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SCHEDULE 14A
(Rule 14a-101)(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act ofPROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No.(AMENDMENT NO. )
Filed by the Registrant [X]:
Filed by a Party other than the Registrant [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X|[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ADVOCAT INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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ADVOCAT INC.
277 MALLORY STATION ROAD, SUITE 130
FRANKLIN, TENNESSEE 37067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 2000JUNE 21, 2001
Notice is hereby given that the Annual Meeting of Stockholders of
Advocat Inc. (the "Company") will be held at 1800 AmSouth Center, Nashville,
Tennessee on July 27, 2000,Thursday, June 21, 2001, at 9:00 a.m. Central Daylight Time, for
the following purposes:
1. To elect two Class 31 directors and one Class 2 director to hold office for a three (3) year term
and a two (2) year term, respectively, until their successors are duly elected and qualified;
2. To amend the Company's 1994 Nonqualified Stock Option Plan for
Directors to increase the number of shares of Common Stock reserved for
issuance from 190,000 shares to 340,000 shares;
3. To amend the Company's 1994 Incentive and Nonqualified Stock Option
Plan for Key Personnel to increase the number of shares of Common Stock
reserved for issuance from 1,060,000 shares to 1,860,000 shares;
4. To amend the Company's Employee Stock Purchase Plan to increase the
number of shares of Common Stock reserved for issuance from 250,000 to
550,000 shares.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on June 19, 2000May 10, 2001 will be
entitled to vote at the meeting.
The Company's Board of Directors urges all stockholders of record to
exercise their right to vote at the meeting personally or by proxy. Accordingly,
we are sending you the accompanying Proxy Statement and the enclosed proxy card.
Your attention is directed to the Proxy Statement accompanying this
notice for a statement regarding matters to be acted upon at the meeting.
By Order of the Board of Directors,
James F. Mills, Jr.William R. Council, III, Secretary
Franklin, Tennessee
June 21, 2000April 26, 2001
YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS IS IMPORTANT.
TO ENSURE YOUR REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD. SHOULD YOU
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED IN THE
MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT.
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ADVOCAT INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Advocat Inc., a Delaware corporation,
with its principal offices at 277 Mallory Station Road, Suite 130, Franklin,
Tennessee 37067 (together with its subsidiaries, "Advocat" or the "Company"), to
be used at the Annual Meeting of Stockholders to be held on July 27, 2000,June 21, 2001, at
9:00 a.m. Central Daylight Time and at any adjournment thereof, for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders. The
Proxy Statement and form of proxy are being mailed to stockholders on or about
June 27, 2000.May 15, 2001.
A stockholder who executes a proxy has the right to revoke the proxy at
any time before it is voted by giving written notice of revocation to the
Secretary of the Company, by executing a proxy bearing a later date, or by
attending the Annual Meeting of Stockholders and voting in person. Proxies will
be voted in accordance with instructions noted on the proxies. Unless otherwise
specifically instructed in the proxies, it is the intention of the persons named
in the proxy to vote all proxies received by them FOR THE ELECTION OF THE
NOMINEES NAMED HEREIN WHO ARE STANDING FOR ELECTION AS CLASS 31 DIRECTORS; FOR
THE AMENDMENT TO THE 1994 NONQUALIFIED DIRECTORS and ONE
CLASS 2 DIRECTOR.PLAN; FOR THE AMENDMENT TO THE
1994 NONQUALIFIED STOCK OPTION PLAN FOR KEY PERSONNEL; AND FOR THE AMENDMENT TO
THE EMPLOYEE STOCK PURCHASE PLAN. Management does not know of any other matters
that will be presented for action at the Annual Meeting of Stockholders. If any
other matter does come before the meeting, however, the persons appointed in the
proxy will vote in accordance with their best judgment on such matter.
The cost of this proxy solicitation will be borne by the Company. It is
contemplated that proxies will be solicited solely by mail. Banks, brokers and
other custodians will be requested to forward proxy soliciting materials to
their customers where appropriate, and the Company will reimburse such banks,
brokers, and custodians for their reasonable out-of-pocket expenses in sending
the proxy materials to beneficial owners of the Company's shares.
SUMMARY OF MATTERS TO BE CONSIDERED
At the Annual Meeting of Stockholders, the stockholders of the Company
will be asked to vote on (1) the election of two nominees to serve as Class 31
directors for a three-year term and until their successors are duly elected and
qualified and one nominee to serve as a Class 2 director for a two-year term and
until his successor is duly elected and qualified (see "Proposal 1: Election of Directors"); (2) to amend the Company's
1994 Nonqualified Stock Option Plan for Directors to increase the number of
shares of Common Stock reserved for issuance from 190,000 shares to 340,000
shares; (see "Proposal 2: Amendment to 1994 Nonqualified Stock Option Plan for
Directors Increasing Shares Available for Grant"); (3) to amend the Company's
1994 Incentive and Nonqualified Stock Option Plan for Key Personnel to increase
the number of shares of Common Stock reserved for issuance from 1,060,000 shares
to 1,860,000 shares (see "Proposal 3: Amendment to 1994 Incentive and
Nonqualified Stock Option Plan for Key Personnel Increasing Shares Available for
Grant"); and (4) to amend the Company's Employee Stock Purchase Plan to increase
the number of shares of Common Stock reserved for issuance from 250,000 to
550,000 shares (see "Proposal 4: Amendment to Company's Employee Stock Purchase
Plan Increasing Shares Reserved for Issuance").
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VOTING
Stockholders of record as of June 19, 2000May 10, 2001 will be entitled to vote at
the annual meeting. At the close of business on that day, there were outstanding
5,491,621 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"). Each share of Common Stock is entitled to one vote, which may
be given in person or by proxy authorized in writing. The Company has no other
classes of voting stock issued. The Company has 393,658 shares of Series B
Redeemable Convertible Preferred Stock outstanding, but such preferred stock has
no voting right. The Company has the authority to issue additional shares of
preferred stock in one or more series, although no series of preferred stock has
been designated or issued.
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To vote by proxy, a stockholder should complete, sign, date and return
the enclosed proxy to the Secretary of the Company. The Board of Directors urges
you to complete the proxy card whether or not you plan to attend the meeting. If
you attend the meeting in person, you may, if you wish, vote in person on all
matters brought before the meeting even if you have previously delivered your
proxy. Any stockholder who has given a proxy may revoke it any time prior to its
exercise by filing an instrument revoking it with the Secretary of the Company,
by duly executing a proxy bearing a later date, or by attending the meeting and
voting in person. The mere presence at the meeting of a stockholder who has
appointed a proxy will not revoke the appointment.
The director nominees will be elected by a plurality of the votes cast
by the holders of the Common Stock present or represented and entitled to vote
at the annual meeting. All other matters submitted to the stockholders will be
approved by the affirmative vote of a majority of the shares present or
represented and entitled to vote at the Annual Meeting of Stockholders.
Abstentions and broker non-votes will not be counted as affirmative votes, but
will be counted for purposes of determining the presence or absence of a quorum.
Abstentions and broker non-votes have no legal effect on the election of
directors. On matters requiring majority vote for approval, abstentions, and
broker non-votes have the effect of negative votes.
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STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The table below sets forth, as of March 31, 2000,2001, the number and
percentage of outstanding shares of the Company's Common Stock owned by all
persons known to the Company to be holders of 5% or more of such securities, by
each director, by each of the executive officers named in the Summary
Compensation Table herein, and by all directors and executive officers of the
Company as a group. Unless otherwise indicated, all holdings are of record and
beneficial.
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY SHARES OF TOTAL
NAME OWNED(1) OUTSTANDING(2)
- ---- -------- -------------------------- ---------------
Richard M. Sullivan(3) ............................................ 634,650 11.6%
Charles W. Birkett, M.D. (3) ................................... 344,882 6.0%
Mary Margaret Hamlett (4) ...................................... 240,715 4.3%....................................... 495,382 8.5%
Paul Richardson (5) ............................................ 225,620 4.1%Richardson(5) ................................................ 262,954 4.6%
Charles H. Rinne(6) ............................................... 50,000 *
Edward G. Nelson (6) ........................................... 23,000Nelson(7) ............................................... 28,000 *
William C. O'Neil, Jr. (6) ..................................... 20,000(7) ......................................... 26,000 *
J. Bransford Wallace (7) ....................................... 17,000Wallace(8) ........................................... 23,000 *
Charles H. Rinne (8) ........................................... 16,667Joseph Furlong(9) ................................................. 10,000 *
James F. Mills, Jr ................................................ -0- *
All directors and executive officers as a group (7(8 persons)(10) 887,884 16.2%... 912,003 14.7%
- ---------------
* less than 1%
(1) Unless otherwise indicated, the persons or entities identified
in this table have sole voting and investment power with
respect to all shares shown as beneficially owned by them,
subject to community property laws, where applicable.
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(2) The percentages shown are based on 5,491,6935,491,621 shares of Common
Stock outstanding plus, as to each individual and group
listed, the number of shares of Common Stock deemed to be
owned by such holder pursuant to Rule 13d-3 under the Exchange
Act, assuming exercise of options held by such holder that are
exercisable within 60 days of March 31, 2000.2001.
(3) Based solely on Schedule 13G filing made by Mr. Sullivan on
February 12, 2001.
(4) Includes 85,000, 50,000, 50,000, 75,000 and 50,000 shares
purchasable upon exercise of options at exercise prices of
$9.50, $9.75, $10.0625, $1.8125 and $1.8125$0.35 per share,
respectively, issued under the Key Personnel Plan and 15,000,
1,000, 1,000, 1,000, 1,000, 1,000, 667, 333 and 3335,000 shares
purchasable upon exercise of options at exercise prices of
$9.50, $13.125, $11.125, $7.125, $8.3125, $5.5625, $0.15,
$1.0625 and $.15$0.35 per share, respectively, issued under the
1994 Nonqualified Stock Option Plan for Directors (the
"Director Plan"). (4)Also includes 1,500 shares owned by Dr.
Birkett's wife of which Dr. Birkett disclaims beneficial
ownership.
(5) Includes 65,000,85,000, 30,000, 25,000, 20,000 and 25,000 shares
purchasable upon exercise of options at exercise prices of
$9.50, $9.75, $10.0625, $1.8125 and $10.0625$0.35 per share,
respectively, issued under the Key Personnel Plan and 15,000,
1,000, 1,000, 1,000, 1,000, and 1,000 shares purchasable upon exercise of
options at exercise prices of $9.50, $13.125, $11.125, $7.125, $8.3125,
and $5.5625 per share, respectively, issued under the Director Plan.
Ms. Hamlett resigned as Director, Executive Vice President, Secretary
and Chief Financial Officer effective June 30, 1999.
(5) Includes 85,000, 30,000, 25,000 and 13,333 shares purchasable upon
exercise of options at exercise prices of $9.50, $9.75, $10.0625 and
$1.8125 per share, respectively, issued under the Key Personnel Plan
and 15,000, 1,000, 1,000, 1,000, 1,000, 667, 333 and 3335,000 shares
purchasable upon exercise of options at exercise prices of
$9.50, $13.125, $11.125, $7.125, $8.3125, $5.5625, $0.15,
$1.0625 and $.15$0.35 per share, respectively, issued under the
Director Plan. Also includes
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4,000 shares owned by Mr. Richardson's wife and a family trust
of which Mr. Richardson disclaims beneficial ownership.
(6) Includes 33,333 and 16,667 shares purchasable upon exercise of
options at an exercise price of $1.875 and $0.35 per share,
respectively, issued under the Key Personnel Plan.
(7) Includes 15,000, 1,000, 1,000, 1,000, 1,000, 1,000, 667, 333
and 3335,000 shares purchasable upon exercise of options at
exercise prices of $9.50, $13.125, $11.125, $7.125, $8.3125,
$5.5625, $0.15, $1.0625 and $.15$0.35 per share, respectively,
issued under the Director Plan.
(7)(8) Includes 15,000, 1,000, 1,000, 667, 333 and 3335,000 shares
purchasable upon exercise of options at an exercise price of
$9.25, $8.3125, $5.5625, $0.15, $1.0625 and $.15$0.35 per share
issued under the Director Plan.
Mr. Wallace was elected to fill a
vacancy on the Board of Directors on February 24, 1997.
(8)(9) Includes 16,6675,000 and 5,000 shares purchasable upon exercise of
options at an
exercise priceprices of $1.875$1.0938 and $0.35 per share,
respectively, issued under the Key Personnel Plan.
(9) Includes 8,333 shares purchasable upon exercise of options at an
exercise price of $1.75 per share issued under the Key PersonnelDirector Plan.
(10) Includes 405,000561,667 and 97,000137,000 shares purchasable upon exercise
of options issued under the Key Personnel Plan and the
Director Plan, respectively.
