(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (AMENDMENT NO.(Amendment No. )
Filed by the Registrant [X]:
x
Check the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
appropriate box:
| o Preliminary Proxy Statement | o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| o Definitive Proxy Statement | ||
| o Definitive Additional Materials | ||
| o Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 | ||
ADVOCAT INC.
(Name
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:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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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:
| o | No fee required. |
| o | 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: |
| o | Fee paid previously with preliminary materials. |
| o | 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. |
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| (4) | Date Filed: |
ADVOCAT INC.
277 MALLORY STATION ROAD, SUITEMallory Station Road, Suite 130
FRANKLIN, TENNESSEE
Franklin, Tennessee 37067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 21, 2001MAY 30, 2002
Notice is hereby given that the Annual Meeting of Stockholders of Advocat Inc. (the "Company"“Company”) will be held at the offices of Harwell Howard Hyne Gabbert & Manner, P.C., 315 Deaderick Street, Suite 1800, AmSouth Center, Nashville, Tennessee on Thursday, June 21, 2001,May 30, 2002, at 9:00 a.m. Central Daylight Time, for the following purposes:
1. To elect two Class 1 directors to hold office for a three (3) year term
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.
| 1. | To elect one Class 2 director to hold office for a three (3) year term until his successor is duly elected and qualified; | ||
| 2. | To transact such other business as may properly come before the meeting or any adjournment thereof. |
Stockholders of record at the close of business on May 10, 2001April 22, 2002 will be entitled to vote at the meeting.
The Company'sCompany’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,
William R. Council, III, Secretary
| By Order of the Board of Directors, |
| /s/ William R. Council, III |
| William R. Council, III, Secretary |
Franklin, Tennessee
April 26, 2001
29, 2002
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. 3
ADVOCAT INC.
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"“Advocat” or the "Company"“Company”), to be used at the Annual Meeting of Stockholders to be held on June 21, 2001,May 30, 2002, 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 May 15, 2001.April 29, 2002.
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 NOMINEESNOMINEE NAMED HEREIN WHO AREIS STANDING FOR ELECTION AS CLASS 1 DIRECTORS; FOR
THE AMENDMENT TO THE 1994 NONQUALIFIED DIRECTORS PLAN; FOR THE AMENDMENT TO THE
1994 NONQUALIFIED STOCK OPTION PLAN FOR KEY PERSONNEL; AND FOR THE AMENDMENT TO
THE EMPLOYEE STOCK PURCHASE PLAN.2 DIRECTOR. Management does not know of any other matters that will be presented for action at the Annual Meeting of Stockholders. If any other matter does come before the meeting, however, the persons appointed in the proxy will vote in accordance with their best judgment on such matter.
The cost of this proxy solicitation will be borne by the Company. It is contemplated that proxies will be solicited solely by mail. Banks, brokers and other custodians will be requested to forward proxy soliciting materials to their customers where appropriate, and the Company will reimburse such banks, brokers, and custodians for their reasonable out-of-pocket expenses in sending the proxy materials to beneficial owners of the Company'sCompany’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 nomineesone nominee to serve as Class 1
directors2 director for a three-year term and until their successors arehis successor is duly elected and qualified (see "Proposal“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"Directors”).
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VOTING
Stockholders of record as of May 10, 2001April 22, 2002 will be entitled to vote at the annual meeting. At the close of business on that day, there were outstanding 5,491,6215,493,287 shares of the Company'sCompany’s Common Stock, par value $.01 per share (the "Common Stock"“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 nomineesnominee 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.
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 2 director will expire at this Annual Meeting of Stockholders; the term of the Class 3 directors will expire at the 2003 Annual Meeting of Stockholders; and the term of the Class 1 directors will expire at the 2004 Annual Meeting of Stockholders (and in all cases when their respective successors are duly elected and qualified). At each annual meeting, successors to the class of directors whose term expires at such meeting will be elected to serve for a three-year term and until their successors are duly elected and qualified.
