time pursuant to such Award, plus (b) the number of shares of Common
Stock that have previously been issued pursuant to Awards granted under
this Plan, other than reacquired shares of Common Stock available for
reissue consistent with any applicable legal limitations, plus (c) the
maximum number of shares of Common Stock that may be issued at any time
after such date of grant pursuant to Awards that are outstanding on such
date, plus (d) the maximum number of shares of Common Stock that may be
issued under the 1995 Plan at any time after such date of grant pursuant to
awards that are outstanding under the 1995 Plan on such date does not
exceed the Share Limit. Shares of Common Stock that are subject to or
underlie Awards that expire or for any reason are canceled or terminated,
are forfeited, fail to vest, or for any other reason are not paid or
delivered under this Plan, will again, except to the extent prohibited by
law or the terms of this Plan, be available for subsequent Awards under
this Plan. Shares of Common Stock issued pursuant to the terms hereof
(including shares of Common Stock offset in satisfaction of applicable
withholding taxes) shall reduce on a share-for-share basis the number of
shares of Common Stock remaining available under this Plan. Except as
limited by law, if an Award is or may be settled only in cash, such Award
need not be counted against any of the limits under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
Committee will determine the number of shares of Common Stock subject to each
Award, the price (if any) to be paid for the shares or the Award and, in the
case of Performance Share Awards, in addition to matters addressed in Section
1.2.2, the specific objectives, goals and "business criteria" as such term is
used in Section 5.2 that further define the terms of the Performance Share
Award. Each Award will be evidenced by an Award Agreement signed by the
Corporation and, if required by the Committee, by the Participant.
1.6 AWARD PERIOD. Any Option, SAR, warrant or similar right shall expire
and any other Award shall either vest or be forfeited at the end of the term of
the Award, which shall be not more than 10 years after the date of grant;
provided, however, that any payment of cash or delivery of stock pursuant to an
Award may be delayed until a future date if specifically authorized in writing
by the Committee and the Participant; and provided further that each Award will
be subject to earlier termination pursuant to or as provided in Section 6.2 or
Section 6.3.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise
expressly provides, no Award will be exercisable or will vest until at
least six (6) months after the initial Award Date, and once exercisable an
Award will remain exercisable until the expiration or earlier termination
of the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be exercised
when the Corporation receives written notice of such exercise from the
Participant in a form approved by the Committee specifying the Award (or
portion thereof) which is being exercised, together with any required
payments in accordance with Section 2.2.2 and Section 6.5 and any written
statements required pursuant to Section 6.4.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
will be disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Persons that cash, other securities, or
other property will be paid or transferred in lieu of any fractional share
interests. No fewer than 100 shares may be purchased on exercise of any
Award at one time unless the number purchased is the total number at the
time available for purchase under the Award.
1.8 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.
1.8.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly
provided in (or pursuant to) this Section 1.8, by applicable law and by the
Award Agreement, as the same may be amended:
(a) all Awards are non-transferable and will not be subject in any
manner to sale, transfer, anticipation, alienation, assignment, pledge,
encumbrance or charge;
3
<PAGE> 35
(b) Awards must be exercised only by the Participant; and
(c) amounts payable or shares issuable pursuant to an Award will be
delivered only to (or for the account of) the Participant.
In addition, an Award and/or the shares covered thereby will be subject
to the restrictions (if any) imposed in the applicable Award Agreement.
1.8.2 EXCEPTIONS. Subject to Section 1.8.4, the Committee may permit
Awards to be exercised by and paid to certain persons or entities that are
"family members" (as such term is defined in the General Instructions to
Securities Act Registration Statement Form S-8) of the Participant. Any
permitted transfer will be subject to (a) such other conditions and
procedures as the Committee may establish and (b) the condition that the
Committee receive evidence satisfactory to it that the transfer is being
made for estate and/or tax planning purposes and without consideration
(other than nominal consideration).
1.8.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. Subject to Section
1.8.4, the exercise and transfer restrictions in Section 1.8.1 will not
apply to:
(a) transfers to the Corporation;
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to or
exercises by the Participant's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will or the laws of descent
and distribution;
(c) transfers to a former spouse pursuant to a domestic relations
order in settlement of marital property rights, provided that the
domestic relations order states with specificity the Awards (or portions
thereof) that are to be transferred and a copy of the order is received
by the Committee;
(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the Participant's
legal representative; or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Committee.
1.8.4 CODE RESTRICTIONS. Incentive Stock Options and Restricted Stock
Awards will be subject to any and all transfer restrictions under the Code.
2. OPTIONS.
2.1 GRANTS. One or more Options may be granted under this Section 2 to any
Eligible Person. Each Option granted will be designated in the applicable Award
Agreement, by the Committee, as either an Incentive Stock Option, subject to
Section 2.3, or a Nonqualified Stock Option.
2.2 OPTION PRICE.
2.2.1 PRICING LIMITS. The purchase price per share of the Common
Stock covered by each Option will be determined by the Committee at the
time of the Award, but in no case will the purchase price per share (with
respect to either a Nonqualified Stock Option or an Incentive Stock Option)
be less than 100% (110% in the case of an Incentive Stock Option granted to
a Participant described in Section 2.3.4) of the Fair Market Value of the
Common Stock on the date of grant and in no case will the purchase price
per share be less than the par value thereof.
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares purchased
on exercise of an Option granted under this Section 2 will be paid in full
at the time of each purchase in one or a combination of the following
methods:
(a) in cash or by electronic funds transfer;
(b) by certified or cashier's check payable to the order of the
Corporation;
4
<PAGE> 36
(c) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with
the requirements of Section 2.2.3;
(d) by notice and third party payment in such manner as may be
authorized by the Committee; or
(e) subject to the proviso below, by the delivery of shares of
Common Stock of the Corporation already owned by the Participant,
provided that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering previously
owned shares, and any shares of Common Stock delivered that were
initially acquired from the Corporation, upon exercise of a stock option
or otherwise, must have been owned by the Participant at least six (6)
months as of the date of delivery.
Shares of Common Stock used to satisfy the exercise price of an Option
will be valued at their Fair Market Value on the date of exercise.
Without limiting the generality of the foregoing, the Committee may
provide that an Option can be exercised and payment made by delivering a
properly executed exercise notice together with irrevocable instructions
to a broker to promptly deliver to the Corporation the amount of sale
proceeds necessary to pay the exercise price and, unless otherwise
prohibited by the Committee or applicable law, any applicable tax
withholding under Section 6.5. The Corporation will not be obligated to
deliver certificates for any shares unless and until it receives full
payment of the exercise price therefor and any related withholding
obligations under Section 6.5 and any other conditions to exercise have
been satisfied.
2.2.3 ACCEPTANCE OF NOTES TO ENHANCE EXERCISE. The Corporation may,
with the Committee's express approval in each specific case, accept one or
more notes from any Eligible Person in connection with the exercise of any
outstanding Option subject to the following terms and conditions:
(a) PRINCIPAL. The Principal of the note will not exceed the amount
required to be paid to the Corporation upon the exercise of one or more
Options under this Plan and the note will be delivered directly to the
Corporation in consideration of such exercise or receipt.
(b) TERM. The initial term of the note will be determined by the
Committee; but the term of the note, including extensions, will not
exceed a period of five (5) years.
(c) RECOURSE; SECURITY. The note will provide for full recourse to
the Participant and will bear interest at a rate determined by the
Committee but not less than the interest rate necessary to avoid the
imputation of interest under the Code. If required by the Committee or
by applicable law, the note will be secured by a pledge of any shares or
rights financed thereby in compliance with applicable law. The terms,
repayment provisions, and collateral release provisions of the note and
the pledge securing the note will conform with all applicable rules and
regulations, including those of the Federal Reserve Board and under the
California Corporations Code, as then in effect.
