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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement | ||||||||
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Five Star Senior Living Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Table of ContentsFive Star Senior Living Inc.
Notice of 20182020 Annual Meeting
of Stockholders and Proxy Statement
Thursday, May 17, 2018Tuesday, June 9, 2020 at 9:30 a.m., Eastern time
Two Newton Place, 255 Washington Street, Suite 100, Newton, Massachusetts 02458
LETTER TO OUR STOCKHOLDERS FROM YOUR BOARD OF DIRECTORS
Dear Fellow Stockholders:
Please join us for our annual meeting on Tuesday, June 9, 2020. The business to be conducted at the meeting is explained in the attached Notice of Meeting and Proxy Statement. We believe furnishing these materials over the internet expedites stockholders' receipt of these important materials while lowering cost and reducing the environmental impact of our annual meeting.
Please be assured that our Board takes seriously our role in the oversight of our Company's long term business strategy, which is the best path to long term value creation for you, our stockholders. 2019 was a year of transition for our Company. Critical components of this transition include:
Since we began writing this letter to you, 2019 has been overshadowed by the COVID-19 pandemic and market tumult. With events and circumstances in constant flux, any commentary we give here may be outdated by the time you have the opportunity to read this letter. Instead, we simply want to assure you that we are vigilantly monitoring changing events and circumstances with an eye to managing for the global good, mitigating their negative impact on our business and best positioning us for stability and recovery when this crisis passes. As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held virtually solely by means of remote communication or via a live webcast. If we take this step, we will announce the decision to do so in advance, and we will provide details on how to participate in a press release and on our website atwww.fivestarseniorliving.com.
We thank you for your investment in Five Star Senior Living Inc.
It is our pleasure to invite you to join our Board of Directors and executive officers at Five Star Senior Living Inc.'s 2018 Annual Meeting of Stockholders in Newton, Massachusetts. The enclosed Notice of 2018 Annual Meeting of Stockholders and Proxy Statement provides you with information about our Company and the matters to be voted on at the 2018 Annual Meeting of Stockholders.
We are committed to effectively communicating with our stockholders and explaining the matters to be addressed at our 2018 Annual Meeting of Stockholders. This Proxy Statement includes a Question and Answer section with information that we believe may be useful to our stockholders.
Your support is important to us and to our Company. I encourage you to use telephone or internet methods, or sign and return a proxy card/voting instruction form, to authorize your proxy prior to the meeting so that your shares will be represented and voted at the meeting.
Thank you for being a stockholder and for the confidence you put in this Board to oversee your continued investmentinterests in our Company.business.
March 22, 2018April 15, 2020
| | Jennifer B. Clark Donna D. Fraiche Bruce M. Gans, M.D. Barbara D. Gilmore | | Gerard M. Martin Adam D. Portnoy Michael E. Wagner, M.D. |
NOTICE OF 20182020 ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 17, 2018Tuesday, June 9, 2020
9:30 a.m., Eastern timeTime
Two Newton Place, 255 Washington Street, Suite 100
Newton, Massachusetts 0245802458*
ITEMS OF BUSINESS
RECORD DATE
The BoardYou can vote if you were a stockholder of Directors set February 23, 2018 as the record date for the meeting. This means that owners of record of the common shares of the Company as of the close of business on that date are entitled:March 16, 2020.
PROXY VOTINGProxy Voting
Stockholders as of the close of business on the record date are invited to attend the 20182020 Annual Meeting. All stockholders are encouraged toPlease vote in advance of the 20182020 Annual Meeting by using one of the methods described in the accompanying Proxy Statement.Statement even if you plan to attend the 2020 Annual Meeting.
March 22, 2018April 15, 2020
Newton, Massachusetts
By Order of the Board of Directors,
Jennifer B. Clark
Secretary
* As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held virtually solely by means of remote communication or via a live webcast. If we take this step, we will announce the decision to do so in advance, and we will provide details on how to participate in a press release and on our website atwww.fivestarseniorliving.com.
Please promptly sign and return the proxy card or voting instruction form or use telephone or internet methods to authorize a proxy in advance of the 20182020 Annual Meeting. See the "Voting"Proxy Materials and Voting Information" section on page 235 for information about how to authorize a proxy by telephone or internet or how to attend the 20182020 Annual Meeting and vote your shares in person.
FIVE STAR SENIOR LIVING INC.Table of Contents
PLEASE VOTE | 1 | |||
PROXY STATEMENT | 2 | |||
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS | 3 | |||
Board Composition | 3 | |||
Key Responsibilities of Our Board | 4 | |||
Our Board's Role in Oversight of Risk Management | 4 | |||
Director Independence | 5 | |||
Executive Sessions of Independent Directors | 6 | |||
Board Leadership Structure | 6 | |||
Lead Independent Director | 7 | |||
Code of Business Conduct and Ethics and Committee Governance | 7 | |||
Prohibition on Hedging | 8 | |||
Nominations for Directors | 8 | |||
Communications with Our Board | 8 | |||
Sustainability | 8 | |||
Stockholder Nominations and Other Proposals | 9 | |||
PROPOSAL 1: ELECTION OF DIRECTORS | 10 | |||
Directors and Director Nominees to be Elected at the 2020 Annual Meeting | 11 | |||
Continuing Directors | 12 | |||
Executive Officers | 15 | |||
BOARD COMMITTEES | 16 | |||
Audit Committee | 16 | |||
Compensation Committee | 16 | |||
Nominating and Governance Committee | 17 | |||
Quality of Care Committee | 17 | |||
BOARD MEETINGS | 18 | |||
DIRECTOR COMPENSATION | 18 | |||
Compensation of Directors | 18 | |||
Director Share Ownership Guidelines | 18 | |||
Fiscal Year 2019 Director Compensation | 19 | |||
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY | 20 | |||
Directors and Executive Officers | 20 | |||
Principal Stockholders | 21 | |||
EXECUTIVE COMPENSATION | 22 | |||
Summary Compensation Table | 22 | |||
2019 Outstanding Equity Awards at Fiscal Year End | 23 | |||
Potential Payments upon Termination or Change in Control | 24 | |||
PROPOSAL 2: APPROVAL OF THE AMENDED AND RESTATED 2014 EQUITY COMPENSATION PLAN | 25 | |||
PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION | 31 | |||
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF RSM US LLP AS INDEPENDENT AUDITORS | 32 | |||
Audit Fees and All Other Fees | 32 | |||
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors | 33 | |||
Other Information | 33 | |||
REPORT OF OUR AUDIT COMMITTEE | 34 | |||
FREQUENTLY ASKED QUESTIONS | 35 | |||
RELATED PERSON TRANSACTIONS | 40 | |||
OTHER INFORMATION | 48 | |||
ANNEX A—AMENDED AND RESTATED PLAN | A-1 |
VOTING INFORMATIONTable of Contents
WE WANT TO HEAR FROM YOU – PLEASE VOTE TODAY
YourIt is very important that you vote is important.