Directors who are not officers, employees or consultants of the Company (currently directors Nelson, O’Neil, Wallace and Olson) 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 one nominee indicated below be elected as a Class 2 director to serve for a three-year term until his successor is duly elected and qualified. Mr. Bransford Wallace is currently a Class 2 director but has elected not to stand for re-election. Thus, Mr. Wallace’s term as a director will expire at the Annual Meeting. The Board of Directors has approved reducing the size of the Board to four members. 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.
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Nominee for Election of Class 2 Director
| Name of Nominee | Age | Director Since | Principal Occupation Last Five Years | |||
| Class 2 Director: | ||||||
| Wallace E. Olson | 55 | March 2002 | Mr. Olson became a Member of the Board of Directors of the Company in March 2002. He has been a private investor, managing his personal finances, since May 1996. |
Continuing Directors
| Class 1 Director | ||||||
| William C. O’Neil | 67 | Inception | Member of the Board of Directors of the Company; Private Investor; Chairman and Chief Executive Officer of ClinTrials Research from September 1989 to 1998; President and Chief Executive Officer of ClinTrials from September 1989 to February 1, 1998; Director of American HealthWays, a speciality health care service company; Director of Sigma Aldrich Corp., a manufacturer of research chemicals; and Director of Central Parking. | |||
| Class 3 Directors | ||||||
| Charles W. Birkett, M.D. | 65 | 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 | 70 | Inception | Member of the Board of Directors of the Company; Chief Executive Officer and President of Nelson Capital Corp., a merchant banking firm, from January 1985 to present; Director of Central Parking Systems, Inc., an operator of parking facilities (“Central Parking”); Director of Berlitz International, Inc., a language services company; Trustee of Vanderbilt University. |
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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 two directors: Dr. Birkett, and Dr. Nelson. Mr. Furlong served on this committee through March 2002 when he resigned from the Board of Directors. 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 2001, the Executive Committee held no separate meetings.
The Audit Committee presently is composed of three directors: Mr. Wallace, Mr. Nelson and Mr. O’Neil. Mr. Wallace will resign from the Audit Committee immediately following the Annual Meeting. 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 2001, the Audit committee held four meetings.
The Compensation Committee presently is composed of two directors: Mr. Nelson and Mr. O’Neil. Mr. Furlong served on the Compensation Committee from April 2001 through March 2002. 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 2001, the Compensation Committee held one meeting and unanimously adopted one written consent action.
During the Company’s fiscal year ended December 31, 2001, its Board of Directors held three regular meetings and unanimously adopted four written consent actions. Each director named above, during the period in which he served in 2001, 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 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 NOMINEE LISTED ABOVE.
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STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The table below sets forth, as of March 31, 2001,2002, the number and percentage of outstanding shares of the Company'sCompany’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) | ||||||
Wallace E. Olson (3) | 820,150 | 14.9 | % | |||||
Richard M. Sullivan (4) | 634,650 | 11.6 | % | |||||