(d) TERMINATION OF EMPLOYMENT. If the employment of the Participant
terminates, the unpaid principal balance of the note will become due and
payable on the 10th business day after such termination unless the
Committee expressly authorizes an extension of the date consistent with
the maximum term of the note.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
2.3.1 $100,000 LIMIT. To the extent that the aggregate "FAIR MARKET
VALUE" of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking
into account both Common Stock subject to Incentive Stock Options under
this Plan and stock subject to incentive stock options under all other
plans of the Company or any parent corporation, such options will be
treated as Nonqualified Stock Options. For this purpose, the "FAIR MARKET
VALUE" of the stock subject to options will be determined as of the date
the options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most recently
granted options will be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the
5
<PAGE> 37
extent permitted by law, designate which shares of Common Stock are to be
treated as shares acquired pursuant to the exercise of an Incentive Stock
Option.
2.3.2 NOTICE OF SALE REQUIREMENT. Any Participant who exercises an
Incentive Stock Option shall give prompt written notice to the Corporation
of any sale or other transfer of the shares of Common Stock acquired within
one year after the exercise date or two years after the Award Date.
2.3.3 OTHER CODE LIMITS. Incentive Stock Options may only be granted
to employees of the Corporation or a Subsidiary that satisfies the other
eligibility requirements of the Code. There will be imposed in any Award
Agreement relating to Incentive Stock Options such other terms and
conditions as from time to time are required in order that the Option be an
"incentive stock option" as that term is defined in Section 422 of the
Code.
2.3.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted
to any person who, at the time the Option is granted, owns (or is deemed to
own under Section 424(d) of the Code) shares of outstanding Common Stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Corporation, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five
years from the date such Option is granted.
2.4 ADJUSTMENTS TO OPTION TERMS; NO REPRICING WITHOUT PRIOR SHAREHOLDER
APPROVAL. Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person any
adjustment in the exercise or purchase price, the vesting schedule, the number
of shares subject to, or the restrictions upon or the term of, an Award granted
under this Section 2 by cancellation of an outstanding Award and a subsequent
regranting of an Award, by amendment, by substitution of an outstanding Award,
by waiver or by other legally valid means. Such amendment or other action may
result among other changes in an exercise or purchase price that is higher or
lower than the exercise or purchase price of the original or prior Award,
provide for a greater or lesser number of shares subject to the Award, or
provide for a longer or shorter vesting or exercise period. Notwithstanding the
foregoing, in no case shall the per share exercise price of any Option or Stock
Appreciation Right be reduced (by amendment, substitution, cancellation and
regrant or other means) without shareholder approval to a price less than the
Fair Market Value of a share of Common Stock on the related Award Date.
2.5 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted to Eligible
Persons under this Plan in substitution for employee stock options granted by
other entities, in connection with a distribution, merger or reorganization by
or with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the employing entity.
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS).
3.1 GRANTS. The Committee may grant to any Eligible Person Stock
Appreciation Rights either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option will contain such terms as may be required to comply with
the provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
3.2.1 EXERCISABILITY. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to another Award
will be exercisable at such time or times, and to the extent, that the
related Award will be exercisable.
3.2.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock
Appreciation Right is exercised, only the actual number of delivered shares
of Common Stock will be charged against the maximum amount of Common Stock
that may be delivered pursuant to Awards under this Plan. The number of
shares subject
6
<PAGE> 38
to the Stock Appreciation Right and the related Option of the Participant
will, however, be reduced by the number of underlying shares as to which
the exercise related, unless the Award Agreement otherwise provides.
3.2.3 STAND-ALONE SARS. A Stock Appreciation Right granted
independently of any other Award will be exercisable pursuant to the terms
of the Award Agreement but in no event earlier than six months after the
Award Date, except in the case of death or Total Disability.
3.2.4 PROPORTIONATE REDUCTION. If an SAR extends to less than all the
shares covered by the related Award and if a portion of the related Award
is thereafter exercised, the number of shares subject to the unexercised
SAR shall be reduced only if and to the extent that the remaining number of
shares covered by such related Award is less than the remaining number of
shares subject to such SAR.
3.3 PAYMENT.
3.3.1 AMOUNT. Unless the Committee otherwise provides, upon exercise
of a Stock Appreciation Right and the attendant surrender of an exercisable
portion of any related Award, the Participant will be entitled to receive,
subject to Section 6.5, payment of an amount determined by multiplying:
(a) the difference (which shall not be less than zero) obtained by
subtracting the exercise price per share of Common Stock under the
related Award (if applicable) or the initial share value specified in
the Award from the Fair Market Value of a share of Common Stock on the
date of exercise of the Stock Appreciation Right, by
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
determine the form in which payment will be made of the amount determined
under Section 3.3.1 above, either solely in cash, solely in shares of
Common Stock (valued at Fair Market Value on the date of exercise of the
Stock Appreciation Right), or partly in such shares and partly in cash;
subject to the Committee's determination that such exercise and payment are
consistent with applicable law. If the Committee permits a Participant to
elect to receive cash or shares (or a combination thereof) on exercise of a
Stock Appreciation Right, any such election will be subject to such
conditions as the Committee may impose.
3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any
Eligible Person Stock Appreciation Rights exercisable only upon or in respect of
a change in control or any other specified event ("LIMITED SARS") and such
Limited SARs may relate to or operate in tandem or combination with, or
substitution for, Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the spread between the
base price of the SAR and a price based upon or equal to the Fair Market Value
of the Common Stock during a specified period or at a specified time within a
specified period before, after or including the date of such event.
4. RESTRICTED STOCK AWARDS.
4.1 GRANTS. The Committee may grant one or more Restricted Stock Awards to
any Eligible Person. Each Restricted Stock Award Agreement will specify the
number of shares of Common Stock to be issued to the Participant, the date of
such issuance, the consideration for such shares (but not less than the minimum
lawful consideration under applicable state law) to be paid by the Participant,
the extent (if any) to which and the time (if ever) at which the Participant
will be entitled to dividends, voting and other rights in respect of the shares
prior to vesting, and, subject to Section 4.2.1, the restrictions (which may be
based on performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions of release or
lapse of such restrictions. Stock certificates evidencing shares of Restricted
Stock pending the lapse of the restrictions ("RESTRICTED SHARES") will bear a
legend making appropriate reference to the restrictions imposed hereunder and
under the applicable Award Agreement and will be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
have lapsed and the shares have vested in accordance with the provisions of the
Award, Section 1.7, and Section 4.2.1.
7
<PAGE> 39
Upon issuance of the Restricted Stock Award, the Participant may be required to
provide such further assurances and documents as the Committee may require to
enforce the restrictions.
4.2 RESTRICTIONS.
4.2.1 VESTING. Subject to Section 6.3 and any accelerated vesting in
connection with the Participant's death or Total Disability, the
restrictions on shares comprising any Restricted Stock Award shall not
lapse: (a) prior to the first anniversary of the applicable Award Date in
the case of a Restricted Stock Award that is a Performance-Based Award
under Section 5.2, or (b) in the case of other Restricted Stock Awards, not
more rapidly than in annual one-third ( 1/3) installments with the first
vesting installment occurring no earlier than the first anniversary of the
applicable Award Date. In all cases, unless the Committee otherwise
expressly provides, no Restricted Stock Award will vest until at least six
(6) months after the Award Date. The foregoing limits of this Section 4.2.1
do not apply to shares issued principally for past services or in respect
of compensation earned but deferred.
4.2.2 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and
1.8, restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until the restrictions on
such shares have lapsed and the shares have become vested.
4.2.3 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock
Award will be entitled to cash dividend and voting rights for all shares
issued even though they are not vested, but such rights will terminate
immediately as to any Restricted Shares which cease to be eligible for
vesting.
4.2.4 CASH PAYMENTS. If the Participant has paid or received cash
(including any dividends) in connection with the Restricted Stock Award,
the Award Agreement will specify whether and to what extent such cash will
be returned (with or without an earnings factor) as to any restricted
shares that cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise expressly
provides in the applicable Award Agreement, Restricted Shares that remain
subject to restrictions at the time of termination of employment, or are subject
to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement, will not vest and will be returned
to the Corporation in such manner and on such terms as the Committee provides.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant
Performance Share Awards to Eligible Employees based upon such factors as the
Committee deems relevant in light of the specific type and terms of the award.