ELIGIBILITY TO VOTE
You canto play a part in the future of our Company. The Nasdaq Stock Market LLC (the "Nasdaq") rules do not allow a broker, bank or other nominee who holds shares on your behalf to vote if you were a stockholder of record at the close of business on February 23, 2018.nondiscretionary matters without your instructions.
PROPOSALS THAT REQUIRE YOUR VOTE
PROPOSAL | MORE INFORMATION | BOARD RECOMMENDATION | VOTES REQUIRED FOR APPROVAL | |||||
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1 | Election of Directors | Page | ✓FOR | Plurality of all votes cast | ||||
2 | Approval of the Amended and Restated 2014 Equity Compensation Plan | Page 25 | ✓ FOR | Majority of all votes cast | ||||
3 | Advisory vote to approve executive compensation* | Page 31 | ✓ FOR | Majority of all votes cast | ||||
4 | Ratification of independent auditors* | Page | ✓FOR | Majority of all votes cast | ||||
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You can vote in advance in one of three ways:
via the internet | Visitwww.proxyvote.com and enter your | |
by phone | Call 1-800-690-6903 if you are a stockholder of record and 1-800-454-8683 if you are a beneficial owner before 11:59 p.m., Eastern time, on . You will need the | |
by mail | Sign, date and return your proxy card if you are a stockholder of record or voting instruction form if you are a beneficial owner to authorize a proxyBY MAIL. |
If the meeting is postponed or adjourned, these times will be extended to 11:59 p.m., Eastern time, on the day before the reconvened meeting.
PLEASE VISIT:www.proxyvote.com
Important Note About Meeting Admission Requirements: If you plan to attend the meeting in person, see the answer toquestion 14 beginning on page 9 of "Questions and Answers" for important details on admission requirements.
2 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
SUMMARY OF PROPOSALS
This summary highlights matters for consideration by stockholders at our 2018 Annual Meeting. You should read this entire Proxy Statement carefully before voting. Page references are supplied to help you find further information in this Proxy Statement.
BOARD NOMINEES (page 14)
The following two Directors are up for election to our Company's Board of Directors.
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RATIFICATION OF THE APPOINTMENT OF RSM US LLP AS INDEPENDENT AUDITORS (page 53)
Stockholders are asked to ratify the appointment of RSM US LLP as independent auditors of Five Star Senior Living Inc. for the Company's fiscal year ending December 31, 2018. The Company's Audit Committee evaluates the performance of the Company's independent auditors and determines whether to reengage the current independent auditors or consider other audit firms. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors' technical expertise and knowledge of the Company's operations and industry, the auditors' independence, legal proceedings involving the auditors, the results of PCAOB inspections and peer quality reviews of the auditors and the auditors' reputation in the marketplace. Based on its consideration of these matters, the Audit Committee has appointed RSM US LLP to serve as the Company's independent auditors for the fiscal year ending December 31, 2018.
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 31
400 CENTRE STREETNEWTON, MASSACHUSETTS 02458April 15, 2020
March 22, 2018
TheOur Board of Directors (the(our "Board") is furnishing this Proxy Statement to solicit proxies to be voted at the 2018 Annual Meeting of Stockholders (the "2018 Annual Meeting") of Five Star Senior Living Inc., a Maryland corporation (together with its direct or indirect subsidiaries, the(the "Company," "we," "us" or "our"). The is furnishing this proxy statement (the "Proxy Statement") and accompanying proxy card (or voting instruction form) to you in connection with the solicitation of proxies by our Board for our 2020 annual meeting of stockholders. Our annual meeting will be held at Two Newton Place, 255 Washington Street, Suite 100, Newton, Massachusetts 02458* on Thursday, May 17, 2018,Tuesday, June 9, 2020, at 9:30 a.m., Eastern time.
The mailing address of the Company's principal executive offices is 400 Centre Street, Newton, Massachusetts 02458. The Company commenced mailingtime, subject to its stockholders a Notice Regarding the Availability of Proxy Materials containing instructions on how to access the Company's Proxy Statement and its 2017 Annual Report on Form 10-K on or about March 22, 2018.
All properly executed written proxies, and all properly completed proxies submitted by telephone or internet, that are delivered pursuant to this solicitation will be voted at the 2018 Annual Meeting in accordance with the directions given in the proxy, unless the proxy is revoked prior to it being exercised at the meeting. These proxies also may be voted at any postponements or adjournments of the meeting.thereof (the "2020 Annual Meeting"). We are first making these proxy materials available to stockholders on or about April 15, 2020.
Only owners of record of shares of common stock par value $0.01 per share, of the Company ("Common Shares") as of the close of business on February 23, 2018,March 16, 2020, the record date for the meeting (the "Record Date"),2020 Annual Meeting, are entitled to notice of, and to vote at, the meeting and at any postponements or adjournments of the meeting. Holders of Common Shares are entitled to one vote for each Common Share held on the Record Date.record date. On February 23, 2018,March 16, 2020, there were approximately 50,524,42431,543,711 Common Shares issued and outstanding.
The mailing address of our principal executive office is 400 Centre Street, Newton, Massachusetts 02458.
* As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held virtually solely by means of remote communication or via a live webcast. If we take this step, we will announce the decision to do so in advance, and we will provide details on how to participate in a press release and on our website atwww.fivestarseniorliving.com.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 20182020 ANNUAL MEETING TO BE HELD ON THURSDAY, MAY 17, 2018.TUESDAY, JUNE 9, 2020.
The Notice of 20182020 Annual Meeting, Proxy Statement and Annual Report to Stockholders for the year ended December 31, 20172019 are available atwww.proxyvote.com.
4 2 FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement
QUESTIONSTable of Contents
CORPORATE GOVERNANCE PRINCIPLES AND ANSWERSBOARD MATTERS
Proxy Materials and Voting Information
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The proxy materials forWe are currently governed by a seven member Board of Directors. Ensuring our Board is comprised of Directors who bring diverse viewpoints and perspectives, exhibit a variety of skills, professional experience and backgrounds and effectively represent the 2018 Annual Meeting include the Notice Regarding the Availabilitylong term interests of Proxy Materials, Notice of 2018 Annual Meeting, this Proxy Statement and the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the "Annual Report" and, together with the other materials, the "proxy materials"). If you request a paper copy of these materials, the proxy materials will also include a proxy card or voting instruction form.