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EXECUTIVE OFFICERS
The following table sets forth, as of January 1, 2000,March 5, 2001, the Company's executive
officers:
NAME OF OFFICER AGE OFFICER SINCE POSITION WITH THE COMPANY
- --------------- --- ------------- -------------------------
Dr. Charles W. Birkett 6364 Inception Chief Executive Officer and Chairman of the Board of Directors of the
Company; President, Chief Executive Officer and a Director of
Diversicare from September 1991 to May 1994; Director of Counsel
Corporation from 1983 to May 1994; Chairman of the Board of
Directors and Chief Executive Officer of Diversicare Management
Services ("DMS") from September 1991 to present; Chairman of the
Board of Directors and Chief Executive Officer of Diversicare
Leasing Corp. ("DLC") from May 1994 to present; and President of
Diversicare Incorporated ("DINC") from February 1980 to May 1994.
Paul Richardson 552 Inception Executive Vice President and a Member of the Board of Directors of the
Company; President and Chief Executive Officer of the Company's
Canadian operating subsidiary; President and Chief Operating
Officer of the Company from May 1994 through February 1997;
Executive Vice President of Diversicare from September 1991 to May
1994; President of DMS from November 1991 through February 1997;
President of DLC from May 1994 through February 1997; Executive
Vice President of DINC from March 1991 to May 1994.
Richard B. Vacek, Jr.Charles H. Rinne 52 June 28, 1999 President and Chief Operating Officer since June 1999. From 1996 to
1999 Mr. Rinne was Executive Vice President and Chief Operational
Officer for Britthaven Inc. Mr. Rinne was Director of Operations at
Hillhaven Inc. from 1994 to 1996; President at Senior Dynamics Inc.
from 1991 to 1994, and Senior Vice President at Sterling Care Inc.
from 1989 to 1991.
William R. Council, III 39 March 5, August 16, 19992001 Executive Vice President, Chief Financial Officer and Secretary since August 16, 1999. From 1989of the
Company from March 5, 2001 to 1999,
Mr. Vacek was Director,present; Chief Executive Officer and
Vice President for Senior Counseling Group from November 1998
through January 2001; Senior Audit Manager at Arthur Andersen LLP
from September 1990 to November 1998 and Chief Financial Officer for Horace Small Apparel
PLC. From 1984 to 1989 he was Director, Senior
Vice President and Chief Financial Officer of
Cambridge Group, Inc.Audit Staff from January
1985 through September 1990. Mr. VacekCouncil is a certified public
accountant. Mr. Vacek resigned from the Company
effective January 28, 2000.
Charles H. Rinne 5 June 28, 1999 President and Chief Operating Officer since June
1999. From 1996 to 1999 Mr. Rinne was Executive
Vice President and Chief Operational Officer for
Britthaven Inc. Mr. Rinne was Director of Operations
at Hillhaven Inc. from 1994 to 1996; President at
Senior Dynamics Inc. from 1991 to 1994, and Senior
Vice President at Sterling Care Inc. from 1989 to
1991.
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NAME OF OFFICER AGE OFFICER SINCE POSITION WITH THE COMPANY
- --------------- --- ------------- -------------------------
James F. Mills, Jr. 5354 January 31, 2000 Vice President and Corporate Controller sincefrom January 1, 2000 to
January 28, 2000. Mr. Mills becamewas Acting Chief Financial Officer of
the Company onfrom January 28, 2000 to May 11, 2000, and was
appointed Senior Vice President and Chief Financial Officer on May
23,12, 2000. Effective March 31, 2001, Mr. Mills has left the Company.
Mr. Mills was Vice President and Corporate Controller for Horace
Small Apparel, PLC from 1995 through 1999. From 1985 through 1995
he was Vice President of Finance ansand Senior Vice President of
Operations for Globe Business Furniture, Inc. Mr. Mills is a
certified public accountant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the services in all
capacities to the Company for the three fiscal years ended December 31, 1999,2000, of
the individual who served as the Company's chief executive officer during the
19992000 fiscal year and of the other individuals who served the Company as
executive officers as of the end of the 19992000 fiscal year or during the 19992000
fiscal year and met the reporting requirements.
SUMMARY COMPENSATION TABLE
Annual Compensation
Long-Term Compensation
----------------------------------------------- -----------------------------------------------------
Awards Payouts
----------------------- --------------------------
Other Securities
Annual Restricted Underlying All-----------------------------------------------------------------
Other
Name and Principal Compensation Stock Options/ LTIP CompensationAnnual
Position Year (1)Year(1) Salary($) Bonus($) ($Compensation($)(1) Awards($) SARs(#) Payouts($) ($)(2)
--------
-------- --------- -------- ------------ ------------ ---------- ---------- ------------------------------
Dr. Charles W. Birkett(3)Birkett(2)(4) 2000 325,000 -- --
Chairman of the Board 1999 325,000 -- --
-- 76,000
Chairman of the BoardDirectors, Chief 1998 325,000 -- -- -- 51,000 -- 22,308
of Directors, Chief 1997 275,625 -- -- -- 1,000 -- 19,697
Executive Officer,
President and Chief
Operating Officer
Paul Richardson(3)Richardson(2) 2000 105,903 13,237 --
Executive Vice President, 1999 106,060 12,438 --
-- 21,000 -- 4,940
Executive Vice President,Director, and Chief 1998 94,256 10,436 -- -- 26,000 -- 4,933
Director, and Chief 1997 105,847 11,012 -- -- 1,000 -- 5,236
Executive Officer of the
Company's Canadian
operating subsidiary
Mary Margaret Hamlett(5) 1999 90,000James F. Mills, Jr.(3) 2000 150,000 -- -- -- -- -- 256,284
Executive Vice President,
1998 180,000 -- -- -- 26,000 -- 11,225
Chief Financial Officer, 1997 165,375 -- -- -- 1,000 -- 10,312
Secretary, and Director
Charles H. Rinne(4) 2000 250,000
President and Chief 1999 108,173 -- --
Operating Officer
Long-Term Compensation
--------------------------------------------------------------
Awards Payouts
---------------------------- ------------------------------
Restricted Securities
Name and Principal Stock Underlying LTIP All Other
Position Awards($) Options/SARs(#) Payouts($) Compensation($)(2)
---------- --------------- ---------- ------------------
Dr. Charles W. Birkett(2)(4) -- 1,000 87
Chairman of the Board -- 76,000 -- 6,000
of Directors, Chief -- 51,000 -- 19,500
Executive Officer,
President and Chief
Operating Officer
Paul Richardson(2) -- 1,000 -- 4,506
Executive Vice President, -- 21,000 -- 4,940
Director, and Chief -- 26,000 -- 4,933
Executive Officer of the
Company's Canadian
operating subsidiary
James F. Mills, Jr.(3) -- -- -- --
Executive Vice President,
Chief Financial Officer,
Secretary, and Director
Charles H. Rinne(4) -0- 87
President and Chief -- 50,000 -- 242
President and Chief
Operating Officer
- ---------------
(1) Perquisites for each executive officer are in amounts that do not
require disclosure.
(2) Includes matching contributions made under the Company's Supplemental
Executive Retirement Plan (at 6% of salary) for Dr. Birkett, $6,000 and
$19,500 1999 and $16,538 for 1999, 1998, and 1997, respectively, and for Ms.
Hamlett, $4,154, $10,773 and $9,910 for 1999, 1998 and 1997, respectively. The 1999 amountsamount also includeincludes 10%
matching contributions of $1,000 each for Dr. Birkett and Ms. Hamlett under the Company's
401K plan.plan and $87 for 2000. In the case of Mr. Richardson, a Canadian
citizen, the amounts include contributions to Mr. Richardson's
Registered Retirement Savings Plan of $4,543, $4,545$4,506, $4,940 and $4,874$4,933 for
2000, 1999 and 1998, and 1997,
respectively.
The amount for Ms. Hamlett also includes $249,737 in
severance benefits of which $104,912 was accrued but unpaid as of
December 31, 1999. The remaining amounts for each individual include
payments for life insurance benefits as well as other miscellaneous
benefits.
(3) Effective March 1, 1997, Mr. Richardson resigned as President and Chief
Operating Officer ofMills left the Company and was replaced in those capacities
by Dr. Birkett.effective March 31, 2001.
(4) Effective June 28, 1999, Dr. Birkett resigned as President and Chief
Operating Officer of the Company and was replaced in these capacities
by Mr. Rinne.
(5) Ms. Hamlett resigned her positions with the Company and as a Director
effective June 30, 1999.
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EMPLOYMENT AGREEMENTS
On May 14, 1994, the Company entered into employment agreements with
each of Dr. Birkett and Mr. Richardson. Dr. Birkett serves as Chief Executive
Officer of the Company and Mr. Richardson serves as Executive Vice President of
the Company and as President and Chief Executive Officer of the Company's
Canadian operating subsidiary. The Employment Agreements for Dr. Birkett and Mr.
Richardson provide for a base annual salary of $250,000 and $175,000,
respectively, which salaries are subject to change by the Company's Compensation
Committee. For the year 2000, Dr. Birkett's base annual salary remained at
$325,000. Effective January 1, 2000,2001, Mr. Richardson's base annual salary was
increased to $158,620$168,380 Canadian ($103,653105,903 U.S. at the December 31, 19992000 exchange
rate). The initial term of the employment agreement for Dr. Birkett expired on
the third anniversary of the date of execution thereof. The initial term of the
employment agreements for Mr. Richardson expired on the second anniversary of
the date of execution thereof. The employment agreements renew automatically for
one-year periods unless 30 days notice is given by either the Company or the
employee.
On June 28, 1999, the Company entered into an employment agreement with
Mr. Rinne (the "Rinne Employment Agreement") to serve as President of the
Company. The Rinne Employment Agreement has an initial term that endsended on June
28, 2000 and renews automatically for one-year periods unless 30 days notice is
given by either the Company or the employee. The Rinne Employment Agreement
provides for a base salary of $225,000 which is subject to change by the
Company's Compensation Committee.
On January 1, 2000, James F. Mills, Jr. entered into an employment
agreement with the Company as its Chief Executive Officer. Mr. Mills' employment
agreement with the Company, as amended on January 10, 2000, provided for a base
salary of $ 150,000, which salary was subject to change by the Company's
Compensation Committee. The initial term of the employment agreement for Mr.
Mills expired on the first anniversary of the date of execution thereof. Mr.
Mills's employment agreement automatically renewed for one-year periods unless
30 days notice was given by either the Company or Mr. Mills. Effective as of
March 31, 2001, Mr. Mills and the Company entered into a Mutual Separation
Agreement with Waiver and Release of all Claims (the "Separation Agreement").
The Separation Agreement provides for the termination of Mr. Mills's employment
agreement as of March 31, 2001, and provides that the Company will pay Mr. Mills
a severance payment in the amount of $150,000, less statutory withholdings and
deductions, plus a bonus in the amount of $15,000. The Separation Agreement also
provides that Mr. Mills will be entitled to COBRA continuation benefits provided
under the Company's group health plan beginning on March 31, 2001. Each of the
Company and Mr. Mills also agreed in the Separation Agreement to waive and
release any and all claims and liabilities, whether or not presently known to
exist, that either party may have against the other party relating to Mr. Mills'
employment with the Company.
In addition, each of the employment agreements may be terminated by the
Company without cause at any time and by the employee as a result of
"constructive discharge" (e.g., a reduction in compensation or a material change
in responsibilities) or a "change in control" (e.g., certain tender offers,
mergers, sales of substantially all of the assets or sales of a majority of the
voting securities). In the event of a termination by the Company without cause,
at the election of the employee upon a constructive discharge or change in
control, or upon the Company giving notice of its intent not to renew his
employment agreement, Dr. Birkett shall be entitled to receive a lump sum
severance payment in an amount equal to 30 months of his monthly base salary. In
the event of a termination by the Company without cause, at the election of the
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employee upon a constructive discharge or change in control or upon the Company
giving notice of its intent not to renew their respective employment agreements,
Mr. Richardson and Mr. Rinne shall be entitled to receive a lump sum severance
payment in an amount equal to 24 months of his monthly base salary. Furthermore,
upon such termination, each employee may elect to require the Company to
repurchase options granted to him under the Key Personnel Plan for a purchase
price equal to the difference between the fair market value of the Common Stock
at the date of termination and the stated option exercise price, provided that
such fair market value is above the stated option price. In the event that an
employment agreement is terminated earlier by the Company for cause (as defined
therein), or by the employee other than upon a constructive discharge or a
change in control, the employee shall not be entitled to any compensation
following the date of such termination other than the pro rata amount of his
then current base salary through such date. Upon termination of employment,
other than in the case of termination by the Company without cause or at the
election of the employee upon a constructive discharge or upon a change in
control, the terminated employee is prohibited from competing with the Company
for 12 months.