An Award Agreement will specify the maximum number of shares of Common Stock (if
any) subject to the Performance Share Award, the consideration (but not less
than the minimum lawful consideration) to be paid for any such shares as may be
issuable to the Participant, the duration of the Award and the conditions upon
which delivery of any shares or cash to the Participant will be based. The
amount of cash or shares or other property that may be deliverable pursuant to
such Award will be based upon the degree of attainment over a specified period
of not more than 10 years (a "PERFORMANCE CYCLE") as may be established by the
Committee of such measure(s) of the performance of the Company (or any part
thereof) or the Participant as may be established by the Committee. The
Committee may provide for full or partial credit, prior to completion of such
performance cycle or the attainment of the performance achievement specified in
the Award, in the event of the Participant's death, Retirement, or Total
Disability, a Change in Control Event or in such other circumstances as the
Committee (consistent with Section 6.10.3(b), if applicable) may determine.
5.2 SPECIAL PERFORMANCE-BASED SHARE AWARDS. Options or SAR's granted with
an exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Employees which otherwise satisfy
the conditions to deductibility under Section 162(m) are deemed "Qualifying
Awards". Without limiting the generality of the foregoing, and in addition to
Qualifying Awards
8
<PAGE> 40
granted under other provisions of this Plan, other performance-based awards
within the meaning of Section 162(m) ("PERFORMANCE-BASED AWARDS"), whether in
the form of restricted stock, performance stock, phantom stock or other rights,
the vesting of which depends on the performance of the Company on a
consolidated, segment, subsidiary, or division basis, with reference to revenue
growth, net earnings (before or after taxes, interest, depreciation, and/or
amortization), cash flow, return on equity or on assets or on net investment,
stock appreciation, total shareholder return, or cost containment or reduction,
or any combination thereof (the "BUSINESS CRITERIA") relative to pre-established
performance goals, may be granted under this Plan. To the extent so defined,
these terms are used as applied under generally accepted accounting principles
and in the Company's financial reporting. The applicable business criterion or
criteria and the specific performance goals must be approved by the Committee in
advance of applicable deadlines under the Code and while the performance
relating to such goals remains substantially uncertain. The applicable
performance measurement period may not be less than one (except as provided in
Section 1.6) nor more than 10 years. Other types of performance and
non-performance awards may also be granted under the other provisions of this
Plan. The following provisions relate to all Performance-Based Awards (other
than Qualifying Awards) granted under this Plan:
5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under
this Section 5.2 is executive officers of the Corporation.
5.2.2 MAXIMUM AWARD. Subject to Section 1.4.2, in no event will
grants in any calendar year to any one individual under this Section 5.2
relate to more than 400,000 shares or, (if payable solely in cash) a cash
amount of more than $1,000,000.
5.2.3 COMMITTEE CERTIFICATION. To the extent required by Section
162(m), before any Performance-Based Award under this Section 5.2 is paid,
the Committee must certify that the material terms of the Performance-Based
Award were satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other limitations of the
individual Awards under this Section 5.2 (including the authority to reduce
Awards, payouts or vesting or to pay no Awards, in its sole discretion, if
the Committee preserves such authority at the time of grant by language to
this effect in its authorizing resolutions or otherwise).
5.2.5 STOCK PAYOUT FEATURES. In lieu of cash payment of an Award, the
Committee may require or allow all or a portion of the Award to be paid in
the form of stock, Restricted Shares, an Option, or another Award.
5.2.6 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or other
features of an Award under this Section 5.2 may provide that they (a) shall
be adjusted to reflect a change in corporate capitalization, a corporate
transaction (such as a reorganization, combination, separation, or merger)
or a complete or partial corporate liquidation, or (b) shall be calculated
either without regard for or to reflect any change in accounting policies
or practices affecting the Company and/or the business criteria or
performance goals or targets, or (c) shall be adjusted for any other
circumstance or event, or (d) any combination of (a) through (c), but only
to the extent in each case that such adjustment or determination in respect
of Performance-Based Awards would be consistent with the requirements of
Section 162(m) to qualify as performance-based compensation.
5.3 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to any
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the Committee.
The number of shares so awarded will be determined by the Committee. The Award
may be granted independently or in lieu of a cash bonus.
5.4 DEFERRED PAYMENTS. The Committee may authorize for the benefit of any
Eligible Person the deferral of any payment of cash or shares that may become
due or of cash otherwise payable under this Plan, and provide for accredited
benefits thereon based upon such deferment, at the election or at the request of
such Participant, subject to the other terms of this Plan. Such deferral will be
subject to such further
9
<PAGE> 41
conditions, restrictions or requirements as the Committee may impose, subject to
any then vested rights of Participants.
5.5 CASH BONUS AWARDS.
5.5.1 PERFORMANCE GOALS. The Committee may establish a program of
annual incentive awards that are payable in cash to Eligible Persons based
upon the extent to which performance goals are met during the performance
period. The performance goals may depend upon the performance of the
Company on a consolidated, subsidiary division basis with reference to any
one or combination of the business criteria (as such term is used in
Section 5.2). In addition, the award may depend upon the Eligible Person's
individual performance.
5.5.2 PAYMENT IN RESTRICTED STOCK. In lieu of cash payment of an
Award, the Committee may require or allow all or a portion of the Award to
be paid in the form of stock, Restricted Stock, an Option or other Award.
6. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Person or to Eligible Persons generally.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award) will confer upon
any Eligible Person or Participant any right to continue in the employ or
other service of the Company, constitute any contract or agreement of
employment or other service, or affect an employee's status as an employee
at will nor shall interfere in any way with the right of the Company to
change such person's compensation or other benefits, or to terminate his or
her employment or other service, with or without cause. Nothing in this
Section 6.1.2, however, is intended to adversely affect any express
independent right of such person under a separate employment or service
contract other than an Award Agreement.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be payable
in shares of Common Stock or from the general assets of the Corporation,
and (except as provided in Section 1.4.3) no special or separate reserve,
fund or deposit will be made to assure payment of such Awards. No
Participant, Beneficiary or other person will have any right, title or
interest in any fund or in any specific asset (including shares of Common
Stock) of the Company by reason of any Award hereunder. Neither the
provisions of this Plan (or of any related documents), the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of
this Plan will create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant, Beneficiary
or other person. To the extent that a Participant, Beneficiary or other
person acquires a right to receive payment pursuant to any Award hereunder,
such right will be no greater than the right of any unsecured general
creditor of the Company.
6.2 EFFECTS OF TERMINATION OF EMPLOYMENT; TERMINATION OF SUBSIDIARY
STATUS; DISCRETIONARY PROVISIONS.
6.2.1 OPTIONS -- RESIGNATION OR DISMISSAL. Unless otherwise provided
in the Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.3, if the Participant's employment by (or
other service specified in the Award Agreement to) the Company terminates
for any reason (the date of such termination being referred to as the
"SEVERANCE DATE") other than due to Retirement, Total Disability or death,
or "FOR CAUSE"(as determined in the sole discretion of the Committee), the
Participant will have until the date which is three (3) months after the
Severance Date to exercise an Option to the extent that it is vested on the
Severance Date. In the case of a termination by the Company "for cause,"
the Option will terminate on the Severance Date (whether or not vested). In
all cases, the Option, to the extent not vested on the Severance Date, will
terminate.
10
<PAGE> 42
6.2.2 OPTIONS -- DEATH OR DISABILITY. Unless otherwise provided in
the Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.3, if the Participant's employment by (or
specified service to) the Company terminates as a result of Total
Disability or death, the Participant, the Participant's Personal
Representative or the Participant's Beneficiary, as the case may be, will
have until the date which is twelve (12) months after the Severance Date to
exercise an Option to the extent that it is vested on the Severance Date.
The Option, to the extent not vested on the Severance Date, will terminate.
6.2.3 OPTIONS -- RETIREMENT. Unless otherwise provided in the Award
Agreement and subject to earlier termination pursuant to or as contemplated
by Section 1.6 or 6.3, if the Participant's employment by (or specified
service to) the Company terminates as a result of Retirement, the
Participant will have until the date which is twelve (12) months after the
Severance Date to exercise an Option to the extent that it is vested on the
Severance Date. The Option, to the extent not vested on the Severance Date,
will terminate.
6.2.4 CERTAIN SARS. Any SAR granted concurrently or in tandem with an
Option will have the same post-termination provisions and exercisability
periods as the Option to which it relates, unless the Committee otherwise
provides.