A proxy statementstockholders is a document that the Securitiestop priority of our Board and Exchange Commission ("SEC") regulations require the Company to give you when it asks you to return a proxy designating individuals to vote on your behalf. A proxy is your legal designation of another person to vote the shares you own. That other person is called your proxy. We are asking you to designate the following three persons as your proxies for the 2018 Annual Meeting: Jennifer B. Clark, Secretary; Bruce J. Mackey Jr., Presidentour Nominating and Chief Executive Officer; and Adam D. Portnoy, Managing Director.Governance Committee.
OUR BOARD BELIEVES THAT ITS MEMBERS SHOULD:
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have business acumen, practical wisdom, ability to exercise sound judgment in a congenial manner and be able to make independent analytical inquiries; • have a strong record of achievements; • have knowledge of the | • have diverse perspectives, backgrounds and experiences, including professional background, gender, ethnicity and skills; and • be committed to serving on our Board over a |
If your shares are registered directlyIn addition, our Board has determined that our Board, as a whole, should strive to have the right mix of characteristics and skills necessary to effectively perform its oversight responsibilities. Our Board believes that Directors with one or more of the following professional skills or experiences can assist in your name with the Company's registrar and transfer agent, Equiniti Trust Company (formerly known as Wells Fargo Shareowner Services), you are considered a stockholder of record of those shares. If you are a stockholder of record, you should receive only one notice or proxy card for all the Common Shares you hold in certificate form and in book entry form.meeting this goal:
If your shares are held in an account you own at a bank or brokerage or you hold shares through another nominee, you are considered the "beneficial owner" of those shares. If you are a beneficial owner, you will receive voting instruction information from the bank, broker or other nominee through which you own your Common Shares.
If you hold some shares of record and some shares beneficially, you should receive a notice or proxy card for all the Common Shares you hold of record and a separate voting instruction form for the shares from the bank, broker or other nominee through which you own Common Shares.
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risk oversight/management expertise; • accounting and finance, including a high level of financial literacy and understanding of the impact of financial market trends on the healthcare, senior living and commercial real estate industries; • operating business and/or transactional experience; • management/leadership experience; • knowledge of the Company's historical business activities; | • familiarity with healthcare regulation and trends; • experience at a strategic or policymaking level in a business, government, non-profit or academic organization of high standing; • service on other public company boards and committees; • qualifying as a Managing Director in accordance with the requirements of our governing documents; and • qualifying as an Independent Director in accordance with the requirements of the Nasdaq, the Securities and Exchange Commission ("SEC") and our governing documents. |
By Written Proxy. All stockholdersOur Nominating and Governance Committee and our Board consider the qualifications, characteristics and skills of record can submit voting instructions by written proxy card. If you are a stockholder of recordDirectors and receive a Notice Regarding the Availability of Proxy Materials, you may request a written proxy card by following the instructions includedDirector candidates individually and in the notice. If you are a beneficial owner, you may request a written proxy card or a voting instruction form from your bank, broker or other nominee. Proxies submitted by mail must be received by 11:59 p.m., Eastern time, on May 16, 2018 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the datebroader context of the reconvened meeting.
By Telephone or Internet. All stockholders of record also can authorize a proxy to vote their shares by touchtone telephone by calling 1-800-690-6903, or through the internet atwww.proxyvote.com, using the procedures and instructions described in your Notice Regarding the Availability of Proxy Materials or proxy card. Beneficial owners may authorize a proxy by telephone or internet if their bank, broker or otherour Board's overall composition when evaluating potential nominees for election as Director.
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 53
nominee makes those methods available, in which case the bank, broker or nominee will include the instructions with the proxy voting materials. To authorize a proxy by telephone or internet, you will need the 16 digit control number provided on your Notice Regarding the AvailabilityTable of Proxy Materials, proxy card or voting instruction form. The telephone and internet proxy authorization procedures are designed to authenticate stockholder identities, to allow stockholders to vote their shares and to confirm that their instructions have been recorded properly. Proxies submitted by telephone or through the internet must be received by 11:59 p.m., Eastern time, on May 16, 2018 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the date of the reconvened meeting.Contents
In Person. All stockholders of record may vote in person at the meeting. Beneficial owners may vote in person at the meeting if they have a legal proxy, as described in the response toquestion 15.
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Holders of record of Common Shares as of the close of business on February 23, 2018, the Record Date, may vote at the meeting. Holders of Common Shares are entitled to one vote for each Common Share held on the Record Date.
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Oversight of Strategy | Oversight of Risk | Succession Planning | |||||||||||||||
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Business strategy is a key focus of our Board ✓ Company management is charged with executing business strategy and provides regular performance updates to our Board. | |||||||||||||||||
Our Board oversees risk management. ✓ Board committees, which meet regularly and report to the ✓ Company management is charged with managing risk, through robust internal processes and effective internal controls. |
Our Nominating and Governance Committee makes an annual report to our Board ✓ In the event of a |
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If you returnOur Board is elected by stockholders to oversee our business and long term strategy. As part of fulfilling its responsibilities, our Board oversees the safeguarding of our assets, the maintenance of appropriate financial and other internal controls and our compliance with applicable laws and regulations. Inherent in these responsibilities is our Board's understanding and oversight of the various risks we face. Our Board considers that risks should not be viewed in isolation and should be considered in virtually every business decision and as part of our business strategy.
Our Board oversees risk as part of its general oversight of our Company. Oversight of risk is addressed as part of various Board and Board committee activities and through regular and special Board and Board committee meetings. Our day to day business is conducted by management, and management is responsible for incorporating risk management in its activities. Our Director of Internal Audit reports to our Audit Committee and provides us advice and assistance with our risk management function.
In discharging their oversight responsibilities, our Board and Board committees review regularly a signed proxy card or authorize a proxywide range of reports provided to them by internet or telephonemanagement, internal audit and do not specify a choice for a matter, you will be instructing your proxy to vote in the manner recommended by the Board on that matter:service providers, including:
6 4 FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement
Our Board and Board committees discuss these matters among themselves and with our management, our Director of Internal Audit, legal counsel, our independent auditors and other professionals, as appropriate.
Our Audit Committee takes a leading role in helping our Board fulfill its responsibilities for oversight of our financial reporting, internal audit function, risk management and our compliance with legal and regulatory requirements. Our Board and Audit Committee review periodic reports from our independent auditors regarding potential risks, including risks related to our internal control over financial reporting. Our Audit Committee also reviews, approves and oversees an internal audit plan developed by our Director of Internal Audit with the goal of helping us systematically evaluate the effectiveness of its risk management, control and governance processes on an annual basis. Our Audit Committee considers risks related to cybersecurity and receives regular reports from management regarding cybersecurity risks and countermeasures being undertaken or considered by us, including updates on the internal and external cybersecurity landscape and relevant technical developments. Our Audit Committee meets at least quarterly and reports its findings to our Board. Our Audit Committee also meets periodically with our Director of Internal Audit to review the results of our internal audits, and directs or recommends to our Board actions or changes it determines appropriate to enhance or improve the effectiveness of our risk management.