Charles W. Birkett, M.D. (5) | 450,115 | 7.9 | % | |||||
Five Course Partners(3) | 387,400 | 7.1 | % | |||||
Paul Richardson (6) | 236,287 | 4.2 | % | |||||
Charles H. Rinne(7) | 116,667 | 2.1 | % | |||||
William R. Council, III(8) | 33,333 | * | ||||||
Edward G. Nelson(9) | 32,733 | * | ||||||
William C. O’Neil, Jr.(9) | 30,733 | * | ||||||
J. Bransford Wallace(10) | 27,733 | * | ||||||
All directors and executive officers as a group (8 persons)(11) | 1,747,757 | 28.1 | % | |||||
| * | 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. | |
| (2) | The percentages shown are based on 5,493,287 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, 2001. | |
| (3) | Mr. Olson is a general partner of Five Course Partners and is deemed to beneficially own the shares owned by Five Course Partners. Mr. Olson’s shares also includes options to purchase 5,000 shares of Common Stock, 179,500 shares owned jointed with his wife, 1,300 shares owned jointly with his daughter and 246,950 owned by a partnership controlled by Mr. Olson. |
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| (4) | Based solely on Schedule 13G filing made by Mr. Sullivan on February 12, 2001. | |
| (5) | Includes 85,000, 50,000, 50,000 and 75,000 shares purchasable upon exercise of options at exercise prices of $9.50, $9.75, $10.0625 and $1.8125 per share, respectively, issued under the Key Personnel Plan and 15,000, 1,000, 1,000, 1,000, 1,000, 1,000, 1,000, 667 and 9,066 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 $0.35 per share, respectively, issued under the 1994 Nonqualified Stock Option Plan for Directors (the “Director Plan”). Also includes 1,500 shares owned by Dr. Birkett’s wife of which Dr. Birkett | |
| (6) | Includes 85,000, 30,000, 25,000, 20,000 and 24,333 shares purchasable upon exercise of options at exercise prices of $9.50, $9.75, $10.0625, $1.8125 and $0.35 per share, respectively, issued under the Key Personnel Plan. Also includes 4,000 shares owned by Mr. Richardson’s wife and a family trust of which Mr. Richardson disclaims beneficial ownership. | |
| (7) | Includes 50,000 | |
| (8) | Includes 33,333 shares purchasable upon exercise of an option at an exercise price of $0.35 per share issued under the Key Personnel Plan. | |
| (9) | Includes 15,000, 1,000, 1,000, 1,000, 1,000, 1,000, 1,000, 667 and 9,066 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 $0.35 per share, respectively, issued under the Director Plan. | |
| (10) | Includes 15,000, 1,000, 1,000, 1,000, 667 and 9,066 shares purchasable upon exercise of options at an exercise price of $9.25, $8.3125, $5.5625, $0.15, $1.0625 and $0.35 per share issued under the Director Plan. | |
| (11) | Includes 594,333 and 124,932 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 March 5, 2001,31, 2002, the Company'sCompany’s executive officers:
| Name of Officer | Age | Officer Since | Position with the Company | |||||
| Dr. Charles W. Birkett | 65 | 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 | |||||
| Paul Richardson | 53 | Inception | Executive Vice President and | |||||
| Charles H. Rinne | 54 | 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 | 40 | March 5, 2001 | Executive Vice President, Chief Financial Officer and Secretary of the Company from March 5, 2001 to 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 Audit Staff from January 1985 through September 1990. Mr. Council is a certified public accountant. | |||||
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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, 2000,2001, of the individual who served as the Company'sCompany’s chief executive officer during the 20002001 fiscal year and of the other individuals who served the Company as executive officers as of the end of the 20002001 fiscal year or during the 20002001 fiscal year and met the reporting requirements.