6.2.5 OTHER AWARDS. The Committee will establish in respect of each
other Award granted hereunder the Participant's rights and benefits (if
any) if the Participant's employment is terminated and in so doing may make
distinctions based upon the cause of termination and the nature of the
Award.
6.2.6 EVENTS NOT DEEMED A TERMINATION OF EMPLOYMENT. Unless Company
policy or the Committee otherwise provides, a Participant's employment
relationship with the Company shall not be considered terminated solely due
to any sick leave, military leave, or any other leave of absence,
authorized by the Company or the Committee. Any Award held by any Eligible
Person on approved leave of absence shall continue to vest, unless the
Committee or Company otherwise provides in connection with the Award, the
particular leave or by Company policy. In no event shall an Option be
exercised or other Award vest or become payable after the expiration of its
term set forth in the Award Agreement or the termination of the Award in
accordance with Section 6.3.
6.2.7 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this
Plan and any Award hereunder, if an entity ceases to be a Subsidiary, a
termination of employment will be deemed to have occurred with respect to
each Eligible Person in respect of such Subsidiary who does not continue as
an Eligible Person in respect of another entity within the Company.
6.2.8 COMMITTEE DISCRETION. Notwithstanding the foregoing provisions
of this Section 6.2, in the event of, or in anticipation of, a termination
of employment with the Company for any reason, other than discharge for
cause, the Committee may increase the portion of the Participant's Award
available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the
Committee determines and expressly sets forth in or by amendment to the
Award Agreement.
6.3 ADJUSTMENTS; ACCELERATION.
6.3.1 ADJUSTMENTS. Subject to Section 6.3.5, upon or in contemplation
of any reclassification, recapitalization, stock split (including a stock
split in the form of a stock dividend) or reverse stock split; any merger,
combination, consolidation or other reorganization; any split-up, spin-off,
or similar extraordinary dividend distribution ("spin-off") in respect of
the Common Stock (whether in the form of securities or property); any
exchange of Common Stock or other securities of the Corporation, or any
similar, unusual or extraordinary corporate transaction in respect of the
Common Stock; or a sale of all or substantially all the assets of the
Corporation as an entirety ("asset sale"); then the Committee shall, in
11
<PAGE> 43
such manner, to such extent (if any) and at such time as it deems
appropriate and equitable in the circumstances:
(a) in any of such events, proportionately adjust any or all of (a)
the number and type of shares of Common Stock or the number and type of
other securities that thereafter may be made the subject of Awards
(including the specific maxima and numbers of shares set forth elsewhere
in this Plan), (b) the number, amount and type of shares of Common Stock
(or other securities or property) subject to any or all outstanding
Awards, (c) the grant, purchase, or exercise price of any or all
outstanding Awards, (d) the securities, cash or other property
deliverable upon exercise of any outstanding Awards, or (e) the
performance standards applicable to any outstanding Awards, or
(b) in the case of a recapitalization, reclassification, merger,
consolidation, combination, or other reorganization, spin-off or asset
sale, make provision for a cash payment or for the substitution or
exchange of any or all outstanding Awards or the cash, securities or
property deliverable to the holder of any or all outstanding Awards
based upon the distribution or consideration payable to holders of the
Common Stock upon or in respect of such event.
In this context, the Committee may not make adjustments that would
disqualify Options as Incentive Stock Options without the written
consent of holders of the Incentive Stock Options materially adversely
affected thereby.
In any of such events, the Committee may take such action prior to such
event to the extent the Committee deems the action necessary to permit
the Participant to realize the benefits intended to be conveyed with
respect to the underlying shares in the same manner as is available to
shareholders generally.
6.3.2 ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Subject to
Section 6.3.5 and unless prior to a Change in Control Event the Committee
determines that, upon its occurrence, benefits under any or all Awards will
not accelerate or determines that only certain or limited benefits under
any or all Awards will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such Change
in Control Event for such acceleration, then upon (or, as may be necessary
to effectuate the purposes of the acceleration, immediately prior to) the
occurrence of a Change in Control Event:
(a) each Option and Stock Appreciation Right will become
immediately vested and exercisable,
(b) Restricted Stock will immediately vest free of restrictions,
and
(c) each Performance Share Award will become payable to the
Participant.
The Committee may override the limitations on acceleration in this
Section 6.3.2 by express provision in the Award Agreement and may accord
any Eligible Person a right to refuse any acceleration, whether pursuant
to the Award Agreement or otherwise, in such circumstances as the
Committee may approve. Any acceleration of Awards shall comply with
applicable legal requirements and, if necessary to accomplish the
purposes of the acceleration or if the circumstances otherwise require,
may be deemed by the Committee to occur (subject to Sections 6.3.4
through 6.3.6) not greater than 30 days before or only upon the
consummation of the event.
6.3.3 POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option
or other right to acquire Common Stock under this Plan is not exercised
prior to (a) a dissolution of the Corporation, (b) an event described in
Section 6.3.1 that the Corporation does not survive, or (c) the
consummation of an event described in Section 6.3.1 involving a Change in
Control Event approved by the Board, the Option or right shall terminate if
the Committee has expressly provided through a plan of reorganization or
otherwise for the substitution, assumption, exchange or other settlement of
the Option or right. If the exercisability of the Option or right has been
timely accelerated in any of the circumstances in (a) through (c) above but
is not exercised and no provision has been made for a substitution,
assumption, exchange or other settlement, the Option or other right shall
terminate upon the occurrence of the event.
12
<PAGE> 44
6.3.4 POSSIBLE RESCISSION OF ACCELERATION. If the vesting or payment
of an Award has been accelerated in anticipation of an event and the
Committee later determines that the event will not occur, the Committee may
rescind the effect of the acceleration as to any then outstanding and
unexercised or otherwise unpaid Awards.
6.3.5 POOLING EXCEPTION. Any discretion with respect to the events
addressed in this Section 6.3, including any acceleration of vesting or
payments, shall be limited to the extent required by applicable accounting
requirements in the case of a transaction intended to be accounted for as a
pooling of interests transaction.
6.3.6 GOLDEN PARACHUTE LIMITATIONS. Unless otherwise specified in an
Award Agreement or otherwise by the Committee in the specific case, no
Award will be accelerated under this Plan to an extent or in a manner that
would not be fully deductible by the Company for federal income tax
purposes because of Section 280G of the Code, nor will any payment
hereunder be accelerated if any portion of such accelerated payment would
not be deductible by the Company because of Section 280G of the Code. If a
holder would be entitled to benefits or payments hereunder and under any
other plan or program that would constitute "parachute payments" as defined
in Section 280G of the Code, then the holder may by written notice to the
Company designate the order in which such parachute payments will be
reduced or modified so that the Company is not denied federal income tax
deductions for any "parachute payments" because of Section 280G of the
Code.
6.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards
under this Plan, the offer, issuance and delivery of shares of Common Stock, the
acceptance of promissory notes and/or the payment of money under this Plan or
under Awards are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities laws and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of counsel
for the Corporation, be necessary or advisable in connection therewith. In
addition, any securities delivered under this Plan may be subject to any special
restrictions that the Committee may require to preserve a pooling of interests
under generally accepted accounting principles. The person acquiring any
securities under this Plan will, if requested by the Corporation, provide such
assurances and representations to the Corporation as the Committee may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
6.5 TAX WITHHOLDING.
6.5.1 PROVISION FOR TAX WITHHOLDING OFFSET. Upon any exercise,
vesting, or payment of any Award or upon the disposition of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of
the Code, the Company shall have the right at its option to:
(a) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the
amount of any taxes which the Company may be required to withhold with
respect to such Award event or payment;
(b) deduct from any amount payable in cash the amount of any taxes
which the Company may be required to withhold with respect to such cash
payment;
(c) reduce the number of shares of Common Stock to be delivered (or
otherwise reacquired) by the appropriate number of shares of Common
Stock, valued at their then Fair Market Value, to satisfy such
withholding obligation.
The Committee may in its sole discretion (subject to Section 6.4) grant
(either at the time of the Award or thereafter) to the Participant the
right to elect, pursuant to such rules and subject to such conditions as
the Committee may establish, to have the Corporation utilize the
withholding offset under clause (c) above.