Our Quality of Care Committee reviews management reports on our clinical operations and directs or recommends to management and our Board actions or changes it determines appropriate to improve our clinical operations and to reduce risks arising from those operations.
Our Compensation Committee whose duties are detailed in its charter, among other duties, evaluates the performance of our Director of Internal Audit and the performance of The RMR Group LLC ("RMR LLC") under our business management agreements. Also, our Compensation Committee and our Board consider that we have a share award program that requires share awards to executive officers to vest over a period of years. We believe that the use of share awards vesting over time rather than stock options mitigates the incentives for our management to undertake undue risks and encourages management to make longer term and appropriately risk balanced decisions.
It is not possible to identify all of the risks that may affect us or to develop processes and controls to eliminate all risks and their possible effects, and processes and controls employed to address risks may be limited in their effectiveness. Moreover, it is necessary for us to bear certain risks to achieve our objectives. As a result of the foregoing and other factors, our ability to manage risk is subject to substantial limitations.
To learn more about the risks we face, you can review the matters discussed in Part I, "Item 1A. Risk Factors" and "Warning Concerning Forward Looking Statements" in our Annual Report for the year ended December 31, 2019 (the "Annual Report"). The risks described in the Annual Report are not the only risks we face. Additional risks and uncertainties not currently known or that may currently be deemed to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.
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If you are a beneficial owner and do not provide voting instructions to your bank, broker or other nominee,Under the following applies:
Non-Discretionary Items. The election of Directors is a non-discretionary item and may not be voted on by brokers, banks or other nominees who have not received specific voting instructions from beneficial owners. The resultcorporate governance listing standards of the inabilityNasdaq, to be considered independent:
Our Board is referred tocomprised of seven Directors, including five Independent Directors and two Managing Directors. Under our Bylaws, so long as a broker non-vote.
Discretionary Items. The ratificationthe number of the appointment of RSM US LLP as independent auditorsdirectors is a discretionary item. Generally, banks, brokers and other nominees that do not receive voting instructions from beneficial owners may vote on this proposal in their discretion.
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A quorum of stockholders is required for stockholders to take actionless than five, at the 2018 Annual Meeting. The presence, in person or by proxy, of stockholders entitled to cast one-third of all the votes entitled to be cast at the 2018 Annual Meeting constitutes a quorum.
Abstentions and broker non-votes are included in determining whether a quorum is present. Abstentions are not votes cast and, therefore, will not be included in vote totals and will have no effect on the outcome of any Item to be voted on at the 2018 Annual Meeting. A proxy marked "WITHHOLD" with respect to Item 1 will have the same effect as an abstention. Broker non-votes are not votes cast and, therefore, will not be included in vote totals and will have no effect on the outcome of Item 1. There can be no broker non-votes on Item 2 as it is a matter on which, if you hold your shares in street name and do not provide voting instructions to the broker, bank or other nominee that holds your shares, the nominee has discretionary authority to vote on your behalf.
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Stockholders have the right to revoke a proxy at any time before it is voted at the 2018 Annual Meeting, subject to the proxy voting deadlines described above. Stockholders may revoke a proxy by authorizing a proxy again on a later date by internet or by telephone (only the last internet or telephone proxy submitted prior to the meeting will be counted) or by signing and returning a later dated proxy card or by attending the meeting and voting in person. If you are a beneficial owner, see the response toquestion 15.
A stockholder's attendance at the 2018 Annual Meeting will not revoke that stockholder's proxy unless that stockholder votes again at the meeting or sends an original written statement to the Secretary of the Company revoking the prior proxy. An original written notice of revocation or subsequent proxy should be delivered to Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, Attention: Secretary, or hand delivered to the Secretary before the taking of the vote at the 2018 Annual Meeting.
Beneficial owners who wish to change their votes should contact the organization that holds their shares.least one director
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 75
must meet the qualifications of a Managing Director and, so long as the number of directors is five or greater, at least two directors must meet the qualifications of a Managing Director. Our Bylaws require that a majority of our Board be Independent Directors. Under our Bylaws, Independent Directors are Directors who are not employees of the Company or RMR LLC, are not involved in the Company's day to day activities and are persons who qualify as independent under the applicable rules of the Nasdaq and the SEC. As set forth in our Bylaws, Managing Directors are Directors who are not Independent Directors and who have been employees of the Company or RMR LLC or any of its subsidiaries or involved in the day to day activities of the Company, any of its subsidiaries or any of their predecessors for at least one year prior to such Director's election.
Our Board affirmatively determines whether Directors have a direct or indirect material relationship with the Company, including the Company's subsidiaries, other than serving as our Directors or trustees or directors of our subsidiaries. In making independence determinations, our Board observes the Nasdaq and SEC criteria, as well as the criteria set forth in our governing documents. When assessing a Director's relationship with us, our Board considers all relevant facts and circumstances, not merely from the Director's standpoint, but also from that of the persons or organizations with which the Director has an affiliation. Based on this review, our Board has determined that Barbara D. Gilmore, Donna D. Fraiche, Bruce M. Gans, M.D., Gerard M. Martin and Michael E. Wagner, M.D. currently qualify as independent directors under applicable Nasdaq and SEC criteria and as Independent Directors under our Bylaws. In making these independence determinations, our Board reviewed and discussed additional information provided by us and our Directors with regard to each of the Directors' relationships with us, RMR LLC or The RMR Group Inc. ("RMR Inc."), the managing member of RMR LLC, and the other companies to which RMR LLC or its subsidiaries provide management services. Our Board has concluded that none of these five Directors possessed or currently possesses any relationship that could impair his or her judgment in connection with his or her duties and responsibilities as a Director or that could otherwise be a direct or indirect material relationship under applicable Nasdaq and SEC standards.
Executive Sessions of Independent Directors |
Pursuant to our Governance Guidelines, our Independent Directors are expected to meet in regularly scheduled meetings at which only Independent Directors are present. It is expected that these executive sessions may occur at least twice per year. Our Independent Directors also meet separately with our officers, with our Director of Internal Audit and with our independent auditors. The presiding Director for purposes of leading Independent Director sessions will be the Lead Independent Director, unless the Independent Directors determine otherwise.
Board Leadership Structure |
All Directors play an active role in overseeing our business both at the Board and committee levels. As set forth in our Governance Guidelines, the core responsibility of our Directors is to exercise sound, informed and independent business judgment in overseeing the Company and its strategic direction. Our Directors are skilled and experienced leaders and currently serve or have served as members of senior management in public and private for profit and nonprofit organizations, and also have served in academia. Our Directors may be called upon to provide solutions to various complex issues and are expected to, and do, ask hard questions of our officers and advisers. Our Board is small, which facilitates informal discussions and communication from management to our Board and among Directors.