SUMMARY COMPENSATION TABLE
| Annual Compensation | Long-Term Compensation | ||||||||||||||||||||||||||||||||
| Awards | Payouts | ||||||||||||||||||||||||||||||||
| Other | Restricted | Securities | |||||||||||||||||||||||||||||||
| Name and Principal | Annual | Stock | Underlying | LTIP | All Other | ||||||||||||||||||||||||||||
| Position | Year(1) | Salary($) | Bonus($) | Compensation($)(1) | Awards($) | Options/SARs(#) | Payouts($) | Compensation($)(2) | |||||||||||||||||||||||||
Dr. Charles W. Birkett(2)(4) | |||||||||||||||||||||||||||||||||
| Chairman of the Board | 2001 | 400,000 | — | — | — | 13,600 | — | — | |||||||||||||||||||||||||
| of Directors, Chief | 2000 | 325,000 | — | — | — | 1,000 | — | 87 | |||||||||||||||||||||||||
| Executive Officer | 1999 | 325,000 | — | — | — | 76,000 | — | 6,000 | |||||||||||||||||||||||||
Paul Richardson(2) | |||||||||||||||||||||||||||||||||
| Executive Vice President, | |||||||||||||||||||||||||||||||||
| Director, and Chief | |||||||||||||||||||||||||||||||||
| Executive Officer of the | 2001 | 107,903 | 4,283 | — | — | 50,100 | — | — | |||||||||||||||||||||||||
| Company’s Canadian | 2000 | 105,903 | 13,237 | — | — | 1,000 | — | 4,364 | |||||||||||||||||||||||||
| Operating subsidiary | 1999 | 106,060 | 12,438 | — | — | 21,000 | — | 4,940 | |||||||||||||||||||||||||
James F. Mills, Jr.(3) | |||||||||||||||||||||||||||||||||
| Executive Vice President, | 2001 | 42,329 | — | 150,000 | — | — | — | — | |||||||||||||||||||||||||
| Chief Financial Officer, | 2000 | 150,000 | 15,000 | — | — | — | — | — | |||||||||||||||||||||||||
| Secretary, and Director | 1999 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||
| �� | |||||||||||||||||||||||||||||||||
Charles H. Rinne(4) | 2001 | 289,046 | 25,000 | — | — | 100,000 | — | — | |||||||||||||||||||||||||
| President and Chief | 2000 | 250,000 | — | — | — | -0- | — | 87 | |||||||||||||||||||||||||
| Operating Officer | 1999 | 108,173 | — | — | — | 50,000 | — | 242 | |||||||||||||||||||||||||
William R. Council, III(5) | 2001 | 118,269 | 15,000 | 0 | — | 50,000 | — | 26,990 | (6) | ||||||||||||||||||||||||
| Executive Vice President | 2000 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||
| Chief Financial Officer | 1999 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||
| (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 of $6,000 for 1999. The 1999 amount also includes 10% matching contributions of $1,000 for Dr. Birkett under the Company’s 401K 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 $4,364, $4,506 and $4,940 for 2001, 2000 and 1999, respectively. | |
| (3) | Mr. Mills left the Company effective March 31, 2001. Other Annual Compensation | |
| (4) | Effective June 28, 1999, Dr. | |
| (5) | Mr. Council joined the Company on March 5, 2001 as Executive Vice President, Chief Financial Officer | |
| (6) | Includes relocation expenses. |
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'sCompany’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'sCompany’s Compensation Committee. For the year 2000,2001, Dr. Birkett'sBirkett’s base annual salary remained at
$325,000.was $400,000 and Mr. Richardson’s was $107,903. Effective January 1, 2001,2002, Mr. Richardson'sRichardson’s base annual salary was increased to $168,380$174,720 Canadian ($105,903110,000 U.S. at the December 31, 20002001 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.
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On June 28, 1999, the Company entered into an employment agreement with Mr. Rinne (the "Rinne“Rinne Employment Agreement"Agreement”) to serve as President of the Company. The Rinne Employment Agreement has an initial term that ended 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'sCompany’s Compensation Committee. Mr. Rinne’s annual base salary was $300,000 in 2001 and increased to $325,000 effective June 28, 2002.
On January 1, 2000, James F. Mills, Jr.March 5, 2001, the Company entered into an employment agreement with Mr. Council (the “Council Employment Agreement”) to serve as Chief Financial Officer of 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.Company. The Council Employment Agreement has an initial term of the employment agreement for Mr.
Mills expiredthat ended on the first anniversary of the date of execution thereof. Mr.
Mills's employment agreementFebruary 28, 2002 and renews automatically renewed for one-year periods unless 30 days notice wasis 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").employee. The SeparationCouncil Employment 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 amountbase salary of $150,000 less statutory withholdings and
deductions, plus a bonus inwhich is subject to change by the amount of $15,000. The Separation Agreement also
provides thatCompany’s Compensation Committee. Mr. Mills will be entitledCouncil’s annual base salary was increased to COBRA continuation benefits provided
under the Company's group health plan beginning on$175,000 effective 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.5, 2002.