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On June 30, 1999, the Company entered into a Separation Agreement with
Ms. Hamlett. Pursuant to the Separation Agreement, Ms. Hamlett resigned her
position as Director, Chief Financial Officer, Executive Vice President and
Secretary of the Company. The Company agreed (i) to pay Ms. Hamlett a sum equal
to one hundred percent (100%) of her annual base salary, including monthly auto
allowance, as in effect on the Effective Date, in twelve (12) equal monthly
installments, less the usual and customary withholdings; (ii) that all Options
issued to Ms. Hamlett under the Option Agreements are fully vested as of the
Effective Date, and Ms. Hamlett would have eighteen (18) months to exercise such
options; (iii) to pay Ms. Hamlett accrued but unpaid salary, including accrued
but unpaid vacation pay, due from the Company through the Effective Date; (iv)
to continue providing Ms. Hamlett employee benefits and perquisites to which she
is entitled on the Effective Date for twelve (12) months; or until Ms. Hamlett
begins receiving similar benefits and perquisites from another employer,
whichever is earlier; and (v) to provide continuing coverage under the Company's
directors and officers insurance plan.
OPTION GRANTS
The table below provides information on grants of stock options
pursuant to the Key Personnel Plan and the Director Plan during the fiscal year
ended December 31, 1999,2000, to the named executive officers reflected in the
Summary Compensation Table. The Company grants no stock appreciation rights.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential
Realizable
Value at Assumed
Annual Rate of
Number of Percent of Stock Price
Securities Total Options/ Exercise Market Appreciation for
Underlying SARs Granted of Base Price on Options Term(2)(3)Term(1)
Options to Employees Price Date of Expiration -------------------------------------
Name granted (1) in Fiscal Year ($/Share) Grant Date 5% 10%
- ---- --------------------- -------------- --------- -------- ---------- --- ----- ---- ------ -------
Dr. Charles W. Birkett 75,000 34.88% 1.8125 1.8125 05/14/09 85,490 216,649
1,000(2) 0.47 5.5625 5.56250.50 1.0625 1.0625 12/31/08 3,498 8,86510 687 1,814
Charles H. Rinne 50,000 23.26 1.8750 1.8750 06/28/09 58,959 149,413
Mary Margaret Hamlett-0- N/A N/A N/A N/A N/A N/A
James F. Mills, Jr.(3) -0- N/A N/A N/A N/A N/A N/A
Paul Richardson 20,000 9.30 1.8125 1.8125 05/14/09 22,797 57,773
1,000(2) 0.47 5.5625 5.56250.50 1.0625 1.0625 12/31/08 3,498 8,86510 687 1,814
---------------
(1) The dollar amounts under these columns result from calculations
assuming the indicated growth rates in accordance with Securities and
Exchange Commission regulations and are not intended to forecast the
actual appreciation of the Common Stock.
(2) Granted pursuant to automatic grants to directors under the Director
Plan.
8(3) Mr. Mills left the Company effective March 31, 2001.
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1011
OPTION EXERCISES AND VALUES
The table below provides information as to exercises of options under the
Key Personnel Plan and the Director Plan by the named executive officers
reflected in the Summary Compensation Table and the year-end value of
unexercised options held by such officers. The Company has granted no stock
appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SECURITIES OPTIONS/SARS /SARS
UNDERLYING AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
OPTIONS VALUE -------------------------- ------------------------------------------------------ ----------------------------
NAME EXERCISED(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
Dr. Charles W. Birkett -0- -0- 213,333 67,667 -0- -0-265,000 17,000 $567 $283
Paul Richardson -0- -0- 158,334 22,666 -0- -0-
Mary Margaret Hamlett(2) -0- -0- 130,800 -0- -0- -0-174,333 7,667 $567 $283
Charles H. Rinne -0- -0- 33,333 16,667 33,333-0- -0-
James F. Mills, Jr.(2) -0- -0- -0- -0- -0- -0-
(1) Options are classified as "in-the-money" if the market value of the
underlying Common Stock exceeds the exercise price of the option. The
value of such in-the-money options is the difference between the option
exercise price and $.14,$1.00, the per-share market value of the underlying
Common Stock as of December 31, 1999. such2000. Such amounts may not necessarily be
realized. Actual values that may be realized, if any, upon the exercise of
options will be based on the per-share market price of the Common Stock at
the time of exercise and are thus dependent upon future performance of the
Common Stock.
(2) Ms. Hamlett resignedMr. Mills left the company effective June 30, 1999. Upon her resignation, Ms.
Hamlett's options became fully vested and may be exercised through
DecemberMarch 31, 2000.2001.
COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Company's senior executives, except for
decisions related to awards under the Company's Director Plan, are made by the
Compensation Committee of the Company's Board of Directors. Each member of the
Compensation Committee is a non-employee director. It is the responsibility of
the Compensation Committee to assure the Board that the executive compensation
programs are reasonable and appropriate, meet their stated purpose and
effectively serve the needs of the Company's stockholders and the Company.
Pursuant to rules adopted by the Securities and Exchange Commission designed to
enhance disclosure of corporate policies toward executive compensation, set
forth below is a report submitted by directors Nelson and O'Neil in their
capacity as the Compensation Committee.
Compensation Philosophy and Policies for Executive Officers
The Company believes that the executive compensation program should
align the interests of stockholders and executives. The Company's primary
objective is to provide high quality patient care while maximizing stockholder
value. The Compensation Committee seeks to forge a strong link between the
Company's strategic business goals and its compensation goals.
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1112
The Company's executive compensation program is consistent with the
Company's overall philosophy for all management levels. The Company believes
that the more employees are aligned with the Company's strategic objectives, as
stated below, the greater the Company's success on both a short-term and
long-term basis.
The Company's executive compensation program has been designed to
support the overall Company strategy and objective of creating stockholder value
by:
- Emphasizing pay for performance by having a significant
portion of executive compensation "at risk."
- Directly aligning the interest of executives with the
long-term interest of stockholders by awarding stock options
at current market prices, which have value to the executives
only through stock appreciation over the long run.
- Providing compensation opportunities that attract and retain
talented and committed executives on a long-term basis.
- Appropriately balancing the Company's short-term and long-term
business, financial and strategic goals.
The Company's strategic goals are:
- Profitability: To maximize financial returns to its
stockholders, in the context of providing high quality
service.
- Quality: To achieve leadership in the provision of relevant
and high quality health services.
- Growth: To expand the operations of the Company in such a
manner as not to imperil the achievement of other objectives.
- Stability: To be seen as a desirable employer and a
responsible corporate citizen.
Currently, the Company's executive compensation program is composed of
three components: base salary, annual cash incentive (i.e., bonus) and long-term
incentive opportunity through nonqualified stock options. When the Company or
the individual business units meet or exceed their respective annual operating
goals, the annual executive pay targets (i.e., base salary plus incentive) are
intended to be market competitive with similar U.S. public health care companies
having similar revenues.
Base Salary
The base salaries of the Company's executives are listed in the Summary
Compensation Table in this Proxy Statement and are evaluated annually. In
evaluating appropriate pay levels and salary increases for Company executives,
the Compensation Committee considers achievement of the Company's strategic
goals, level of responsibility, individual performance, internal equity and
external pay practices. Regarding external pay practices, the Compensation
Committee seeks to confirm base salaries for all executive officers at the
market rate, as determined from information gathered by the Company from an
independent compensation consulting firm and other outside sources.
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1213
Annual Incentives
Annual incentive (bonus) awards are designed to focus management
attention on key operational goals for the current fiscal year. The key
operational goals are specific to each executive's area of responsibility.
Specific weighting is assigned for identified financial, strategic and
management practices goals. At least 80% of the available bonus percentage for
each executive is tied to Company profitability, generally defined by
achievement of the annual budget as approved by the Board of Directors.
Company executives may earn a bonus of up to 35% of their annual base
salaries based upon achievement of their specific operational goals and
achievement by the Company or business unit of its financial targets. At the end
of the year, performance against these goals is determined on an arithmetic
scale with the pre-established weighting.
With the exception of Mr. Richardson, no bonuses were awarded to the
Company's named executives with respect to 2000, 1999 1998 and 1997.1998. Mr. Richardson
was awarded bonuses with respect to his role as Chief Executive Officer of the
Company's Canadian operating subsidiary of $13,237, $12,438 and $10,436 for
2000, 1999 and $11,012 for
1999, 1998, and 1997, respectively.
Long-Term Incentives
The Company's long-term incentive compensation program consists of
nonqualified stock options which are related to improvement in long-term
stockholder value. Stock option grants provide an incentive that focuses the
executive's attention on managing the Company from the perspective of an owner
with an equity stake in the business. These grants also focus operating
decisions on long-term results that benefit the Company and long-term
stockholders.
The option grants to executive officers offer the right to purchase
shares of Common Stock at their fair market value on the date of the grant.
These options will have value only if the Company's stock price increases. The
number of shares covered by each grant is intended to reflect the executive's
level of responsibility and past and anticipated contributions to the Company.
In 1999, the Compensation Committee2000, there were no awarded grants under the Key Personnel Plan to Dr. Birkett, Mr. Richardson, Mr. Rinne and Mr. Vacek of
75,000, 20,000, 50,000 and 25,000, respectively.by
the Compensation Committee.
Chief Executive Officer Compensation
Securities and Exchange Commission regulations require corporate
compensation committees to disclose the bases for the compensation of a
corporation's chief executive officer relative to such corporation's
performance.
Dr. Birkett, the Company's Chief Executive Officer, is eligible to
participate in the same executive compensation plans that are available to the
other senior executive officers, which plans are described above. The
Compensation Committee's general approach in setting Dr. Birkett's annual
compensation is derived from the same considerations described above: to be
competitive with the compensation plans of other U.S. public health care
corporations of similar size while having a large percentage of his annual
incentive compensation based upon specific, corporate-wide operating performance
criteria.
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1314
Tax Regulation as to Limited Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a tax deduction to public companies for executive
compensation in excess of $1.0 million. It is not anticipated that the Company
will pay any of its executive officers compensation in excess of $1.0 million in
2000 and, accordingly, to date the Company has not adopted a policy in this
regard.
THE FOREGOING REPORT IS SUBMITTED BY ALL OF THE MEMBERS OF THE
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS, WHOSE MEMBERS ARE AS
FOLLOWS: EDWARD G. NELSON AND WILLIAM C. O'NEIL, JR.
AUDIT COMMITTEE REPORT AND DISCLOSURES
AUDIT COMMITTEE REPORT
The Audit Committee provides assistance to the Board in fulfilling its
obligations with respect to matters involving the accounting, auditing,
financial reporting and internal control functions of the Company. Among other
things, the Audit Committee reviews and discusses with management and with the
Company's outside auditors the results of the year-end audit of the Company,
including the audit report and audited financial statements.
All members of the Audit Committee are independent directors, qualified
to serve on the Audit Committee pursuant to Rule 4200(a)(15) of the NASD's
listing standards. The Board has adopted a written charter of the Audit
Committee, which is included as Exhibit B to this Proxy Statement.
In connection with its review of the Company's audited financial
statements for the fiscal year ended December 31, 2000, the Audit Committee
reviewed and discussed the audited financial statements with management, and
discussed with Arthur Andersen LLP, the Company's independent auditors, the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU 380). In addition, the Audit Committee received the
written disclosures and the letter from Arthur Andersen LLP required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) and discussed with Arthur Andersen LLP their independence from the
Company. The Audit Committee has determined that the provision of non-audit
services rendered by Arthur Andersen LLP to the Company is compatible with
maintaining the independence of Arthur Andersen LLP from the Company.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Company's Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 2000, for filing with the Securities and
Exchange Commission.
J. BRANSFORD WALLACE
WILLIAM C. O'NEIL, JR.
EDWARD G. NELSON
The Members of the Audit Committee
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15
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company's review of the copies of Forms 3, 4 and 5
furnished to it and any amendments thereto, or written representations from
certain reporting persons that no Form 5's were required for such persons, the
Company believes that, during the 19992000 fiscal year, its executive officers,
directors and greater than 10% stockholders complied with all applicable Section
16(a) filing requirements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of directors Nelson and
O'Neil. No interlocking relationship exists between the members of the Company's
Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company. Former director Morris A. Perlis,
an affiliate of Counsel Corporation (together with various of its subsidiaries,
"Counsel"), served on the Compensation Committee through May 1995. Former directors Silber and Sonshine
are officers and directors of Counsel and certain of its subsidiaries. Mr.
Silber and Mr. Sonshine resigned as Directors of the Company on November 26,
1996, at which time the size of the Board of Directors was reduced from eight to
six members. Ms. Hamlett resigned as Director of the Company effective June 30,
1999, at which time the size of the Board of Directors was reduced from six to
five members.