Adam D. Portnoy has served as Chair of our Board since 2019. One or more of our executive officers and our Director of Internal Audit are not members of our Board and regularly attend Board and Board committee meetings. Special meetings of our Board may be called at any time by the President, any Managing Director or any two Directors. Our Managing Directors, in consultation with our management and our Director of Internal Audit, set the agenda for Board meetings. Other Directors may suggest agenda items as well. Discussions at Board meetings are led by the Managing Director or Independent Director who is most knowledgeable on a subject.
6 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
Five of our Directors, including one of our nominees for election at the 2020 Annual Meeting, are independent under the applicable Nasdaq and SEC criteria and our governing documents. All of the members of our Audit Committee, Nominating and Governance Committee and Compensation Committee are independent under the applicable listing requirements and rules of the Nasdaq and other applicable laws, rules and regulations, including those of the SEC. As set forth in our governing documents, two of our Directors are Managing Directors, persons who have been employees, officers or directors of RMR LLC or who have been involved in the Company's day to day activities for at least one year prior to such Director's election.
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The NoticeWe have a Lead Independent Director who is selected annually by the vote of 2018 Annual Meeting, this Proxy Statementa majority of our Independent Directors. Currently, Ms. Fraiche serves as our Lead Independent Director. Our Lead Independent Director has well-defined, substantive responsibilities that include:
Insteadperformance of receiving future copiesour management and of our manager, RMR LLC;
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The Company will reportOur Board is committed to corporate governance that promotes the final resultslong term interests of our stockholders. Our Board has established Governance Guidelines that provide a framework for effective governance. Our Board regularly reviews developments in a Current Report on Form 8-K filed with the SEC following the completion of the 2018 Annual Meeting.
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The Company bears all expenses incurred in connection with the solicitation of proxies. We will request banks, brokerscorporate governance and updates our Governance Guidelines and other nomineesgovernance materials as it deems necessary and appropriate.
We have also adopted a Code of Business Conduct and Ethics (the "Code") to, forward proxy materialsamong other things, provide guidance to the beneficial owners of Common Sharesour and to obtain their voting instructions. We will reimburse those firms for their expenses of forwarding proxy materials.
Proxies may also be solicited, without additional compensation, by the Company's Directors,our subsidiaries' directors, officers and employees and by The RMR Group LLC, ("RMR LLC"), its officers and employees and its parent's and subsidiaries' directors, officers and employees by mail, telephone or other electronic means or in person.to ensure compliance with applicable laws and regulations.
Our Board has an Audit Committee, Compensation Committee, Nominating and Governance Committee and Quality of Care Committee. Our Audit Committee, Compensation Committee, Nominating and Governance Committee and Quality of Care Committee each have adopted a written charter, and reviews its written charter on an annual basis to consider whether any changes are required.
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As permitted byOur Audit Committee, Compensation Committee, Nominating and Governance Committee and Quality of Care Committee are comprised entirely of Independent Directors under applicable Nasdaq rules who also meet the Securities Exchangeindependence criteria applicable to audit committees under the Sarbanes Oxley Act of 1934, as amended (the "Exchange Act"), we may deliver only one copy of the Notice Regarding the Availability of Proxy Materials, Notice of 2018 Annual Meeting, this Proxy Statement and the Annual Report to Stockholders residing at the same address, unless the stockholders have notified us of their desire to receive multiple copies of those documents. This practice is known as "householding."
We will deliver a separate copy of any of those documents to you if you write to the Company at Investor Relations, Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, or call the Company at (617) 796-8245. If you want to receive separate copies of our notices regarding the availability of proxy materials, notices of annual meetings, proxy statements and annual reports in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker or other nominee, or you may contact us at the above address or telephone number.
8 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
2018 Annual Meeting Information
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IMPORTANT NOTE: If you plan to attend the 2018 Annual Meeting, you must follow these instructions to ensure admission.
All attendees need to bring photo identification for admission. Please noteSEC's implementing rules under that cameras and audio or video recorders are not permitted at the meeting. Any cell phones, pagers or similar electronic devices must be shut off for the duration of the meeting.
Attendance at the meeting is limited to the Company's Directors and officers, stockholders as of the Record Date (February 23, 2018) or their duly authorized representatives or proxies, and other persons permitted by the Chairman of the meeting.
If you have questions regarding these admission procedures, please call Investor Relations at (617) 796-8245.law.
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 97
Our corporate governance materials are available for review in the governance section of our website, including our Governance Guidelines, the charter for each Board committee, the Code and information on how to report concerns or complaints about accounting, internal accounting controls or auditing matters and any violations or possible violations of the Code and how to communicate with our Directors, individually or as a group. To access these documents on our website, visitwww.fivestarseniorliving.com.
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If you are a beneficial ownerOur Insider Trading Policies and wantProcedures expressly prohibits members of our Board and our officers from engaging in hedging transactions involving our securities and those of RMR Inc. or any other public company to vote your shares at the 2018 Annual Meeting, you need a legal proxy from your bank, brokerwhich RMR LLC or other nominee. You also need to follow the procedures described in the response toquestion 14 and to bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided to you at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not have a legal proxy, you can still attend the meeting by following the procedures described in the response toquestion 14. However, you will not be able to vote your shares at the meeting without a legal proxy. The Company encourages you to vote your shares in advance, even if you intend to attend the meeting.its affiliates provide management services.
Company Documents, Communications and Stockholder Proposals
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You can visit our website to view our Governance Guidelines, Board committee charters and Code of Business Conduct and Ethics (the "Code"). To view these documents, go towww.fivestarseniorliving.com, click on "Investor Relations" and then click on "Corporate Governance." To view the Company's SEC filings and Forms 3, 4 and 5 filed by the Company's Directors and executive officers, go towww.fivestarseniorliving.com, click on "Investor Relations" and then click on "Financial Information & SEC Filings."
We will deliver free of charge, upon request, a copy of the Company's Governance Guidelines, Board committee charters, Code or Annual Report to any stockholder requesting a copy. Requests should be directed to Investor Relations at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
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Any stockholder or other interested person who wants to communicate with the Company's Directors, individually or as a group, should write to the party for whom the communication is intended, c/o Secretary, Five Star Senior Living Inc., 400 Centre Street, Newton, Massachusetts 02458 or email secretary@5ssl.com. The communication will then be delivered to the appropriate party or parties.
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A proposal for action to be presented by any stockholder at the Company's 2019 annual meeting of stockholders must be submitted as follows:
Proposals should be sent to the Company's Secretary at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
For additional information regarding how to submit a stockholder proposal, see page 34 of this Proxy Statement.
10 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
ELECTION OF DIRECTORS (ITEM 1)
The Board serves as the decision making body of the Company, except for those matters reserved to the stockholders. The Board selects and oversees the Company's officers, who are charged by the Board with conducting the day to day business of the Company.