6.5.2 TAX LOANS. If so provided in the Award Agreement or otherwise
authorized by the Committee, the Corporation may, to the extent permitted
by law, authorize a loan to an Eligible Person
13
<PAGE> 45
in the amount of any taxes that the Company may be required to withhold
with respect to shares of Common Stock received (or disposed of, as the
case may be) pursuant to a transaction described in Section 6.5.1. Such a
loan will be for a term not greater than nine months and at a rate of
interest and pursuant to such other terms and conditions as the
Corporation, under applicable law, may establish. Such a loan need not
otherwise comply with the provisions of Section 2.2.3.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or in part,
provided that any amendment increasing the number of shares authorized
under this Plan (except as a result of a change made in accordance with
Section 6.3) or materially increasing the benefits that may be granted
under this Plan shall be subject to shareholder approval. No Awards may be
granted during any suspension of this Plan or after termination of this
Plan, but the Committee will retain jurisdiction as to Awards then
outstanding in accordance with the terms of this Plan.
6.6.2 SHAREHOLDER APPROVAL. Any amendment to this Plan shall be
subject to shareholder approval only to the extent required under Section
6.6.1 or then required under Section 422 or 424 of the Code or any other
applicable law, or only to the extent deemed necessary or advisable by the
Board.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express limits of this
Plan, the Committee by agreement or resolution (a) may waive conditions of
or limitations on Awards to Eligible Persons that the Committee in the
prior exercise of its discretion has imposed, without the consent of a
Participant, and (b) may make other changes to the terms and conditions of
Awards that do not affect in any manner materially adverse to the
Participant, the Participant's rights and benefits under an Award; provided
that changes contemplated by Section 6.3 or Section 6.6.5 will not be
deemed to constitute changes or amendments for purposes of this Section
6.6.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of this Plan or change of or affecting any
outstanding Award will, without written consent of the Participant, affect
in any manner materially adverse to the Participant any rights or benefits
of the Participant or obligations of the Corporation under any Award
granted under this Plan prior to the effective date of such change. Changes
contemplated by Section 6.3 or Section 6.6.5 will not be deemed to
constitute changes or amendments for purposes of this Section 6.6.
6.6.5 ACCOUNTING CHANGES. Notwithstanding the foregoing provisions of
Section 6.6.3 or Section 6.6.4, if the accounting treatment under generally
accepted accounting principles of any Awards granted hereunder would be
materially more adverse to the Company than anticipated at the time of
approval of this Plan or the Awards (including, without limitation, if any
Award(s) would render pooling accounting unavailable to the Company with
respect to any transaction that would, in the absence of such Award(s), be
accounted for as a pooling of interests transaction) because of a change in
those principles or the interpretation or application thereof by the
Corporation's independent accountants, the Committee may, in the exercise
of its discretion and without the consent of the Participant, amend the
terms of such Awards to the extent the Committee deems necessary to
eliminate such effect.
6.7 PRIVILEGES OF STOCK OWNERSHIP; VOTING RIGHTS ON SHARES. Except as
otherwise expressly authorized by the Committee or this Plan, a Participant will
not be entitled to any privilege of stock ownership as to any shares of Common
Stock not actually delivered to and held of record by the Participant. No
adjustment will be made for dividends or other rights as a shareholder for which
a record date is prior to such date of delivery.
6.8 EFFECTIVE DATE OF THE PLAN. This Plan is effective upon its approval
by the Board (the "EFFECTIVE DATE"), subject to approval by the shareholders of
the Corporation within twelve months after the date of such Board approval.
6.9 TERM OF THE PLAN. Unless earlier terminated by the Board, this Plan
will terminate at the close of business on the day before the tenth (10th)
anniversary of the Effective Date (the "TERMINATION DATE") and
14
<PAGE> 46
no Awards may be granted under this Plan after that date. Unless otherwise
expressly provided in this Plan or in an applicable Award Agreement, any Award
granted prior to the termination date may extend beyond such date, and all
authority of the Committee with respect to Awards hereunder, including the
authority to amend an Award, will continue during any suspension of this Plan
and in respect of Awards outstanding on the termination date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents will be governed by, and construed
in accordance with, the laws of the state of California.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining provisions of this Plan
will continue in effect provided that the essential economic terms of this
Plan and any Award can still be enforced.
6.10.3 PLAN CONSTRUCTION. This Plan shall be interpreted consistent
with the intentions of the Corporation set forth below.
(a) RULE 16B-3. It is the intent of the Corporation that
transactions involving the Awards under this Plan, in the case of
Participants who are or may be subject to Section 16 of the Exchange
Act, satisfy to the extent feasible the requirements for applicable
exemptions from Section 16(b) of the Exchange Act so that such persons
(unless they otherwise agree) will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act in
respect of those transactions and will not be subjected to avoidable
liability thereunder.
(b) SECTION 162(M). It is the further intent of the Company that
Options or SARs with an exercise or base price not less than Fair Market
Value on the date of grant and Performance-Based Awards under Section
5.2 of this Plan that are granted to or held by a person subject to
Section 162(m) will qualify as performance-based compensation under
Section 162(m) to the extent that the Committee authorizing the Award
(or the payment thereof, as the case may be) satisfies the
administrative requirements thereof.
6.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the construction
or interpretation of this Plan or any provision thereof.
6.12 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be deemed
to limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common Stock,
under any other plan or authority
6.13 NO RESTRICTION ON CORPORATE POWERS. The existence of this Plan and
the Awards granted hereunder shall not affect or restrict in any way the right
or power of the Board or the shareholders of the Corporation to make or
authorize any adjustment, recapitalization, reorganization or other change in
the Corporation's capital structure or its business, any merger or consolidation
of the Corporation, any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting the Corporation's capital stock or the
rights thereof, the dissolution or liquidation of the Corporation or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding.
6.14 EFFECT ON OTHER BENEFITS. Payments and other benefits received by a
Participant under an Award made pursuant to this Plan shall not be deemed a part
of a Participant's regular, recurring compensation for purposes of the
termination, indemnity or severance pay law of any country or state and shall
not be included in, nor have any effect on, the determination of benefits under
any other employee benefit plan or similar arrangement provided by the
Corporation or a Subsidiary, unless expressly so provided by such other plan or
arrangements. Awards under this Plan may be made in combination with or in
tandem with, or as alternatives to, grants, awards or payments under any other
Corporation or Subsidiary plan.
15
<PAGE> 47
7. DEFINITIONS.
"AWARD" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"AWARD AGREEMENT" means any writing setting forth the terms of an Award
that has been authorized by the Committee.
"AWARD DATE" means the date upon which the Committee took the action
granting an Award or such later date as the Committee designates as the Award
Date at the time of the grant of the Award.
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant, or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation;
(b) Consummation of a merger, consolidation, or other reorganization,
with or into, or the sale of all or substantially all of the Corporation's
business and/or assets as an entirety to, one or more entities that are not
Subsidiaries or other affiliates (a "Business Combination"), unless (A) as
a result of the Business Combination at least 50% of the outstanding voting
securities voting generally in the election of directors of the surviving
or resulting entity or a parent thereof (the "Successor Entity")
immediately after the reorganization are, or will be, owned, directly or
indirectly, by shareholders of the Corporation immediately before the
Business Combination; and (B) no Person (excluding the Successor Entity or
an Excluded Person) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, more than 50% of the outstanding
shares of the combined voting power of the outstanding voting securities of
the Successor Entity, after giving effect to the Business Combination,
except to the extent that such ownership existed prior to the Business
Combination; and (C) at least a majority of the members of the board of
directors of the entity resulting from the Business Combination were
members of the Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for the Business Combination;
(c) Any Person other than an Excluded Person becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing more than 50% of
the combined voting power of the Corporation's then outstanding securities
entitled to then vote generally in the election of directors of the
Corporation, other than as a result of an acquisition directly from the
Company; or
(d) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board cease
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Corporation's shareholders, of each new
Board member was approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the beginning of
such period (including for these purposes, new members whose election or
nomination was so approved), but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a person other than the Board.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMISSION" means the Securities and Exchange Commission.