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"“constructive discharge” (e.g., a reduction in compensation or a material change in responsibilities) or a "change“change in control"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 9
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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, Mr. Rinne and Mr. RinneCouncil shall be entitled to receive a lump sum severance payment in an amount equal to 24 months of hissuch employee’s 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.
OPTION GRANTS
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On January 1, 2000, James F. Mills, Jr. entered into an employment agreement with the Company as its Chief Executive Officer. Mr. Mills’s 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. 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 $15,000. The Separation Agreement also provides that Mr. Mills will be entitled to COBRA continuation benefits provided under the Company’s group health plan beginning on March 31, 2001. Each of the Company and Mr. Mills also agreed in the Separation Agreement to waive and release any and all claims and liabilities, whether or not presently known to exist, that either party may have against the other party relating to Mr. Mills’s employment with the Company.
Option Grants
The table below provides information on grants of stock options pursuant to the Key Personnel Plan and the Director Plan during the fiscal year ended December 31, 2000,2001, to the named executive officers reflected in the Summary Compensation Table. The Company grants no stock appreciation rights.
OPTIONS/
Options/SAR GRANTS IN LAST FISCAL YEAR
Grants in Last Fiscal Year
| Potential | ||||||||||||||||||||||||||||
| Realizable | ||||||||||||||||||||||||||||
| Number of | Percent of | Value at Assumed | ||||||||||||||||||||||||||
| Securities | Total Options/ | Exercise | Market | Annual Rate of | ||||||||||||||||||||||||
| Underlying | SARs Granted | of Base | Price on | Stock Price | ||||||||||||||||||||||||
| Options | to Employees | Price | Date of | Expiration | Appreciation for | |||||||||||||||||||||||
| Name | granted | in Fiscal Year | ($/Share) | Grant | Date | Options Term(1) | ||||||||||||||||||||||
| 5% | 10% | |||||||||||||||||||||||||||
| Dr. Charles W. Birkett | 13,600 | (2) | 3.2 | 0.35 | 0.35 | 4/9/11 | 2,994 | 7,586 | ||||||||||||||||||||
| Charles H. Rinne | 100,000 | 23.7 | 0.35 | 0.35 | 4/9/11 | 22,011 | 55,781 | |||||||||||||||||||||
| Paul Richardson | 50,100 | (2) | 11.9 | 0.35 | 0.35 | 4/9/11 | 11,028 | 27,976 | ||||||||||||||||||||
| William R. Council, III | 50,000 | 11.9 | 0.35 | 0.35 | 4/9/11 | 11,006 | 27,890 | |||||||||||||||||||||
James F. Mills, Jr.(3) | -0- | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||
| (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 | |
| (2) | These options were granted pursuant to | |
| (3) | Mr. Mills |
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Option Exercises 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.
(3) Mr. Mills left the Company effective March 31, 2001.
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OPTION EXERCISES AND VALUESValues
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- | 286,200 | 9,400 | $ | 140 | -0- | |||||||||||||||||
| Paul Richardson | -0- | -0- | 198,367 | 33,733 | -0- | -0- | ||||||||||||||||||
| Charles H. Rinne | -0- | -0- | 83,333 | 66,667 | -0- | -0- | ||||||||||||||||||
| William R. Council, III | -0- | -0- | 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 $0.29, the per-share market value of the underlying Common Stock as of December 31, 2001. 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) | Mr. Mills |
Compensation Committee Report
Decisions on compensation of the Company'sCompany’s senior executives, except for decisions related to awards under the Company'sCompany’s Director Plan, are made by the Compensation Committee of the Company'sCompany’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'sCompany’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'NeilO’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'sCompany’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'sCompany’s strategic business goals and its compensation goals.