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In accordance with our Articles of Amendment and Restatement (our "Charter") and our Bylaws, the Board currently consists of five Directors, three of whom are Independent Directors and two of whom are Managing Directors. Our Charter provides that the Board is divided into three groups, with Directors of each group serving for a term that expires at the third annual meeting of stockholders following his or her election and until his or her successor is elected and qualifies. In accordance with our Charter and Bylaws, on March 20, 2018, pursuant to a recommendation of the Nominating and Governance Committee, the Board elected Adam D. Portnoy as a Managing Director in Group I to fill the vacancy created by the death of Barry M. Portnoy on February 25, 2018 and to serve the remainder of the full term of the Group I Directors, the Group of Directors which stands for election at the 2020 annual meeting of shareholders.
Assuming a quorum is present at the meeting, a plurality of all the votes cast is required to elect a Director at the 2018 Annual Meeting.
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The Nominating and Governance Committee is responsible for identifying and evaluating nominees for Director and for recommending to theour Board nominees for election at each annual meeting of stockholders. TheOur Nominating and Governance Committee may consider candidates suggested by the Company'sour Directors, officers or stockholders or by others.
Stockholder Recommendations for Nominees. Stockholders who would like to recommend a nominee for the position of Director should submit their recommendations in writing by mail to the Chair of theour Nominating and Governance Committee, c/o Five Star Senior Living Inc., Secretary, at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or by email to secretary@5ssl.com. A stockholder'ssecretary@fivestarseniorliving.com. Any such recommendation should include any information thata description of the recommendingcandidate's qualifications for Board service, the candidate's written consent to be considered for nomination and to serve if nominated and elected, as well as the addresses and telephone numbers for contacting the stockholder believes relevant toand the Nominating and Governance Committee's consideration. Thecandidate for more information. Our Nominating and Governance Committee may request additional information about the stockholder recommended nominee or about the stockholder recommending the nominee. Recommendations by stockholders will be considered by theour Nominating and Governance Committee in its discretion using the same criteria as other candidates it considers.
Communications with Our Board |
Our Board has established a process to facilitate communication by stockholders and other interested parties with Directors. Communications should be addressed to Directors in care of the Secretary, Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or by email to secretary@fivestarseniorliving.com.
Sustainability |
We understand the importance of leading a sustainable business and regularly consider ways to improve our internal culture and the communities in which we operate. Our environmental sustainability and community engagement strategies focus on a complementary set of objectives, including the following:
8 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
usage at our properties, especially when doing so may reduce operating costs and improve the properties' competitive positions. Through our Green Stars Program—we strive to achieve results by using resources more efficiently, minimizing waste, and increasing awareness among employees and residents.
To learn more about our sustainability initiatives, visitwww.fivestarseniorliving.com/the-five-star-difference/green-stars-program.
Stockholder Nominations and Other Proposals |
Deadline to Submit Proposals pursuant to Rule 14a-8 for the 2021 Annual Meeting of Stockholders: Stockholder Nominationsproposals pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") must be received at our principal executive offices on or before December 16, 2020 in order to be eligible to be included in the proxy statement for Directors. Our Bylaws also providethe 2021 annual meeting of stockholders; provided, that, a stockholderif the date of the Company may nominate2021 annual meeting of stockholders is more than 30 days before or after June 9, 2021, such a personproposal must be submitted within a reasonable time before we begin to print our proxy materials. Under Rule 14a-8, we are not required to include stockholder proposals in our proxy materials in certain circumstances or if conditions specified in the rule are not met.
Deadline to Submit Nominations and Other Proposals for electionthe 2021 Annual Meeting of Stockholders Under our Bylaws: To be timely, stockholder nominations and proposals intended to be made outside of Rule 14a-8 under the BoardExchange Act at the 2021 annual meeting must be received by our Secretary at our principal executive offices, in accordance with the requirements of our Bylaws, not later than 5:00 p.m., Eastern time, on December 16, 2020 and not earlier than November 16, 2020; provided, that, if the stockholder compliesdate of the 2021 annual meeting of stockholders is more than 30 days earlier or later than June 9, 2021, then a stockholder's notice must be so delivered not later than 5:00 p.m., Eastern time, on the tenth day following the earlier of the day on which (i) notice of the date of the 2021 annual meeting of stockholders is mailed or otherwise made available or (ii) public announcement of the date of the 2021 annual meeting of stockholders is first made by us. Stockholders making such a nomination or proposal must comply with the advance notice provisionsand other requirements set forth in our Charter and Bylaws, which include, among other things, requirements as to the proposing stockholder's timely delivery of advance notice, continuous requisite ownership of Common Shares, holding of a share certificate for such shares at the time of the advance notice and submission of specified documentationinformation.
The foregoing description of the deadlines and information. For more information on howother requirements for stockholders can nominate Directorsto submit a nomination for election to our Board or proposal of other business for consideration at an annual meeting of stockholders is only a summary and is not a complete listing of all requirements. Copies of our Bylaws, including the Board, see "Stockholder Nominationsrequirements for stockholder nominations and Other Proposals" beginning on page 34.
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Directors are responsible for overseeingother stockholder proposals, may be obtained by writing to our Secretary at Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, or from the Company's business. This significant responsibility requires highly skilled individualsSEC's website,www.sec.gov. Any stockholder considering making a nomination or proposal should carefully review and comply with various qualities, attributes and professional experience. The Board believes that there are general requirements that are applicable to all Directors, qualifications applicable tothose provisions.
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 119
Independent Directors and other skills and experience that should be represented onTable of Contents
PROPOSAL 1: ELECTION OF DIRECTORS
Upon the Board as a whole, but not necessarily by each Director. In accordance withrecommendation of our Charter and Bylaws, the Board currently consists of five Directors: two Managing Directors and three Independent Directors. As set forth in our Bylaws, Independent Directors are Directors who are not employees of the Company or RMR LLC, who are not involved in the Company's day to day activities and who meet the qualifications of independent directors under the applicable rules of The Nasdaq Stock Market LLC (the "Nasdaq") and the SEC. As set forth in our Bylaws, Managing Directors are Directors who have been employees, officers or directors of the Company or RMR LLC or who have been involved in the Company's day to day activities for at least one year prior to their election as Directors. The Board and the Nominating and Governance Committee, consider the qualifications of Directors and Director candidates individually and in the broader context of the Board's overall composition and the Company's current and future needs.
Qualifications for All Directors
In its assessment of each potential candidate, including those recommended by stockholders, the Nominating and Governance Committee considers the potential nominee's integrity, experience, achievements, judgment, intelligence, competence, personal character, likelihood that a candidate will be able to serve on the Board for an extended period and other matters that the Nominating and Governance Committee deems appropriate. The Nominating and Governance Committee also takes into account the ability of a potential nominee to devote the time and effort necessary to fulfill his or her responsibilities to the Company.