16
<PAGE> 48
"COMMITTEE" means the Board or any one or more committees of director(s)
appointed by the Board to administer this Plan with respect to the Awards within
the scope of authority delegated by the Board. At least one committee will be
comprised only of two or more directors, each of whom, in respect of any
decision involving both (a) a Participant affected by the decision who is or may
be subject to Section 162(m), and (b) compensation intended as performance-based
compensation within the meaning of Section 162(m), will be Disinterested; in
acting on any transaction with or for the benefit of a Section 16 Person, the
participating members of such Committee also shall be Non-Employee Directors
within the meaning of Rule 16b-3.
"COMMON STOCK" means the Common Stock of the Corporation and such other
securities or property as may become the subject of Awards, or become subject to
Awards, pursuant to an adjustment made under Section 6.3 of this Plan.
"COMPANY" means, collectively, the Corporation and its Subsidiaries.
"CORPORATION" means ARV Assisted Living, Inc., a California corporation,
and its successors.
"DISINTERESTED" means a director who is an "outside director" within the
meaning of Section 162(m) and any applicable legal or regulatory requirements.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or
employee of the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person,
as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"EXCLUDED PERSON" means (a) any person described in and satisfying the
conditions of Rule 13d-1(b)(1) under the Exchange Act, (b) any person who is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than
25% of the outstanding shares of Common Stock on the Effective Date of this Plan
(or any affiliate, successor or related party of or to any such person), (c) the
Company, or (d) an employee benefit plan (or related trust) sponsored or
maintained by the Company or a Successor Entity.
"FAIR MARKET VALUE" on any date means
(a) if the stock is listed or admitted to trade on a national
securities exchange, the closing price of the stock on the Composite Tape,
as published in the Western Edition of The Wall Street Journal, of the
principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on
such date, then the closing price of the stock as quoted on such Composite
Tape on the next preceding date on which there was trading in such shares;
(b) if the stock is not listed or admitted to trade on a national
securities exchange, the last/closing price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar
organization if the NASD is no longer reporting such information;
(c) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market Reporting
System, the mean between the bid and asked price for the stock on such
date, as furnished by the NASD or a similar organization; or
(d) if the stock is not listed or admitted to trade on a national
securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by the
NASD or a similar organization, the value as established by the Committee
at such time for purposes of this Plan.
Any determination as to fair market value made pursuant to this Plan shall
be determined without regard to any restriction other than a restriction
which, by its terms, will never lapse, and shall be conclusive and binding
on all persons.
"INCENTIVE STOCK OPTION" means an Option that is designated and intended as
an incentive stock option within the meaning of Section 422 of the Code, the
award of which contains such provisions (including but not
17
<PAGE> 49
limited to the receipt of shareholder approval of this Plan, if the award is
made prior to such approval) and is made under such circumstances and to such
persons as may be necessary to comply with that section.
"1995 PLAN" means The 1995 Stock Option and Incentive Plan of ARV Assisted
Living, Inc.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a
Nonqualified Stock Option (an Option not qualified as an incentive stock option
under Section 422 of the Code) and will include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted hereunder that is not designated as an incentive
stock option will be deemed to be designated a nonqualified stock option under
this Plan and not an incentive stock option under the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an officer
or employee of the Company.
"OPTION" means an option to purchase shares of Common Stock granted under
this Plan. The Committee will designate any Option granted to an employee of the
Company as a Nonqualified Stock Option or an Incentive Stock Option.
"OTHER ELIGIBLE PERSON" means any individual consultant or advisor or agent
who renders or has rendered bona fide services (other than services in
connection with the offering or sale of securities of the Company in a capital
raising transaction) to the Company or any Non-Employee Director, and who (to
the extent provided in the next sentence) is selected to participate in this
Plan by the Committee. A person who is neither an employee or officer of the
Company, nor a Non-Employee Director, who provides bona fide services to the
Company may be selected as an Other Eligible Person only if such person's
participation in this Plan would not adversely affect (a) the Corporation's
eligibility to use Form S-8 to register under the Securities Act the offering of
shares issuable under this Plan by the Corporation, or (b) the Corporation's
compliance with any other applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted an Award under
this Plan and a Non-Employee Director who has received an Option under Section 8
of this Plan.
"PERFORMANCE SHARE AWARD" means an Award of a right to receive shares of
Common Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of
which is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"PERSON" has the meaning given to such term for purposes of Sections 13(d)
and 14(d) of the Exchange Act.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
disability or incompetence of a Participant, has acquired on behalf of the
Participant, by legal proceeding or otherwise, the power to exercise the rights
or receive benefits under this Plan by virtue of having become the legal
representative of the Participant.
"PLAN" means The 1999 Stock Option and Incentive Plan of ARV Assisted
Living, Inc., as set forth herein and as it may hereafter be amended from time
to time.
"RESTRICTED SHARES" or "RESTRICTED STOCK" means shares of Common Stock
awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include, among
others, the passage of time, specified performance objectives or other factors)
and such transfer and other restrictions as are established in or pursuant to
this Plan and the related Award Agreement, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
"RETIREMENT" means retirement from active service as an employee or officer
of the Company on or after attaining (a) age 60 with ten or more years of
employment with the Company, or (b) age 65.
"RULE 16B-3" means Rule 16b-3 as promulgated by the Commission pursuant to
the Exchange Act, as amended from time to time.
"SECTION 162(M)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
18
<PAGE> 50
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"STOCK APPRECIATION RIGHT" OR "SAR" means a right authorized under this
Plan to receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"STOCK BONUS" means an Award of shares of Common Stock granted under this
Plan for no consideration other than past services and without restriction other
than such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a "total and permanent disability" within the
meaning of Section 22(e)(3) of the Code and, with respect to Awards other than
Incentive Stock Options, such other disabilities, infirmities, afflictions, or
conditions as the Committee may include.
8. NON-EMPLOYEE DIRECTOR OPTIONS.
8.1 PARTICIPATION. Awards under this Section 8 shall be made only to
Non-Employee Directors and shall be evidenced by Award Agreements substantially
in the form of Exhibit A hereto. Notwithstanding anything else herein to the
contrary, Options shall be granted under Section 8.2 only during the term of
this Plan.
8.2 ANNUAL OPTIONS GRANTS.
8.2.1 NEW NON-EMPLOYEE DIRECTORS.
(a) On or after the date of approval of this Plan by the
shareholders of the Corporation, if any person who is not then an
officer or employee of the Company becomes a member of the Board, such
person will automatically be granted (without any action by the Board or
Committee) a Nonqualified Stock Option (the Award Date of which shall be
the date such person takes office) to purchase 10,000 shares of Common
Stock.
(b) With respect to Non-employee Directors who receive an Option
grant pursuant to Section 8.2.1(a) of this Plan, in the fourth year
following the year in which the Non-Employee Director received his or
her Option grant under Section 8.2.1(a) and thereafter, in each fourth
year following the year in which the Non-Employee Director was last
granted an Option under this Section 8.2.1(b), immediately following the
annual shareholders meeting in such fourth year there shall be granted
automatically (without any action by the Board or Committee) a
Nonqualified Stock Option (the Award Date of which shall be the date of
such annual shareholders meeting) to the Non-Employee Director to
purchase 10,000 shares of Common Stock; provided that the director
continues in office as a Non-Employee Director after such meeting.
8.2.2 NON-EMPLOYEE DIRECTORS UNDER 1995 PLAN. With respect to
Non-Employee Directors in office prior to the date of approval of this Plan
by the Corporation's shareholders, in the fourth year following the year of
the Non-Employee Director's last 10,000 share option grant under The 1995
Stock Option and Incentive Plan of ARV Assisted Living, Inc. (the "1995
Plan"), and thereafter in each fourth year following the year in which the
Non-Employee Director was last granted an Option under this Section 8.2.2,
immediately following the annual shareholders meeting in such fourth year
there shall be granted automatically (without any action by the Board or
Committee) a Nonqualified Stock Option (the Award Date of which shall be
the date of such annual shareholders meeting) to the Non-Employee Director
to purchase 10,000 shares of Common Stock; provided that the director
continues in office as a Non-Employee Director after such meeting.