COUNSEL CORPORATION RELATIONSHIP
Advocat was organized in 1994 with the transfer of the long-term care
business of Counsel and Diversicare Inc. ("Diversicare") to the Company. In an
initial public offering on May 10, 1994 (the "Offering"), 100% of the Company's
Common Stock was sold to the public. Following the Offering, neither Counsel nor
Diversicare retained any ownership interest in the Company. Various agreements
among the parties (the "Transfer Agreements") governed the Offering and the
transfer of certain assets of Counsel and Diversicare to the Company. The
Transfer Agreements and certain subsequent agreements and amendments continue to
govern various other matters between the Company and Counsel.
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14
Pursuant to the Transfer Agreements, the Company received the
outstanding capital stock of a Counsel subsidiary that held the general
partnership interest in a nursing home partnership managed by Advocat and
leasehold interests in all of the nursing homes and retirement centers then
owned or leased by Counsel. Eleven facilities owned by Counsel are now leased by
the Company under three separate leases as follows:
APPROXIMATE
NUMBER OF INITIAL OR CURRENT BASE RENTAL
FACILITIES LOCATION LEASE TERM PAYMENT
---------- -------- ---------- -------------------------- ----------------
3 Florida through August 2002 $963,000/$1,185,000/year*
3 Texas through May 2004 $205,000/year
5 Canada through May 2004 $935,000/year$990,000/year*
- ---------------
* Subject to yearly increases not to exceed 5%3% of the prior year's rent.
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16
Pursuant to the Transfer Agreements, Advocat received a management
agreement covering seven Canadian facilities affiliated with Counsel. The
management agreement is for a term of 10 years through April 2004, with base
management fees equal to approximately $692,000$1,000,000 Canadian (approximately $668,000 U.S.) per
year (at the December 31, 1999 exchange rate) and an additional incentive
management fee equal to 11.8% of net operating income as defined. Management
fees generated under this contract in 19992000 were approximately $1.2$1.3 million.
Pursuant to the Transfer Agreements, the Company received the leases and
all leasehold rights and obligations thereunder previously held by Counsel with
respect to 19 nursing homes and two assisted living facilities leased from Omega
Healthcare Investors, Inc. ("Omega") under a master lease. In connection
therewith, Advocat provided a replacement security deposit letter of credit in
the amount of $3.8 million in favor of Omega, assumed all future obligations
with respect to the master lease, and agreed to indemnify Counsel and its
affiliates with respect to any obligations related to the master lease. The
Company also leases from Counsel three Florida facilities encumbered by a
participating mortgage in favor of Omega.
Effective October 1, 2000, the Company entered into agreements which
modified existing debt and lease agreements as follows:
During 1998, 1999 and through September 30, 2000, the Company leased 30
nursing homes from Omega Healthcare Investors, Inc. ("Omega") under various
terms and lease agreements. On November 8, 2000, the Company entered into a
10-year restructured lease agreement (the "Settlement and Restructuring
Agreement") with Omega. The Settlement and Restructuring Agreement, effective as
of October 1, 2000, provides for reduced future lease costs under an amended
lease agreement covering all nursing homes leased from Omega (the "Omega Master
Lease"). The initial term of the Omega Master Lease is ten years, expiring
September 30, 2010, with an additional ten-year renewal term at the option of
the Company, assuming no defaults. Under the Settlement and Restructuring
Agreement, Omega has agreed to waive all defaults under the previous Omega lease
agreements.
As settlement for outstanding lease payments owed to Omega for the
period prior to the Settlement and Restructuring Agreement, Omega agreed to
accept a $3,000,000 payment from the Company. The payment to Omega was funded
through Omega's draw upon a then outstanding letter of credit from the Company's
bank lender. Prior to the Settlement and Restructuring Agreement, the Company
was required to provide letters of credit totaling $4,950,000 in favor of Omega
as security for its obligations under the Omega Master Lease. Pursuant to the
Settlement and Restructuring Agreement, Omega agreed to draw $3,000,000 on the
outstanding letters of credit and to terminate the remaining $1,950,000 letters
of credit. The $3,000,000 letter of credit draw was converted into a $3,000,000
non-interest-bearing promissory note payable to the bank lender (the
"Non-Accrual Note"). The entire balance of the Non-Accrual Note is due on
January 15, 2002.
As payment for Omega entering into the Settlement and Restructuring
Agreement, the Company agreed to issue Omega a subordinated note payable (the
"Subordinated Note") in the amount of $1,700,000. Interest on the Subordinated
Note accrues at an annual rate of 7.0% (beginning effective October 1, 2000)
with any unpaid principal and interest becoming due on September 30, 2007.
Payments of principal and interest on the Subordinated Note are subordinated to
the payment in full of the Non-Accrual Note.
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17
As further payment for Omega entering into the Settlement and
Restructuring Agreement, the Company agreed to issue Omega 393,658 shares of the
Company's Series B Redeemable Convertible Preferred Stock. The Company's Series
B Redeemable Convertible Preferred Stock has a stated value of $3,300,000 and
carries an annual dividend rate of 7% of the stated value. The dividends accrue
on a daily basis whether or not declared by the Company and compound quarterly.
Dividend payments on the Series B Redeemable Convertible Preferred Stock are
subordinated to the payment in full of the Non-Accrual Note. The Series B
Redeemable Convertible Preferred Stock shares have preference in liquidation but
do not have voting rights. The total redemption value is equal to the stated
value plus any accrued but unpaid dividends. The liquidation preference value is
equal to the redemption value. The holders of the Series B Redeemable
Convertible Preferred Stock may convert their preferred shares and accrued
dividends to common stock at their option at any time based on a conversation
price per share of $4.67, subject to adjustment.
Beginning on the earlier of a default under the Omega Master Lease
agreement or September 30, 2007, Omega has the right to require the Company to
redeem the Series B Redeemable Convertible Preferred Stock shares at the
redemption price of $3,300,000 plus accrued and unpaid dividends. At December
31, 2000, total accrued but unpaid dividends amounted to $58,000 ($.15 per
share) and, accordingly, the aggregate redemption value on the Series B
Redeemable Convertible Preferred Stock was $3,358,000 and the per share
redemption value was approximately $8.53.
During 1992, the Company entered into an agreement with Omega whereby 21
of the Company's facilities were sold to Omega and leased back to the Company.
In conjunction with this sale/leaseback, the Company entered into a
participating mortgage with Omega on three other facilities. The net gain on the
sale/leaseback was deferred in accordance with sale/leaseback accounting and was
being amortized by the Company over the related lease term as a reduction in
lease expense. As of September 30, 2000, the net deferred gain totaled
$2,862,000. Pursuant to the amended Omega Master Lease and the issuance of the
Subordinated Note and the Series B Redeemable Convertible Preferred Stock to
Omega effective October 1, 2000, total deferred lease costs of $5,000,000 were
recorded by the Company. The $2,862,000 of remaining deferred gain on the 1992
sale/lease-back has been reflected as a reduction of the $5,000,000 in new
deferred lease costs, resulting in net deferred lease costs of $2,138,000 as of
October 1, 2000. The net deferred lease costs are being amortized as lease
expense over the initial ten-year term of the Omega Master Lease. As of December
31, 2000, net deferred lease costs totaled $2,085,000.
The Company owns all of the outstanding stock of Diversicare General
Partner, Inc. ("DGPI"), the corporate General partner of Texas Diversicare
Limited Partnership, a Texas limited partnership ("TDLP"), which owns six
nursing homes. At the time of the Offering, Counsel and various affiliates owned
approximately 31% of the limited partnership interests of TDLP. The Company also
received a mortgage on the TDLP properties of approximately $7.3$7.5 million, which
mortgage calls for monthly principal and interest payments of $73,500. The
mortgage balance at December 31, 19992000 was approximately $6.7$6.6 million.
The Company has provided a cash flow guarantee to TDLP in a Partnership
Services Agreement dated November 2, 1990 (the "TDLP Services Agreement"),
obligating the Company to provide monthly, interest-free loans to TDLP (the
"Cash Flow Loans") to the extent that 99% of Distributable Cash (as defined in
the TDLP Services Agreement) is less than the Guaranteed Monthly Return (as
defined in the TDLP Services Agreement). Any Cash Flow Loans made to TDLP will
be repaid to the extent that 99% of Distributable Cash exceeds the Guaranteed
Monthly Return. The obligation of the Company to TDLP
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18
under the cash flow guarantee terminates on August 31, 2001, and any remaining
amounts outstanding under the Cash Flow Loans will be forgiven on that date. As
of December 31, 1999,2000, the outstanding amount of Cash Flow Loans was
approximately $5.6$5.8 million. In addition, approximately $1.1$4.7 million of
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15
management fees due the Company were unpaid at December 31, 1998.2000. Reflecting
payment of these management fees would result in a corresponding increase in the
Cash Flow Loans. Over the life of TDLP through December 31, 1999,2000, the Company
and its predecessors have earned additional management fees in the amount of
approximately $3.0$4.7 million and have recognized principal amounts under the
mortgage in the amount of $774,000.$921,000. These amounts have been recorded as paid,
and there have been corresponding increases to the recorded advances to TDLP as
a result. The Company considers such amounts reversible to the extent they have
been funded with advances to TDLP.
Under TDLP's Amended and Restated Partnership Agreement dated August 30,
1991 (the "TDLP Partnership Agreement"), the limited partners of TDLP have the
right to cause DGPI to repurchase up to 10% of their partnership units annually
for five years (up to a maximum of 50% of the total partnership units
outstanding) beginning in January 1997 (the "Put Option"). The 10% maximum per
year is not cumulative. The purchase price for the partnership units is based on
the "Adjusted Net Unit Price" (as defined in the TDLP Partnership Agreement)
plus DGPI's assumption of a pro rata portion of the Cash Flow Loans and the
mortgage receivable. Units purchased by DGPI under the Put Option do not have
voting rights with respect to any matters coming before TDLP's limited partners.
Pursuant to its repurchase obligation under the Put Option, the Company has
purchased 2.6%a cumulative 32.6% of the TDLP's partnership units in January 1999 and 10% in both
January 1998 and January 1997 for approximately
$160,000, $625,000, and $650,000$2,057,000 in cash, respectively, plus assumption of pro rata portions of the Cash Flow Loans
of $110,000, $320,000, and $270,000, respectively,$1,284,000 and the mortgage receivable of approximately $180,000, $700,000, and $710,000, respectively. No
partnership units were put to the Company for repurchase in January 2000. It is
uncertain whether the Company will be required to repurchase additional
partnership units in January 2001 (and assume additional amounts under the Cash
Flow Loans and mortgage receivable) and to make additional Cash Flow Loans.$2,248,000.
Diversicare Canada Management Services Co., Inc., an indirect,
wholly-owned subsidiary of the Company ("DCMS"), manages two facilities owned by
Diversicare VI, an affiliate of Diversicare, pursuant to a Management and
Guaranteed Return Loan Agreement dated as of November 30, 1985, as amended (the
"Guaranteed Return Loan Agreement"), which expires on December 31, 2005. In
connection with the Guaranteed Return Loan Agreement, DCMS loaned Diversicare VI
approximately $800,000 to repay indebtedness to Counsel and, additionally,
$750,000 to make expansions and improvements upon the two managed facilities.
These loans are secured by second, third and fourth mortgage security interests
in the assets of Diversicare VI. Each loan bears interest at 8% and is being
repaid over the life of the Guaranteed Return Loan Agreement. The balance due
from Diversicare VI with respect to these loans totaled approximately $929,000$595,000
at December 31, 1999.2000.
Under the Guaranteed Return Loan Agreement, DCMS is entitled to receive
a management incentive fee through the Guarantee Period based on Diversicare
VI's distributable cash and proceeds of sales or refinancings, net of various
expenses and distributions. Pursuant to an Agreement with DCMS dated February 6,
1995, Counsel is entitled to receive 50% of DCMS's incentive management fees
payable under the Guaranteed Return Loan Agreement after payment to DCMS of
$107,000 Canadian (approximately $74,000$71,000 U.S.) per year. The Guaranteed Return
Loan Agreement generated revenues to DCMS for the year ended December 31, 19992000
of approximately $557,000,$560,000, including management incentive fees. During the
Guarantee Period, DCMS may not distribute to its shareholder (Diversicare
Leasing Corp., a wholly-owned subsidiary of Advocat) more than 25% of DCMS's
pre-tax profits.