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The Company'sCompany’s executive compensation program is consistent with the Company'sCompany’s overall philosophy for all management levels. The Company believes that the more employees are aligned with the Company'sCompany’s strategic objectives, as stated below, the greater the Company'sCompany’s success on both a short-term and long-term basis.
The Company'sCompany’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
| • | 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'sCompany’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.
-
| • | 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'sCompany’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'sCompany’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'sCompany’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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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'sexecutive’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.
Mr. Rinne, Mr. Richardson and Mr. Council were awarded bonuses of $25,000, $4,283 and $15,000 for fiscal 2001. With the exception of Mr. Richardson, no bonuses were awarded to the Company'sCompany’s named executives with respect to 2000 1999 and 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 1998, respectively.
1999.
Long-Term Incentives
The Company'sCompany’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'sexecutive’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'sCompany’s stock price increases. The number of shares covered by each grant is intended to reflect the executive'sexecutive’s level of responsibility and past and anticipated contributions to the Company.
In 2000,2001, there were nooptions to purchase 421,500 shares awarded grants under the Key Personnel Plan 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'scorporation’s chief executive officer relative to such corporation'scorporation’s performance.
Dr. Birkett, the Company'sCompany’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'sCommittee’s general approach in setting Dr. Birkett'sBirkett’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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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 20002001 or 2002 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'SCOMPANY’S BOARD OF DIRECTORS, WHOSE MEMBERS ARE AS FOLLOWS: EDWARD G. NELSON AND WILLIAM C. O'NEIL,O’NEIL, JR.
AUDIT COMMITTEE REPORT AND DISCLOSURES
AUDIT COMMITTEE REPORT
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'sCompany’s outside auditors the results of the year-end audit of the Company, including the audit report and audited financial statements.
All
The Board of Directors in its business judgment, has determined that 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'sNASD’s listing standards. The Board has adopted a written charter of the Audit Committee, whichCommittee.
As set forth in the charter, management of the Company is includedresponsible for the preparation, presentation and integrity of the Company’s controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for auditing the Company’s financial statements and expressing an opinion as Exhibit B to this Proxy Statement.their conformity and generally accepted accounting principles. In connection with its review of the Company'sCompany’s audited financial statements for the fiscal year ended December 31, 2000,2001, the Audit Committee reviewed and discussed the audited financial statements with management, and discussed with Arthur Andersen LLP (“Andersen”), the Company'sCompany’s independent auditors, the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU 380)., as currently in effect. 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), as currently in effect 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.Company, but the Audit Committee will continue to periodically review the non-audit services rendered by Andersen.
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The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting and are not experts in the fields of accounting or auditing, including in respect of auditor independence. Members of the Audit Committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal control and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that the Company’s auditors are in fact “independent.”
Based on the review and discussions referred to above, the Audit Committee recommended to the Company'sCompany’s Board of Directors that the audited financial statements be included in the Company'sCompany’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000,2001, for filing with the Securities and Exchange Commission.
J. BRANSFORD WALLACE
WILLIAM C. O'NEIL,O’NEIL, JR.
EDWARD G. NELSON
The Members of the Audit Committee
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SECTION
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company'sCompany’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's5’s were required for such persons, the Company believes that, during the 20002001 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'sCompany’s Compensation Committee currently consists of directors Nelson and O'Neil.O’Neil. Mr. Joseph Furlong served on this committee from April 2001 though March 2002, when he resigned from the Company’s Board. No interlocking relationship exists between the members of the Company'sCompany’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.
COUNSEL CORPORATION RELATIONSHIP
Advocat was organized in 1994 with the transfer of the long-term care business of Counsel Corporation (“Counsel”) and Diversicare Inc. ("Diversicare"(“Diversicare”) to the Company. In an initial public offering on May 10, 1994 (the "Offering"“Offering”), 100% of the Company'sCompany’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"“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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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. ElevenEight facilities owned by Counsel are nowcontinue to be leased by the Company under threetwo separate leases as follows:
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 $1,000,000 Canadian (approximately $668,000$629,000 U.S.) per year (at the December 31, 19992001 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 20002001 were approximately $1.3$1.2 million.