The Board and Nominating and Governance Committee require that each Director candidate be a person of high integrity with a proven record of success in his or her field. Each Director candidate must demonstrate the ability to make independent analytical inquiries, familiarity with and respect for corporate governance requirements and practices and a commitment to serving the Company's long term best interests. In addition, the Nominating and Governance Committee may conduct interviews of potential Director candidates to assess intangible qualities, including the individual's ability to ask appropriate questions and to work collegially. The Board does not have a specific diversity policy in connection with the selection of nominees for Director, but due consideration is given to the Board's overall balance of diversity of perspectives, backgrounds and experiences.
In addition to other criteria, our Bylaws require that Director candidates submit any additional information required in connection with the Company's regulation by state healthcare regulatory authorities.
12 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
Specific Qualifications, Attributes, Skills and Experience to be Represented on the Board
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of the Company's long term interests. The following table summarizes certain key characteristics of the Company's business and the associated qualifications, attributes, skills and experience that the Board believes should be represented on the Board.
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FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 13
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The following table sets forth the names of the Director nominees and those Directors who will continue to serve after the 2018 Annual Meeting:
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Upon the recommendation of the Nominating and Governance Committee, the Board has nominated Ms. DonnaAdam D. Fraiche for election as an Independent Director in Group II and Mr. Gerard M. MartinPortnoy for election as a Managing Director in Group II.and Barbara D. Gilmore for election as an Independent Director. Each Director nominee currently serves on theour Board. If elected, each nomineeof Mr. Portnoy and Ms. Gilmore would serve until the Company's 20212023 annual meeting of stockholders and until his or her successor is duly elected and qualifies, or until his or hersubject to the individual's earlier death, resignation, retirement, disqualification or removal.
We expect that each nominee for election as a Director will be able to serve if elected. However, if a nominee should become unable or unwilling to serve, proxies may be voted for the election of a substitute nominee designated by theour Board.
A plurality of all the votes cast is required to elect a Director at the 2020 Annual Meeting.
The Board believes that the combination of the various qualifications, attributes, skillsnames, principal occupations and experiences of the Director nominees would contribute to an effective Board serving the Company's long term best interests. The Boardcertain other information and the Nominating and Governance Committee believe that the Director nominees possess the necessary qualifications to provide effective oversight of the business and quality advice and counsel to the Company's management. Below isfor Directors, as well as a summary of the key experiences, qualifications, attributes and skills that led theour Nominating and Governance Committee and theour Board to conclude eachthat such person ispersons are currently qualified to serve as a Director.Directors, are set forth on the following pages.
TheOur Board of Directors recommends a vote "FOR" the election of both Director nominees.
14 10 FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement
Directors and |
The following is some important biographical information, including the ages and recent principal occupations, as of March 20, 2018, of the Company's Directors, Director nominees and executive officers. The business address of the Directors, Director nominees and executive officers is c/o Five Star Senior Living Inc., 400 Centre Street, Newton, Massachusetts 02458. Included in each Director's biography below are the attributes of that Director consistent with the qualifications, attributes, skills and experience the Board has determined are important to be represented on the Board. For a general discussion of the particular Director qualifications, attributes, skills and experience, and the process for selecting and nominating individuals for election to serve as a Director, please see "Election of Directors" beginning on page 11.
Director Nominees
Donna D. Fraiche
| Barbara D. Gilmore | | ||||||
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| | | Independent Director since 2004 Group/Term: Group I with a term expiring at our 2020 Annual Meeting Age: 69 Board Committees: Audit (Chair); Compensation; Nominating and Governance; Quality of Care Other RMR Managed Public Company Boards:(1) • TravelCenters of America Inc. (since 2007) • Office Properties Income Trust (since 2009) Other Non-RMR Managed Public Company Boards: None | | ||||
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| Ms. Gilmore served as a professional law clerk at the United States Bankruptcy Court, Eastern Division of the District of Massachusetts, from 2015 until her retirement in 2018, and prior to that, at the United States Bankruptcy Court, Central Division of the District of Massachusetts, from 2001 to 2015. Ms. Gilmore was a partner of the law firm of Sullivan & Worcester LLP from 1993 to 2000, during which time she was appointed and served as trustee or examiner in various cases involving business finance matters. Ms. Gilmore was also a registered nurse and practiced and taught nursing for several years before attending law school and her practice at Sullivan & Worcester LLP included representation of businesses in the healthcare sector. Specific Qualifications, Attributes, Skills and Experience: • Experience in, and knowledge of, the healthcare industry; • Professional skills and experience in legal, business finance and healthcare regulatory matters and nursing; • Experience as a lawyer, bankruptcy court clerk, bankruptcy trustee and bankruptcy examiner; • Work on public company boards and board committees; • Institutional knowledge earned through prior service on our Board; • Identifies as female; and • Qualifying as an Independent Director in accordance with the requirements of the Nasdaq, the SEC and our Bylaws. | |
| Adam D. Portnoy | | ||||||
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| | | Managing Director since 2018 Chair of our Board since 2019 Group/Term: Group I with a term expiring at our 2020 Annual Meeting Age: 49 Board Committees: None Other RMR Managed Public Company Boards: • Service Properties Trust (formerly known as Hospitality Properties Trust, since 2007) • Diversified Healthcare Trust (formerly known as Senior Housing Properties Trust, since 2007) • Office Properties Income Trust (since 2009) • RMR Real Estate Income Fund, including its predecessor funds (since 2009) • The RMR Group Inc. (since 2015) • Industrial Logistics Properties Trust (since 2017) • Tremont Mortgage Trust (since 2017) • TravelCenters of America Inc. (since 2018) Other Non-RMR Managed Public Company Boards: None | | ||||