1418
1619
Pursuant to the Transfer Agreements, the Company has been granted the
right to offset against payments owed from the Company to Counsel and Counsel
has been granted the right to offset against payments owned from Counsel to the
Company, up to $1.0 million Canadian (approximately $692,000$668,000 U.S.) per year to
the extent that either party does not receive the payment of the obligations
owned by either party to the other. The terms of the offset agreement provide
that the party exercising offset rights will not be in default with respect to
its obligations to the other party to the extent such obligations are not paid
pursuant to the provisions of the offset. The obligations of the Company to
Counsel under the leases and management contracts between the Company and
Counsel provide that a default under one agreement constitutes a default under
each of the leases and management contracts.
In February 1996, Counsel made certain claims with respect to the
leases and management contracts to which it and the Company are a party. The
Company's Board of Directors created a special committee of Directors not
affiliated with management of the Company or Counsel to review such claims.
During the year, the special committee reviewed various documentation and met
with representatives from both the Company and Counsel. As a result of the work
of the special committee, Counsel voluntarily withdrew one of the two claims
made against the Company. In November 1996, Mr. Silber and Mr. Sonshine resigned
from the Board of Directors of the Company, and subsequently, the special
committee concluded its review of these matters. In February 1997, the remaining
claim by Counsel was submitted to the American Arbitration Association under the
alternative resolution dispute provisions of the original management contract,
which claim was settled in the Company's favor during 1998.
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CERTAIN TRANSACTIONS
Mr. Wallace, a director of the Company is Chairman Emeritus of Willis
Corporation ("Willis"). Beginning in early 2000, Willis provides the Company
with substantially all of its liability insurance and provides the Company with
certain bonds required in the operation of the Company's business. The Company
believes the cost of these products and services are consistent with the cost
from an independent third-party. Mr. Wallace abstains from voting with respect
to all transactions between the Company and Willis.
The Company owns a 32% equity interest in The Concorde Joint Venture
("Concorde") a retirement home located in Penticton, British Columbia. The
Company also manages Concorde pursuant to a 5 year management agreement which
provides for management fees of 3% of gross revenues plus 5% of operating
income. The Dr. Birkett and Mr. Richardson each own an approximate 4% interest in
Concorde. During 1999, the2000, The Concorde paid $60,000$62,000 (Canadian) in management fees
to the Company. The Company believes the terms of the management agreement are
consistent with similar management agreements between unrelated parties.
In connection with an acquisition, effective October 1, 1997, the
Company entered into leases with or obtained subleases from the former principal
owners of Pierce Management Group with respect to 14 assisted living facilities,
an office building, and a manager's home. These leases provide for annual
payments of approximately $4.0 million. Effective with the acquisition, Guy
Pierce and A. Steve Pierce entered into a two-year employment agreement and a
three-year consulting agreement, respectively, with the Company. Although his
employment agreement has expired, Guy Pierce continuesand
A. Steve Pierce are no longer in the employ of the Company overseeing the Company's assisted living operations in the United
States.Company.
For a discussion of the relationships between the Company and its other
affiliates, directors, officers, and principal stockholders, please see "Stock
Ownership of Directors, Executive Officers and Principal Holders," "Executive
Officers," "Proposal 1: Election of Directors," "Compensation Committee
Interlocks and Insider Participation" and "Counsel Corporation Relationship."
1619
1820
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return of the Company
with that of the S&P Smallcap 600 Index, a peer group index for the last five
years. Cumulative return assumes $100 invested in the Company or respective
index on December 31, 1994 with dividend reinvestment through December 31, 1999.2000.
The peer group includes Beverly Enterprises, Inc.; HCR Manor Care, Inc.;
Integrated Health Services, Inc.; Mariner Post-Acute Network, Inc.; National
Healthcare Corp.; Genesis Health Ventures and Sun Healthcare Group, Inc.
To date, the Company has not tied executive compensation to stock
performance. The future impact of stock performance on executive compensation,
if any, will be determined by the Compensation Committee and management.
Cumulative Total Return
----------------------------------------------------
12/94-----------------------------------------
12/95 12/96 12/97 12/98 12/99
------ ----- ----- ----- ----- -----
ADVOCAT INC. 100.00 84.76 55.24 64.76 41.90 1.1865.17 76.40 49.44 1.39
S & P SMALL CAP 600 100.00 121.32 152.36 156.52 175.93
OLD PEER GROUP 100.00 81.76 93.00 118.14 57.42 23.54
S & P SMALLCAP 600113.74 144.49 70.22 28.79
NEW PEER GROUP 100.00 129.96 157.67 198.01 203.41 228.64115.57 137.64 64.08 25.73
1720
1921
PROPOSAL 1:
ELECTION OF DIRECTORS
All directors generally hold office for three-year terms and then until
their successors have been duly elected and qualified. The Board of Directors of
the Company is divided into three classes. The term of the Class 1 director will
expire at the 2001this Annual Meeting of Stockholders; the term of the Class 2 directordirectors
will expire at the 2002 Annual Meeting of Stockholders; and the term of the
Class 3 directors will expire at thisthe 2003 Annual Meeting of Stockholders (and in
all cases when their respective successors are duly elected and qualified). At
each annual meeting, successors to the class of directors whose term expires at
such meeting will be elected to serve for a three-year term and until their
successors are duly elected and qualified.
Directors who are not officers, employees or consultants of the Company
(currently directors Furlong, Nelson, O'Neil and Wallace) receive a director's
fee of $10,000 annually, $1,000 per board meeting attended and $500 per
committee meeting attended (except when held on the same day as board meetings).
Directors who are officers or employees of the Company or its affiliates have
not been compensated separately for services as a director.
The Board of Directors proposes that two nominees indicated below be
elected as a Class 31 directors to serve for a three-year term and one nominee be
elected as a Class 2 Director to serve for a two-year term of two years and
until their
successors are duly elected and qualified. Dr. Birkett, Mr.
Richardson and Mr. Nelson are currently Class 3 directors. Should any nominee for the office of
director become unable to accept nomination or election, which is not
anticipated, it is the intention of the persons named in the proxy, unless
otherwise specifically instructed in the proxy, to vote for the election of such
other person as the Board of Directors may recommend.
NOMINEES FOR ELECTION OF CLASS 3 DIRECTORS AND CLASS 21 DIRECTORS
DIRECTOR
NAME OF NOMINEE AGE DIRECTOR SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
- --------------- --- ------------------------ ------------------------------------
CLASS 3 DIRECTORS:
Charles W. Birkett, M.D. 63 Inception Chief Executive Officer and Chairman of
the Board of Directors of the Company;
President, Chief Executive Officer and a
director of Diversicare from September
1991 to May 1994; Director of Counsel
Corporation from 1983 to May 1994;
Chairman of the Board of Directors and
Chief Executive Officer of DMS from
September 1991 to present; Chairman of the
Board of Directors and Chief Executive
Officer of DLC from May 1994 to present;
and President of DINC from February 1980
to May 1994.
18
20
NAME OF NOMINEE AGE DIRECTOR SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
- --------------- --- -------------- ------------------------------------
Edward G. Nelson 681 DIRECTOR:
William C. O'Neil, Jr. 66 Inception Member of the Board of Directors of the Company; Chief
Executive Officer of TuitionFund Inc. from 1999 to
present; Chairman of ClinTrials from September 1989 to
1998; President and Chief Executive Officer of
ClinTrials from September 1989 to February 1, 1998;
Director of American HealthWays, a specialty health
care service company; Director of Sigma Aldrich Corp.,
a manufacturer of research chemicals; and Director of
Central Parking.
21
22
DIRECTOR
NAME OF NOMINEE AGE SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
- --------------- --- ---------- ------------------------------------
Joseph F. Furlong, III 52 March 2001 Member of the Board of Directors of the Company; Chairman,
President and Chief Executive Officer of American HomePatient,
a company providing home health care products from November
1998 to present; member of Board of Directors of American
HomePatient from 1994 to present; President of NelsonAdirondack
Capital Corp.Advisors, a merchant bank focused on healthcare from May
1996 to present; a partner in Colman Furlong & Co., a merchant
banking firm, from January 1985
to present;bank providing financial advisory services. Mr. Furlong also
serves a Director of Central Parking
Systems, Inc., an operator of parking
facilities ("Central Parking"); Director
of Berlitz International, Inc.,Cleartrack Information Network, a language
services company; Director of ClinTrials
Research, Inc. a contract research
organization ("ClinTrials"); Trustee of
Vanderbilt University.company
which provides integrated logistics information products and
services.
CONTINUING DIRECTORS
CLASS 2 DIRECTOR:DIRECTORS
- -----------------
Paul Richardson(1) 51Richardson 52 Inception Executive Vice President and a Member of the Board of
Directors of the Company; President and Chief Executive
Officer of the Company's Canadian operating subsidiary;
President and Chief Operating Officer of the Company
from May 1994 through February 1997; Executive Vice
President of Diversicare from September 1991 to May
1994; President of DMS from November 1991 through
February 1997; President of DLC from May 1994 through
February 1997; Executive Vice President of DINC from
March 1991 to May 1994.
- ----------------
(1) Paul Richardson is currently a Class 3 director, however, in order to
equalize the size of the classes of directors as required by the
Company's Certificate of Incorporation, Mr. Richardson will be elected
as a Class 2 director and will serve a two-year term and until his
successor has been duly elected and qualified.
1922
21
CONTINUING DIRECTORS23
DIRECTOR
NAME OF NOMINEE AGE DIRECTOR SINCE PRINCIPAL OCCUPATION LAST FIVE YEARS
- --------------- --- ------------------------ ------------------------------------
CLASS 1 DIRECTOR:
William C. O'Neil, Jr. 65 InceptionJ. Bransford Wallace 69 February 1997 Member of the Board of Directors of the Company; Chairman of ClinTrials from
September 1989 to 1998; President and
Chief Executive Officer of ClinTrials from
September 1989 to February 1, 1998;
Director of American HealthWays, a
specialty health care service company;
Director of Sigma Aldrich Corp., a
manufacturer of research chemicals; and
Director of Central Parking.
CLASS 2 DIRECTOR:
J. Bransford Wallace 68 February Member of the Board of Directors of the Company;
1997
Chairman Emeritus of Willis Corroon Corporation, an
international provider of insurance services, from
April 1994 to present; Chairman of Global Retail
operations and Director of Willis Corroon Group, PLC
from October 1990 to January 1994; Director of NationsBankBank of
Tennessee;America; founding Chairman of the Quality Insurance
Congress, an organization emphasizing quality in the
insurance industry;industry.
CLASS 3 DIRECTORS
- -----------------
Charles W. Birkett, M.D. 64 Inception Chief Executive Officer and Chairman of the Board of
Directors of the Company; President, Chief Executive
Officer and a director of Diversicare from September 1991
to May 1994; Director of Counsel Corporation from 1983 to
May 1994; Chairman of the Board of Directors and Chief
Executive Officer of DMS from September 1991 to present;
Chairman of the Board of Directors and Chief Executive
Officer of DLC from May 1994 to present; and President of
DINC from February 1980 to May 1994.
Edward G. Nelson 69 Inception Member of the Board of ESC Strategic Funds,Directors of the Company; Chief
Executive Officer and President of Nelson Capital Corp., a
merchant banking firm, from January 1985 to present;
Director of Central Parking Systems, Inc., an investment strategy organization.operator of
parking facilities ("Central Parking"); Director of
Berlitz International, Inc., a language services company;
Director of ClinTrials Research, Inc. a contract research
organization ("ClinTrials"); Trustee of Vanderbilt
University.
23
24
The Board of Directors currently has standing Audit, Executive, and
Compensation Committees. The Board of Directors does not have a nominating
committee.
The Executive Committee presently is composed of three directors:
Birkett, Richardson,Furlong, and Nelson. The Delaware General Corporation Law and the
Company's Bylaws provide that the Board may designate such a committee from
their number to carry out the functions of the Board as permitted by law.
Between meetings of the Board, the Executive Committee may exercise all powers
of the Board. During 1999, the Executive Committee held no separate meetings.
The Audit Committee presently is composed of three directors: Wallace,
Nelson and O'Neil. Responsibilities of this committee include engagement of
independent auditors, review of audit fees, supervision of matters relating to
audit function, and review and setting of internal policies and procedures
regarding audits, accounts and financial controls. During 1999,2000, the Audit
committee held three meetings.
20
22
The Compensation Committee presently is composed of two directors:
Nelson and O'Neil. Responsibilities of this committee include approval of
remuneration arrangements for executive officers of the Company, review of
compensation plans relating to executive officers and directors, including
benefits under the Company's compensation plans and general review of the
Company's employee compensation policies. During 1999,2000, the Compensation
Committee held one meeting and unanimously adopted one written consent action.
During the Company's fiscal year ended December 31, 1999,2000, its Board of
Directors held fourthree regular meetings and three special meetings and unanimously adopted fourtwo written
consent action.actions. Each director named above, during the period in which he served
in 1999,2000, attended meetings or executed written consent actions with respect to
at least 75% of the meetings and consent actions of the Board of Directors and
of the committees on which he or she served.