Pursuant to the Transfer Agreements, the Company received the leases and all leasehold rights and obligations thereunder previously held by Counsel with respect to 19 nursing homes and two assisted living facilities leased from Omega Healthcare Investors, Inc. ("Omega"(“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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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"(“DGPI”), the corporate General partner of Texas Diversicare Limited Partnership, a Texas limited partnership ("TDLP"(“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 $7.5 million, which mortgage calls for monthly principal and interest payments of $73,500. The mortgage balance at December 31, 2000its maturity date of August 30, 2001 was approximately $6.6$6.4 million.
The Company has provided a cash flow guarantee to TDLP in a Partnership Services Agreement dated November 2, 1990 (the "TDLP“TDLP Services Agreement"Agreement”), obligating the Company to provide monthly, interest-free loans to TDLP (the "Cash“Cash Flow Loans"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 17
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under the cash flow guarantee terminatesterminated on August 31, 2001. On August 30, 2001, and any remaining
amounts outstanding under the Cash Flow Loans will be forgiven on that date. AsTDLP transferred all of December 31, 2000, the outstanding amount of Cash Flow Loans was
approximately $5.8 million. In addition, approximately $4.7 million of
management fees dueits assets to the Company were unpaid at December 31, 2000. Reflecting
paymentin exchange for the release of these management fees would result in a corresponding increase in the Cash Flow Loans. Over the life of TDLP through December 31, 2000,Mortgage. Thus, the Company and its predecessors have earned additional management fees in the amount of
approximately $4.7 million and have recognized principal amounts under the
mortgage in the amount of $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 a cumulative 32.6% of the TDLP's partnership units for approximately
$2,057,000 in cash, plus assumption of pro rata portions of the Cash Flow Loans
of $1,284,000 and the mortgage receivable of approximately $2,248,000.now owns these six nursing homes.
Diversicare Canada Management Services Co., Inc., an indirect, wholly-owned subsidiary of the Company ("DCMS"(“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“Guaranteed Return Loan Agreement"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 $595,000$393,000 at December 31, 2000.2001.
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Under the Guaranteed Return Loan Agreement, DCMS is entitled to receive a management incentive fee through the Guarantee Period based on Diversicare VI'sVI’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'sDCMS’s incentive management fees payable under the Guaranteed Return Loan Agreement after payment to DCMS of $107,000 Canadian (approximately $71,000$67,000 U.S.) per year. The Guaranteed Return Loan Agreement generated revenues to DCMS for the year ended December 31, 20002001 of approximately $560,000,$554,000, 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'sDCMS’s pre-tax profits.
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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 $668,000$629,000 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.
CERTAIN TRANSACTIONS
Mr. Wallace, a director of the Company is Chairman Emeritus of Willis Corporation ("Willis"(“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'sCompany’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"(“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. Dr. Birkett and Mr. Richardson each own an approximate 4% interest in Concorde. During 2000,2001, The Concorde paid $62,000$80,000 (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. Guy Pierce and
A. Steve Pierce are no longer in the employ of the Company.
For a discussion of the relationships between the Company and its other affiliates, directors, officers, and principal stockholders, please see "Stock“Stock Ownership of Directors, Executive Officers and Principal Holders," "Executive” “Executive Officers," "Proposal” “Proposal 1: Election of Directors," "Compensation” “Compensation Committee Interlocks and Insider Participation"Participation” and "Counsel“Counsel Corporation Relationship."
”
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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, 2000.2001. 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.