8.2.3 MAXIMUM NUMBER OF SHARES. Grants under Section 8.2.1 or 8.2.2
that would otherwise exceed the maximum number of shares under Section
1.4.1 shall be prorated within such limitation. A Non-Employee Director
shall not receive more than one Nonqualified Stock Option under this
19
<PAGE> 51
Section 8.2 every four calendar years. No Non-Employee Director shall be
eligible to receive Options under both Section 8.2.1 and 8.2.2.
8.3 OPTION PRICE. The purchase price per share of Common Stock covered by
each Option granted pursuant to Section 8.2 will be 100% of the Fair Market
Value of the Common Stock on the Award Date. The exercise price of any Option
granted under Section 8.2 will be paid in full at the time of each purchase (a)
in cash or by check, or (b) in shares of Common Stock valued at their Fair
Market Value on the date of exercise of the Option, or (c) partly in such shares
and partly in cash; provided that any shares used in payment that were initially
acquired upon exercise of an Option or otherwise from the Corporation must have
been owned by the Participant for at least six months prior to the date of
delivery.
8.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under Section
8.2 and all rights or obligations thereunder shall expire on the day before the
tenth (10th) anniversary of the applicable Award Date and shall be subject to
earlier termination as provided below or in Section 8.6. Each Option granted
under Section 8.2 shall become vested in four equal installments, with an
installment becoming vested on each of the first, second, third, and fourth,
respectively, anniversaries of the applicable Award Date, or, if earlier with
respect to a particular installment, on the day before the annual meeting of the
Corporation's shareholders for the calendar year in which such installment would
have otherwise vested.
8.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services as
a member of the Board terminate for any reason including, but not limited to,
the Non-Employee Director's death or Total Disability, such termination shall
have the following effect on an Option granted under Section 8.2: (a) the Option
to the extent not vested shall terminate on the date of such termination, and
(b) the Option, to the extent vested on the date of such termination, shall
remain exercisable for one (1) year after the date of such termination or until
the expiration of the stated term of the Option, whichever first occurs.
8.6 ADJUSTMENT; ACCELERATIONS; TERMINATIONS. Options granted under Section
8.2 will be subject to adjustments, accelerations and terminations as provided
in Section 6.3, but only to the extent that in the case of a Change in Control
Event such effect and any Board or Committee action in respect thereof is
effected pursuant to the terms of a reorganization agreement approved by
shareholders of the Corporation or is otherwise consistent with the effect on
Options held by persons other than executive officers or directors of the
Corporation (or, if there are none, consistent in respect of the underlying
shares with the effect on shareholders generally).
8.7 ACCELERATION UPON A CHANGE IN CONTROL EVENT. Upon the occurrence of a
Change in Control Event and acceleration of Options generally (to the extent
Options other than those granted under Section 8.2 are outstanding at that time)
under Section 6.3.2, each Option granted under Section 8.2 will become
immediately vested and exercisable.
8.8 AMENDMENT TO OUTSTANDING AWARDS. Options granted under Section 8.2 may
be amended by the Board in any manner permitted under this Plan in respect of
Options granted to Eligible Persons generally.
20
<PAGE> 52
EXHIBIT A
THE 1999 STOCK OPTION AND INCENTIVE PLAN
OF
ARV ASSISTED LIVING, INC.
DIRECTOR STOCK OPTION AGREEMENT
THIS DIRECTOR STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") dated
by and between ARV ASSISTED LIVING, INC., a Delaware corporation
(the "CORPORATION"), and (the "DIRECTOR") evidences the
nonqualified stock option (the "OPTION") granted by the Corporation to the
Director pursuant to Section 8.2 of The 1999 Stock Option and Incentive Plan of
ARV Assisted Living, Inc. (the "PLAN") as to the number of shares of the
Corporation's Common Stock first set forth below.
<TABLE>
<S> <C>
NUMBER OF SHARES OF COMMON STOCK(1).......... [10,000]
EXERCISE PRICE PER SHARE(2).................. $
AWARD DATE(1)................................
EXPIRATION DATE(2)...........................
</TABLE>
The Option has been granted to the Director in addition to, and not in lieu
of, any other form of compensation otherwise payable or to be paid to the
Director. The Option is not and shall not be deemed to be an incentive stock
option within the meaning of Section 422 of the Code. Capitalized terms are
defined in the Plan if not defined herein.
1. VESTING; LIMITS ON EXERCISE.
The Option cannot be exercised until it vests and becomes exercisable.
Unless the Committee otherwise provides, the Option will not vest or become
exercisable in any circumstances prior to the date that is six months after the
Award Date. Thereafter, the Option will become vested, subject to adjustments,
as set forth in Section 8.4 of the Plan.
- Cumulative Exercisability. To the extent that the Option is vested and
exercisable, the Director has the right to exercise the Option (to the
extent not previously exercised), and such right shall continue, until
the expiration or earlier termination of the Option.
- No Fractional Shares. Fractional share interests shall be disregarded,
but may be cumulated.
- Minimum Exercise. No fewer than 100(1) shares of Common Stock may be
purchased at any one time, unless the number purchased is the total
number at the time exercisable under the Option.
2. SERVICE; CONTINUANCE OF SERVICE REQUIRED; NO SERVICE COMMITMENT.
The Director agrees to serve as a member of the Board in accordance with
the Corporation's Articles of Incorporation, bylaws, and applicable law.
The vesting schedule requires continued service through each applicable
vesting date as a condition to the vesting of the applicable installment of the
Option and the rights and benefits under this Option Agreement. Partial service,
even if substantial, during any vesting period will not entitle the Director to
any proportionate vesting or avoid or mitigate a termination of rights and
benefits upon or following a termination of services as provided in Section 4
below or under the Plan.
Nothing contained in this Option Agreement or the Plan constitutes a
continued service commitment by the Company.
- ---------------
<TABLE>
<S> <C>
(1) Subject to adjustment under Section 6.3 of the Plan.
</TABLE>
<TABLE>
<S> <C>
(2) Subject to early termination under Section 6.2 or 6.3 of
the Plan.
</TABLE>
A-1
<PAGE> 53
3. METHOD OF EXERCISE OF OPTION.
The Option shall be exercisable by the delivery to the Secretary of the
Corporation of a written notice stating the number of shares of Common Stock to
be purchased pursuant to the Option and accompanied by:
- delivery of an executed Exercise Agreement in substantially the form
attached hereto as Appendix I or such other form as from time to time may
be required by the Committee (the "EXERCISE AGREEMENT");
- payment in full for the Exercise Price of the shares to be purchased in
the manner specified in Section 8.3 of the Plan; and
- any written statements or agreements required pursuant to Section 6.4 of
the Plan.
4. EARLY TERMINATION OF OPTION.
The Option, to the extent not previously exercised, and all other rights
hereunder, whether vested and exercisable or not, shall terminate and become
null and void prior to the Expiration Date in the event of:
- the Director's termination of services as provided in Section 8.5 of the
Plan, or
- the termination of the Option pursuant to Section 8.6 of the Plan.
5. NON-TRANSFERABILITY.
The Option and any other rights of the Director under this Option Agreement
or the Plan are nontransferable and exercisable only by the Director, except as
set forth in Section 1.8 of the Plan.
7. NOTICES.
Any notice to be given under the terms of this Option Agreement or the
Exercise Agreement shall be in writing and addressed to the Corporation at its
principal office to the attention of the Secretary, and to the Director at the
address given beneath the Director's signature hereto, or at such other address
as either party may hereafter designate in writing to the other. Any such notice
shall be given only when received, but if the Director is no longer a member of
the Board, shall be deemed to have been duly given by the Corporation when
enclosed in a properly sealed envelope addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in
a post office or branch post office regularly maintained by the United States
Government.
8. PLAN.
The Option and all rights of the Director under this Option Agreement are
subject to, and the Director agrees to be bound by, all of the terms and
conditions of the Plan, incorporated herein by this reference. In the event of a
conflict or inconsistency between the terms and conditions of this Option
Agreement and of the Plan, the terms and conditions of the Plan shall govern.
The Director acknowledges receipt of a copy of the Plan and agrees to be bound
by the terms thereof. The Director acknowledges reading and understanding the
Plan. Unless otherwise expressly provided in other sections of this Option
Agreement, provisions of the Plan that confer discretionary authority on the
Board or the Committee do not and shall not be deemed to create any rights in
the Director unless such rights are expressly set forth herein or are otherwise
in the sole discretion of the Board or the Committee so conferred by appropriate
action of the Board or the Committee under the Plan after the date hereof.