A plurality of the shares of Common Stock present or represented by
proxy at the Annual Meeting of Stockholders and entitled to be voted is required
to elect the nominee. THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS
VOTE "FOR" THE NOMINEES LISTED ABOVE.
PROPOSAL 2:
AMENDMENT TO 1994 NONQUALIFIED STOCK OPTION PLAN
FOR DIRECTORS INCREASING SHARES AVAILABLE FOR GRANT
On March 3, 1994, the Company's Board of Directors and stockholders
approved the adoption of the 1994 Nonqualified Stock Option Plan for Directors
(the "Directors Plan"), under which options to purchase shares of the Company's
Common Stock are available for grant to directors of the Company, providing an
equity interest in the Company and additional compensation based on appreciation
of the value of such stock.
24
25
Since its inception the Company has had stock option plans for both
Directors and Senior Management. The purpose of such plans is to align the
interest of shareholders, directors and managers through an opportunity to
participate in equity enhancement. Currently issued options are at prices
significantly higher than the Company's share value over the past couple of
years and thus of little or no incentive value. The traditional methodology of
"re-pricing" options has a negative impact on the Company as a result of new
requirements under generally accepted accounting principals. Consequently, the
Company has determined it advisable to issue additional options under the
existing plan, cognizant of the fact that all but 10,000 of the 107,000 options
outstanding as of December 31, 2000 under the Directors Plan are at prices in
excess of $5.50 per share. To do so requires shareholder approval to extend the
number available under the Directors Plans by 150,000 options. The Company feels
the proposed expansion of available options to be both reasonable and prudent.
During the Company's most recent fiscal year, 2000, options to purchase
5,000 shares at exercise prices of $1.0625 per share were granted under the
Directors Plan to directors of the Company. Options to purchase 15,000 shares at
an exercise price of $1.09858 were granted to Mr. Furlong on March 8, 2001 when
he became a member of the Board of Directors. On April 9, 2001, options to
purchase 90,000 shares were granted under the Directors Plan, 22,000 of which
are contingent upon adoption by the Company's stockholders of the proposed
amendment to the Directors Plan. As of April 10, 2001, there were outstanding
under the Directors Plan options, contingent and otherwise, to purchase 212,000
shares of Common Stock. Of these outstanding options, 97,000 are priced in
excess of $5.50 and have expiration dates ranging from May 2004 to December
2008.
The Directors Plan provides that the exercise price of an option shall
be equal to the fair market value of the Common Stock on the trading day next
preceding the date of grant. Payment for shares of Common Stock to be issued
upon exercise of an option may be made either in cash, Common Stock or any
combination thereof, at the discretion of the option holder.
The maximum term of any option granted pursuant to the Directors Plan
is 10 years. Options are nontransferable, other than by will, the laws of
descent and distribution or pursuant to certain domestic relations orders.
Shares subject to options granted under the Directors Plan which expire,
terminate or are canceled without having been exercised in full become available
again for option grants.
Each director of the Company is granted an option to acquire 15,000
shares upon the date of his or her election to the Board of Directors.
Furthermore, each director who is on the last day of the Company's fiscal year
and who has been for at least six months during such fiscal year a director is
granted an option to acquire 1,000 shares. On April 9, 2001 each Director was
granted an option to purchase 15,000 shares at a purchase price of $0.35.
The number of shares of Common Stock that may be granted under the
Directors Plan or under any outstanding options granted thereunder will be
proportionately adjusted, to the nearest whole share, in the event of any stock
dividend, stock split, share combination or similar recapitalization involving
the Common Stock or any spin-off, spin-out or other significant distribution of
the Company's assets to its stockholders for which the Company receives no
consideration.
25
26
Generally, no option may be exercised until the holder has been a
director of the Company continuously for at least three months from the date of
grant. In the event the option holder dies, his or her legatee, distributee or
representative may exercise the option for a period of 12 months following the
holder's death. In the event the option holder is terminated as a director by
reason of disability, the holder or his or her representative may exercise the
option not later than 12 months after the day of such termination. If the
employment of an Option Holder is terminated from "cause" as defined in the
Directors Plan, the unexercised options expire. In the event the option holder
is terminated as a director for any reason other than disability, death or
cause, the holder may exercise his or her option for a period of three months
following termination.
In the event of a dissolution or sale of all or substantially all of
the assets of the Company, or a merger or consolidation in which the Company is
not the surviving corporation, each outstanding option will terminate, unless
there is an express assumption of the option by the surviving corporation.
However, as to any option which is to so terminate, each holder will have the
right, immediately prior to the dissolution, sale, merger or consolidation, to
exercise his or her options, in whole or in part.
No federal income tax consequences occur to either the Company or the
optionee upon the Company's grant or issuance of a stock option under the
Directors Plan. Upon an optionee's exercise of a stock option, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the stock purchased pursuant to the exercise of the option and
the exercise price of the option. However, if the stock purchased upon exercise
of the option is not transferable or is subject to a substantial risk of
forfeiture, then the optionee will not recognize income until the stock becomes
transferable or is no longer subject to such a risk of forfeiture (unless the
optionee makes an election under Internal Revenue Code Section 83(b) to
recognize the income in the year of exercise, which election must be made within
30 days of the option exercise). The Company will be entitled to a deduction in
an amount equal to the ordinary income recognized by the optionee in the year in
which such income is recognized by the optionee. Upon a subsequent disposition
of the stock, the optionee will recognize capital gain to the extent the sales
proceeds exceed the optionee's cost of the stock plus the previously recognized
ordinary income.
As originally adopted, the Directors Plan allowed for the purchase of
up to 140,000 shares of Common Stock and in 1996 the Directors Plan was amended
to allow for the purchase of up to 190,000 shares of Common Stock. As of April
10, 2001, options to purchase 10,000 shares have been exercised, options to
purchase 76,000 shares have expired and options to purchase 212,000 shares of
Common Stock remain outstanding. The Board of Directors has unanimously adopted
a proposed amendment to the Company's Directors Plan to increase the number of
shares of Common Stock reserved for issuance from 190,000 shares to 340,000
shares. The purpose of the amendment is to allow for additional grants of
options under the Directors Plan for both existing and potentially new
directors. A copy of the proposed amendment is attached hereto as Exhibit A. For
a description of benefits received and to be received under the Directors Plan
as proposed to be amended, see "New Plan Benefits" below.
A majority of the shares of Common Stock present or represented by
proxy at the Annual Meeting of Stockholders and entitled to be voted is required
to amend the Directors Plan. THE BOARD OF DIRECTORS HAS APPROVED THE AMENDMENT
TO THE DIRECTORS PLAN AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE IN FAVOR OF THE
AMENDMENT.
26
27
PROPOSAL 3:
AMENDMENT TO 1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
FOR KEY PERSONNEL INCREASING SHARES AVAILABLE FOR GRANT
On March 3, 1994, the Company's Board of Directors and stockholders
approved the adoption of the 1994 Incentive and Nonqualified Stock Option Plan
for Key Personnel (the "Key Personnel Plan"), under which options to purchase
shares of the Company's Common Stock are available for grant to consultants,
advisors, directors and employees of the Company, providing an equity interest
in the Company and additional compensation based on appreciation of the value of
such stock.
The purpose of the Key Personnel Plan is to align the interest of
shareholders and managers through an opportunity to participate in equity
enhancement. Currently issued options are at prices significantly higher than
the Company's share value over the past couple of years and thus of little or no
incentive value. The traditional methodology of "re-pricing" options has a
negative impact on the Company as a result of new requirements under generally
accepted accounting principals. Consequently the Company has determined it
advisable to issue additional options under the existing plan, cognizant of the
fact that all but 185,000 of the 642,500 options outstanding as of December 31,
2000 are at prices in excess of $5.50 per share. To do so requires shareholder
approval to extend the number available under the Key Personnel Plan by 800,000
options. Apart from the expiration of "old" options resulting from optionees
leaving the employ of the company, expiration under the Key Personnel Plan
begins in 2004 with 217,000 shares expiring. As a result the Company feels the
proposed expansion of available options to be both reasonable and prudent.
Since January 1, 2001, options to purchase 610,000 shares at exercise
price of $0.35 per share were granted under the Key Personnel Plan to employees
of the Company, 192,500 of which are contingent upon adoption by the Company's
stockholders of the proposed amendment to the Key Personnel Plan. As of April
10, 2001, there were outstanding under the Key Personnel Plan options,
contingent and otherwise, to purchase 1,252,000 shares of Common Stock with an
aggregate market value of approximately $783,000 (based on the April 3, 2001
closing price of $ 0.625 for the Company's Common Stock). The outstanding
options have expiration dates ranging from May 2004 to April 2011 and of the
total, 457,500 are at prices in excess of $5.50.
The Key Personnel Plan provides that the exercise price of an option
must not be less than the fair market value of the Common Stock on the trading
day next preceding the date of grant. Payment for shares of Common Stock to be
issued upon exercise of an option may be made either in cash, Common Stock or
any combination thereof, at the discretion of the option holder.
The maximum term of any option granted pursuant to the Key Personnel
Plan is 10 years. Options are nontransferable, other than by will, the laws of
descent and distribution or pursuant to certain domestic relations orders.
Shares subject to options granted under the Key Personnel Plan that expire,
terminate or are canceled without having been exercised in full become available
again for option grants.
27
28
The Key Personnel Plan is administered by the Board of Directors. The
Compensation Committee of the Board currently administers the plan. Subject to
certain limitations, the Board and its Committee have the authority to determine
the recipients, as well as the exercise prices, exercise periods, length and
other terms of stock options granted pursuant to the Key Personnel Plan. In
making such determinations, the Board may take into account the nature of the
services rendered or to be rendered by option recipients, and their past,
present or potential contributions to the Company.
The number of shares of Common Stock that may be granted under the Key
Personnel Plan or under any outstanding options granted thereunder will be
proportionately adjusted, to the nearest whole share, in the event of any stock
dividend, stock split, share combination or similar recapitalization involving
the Common Stock or any spin-off, spin-out or other significant distribution of
the Company's assets to its stockholders for which the Company receives no
consideration.
Generally, no option may be exercised until the holder has been
employed by the Company or one of its subsidiaries continuously for at least
three months from the date of grant. In the event the option holder is
terminated as an employee by reason of disability or death, the holder or his or
her representative may exercise the option for a period of 12 months following
such termination unless the Board of Directors elects, in its sole discretion,
to extend the exercise period. If the employment of an option holder is
terminated for "cause," as defined in the Key Personnel Plan, the unexercised
options expire. In the event the option holder is terminated as an employee for
any reason other than disability, death or cause, the holder may exercise his or
her option for a period of three months following termination, unless extended
by agreement of the Company.
In the event of a dissolution or sale of all or substantially all of
the assets of the Company, or a merger or consolidation in which the Company is
not the surviving corporation, each outstanding option will terminate, unless
there is an express assumption of the option by the surviving corporation.
However, as to any option which is to so terminate, each holder will have the
right, immediately prior to the dissolution, sale, merger or consolidation, to
exercise his or her options, in whole or in part.
Either nonqualified or incentive stock options may be granted under the
Key Personnel Plan. No federal income tax consequences occur to either the
Company or the optionee upon the Company's grant or issuance of a nonqualified
stock option. Upon an optionee's exercise of a nonqualified stock option, the
optionee will recognize ordinary income in an amount equal to the difference
between the fair market value of the Common Stock purchased pursuant to the
exercise of the option and the exercise price of the option. However, if the
Common Stock purchased upon exercise of the option is not transferable or is
subject to a substantial risk of forfeiture, then the optionee will not
recognize income until the stock becomes transferable or is no longer subject to
such a risk of forfeiture (unless the optionee makes an election under Internal
Revenue Code Section 83(b) to recognize the income in the year of exercise,
which election must be made within 30 days of the option exercise). The Company
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the optionee in the year in which such income is recognized by the
optionee. Upon a subsequent disposition of the shares of Common Stock, the
optionee will recognize a capital gain to the extent the sales proceeds exceed
the optionee's cost of the shares plus the previously recognized ordinary
income.
28
29
Incentive stock options granted under the Key Personnel Plan are
intended to qualify for favorable tax treatment under Internal Revenue Code
Section 422. No individual may be granted incentive stock options under the Key
Personnel Plan exercisable for the first time during any calendar year and
having an aggregate fair market value in excess of $100,000. If the recipient of
an incentive stock option disposes of the underlying shares before the end of
certain holding periods (essentially the later of one year after the exercise
date or two years after the grant date), he or she will generally recognize
ordinary income in the year of disposition in an amount equal to the difference
between his or her purchase price and the fair market value of the Common Stock
on the exercise date. If a disposition does not occur until after the expiration
of the holding periods, the recipient will generally recognize a capital gain
equal to the excess of the disposition price over the price paid by the
recipient on the exercise date. The Company generally will not be entitled to a
tax deduction for compensation expense on account of the original sales to
employees, but may be entitled to deduction if a participant disposes of stock
received upon exercise of an incentive stock option under the Key Personnel Plan
prior to the expiration of the holding periods.