COMPARISON OF DIRECTORS5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ADVOCAT INC., THE S & P SMALLCAP 600 INDEX
AND A PEER GROUP
| Cumulative Total Return | ||||||||||||||||||||||||
| 12/96 | 12/97 | 12/98 | 12/99 | 12/00 | 12/01 | |||||||||||||||||||
| ADVOCAT INC | 100.00 | 117.24 | 75.86 | 2.14 | 14.62 | 4.00 | ||||||||||||||||||
| S & P SMALLCAP 600 | 100.00 | 125.58 | 129.01 | 145.01 | 162.13 | 195.17 | ||||||||||||||||||
| PEER GROUP | 100.00 | 119.09 | 55.45 | 22.26 | 29.97 | 44.63 | ||||||||||||||||||
*$100 invested on 12/31/96 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.
Copyright © 2002, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. 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 this Annual Meeting of Stockholders; the term of the Class 2 directors
will expire at the 2002 Annual Meeting of Stockholders; and the term of the
Class 3 directors will expire at the 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 1 directors to serve for a three-year term until their
successors are duly elected and qualified. 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 1 DIRECTORS
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'sCompany’s Independent Public Accountants for the fiscal year ended December 31, 2000. It is expected that Arthur Andersen LLP
will be appointed to serve as the Company's auditor for the current fiscal year.2001. 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.
Given the recent events affecting Andersen, the Company’s Board of Directors and its Audit Committee are carefully evaluating the Company’s options for the appointment of independent auditors. As of the date of this Proxy Statement, the Board had not yet completed the process of selecting an independent auditor for the fiscal year ended December 31, 2002.
In addition to performing the audit of the Company'sCompany’s financial statements, Arthur Andersen LLP provided various other services during 2000.2001. The aggregate fees billed for 20002001 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
| Audit and review of the Company’s 2001 quarterly and annual financial statements | $ | 273,000 | ||
| Financial information systems design and implementation | - 0 - | |||
| All other services | $ | 174,000 |
All other services relate to tax compliance and planning, the IRS audit of the Company’s 1998 return and the audit of the financial statements of the Company'sCompany’s savings plan and trust.
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DEADLINE FOR SUBMITTING STOCKHOLDERS PROPOSALS
Any proposal by a stockholder for consideration at the 2002 Annual Meeting of Stockholders must be received by the Company'sCompany’s principal offices at 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067 no later than January 24,December 31, 2002, if any such proposal is to be eligible for inclusion in the Company'sCompany’s proxy materials for its 20022003 annual meeting. Stockholders who intend to present a proposal at the 20022003 Annual Meeting without inclusion of such proposal in the Company'sCompany’s proxy materials are required to provide such proposals to the Company no later than March 23, 2002.
30, 2003.
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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, 2000,2001, including financial statements and financial statement schedules, as filed with the Securities and Exchange Commission ("SEC"(“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.
Additionally, a copy is retrievable free of charge through the EDGAR system maintained by the SEC. The Company'sCompany’s SEC filings, including the Annual Report on Form 10-K, can be accessed through the Company'sCompany’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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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
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| PROXY | ADVOCAT INC. | PROXY |
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.
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- - 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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40
- - 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, JUNE 21, 2001
30, 2002
The undersigned hereby appoints Dr. Charles W. Birkett and Mr. William R.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 June 21, 2001,May 30, 2002, at 9:00 a.m. Central Daylight Time, at 1800 AmSouth Center, 315 Deaderick Street, Nashville, Tennessee, and at any adjournments or postponements thereof, in accordance with the following instructions:
(1) Election of Class 1 Directors:
| (1) | Election of Class 2 Director: |
Wallace E. Olson
| oFORthe nominee listed above | oWITHHOLD AUTHORITYto vote for the above listed nominee |
| (2) | In their discretion, or such other matters as may properly come before the |
oFOR [ ] DISCRETION oAGAINST [ ] DISCRETION oABSTAIN
(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
(Continued on reverse side)
(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, 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: | , | |||||
| Dated: | , | |||||
| 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. | ||||||