9. ENTIRE AGREEMENT.
This Option Agreement (together with the form of Exercise Agreement
attached hereto) and the Plan together constitute the entire agreement and
supersede all prior understandings and agreements, written or oral, of the
parties hereto with respect to the subject matter hereof. The Plan, this Option
Agreement and the Exercise Agreement may be amended pursuant to Section 8.8 of
the Plan. Such amendment must be in writing and signed by the Corporation. The
Corporation may, however, unilaterally waive any provision hereof
A-2
<PAGE> 54
or of the Exercise Agreement in writing to the extent such waiver does not
adversely affect the interests of the Director hereunder, but no such waiver
shall operate as or be construed to be a subsequent waiver of the same provision
or a waiver of any other provision hereof.
10. GOVERNING LAW.
This Option Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware without regard to conflict of
law principles thereunder.
<TABLE>
<S> <C>
"DIRECTOR" ARV ASSISTED LIVING, INC.
a Delaware corporation
- -------------------------------------------- By:
Signature --------------------------------------------
- -------------------------------------------- Print Name:
Print Name ---------------------------------------
- -------------------------------------------- Title:
Address --------------------------------------------
- --------------------------------------------
City, State, Zip Code
</TABLE>
CONSENT OF SPOUSE
In consideration of the Corporation's execution of this Option Agreement,
the undersigned spouse of the Director agrees to be bound by all of the terms
and provisions hereof and of the Plan.
<TABLE>
<S> <C>
- -------------------------------------------- ------------------------------------
Signature of Spouse Date
</TABLE>
A-3
<PAGE> 55
APPENDIX I
THE 1999 STOCK OPTION AND INCENTIVE PLAN
OF
ARV ASSISTED LIVING, INC.
OPTION EXERCISE AGREEMENT
The undersigned (the "PURCHASER") hereby irrevocably elects to exercise
his/her right, evidenced by that certain Director Stock Option Agreement dated
as of (the "OPTION AGREEMENT") under The 1999 Stock Option and
Incentive Plan of ARV Assisted Living, Inc. (the "PLAN"), as follows:
- the Purchaser hereby irrevocably elects to purchase shares of
Common Stock (the "SHARES") of ARV Assisted Living, Inc. (the
"CORPORATION"), and
- such purchase shall be at the price of $ per share, for an aggregate
amount of $ .
Capitalized terms are defined in the Plan if not defined herein.
DELIVERY OF SHARE CERTIFICATE. The Purchaser requests that a certificate
representing the Shares be registered to Purchaser and delivered to: .
PLAN AND OPTION AGREEMENT. The Purchaser acknowledges that all of his/her
rights are subject to, and the Purchaser agrees to be bound by, all of the terms
and conditions of the Plan and the Option Agreement, both of which are
incorporated herein by this reference. If a conflict or inconsistency between
the terms and conditions of this Exercise Agreement and of the Plan or the
Option Agreement shall arise, the terms and conditions of the Plan and/or the
Option Agreement shall govern. The Purchaser acknowledges receipt of a copy of
all documents referenced herein and the current Plan Prospectus and acknowledges
reading and understanding these documents and having an opportunity to ask any
questions that he/she may have had about them.
"PURCHASER"
- ------------------------------------------------------
Signature
- ------------------------------------------------------
Print Name
- ------------------------------------------------------
Address
- ------------------------------------------------------
City, State, Zip Code
ACCEPTED BY:
ARV ASSISTED LIVING, INC.
a Delaware corporation
By:
- -------------------------------------------------
Print Name:
- ----------------------------------------
Title:
- -----------------------------------------------
(To be completed by the corporation after the price, value (if applicable), and
receipt of funds is verified.)
I-1
<PAGE> 56
PROXY
ARV ASSISTED LIVING, INC.
Annual Meeting of Stockholders--July 1, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of ARV Assisted Living, Inc. does hereby
nominate, constitute and appoint Douglas M. Pasquale and Abdo H. Khoury or
either of them, the true and lawful proxies, agents and attorneys of the
undersigned, with full power of substitution, to vote for the undersigned all of
the common stock of said corporation standing in the name of the undersigned on
its books at the close of business on May 28, 1999 at the Annual Meeting of
Stockholders to be held at the Airport Hilton, 18800 MacArthur Blvd., Irvine,
California, 92715, on Thursday, July 1, 1999 or at any adjournment thereof,
with all of the powers which would be possessed by the undersigned if personally
present as follows.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
----------------
SEE REVERSE SIDE
----------------
FOLD AND DETACH HERE
[MAP]
Airport Hilton 18800 MacArthur Boulevard, Irvine, CA 92715
Telephone 714-833-9999
<PAGE> 57
FOR ALL WITHHOLD
NOMINEES AUTHORITY
LISTED TO VOTE FOR ALL
BELOW IN THE NOMINEES
CLASS INDICATED LISTED BELOW
1. Elect members of the Board of Directors
of ARV Assisted Living, Inc. [ ] [ ]
Class B Directors (to serve until the 2002
annual meeting of shareholders):
David P. Collins and John A. Moore
Instruction: To WITHHOLD AUTHORITY to vote for any individual nominees, draw a
line through (or otherwise strike out) the nominee's name in the list above.)
2. Approve the 1999 Stock Option and Incentive Plan. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any postponement or
adjournment thereof (such postponement or adjournment may be for the purpose
of soliciting more votes to approve a proposal).
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE
WITH RESPECT TO A PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
Mark here for address change and note below [ ]
The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders dated June 4, 1999 and the Proxy
Statement furnished therewith.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
Signature(s): ________________________________________ Date: __________________
NOTE: Please sign name exactly as your name (or names) appear on the stock
certificate. When signing as attorney, executor, administrator, trustee or
guardian please give full title. If more than one trustee, all should sign. All
joint owners must sign.
FOLD AND DETACH HERE
ANNUAL MEETING OF STOCKHOLDERS
ARV ASSISTED LIVING, INC.
DATE: JULY 1, 1999
TIME: 9:00 A.M.
PLACE: AIRPORT HILTON
18800 MACARTHUR BLVD.
IRVINE, CA 92715
(PLEASE SEE REVERSE SIDE)
<PAGE> 58
ERRATUM TO PROXY STATEMENT OF ARV ASSISTED LIVING, INC.
DATED JUNE 4, 1999
Information contained on pages 3 and 18 pertaining to Robert P. Freeman and
Murry N. Gunty is incorrect. References to Mr. Freeman and Mr. Gunty on page 3
should read as follows:
ROBERT P. FREEMAN. Mr. Freeman, a private investor, was a Principal of
Lazard Freres Real Estate Investors LLC ("LFREI") from 1992 to April 1999, as
well as a Managing Director of Lazard Freres & Co. LLC from 1998 to April 1999.
He currently is a director of United Dominion Realty Trust Inc. Mr. Freeman was
designated as a director by Prometheus Assisted Living LLC ("Prometheus")
pursuant to the Stockholders Agreement, which is more fully described below. See
"Certain Relationships and Related Transactions."
MURRY N. GUNTY. Mr. Gunty, a private investor, was a Principal of LFREI
from 1998 to April 1999. He joined LFREI in 1995. From 1993 to 1995, he was
associated with J.E. Robert Company, a real estate investment company. Mr. Gunty
was designated as a director by Prometheus pursuant to the Stockholders
Agreement, which is more fully described below. See "Certain Relationships and
Related Transactions."
References to Messrs. Freeman and Gunty at the beginning of the first
paragraph on page 18 should read as follows:
Robert P. Freeman, a Director of the Company, is a private investor. From
1992 to April 1999, Mr. Freeman was a Principal of LFREI, the general partner of
the managing members of Prometheus Assisted Living, LLC, as well as a Managing
Director of Lazard Freres & Co., LLC, the managing member of LFREI, from 1998 to
April 1999. Murry N. Gunty, a Director of the Company, is a private investor.
From 1998 to April 1999, Mr. Gunty was a Principal of LFREI, the general partner
of the managing members of Prometheus Assisted Living, LLC. He joined LFREI in
1995.