As originally adopted, the Key Personnel Plan allowed for the purchase
of up to 460,000 shares of Common Stock and in 1996 was amended to allow for the
purchase of up to 560,000 shares of Common Stock and further amended in 1997 to
allow for the purchase of up to 810,000 shares of Common Stock; and further
amended in 1998 to allow for the purchase of up to 1,060,000 shares of Common
Stock. As of April 9, 2001, no options have been exercised and options to
purchase 1,252,500 shares of Common Stock remain outstanding. The Board of
Directors has unanimously adopted a proposed amendment to the Company's Key
Personnel Plan to increase the number of shares of Common Stock reserved for
issuance from 1,060,000 shares to 1,860,000 shares. The purpose of the amendment
is to allow for grants of options under the Key Personnel Plan to acquire
additional shares. A copy of the proposed amendment is attached hereto as
Exhibit B. For a description of benefits received and to be received under the
Key Personnel Plan as proposed to be amended, see "New Plan Benefits" below.
A majority of the shares of Common Stock present or represented by
proxy at the Annual Meeting of Stockholders and entitled to be voted is required
to amend the Key Personnel Plan. THE BOARD OF DIRECTORS HAS APPROVED THE
AMENDMENT TO THE KEY PERSONNEL PLAN AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE IN
FAVOR OF THE AMENDMENT.
29
30
NEW PLAN BENEFITS
Options to acquire an aggregate of 22,000 shares of Common Stock under
the Directors Plan and 192,500 shares of Common Stock under the Key Personnel
Plan have been granted which are subject to approval by the stockholders of the
amendment to each respective plan. The following table sets forth those granted
options that are subject to adoption of the amendment and held by (i) each
executive officer named in the Summary Compensation Table, (ii) all current
executive officers as a group, (iii) all current directors who are not executive
officers as a group, and (iv) all employees, including all current officers who
are not executive officers, as a group.
NEW PLAN BENEFITS
DIRECTORS PLAN KEY PERSONNEL PLAN
--------------------------- -----------------------------
DOLLAR NUMBER OF DOLLAR NUMBER OF
NAME AND POSITION VALUE ($)(1) UNITS(2) VALUE ($)(1) UNITS(3)
----------------- ------------ --------- ------------ ---------
Charles W. Birkett, M.D.,
Chairman and CEO -0- 1,400 -0- 77,000
Paul Richardson,
Executive Vice President and Director -0- 1,400 -0- 38,500
Charles H. Rinne
President and Chief Operating Officer -0- -0- -0- 51,333
All current executive
officers as a group -0- -0- -0- 192,500
(4 persons)
All current directors who
are not executive -0- 19,200 -0- -0-
officers as a group
(4 persons)
All employees including
officers who are not
executive officers as a -0- N/A -0- -0-
group (0 persons)
- ---------------
(1) The Dollar Value of all contingent options is -0- because the exercise
price of each option is equal to the fair market value of the
underlying Common Stock on the date of grant. Actual dollar values that
may be realized will be based on the exercise price and the market
price of the Common Stock on the date of exercise and are
indeterminable at this time.
(2) Number of Units references number of shares of Common Stock underlying
options granted under the Directors Plan contingent upon shareholder
approval. In addition, each nominee for director, if elected and still
serving as a director on the last day of the Company's fiscal year,
will receive an option to purchase 1,000 shares, contingent on
shareholder approval of Proposal 2. Options granted under the Directors
Plan and not subject to the proposed amendment to the plan are as
follows: 13,600 to Dr. Birkett; 13,600 to Mr. Richardson; 13,600 to Mr.
Nelson; 13,600 to Mr. O'Neil; 13,600 to Mr. Wallace; and 15,000 to Mr.
Furlong.
(3) Number of Units references number of shares of Common Stock underlying
options granted under the Key Personnel Plan contingent upon
shareholder approval.
30
31
PROPOSAL 4:
AMENDMENT TO 1994 EMPLOYEE STOCK PURCHASE PLAN
On March 3, 1994, the Board of Directors and stockholders approved the
Company's 1994 Employee Stock Purchase Plan (the "1994 Purchase Plan"). A total
of 250,000 shares of Common Stock were originally reserved for issuance under
the 1994 Purchase Plan. The 1994 Purchase Plan allows employees of the Company
or any of its subsidiaries that are employed at least 20 hours a week and more
than five months in a calendar year to make an annual election to participate in
the plan. Participants may contribute up to 10% of their monthly wages to a
custodial account for purchase of the Company's Common Stock. A participating
employee may discontinue his or her contributions at any time by notifying the
Company. Eligible employees include all executive officers of the Company and
those directors who are employed by the Company or a subsidiary. Approximately
3,110 employees are currently eligible to participate.
As originally adopted, the 1994 Purchase Plan provided that Common
Stock be purchased annually at a price per share equal to the lesser of 85% of
the closing market price of the Common Stock on either the first or the last
business day of the Plan Year on which the Common Stock is publicly traded (the
"Exercise Price"). Also as originally adopted, if the market price of the Common
Stock was less than $5.00 per share as of the Exercise Date, no Common Stock
would be purchased under the 1994 Purchase Plan for that Plan Year, and
contributions to the plan will be returned to the participating employees
without interest. In 2000, the market price was below $5.00 per share and
therefore, no shares were purchased and contributions were returned to the
participating employees and no further contributions have been collected since
that date. As part of this amendment, the foregoing provisions will be amended
to provide that purchases will be made on a quarterly bases such that the Common
Stock is purchased each quarter at a price equal to the lesser of (i) 85% of the
fair market value of Common Stock on the first business day of the quarter or
(ii) 85% of the fair market value of Common Stock on the last business day of
each quarter. In addition, if the market price of the Common Stock was less than
$0.50 per share as of the Exercise Date, no Common Stock would be purchased
under the 1994 Purchase Plan for that quarter, and contributions to the plan
will be returned to the participating employees without interest.
Employees may not be granted a right under the 1994 Purchase Plan to
purchase Common Stock, during a calendar year, in excess of a total fair market
value of $25,000, or be granted a right to purchase Common Stock if, following
such grant, the employee would beneficially own 5% or more of the total voting
power or value of all classes of the Company's stock. Rights acquired under the
1994 Purchase Plan are not transferable.
The 1994 Purchase Plan is administered by the Board of Directors. The
authority to administer the 1994 Purchase Plan includes the authority (i) to
interpret the 1994 Purchase Plan and decide any matters arising thereunder, and
(ii) to adopt such rules and regulations, not inconsistent with the provisions
of the 1994 Purchase Plan, as the Board may deem advisable to carry out the
purpose of the plan. The 1994 Purchase Plan is to continue from year to year,
however, the Board of Directors may discontinue it at any time.
Upon termination of employment, other than by death, retirement or
long-term disability, an employee immediately ceases participation in the 1994
Purchase Plan and the Company will pay to the employee the balance of any
contributions made to the plan on behalf of the employee. Upon termination of
employment due to death, retirement or long-term disability, the employee or his
estate may elect to be paid the balance
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of any contributions made to the 1994 Purchase Plan on behalf of the employee.
If no such election is made, such balance will be used to purchase Common Stock
on behalf of the employee or his estate in the normal course under the plan.
As originally adopted, the 1994 Purchase Plan allowed for the purchase
of up to 250,000 shares of Common Stock. As of April 10, 2001, 149,675 shares
had been purchased under the plan. The Board of Directors has unanimously
adopted a proposed amendment to the Company's 1994 Purchase Plan to (i) increase
the number of shares of Common Stock reserved for issuance from 250,000 shares
to 550,000 shares; (ii) reduce the minimum purchase price to $0.50 per share and
(iii) to provide for quarterly purchases instead of annual purchases. The
purpose of the amendment is to allow for employees to again be able to
participate in the ownership of the Company. A copy of the proposed amendment is
attached hereto as Exhibit C.
A majority of the shares of Common Stock present or represented by
proxy at the Annual Meeting of Stockholders and entitled to be voted is required
to amend the 1994 Purchase Plan. THE BOARD OF DIRECTORS HAS APPROVED THE
AMENDMENT TO THE 1994 PURCHASE PLAN AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE IN
FAVOR OF THE AMENDMENT.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Arthur Andersen LLP was appointed by the Board
of Directors to serve as the Company's Independent Public Accountants for the
fiscal year ended December 31, 1999.2000. It is expected that Arthur Andersen LLP
will be appointed to serve as the Company's auditor for the current fiscal year.
A representative of that firm will be present at the meeting with the
opportunity to make a statement if he so desires and to respond to questions.
In addition to performing the audit of the Company's financial
statements, Arthur Andersen LLP provided various other services during 2000. The
aggregate fees billed for 2000 for each of the following categories of services
are set forth below:
Audit and review of the Company's 2000 quarterly and
annual financial statements $ 298,000
Financial information systems design and
implementation $ -0-
All other services $ 60,000
All other services relate to tax compliance and planning and the audit of the
financial statements of the Company's savings plan and trust.
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DEADLINE FOR SUBMITTING STOCKHOLDERS PROPOSALS
Any proposal by a stockholder for consideration at the 20012002 Annual
Meeting of Stockholders must be received by the Company's principal offices at
277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 no later than
February 27, 2001,January 24, 2002, if any such proposal is to be eligible for inclusion in the
Company's proxy materials for its 20012002 annual meeting. Stockholders who intend
to present a proposal at the 20012002 Annual Meeting without inclusion of such
proposal in the Company's proxy materials are required to provide such proposals
to the Company no later than May 14, 2001.March 23, 2002.
AVAILABILITY OF 10-K
Upon the written request of any record holder or beneficial owner of
the Common Stock entitled to vote at the annual meeting, the Company will
provide without charge, a copy of its Annual Report on Form 10-K for the year
ending December 31, 1999,2000, including financial statements and financial statement
schedules, as filed with the Securities and Exchange Commission ("SEC"). The
request should be mailed to: Secretary, Advocat Inc., 277 Mallory Station Road,
Suite 130, Franklin, Tennessee 37067. A request via facsimile may be submitted
to (615) 771-7409.
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Additionally, a copy is retrievable free of charge through the EDGAR
system maintained by the SEC. The Company's SEC filings, including the Annual
Report on Form 10-K, can be accessed through the Company's website:
http://www.irinfo.com/avc.
OTHER MATTERS
The management of the Company is not aware of any other matters to be
brought before the Annual Meeting of Stockholders. If other matters are duly
presented for action, it is the intention of the persons named in the enclosed
proxy to vote on such matters in accordance with their judgment.
EACH STOCKHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE MEETING, HE MAY, IF
HE WISHES, REVOKE HIS PROXY AND VOTE HIS SHARES IN PERSON. IN ADDITION, A
STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE SUCH PROXY IS VOTED.
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2434
EXHIBIT A
AMENDMENT NO. 2 TO
ADVOCAT INC.
1994 NONQUALIFIED STOCK OPTION PLAN FOR DIRECTORS
Amendment No. 2 to Advocat Inc. (the "Corporation") 1994 Nonqualified
Stock Option Plan for Directors reflecting the increase of the maximum number of
shares reserved for issuance under the Plan as approved by the Shareholders of
the Corporation by shareholder vote at the annual meeting of shareholders held
June 21, 2001. Capitalized terms used in this Amendment No. 2, if not otherwise
defined herein, shall have the respective meanings attributed to such terms in
the Plan.
The 1994 Nonqualified Stock Option Plan for Directors is hereby amended
by striking Paragraph 3. in its entirety and inserting the following in lieu
thereof:
3. STOCK SUBJECT TO THE PLAN. There will be reserved for issuance
upon the exercise of Options 340,000 shares of Common Stock, which will be
authorized and unissued Common Stock. If an Option expires or terminates for any
reason without being exercised in full, the shares subject thereto which have
not been purchased will again be available for purposes of the Plan. The number
of shares as to which Options may be granted under the Plan will be
proportionately adjusted, to the nearest whole share, in the event of any stock
dividend, stock split, reorganization, merger, consolidation, share combination
or similar recapitalization involving the Common Stock or any spin-off, spin-out
or other significant distribution of assets of stockholders for which the
Corporation receives no consideration. In the event that there is an
insufficient number of authorized shares of Common Stock available to allow
exercise of the Options on the date of any grant hereunder, such Options will
not be exercisable until there are sufficient shares of Common Stock authorized
for issuance.
- End of Amendment -
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EXHIBIT B
AMENDMENT NO. 4 TO
ADVOCAT INC.
1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
FOR KEY PERSONNEL
Amendment No. 4 to Advocat Inc. (the "Corporation") 1994 Incentive and
Nonqualified Stock Option Plan for Key Personnel reflecting the increase of the
maximum number of shares reserved for issuance under the Plan as approved by the
Stockholders of the Corporation by Stockholder vote at the Annual Meeting of
Stockholders held June 21, 2001. Capitalized terms used in the Amendment No. 4,
if not otherwise defined herein, shall have the respective meanings attributed
to such terms in the Plan.
The 1994 Incentive and Nonqualified Stock Option Plan for Key Personnel
is hereby amended by striking Paragraph 3 in its entirety and inserting the
following in lieu thereof:
3. STOCK SUBJECT TO THE PLAN. There will be reserved for issuance
upon the exercise of Options 1,860,000 shares of Common Stock, which will be
authorized and unissued Common Stock. If an Option expires or terminates for any
reason without being exercised in full, the shares subject thereto which have
not been purchased will again be available for purposes of the Plan. The number
of shares as to which Options may be granted under the Plan will be
proportionately adjusted, to the nearest whole share, in the event of any stock
dividend, stock split, reorganization, merger, consolidation, share combination
or similar recapitalization involving the Common Stock or any spin-off, spin-out
or other significant distribution of assets of stockholders for which the
Corporation receives no consideration. In the event that there is an
insufficient number of authorized shares of Common Stock available to allow
exercise of the Options on the date of any grant hereunder, such Options will
not be exercisable until there are sufficient shares of Common Stock authorized
for issuance.
- End of Amendment -
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EXHIBIT C
FIRST AMENDMENT TO THE ADVOCAT INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
The Advocat Inc. 1994 Employee Stock Purchase Plan (the "Plan") was
approved by the Board of Directors of Advocat Inc. (the "Company") on May 10,
1994, and by the Shareholders of the Company on May 10, 1994. The Plan currently
provides (i) that the option period is twelve months, (ii) that 250,000 shares
of the Company's common stock ("Stock") may be issued under the Plan, and (iii)
that no shares may be purchased pursuant to the Plan if the per share Stock
price is less than $5.00 at the end of an option period. Section 5.03 of the
Plan provides that the Plan may be amended by approval of the Board of Directors
and the Shareholders. The Board of Directors and the Shareholders have approved
an amendment to the Plan which (i) changes the option period under the plan from
twelve months to three months, (ii) increases the number of shares of Stock that
may be issued under the Plan from 250,000 shares of Stock to 550,000 shares of
Stock, and (iii) provides that no shares of Stock will be purchased pursuant to
the Plan if the per share Stock price is less than $.50 at the end of an option
period.
THEREFORE, the Plan shall be amended as follows:
ITEM I. The Plan shall be amended by deleting Section 2.01 in its
entirety and replacing it with a new Section 2.01 so that, as amended, said
Section 2.01 shall read as follows:
Section 2.01 The term "Anniversary Date" shall mean the first day of an
Offering Period.
ITEM II. The Plan shall be amended by deleting Section 2.15 in its
entirety and replacing it with a new Section 2.15 so that, as amended, said
Section 2.15 shall read as follows:
Section 2.15 The term "Offering Period" shall mean the period during
each year of the Plan commencing on March 1, June 1, September 1, and
December 1 and ending three (3) months later.
ITEM III. The Plan shall be amended by deleting Section 3.01 in its
entirety and replacing it with a new Section 3.01 so that, as amended, said
Section 3.01 shall read as follows:
Section 3.01 Each Employee shall become eligible to be a Member of the
Plan and may participate therein as of an Anniversary Date if he has
been an Employee for the entire period beginning one year and one month
immediately preceding the Anniversary Date and ending on the
Anniversary Date; provided, however, that each Employee as of the
Effective Date is eligible to be a Member for that Offering Period.
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ITEM IV. The Plan shall be amended by deleting Section 4.01 in its
entirety and replacing it with a new Section 4.01 so that, as amended, said
Section 4.01 shall read as follows:
Section 4.01 The aggregate number of shares of the Sponsoring Employer
Stock which may be issued to Members under the Plan upon the exercise
of the options granted hereunder shall be, and the Sponsoring Employer
shall reserve, 550,000 shares of Sponsoring Employer Stock. These
shares may be either authorized and unissued shares, issued shares held
in or acquired for the treasury of the Sponsoring Employer, or shares
of common stock reacquired by the Sponsoring Employer upon purchase in
the open market or otherwise.
ITEM V. The Plan shall be amended by deleting the second sentence in
Section 4.02 in its entirety and replacing it with a new second sentence to
Section 4.02 so that, as amended, said second sentence to Section 4.02 shall
read as follows:
The maximum deduction shall be 10% of such Employee's normal monthly
pay from his Employer as of the first day of the month immediately
preceding the first day of the Offering Period.
ITEM VI. The Plan shall be amended by deleting Section 4.05 in its
entirety and replacing it with a new Section 4.05 so that, as amended, said
Section 4.05 shall read as follows:
Section 4.05 On each Exercise Date the Member's Contribution Account
shall be used to purchase the maximum number of whole shares of
Sponsoring Employer Stock determined by dividing the Issue Price into
the Member's Contribution Account; provided, however, if the Issue
Price is less than $.50 per share as of the Exercise Date, no shares
will be purchased for that Offering Period. Any money remaining in a
Member's Contribution Account shall be returned to the Employee without
interest. If such return is not requested, the balance (representing
amounts which would purchase only fractional shares) will remain in the
Contribution Account to be used in the next Offering Period along with
new contributions in the new Offering Period. Options granted under
this Plan shall be subject to such amendment or modification as the
Sponsoring Employer shall deem necessary to comply with any applicable
law or regulation, and shall contain such other provisions as the
Sponsoring Employer shall from time to time approve and deem necessary.
ITEM VII. The Plan shall be amended by deleting the term "Plan Year" in
every instance it appears in the Plan and replacing it with the term "Offering
Period."
Except as expressly modified and amended by this First Amendment to the
Advocat Inc. 1994 Employee Stock Purchase Plan, the provisions of the Plan shall
remain in full force and effect as of the date hereof.
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EXHIBIT D
ADVOCAT INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
The audit committee of the board of directors shall be comprised of directors
who are independent of management and Advocat Inc. (the "Company"). Members of
the audit committee shall be considered independent if they have no relationship
to the Company that may interfere with the exercise of their independence from
management and the Company. All audit committee members will be financially
literate, and at least one member will have accounting or related financial
management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the directors in fulfilling
their responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the company,
and the quality and integrity of financial reports of the company. In so doing,
it is the responsibility of the audit committee to maintain free and open
communication between the directors, the independent auditors, and the financial
management of the company.
RESPONSIBILITIES
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the company are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
- - Obtain the full board of directors' approval of this Charter and review
and reassess this Charter as conditions dictate (at least annually).
- - Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the company and its
divisions and subsidiaries.
- - Have a clear understanding with the independent auditors that they are
ultimately accountable to the board of directors, and the audit
committee, as the shareholders' representatives, who have the ultimate
authority in deciding to engage, evaluate, and if appropriate,
terminate their services.
- - Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit and timely quarterly
reviews for the current year and the procedures to be utilized. the
adequacy of the independent auditor's compensation, and at the
conclusion thereof review such audit or review, including any comments
or recommendations of the independent auditors.
39
- - Review with the independent auditors, and the Company's financial and
accounting personnel, the adequacy and effectiveness of the accounting
and financial controls of the company, and elicit any recommendations
for the improvement of such internal controls or particular areas where
new or more detailed controls or procedures are desirable. Particular
emphasis should be given to the adequacy of internal controls to expose
any payments, transactions, or procedures that might be deemed illegal
or otherwise improper. Further, the committee, periodically should
review company policy statements to determine their adherence to the
code of conduct.
- - Review repeals received from regulators and other legal and regulatory
matters that may have a material effect on the financial statements or
related company compliance policies.
- - Review periodically the need to have an internal audit function. The
Committee has determined that at present, because of the relative size
and complexity of the Company, and the frequency and attention to
operations by the full Board, that an internal audit by function is not
deemed necessary.
- - Inquire of management, the Company's financial and accounting
personnel, and the independent auditors about significant risks or
exposures and assess the steps management has taken to minimize such
risks to the Company.
- - Review the quarterly financial statements with financial management and
the independent auditors prior to the filing of the Form 10-Q (or prior
to the press release of results, if possible) to determine that the
independent auditors do not take exception to the disclosure and
content of the financial statements, and discuss any other matters
required to be communicated to the committee by the auditors. The chair
of the committee may represent the entire committee for purposes of
this review.
- - Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
shareholders. Review with financial management and the independent
auditors the results of their timely analysis of significant financial
reporting issues and practices, including changes in, or adoptions of,
accounting principles and disclosure practices, and discuss any other
matters required to be communicated to the committee by the auditors.
Also review with financial management and the independent auditors
their judgments about the quality, not just acceptability, of
accounting principles and the clarity of the financial disclosure
practices used or proposed to be used, and particularly, the degree of
aggressiveness or conservatism of the organization's accounting
principles and underlying estimates, and other significant decisions
made in preparing the financial statements.
- - Provide sufficient opportunity for the independent auditors to meet
with the members of the audit committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluation of the company's financial,
accounting, and auditing personnel, and the cooperation that the
independent auditors received during the course of audit.
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- - Review accounting and financial human resources and succession planning
within the Company.
- - Report the results of the annual audit to the board of directors. If
requested by the board, invite the independent auditors to attend the
full board of directors meeting to assist in reporting the results of
the annual audit or to answer other directors' questions
(alternatively, the other directors, particularly the other independent
directors, may be invited to attend the audit committee meeting during
which the results of the annual audit are reviewed).
- - On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional
services as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In addition, review
with the independent auditors the nature and scope of any disclosed
relationships or professional services and take, or recommend that the
board of directors take, appropriate action to ensure the continuing
independence of the auditors.
- - Review the report of the audit committee in the annual report to
shareholders and the Annual Report on Form 10-K disclosing whether or
not the committee had reviewed and discussed with management and the
independent auditors, as well as discussed within the committee
(without management or the independent auditors present), the financial
statements and the quality of accounting principles and significant
judgments affecting the financial statements.
- - Submit the minutes of all meetings of the audit committee to, or
discuss the matters discussed at each committee meeting with, the board
of directors.
- - Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if,
in its judgment, that is appropriate.
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PROXY ADVOCAT INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS, JULY 27, 2000JUNE 21, 2001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. Charles W. Birkett and Mr. James F.
Mills, Jr.,William R.
Council, III, or either of them, as proxies, with power of substitution, to vote
all shares of the undersigned at the Annual Meeting of Stockholders of Advocat
Inc., to be held on July 27, 2000,June 21, 2001, at 9:00 a.m. Central Daylight Time, at 1800
First AmericanAmSouth Center, 315 Deaderick Street, Nashville, Tennessee, and at any
adjournments or postponements thereof, in accordance with the following
instructions:
(1) Election of Class 31 Directors:
CHARLES W. BIRKETT, M.D. EDWARD G. NELSON
WILLIAM C. O'NEIL, JR. JOSEPH F. FURLONG, III
[ ] FOR the nominee listed above [ ] FOR the nominee listed above
[ ] WITHHOLD AUTHORITY to vote for the above [ ] WITHHOLD AUTHORITY to vote for the above
listed nominee listed nominee
(2) ElectionTo amend the Company's 1994 Nonqualified Stock Option Plan for Directors to
increase the number of Class 2 Director:
PAUL RICHARDSON
[ ] FOR the nominee listed above
[ ] WITHHOLD AUTHORITY to vote for the above listed nominee
shares of Common Stock reserved for issuance from
190,000 shares to 340,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To amend the Company's 1994 Incentive and Nonqualified Stock Option Plan
for Key Personnel to increase the number of shares of Common Stock reserved
for issuance from 1,060,000 shares to 1,860,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on reverse side)
(3)(4) To amend the Company's Employee Stock Purchase Plan to increase the number
of shares of Common Stock reserved for issuance from 250,000 to 550,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) In their discretion, or such other matters as may properly come before the
meeting.
[ ] FOR DISCRETION [ ] AGAINST DISCRETION [ ] ABSTAIN
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED.SPECIFIED, IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION
OF DIRECTORS AND IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.
Dated: , 2000
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Dated: , 2000
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Dated: , 2001
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Dated: , 2001
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Signature(s) of shareholder(s) should
correspond exactly with the name(s) printed
hereon. Joint owners should each sign
personally. Executors, administrators,
trustees, etc., should give full title and
authority.