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| Mr. Portnoy has been the president and chief executive officer of RMR Inc. since shortly after its formation in 2015. Mr. Portnoy has been the president and chief executive officer of RMR LLC since 2005 and was a director of RMR LLC from 2006 until June 5, 2015 when RMR LLC became a majority owned subsidiary of RMR Inc. and RMR Inc. became RMR LLC's managing member. Mr. Portnoy has been a director of RMR Advisors LLC since 2007 and served as its president from 2007 to September 2017 and its chief executive officer from 2015 to September 2017. Mr. Portnoy has been a director of Tremont Realty Advisors LLC since March 2016, and served as its president and chief executive officer from March 2016 through December 2017. Mr. Portnoy is the sole trustee and controlling shareholder and an officer of ABP Trust, the controlling shareholder of RMR Inc. Mr. Portnoy is a director and controlling shareholder of Sonesta International Hotels Corporation and its affiliates ("Sonesta"). Mr. Portnoy served as president and chief executive officer of RMR Real Estate Income Fund from 2007 to 2015 and as president of Office Properties Income Trust from 2009 to 2011. Mr. Portnoy was a managing trustee of Select Income REIT from 2011 until it merged with a wholly owned subsidiary of Office Properties Income Trust in December 2018. Prior to joining RMR LLC in 2003, Mr. Portnoy held various positions in the finance industry and public sector, including working as an investment banker at Donaldson, Lufkin & Jenrette and working in private equity at DLJ Merchant Banking Partners and at the International Finance Corporation (a member of The World Bank Group). In addition, Mr. Portnoy previously founded and served as chief executive officer of a privately financed telecommunications company. Mr. Portnoy currently serves as the Honorary Consul General of the Republic of Bulgaria to Massachusetts and on the board of directors of Pioneer Institute, and previously served on the board of governors for the National Association of Real Estate Investment Trusts and the board of trustees of Occidental College. Specific Qualifications, Attributes, Skills and Experience: • Extensive experience in, and knowledge of, the commercial real estate industry and real estate investment trusts ("REITs"); • Leadership position with RMR LLC and demonstrated management ability; • Public company trustee and director service; • Experience in investment banking and private equity; • Experience in starting a telecommunications company and serving as its senior executive; • Institutional knowledge earned through prior service on our Board and in leadership positions with RMR LLC; and • Qualifying as a Managing Director in accordance with the requirements of our Bylaws. Our Nominating and Governance Committee and our Board believe that, because Mr. Portnoy is the president and chief executive officer of RMR LLC, his day to day work requires his extensive attention to the business of all the companies for which he serves as a managing trustee or managing director, including the Company, and therefore, service on these additional boards does not impair the amount of attention or time that Mr. Portnoy spends on service on our Board. Our Board believes that Mr. Portnoy's extensive familiarity with the day to day business of the Company provides valuable insight for our Board. | |
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 11
Continuing Directors |
| Donna D. Fraiche | | ||||||
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| | | Independent Director since 2010 Lead Independent Director since 2019 Group/Term: Group II with a term expiring at the Age: Board Committees:Audit; Compensation; Nominating and Governance (Chair); Quality of Care Other RMR Managed Public Company Boards:
Service Properties Trust (since 2015) • Office Properties Income Trust (since 2019) Other Non-RMR Managed Public Company Boards: None | | ||||
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| Ms. Fraiche Specific Qualifications, Attributes, Skills and Experience: •
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FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 15
Gerard M. Martin
| Gerard M. Martin | | |||||||||
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Group/Term: Group II with a term expiring at the Age: Board Committees: Audit; Nominating and Governance; Quality of Care Other RMR Managed Public Company Boards: None Other Non-RMR Managed Public Company Boards: None | | ||||||||
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| Prior to February 2020, Mr. Martin served as a Managing Director. Mr. Martin was the founder and chairman of Greenery Rehabilitation Group, Inc., a company in the business of owning and operating nursing homes and health rehabilitation facilities, which was publicly owned and first listed on the Nasdaq and then the New York Stock Exchange between 1985 and 1993. Mr. Martin is the owner and treasurer of North Atlantic Medical Services, Inc., a private company in the business of providing diagnostic cardiac, respiratory and oxygen services, equipment and products for the care of patients in their homes or medical facilities. Mr. Martin served as a director and vice president of RMR Advisors LLC, an SEC registered investment adviser, from 2002 to 2015, and a director of RMR LLC and its predecessors from 1986 to 2015. Mr. Martin was also an interested trustee of the RMR Funds Series Trust, the RMR Real Estate Income Fund and its predecessor funds from shortly after their formation (the earliest of which was in 2002) until 2009. Specific Qualifications, Attributes, Skills and Experience: •
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16 12 FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement
Directors
Bruce M. Gans, M.D.Table of Contents
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| | Independent Director since 2001 Group/Term: Group III with a term expiring at the Age: Board Committees: Audit; Compensation (Chair); Nominating and Governance; Quality of Care (Chair) Other RMR Managed Public Company Boards: • Industrial Logistics Properties Trust (since Other Non-RMR Managed Public Company Boards: None | | ||||||||
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| Dr. Gans has been executive vice president and chief medical officer at the Kessler Institute for Rehabilitation since 2001 and national medical director for Rehabilitation Select Medical, the parent company of the Kessler Institute, since 2003. He is also a professor of physical medicine and rehabilitation at Rutgers University—New Jersey Medical School. Dr. Gans was an independent trustee of Specific Qualifications, Attributes, Skills and Experience: •
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FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 17
Barbara D. Gilmore
| Jennifer B. Clark | | |||||||||
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Group/ Age: Board Committees: Other RMR Managed Public Company Boards: • The RMR Group Inc. (since 2018) • Diversified Healthcare Trust (formerly known as Senior Housing Properties Trust since 2018) • RMR Real Estate Income Fund (since 2019) Other Non-RMR Managed Public Company Boards: None | | ||||||||
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| Ms. Clark has been executive vice president, general counsel and secretary of RMR Inc. since shortly after its formation in 2015. Ms. Clark joined RMR LLC in 1999 as a vice president; she became a senior vice president in 2006, an executive vice president and general counsel in 2008 and secretary in 2015. Ms. Clark also serves as a director and secretary of Sonesta, a director and president, chief executive officer and secretary of RMR Advisors LLC, executive vice president, general counsel and secretary of Tremont Realty Advisors LLC, and secretary and chief legal officer of RMR Real Estate Income Fund. Ms. Clark serves as the secretary of each of the companies to which RMR LLC or its subsidiaries provide management services, including the Company and Diversified Healthcare Trust. Ms. Clark has also served as secretary of RMR Office Property Fund LP since 2018 and as a director of RMR Advisors LLC since 2016, as its president and chief executive officer since 2019, and prior to that as its executive vice president and general counsel from October 2017 through December 2018 and as its secretary since 2004, and as vice president and chief legal officer from 2007 through September 2017. Prior to joining RMR LLC, Ms. Clark was a partner at the law firm of Sullivan & Worcester LLP. Specific Qualifications, Attributes, Skills and Experience: • Professional skills and experience in legal, corporate governance and real estate matters; • Leadership position with RMR LLC and demonstrated management ability; • Extensive experience in, and knowledge of, the CRE industry and REITs; • Institutional knowledge earned through prior service as an officer of the Company and in leadership positions with RMR LLC; • Identifies as female; and • Qualifying as a Managing Director in accordance with the requirements of our Bylaws. | |
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 13
| Michael E. Wagner, M.D. | | ||||||
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| | | Independent Director since 2020 Group/Term: Group III with a term expiring at the 2022 Annual Meeting Age: 60 Board Committees: Audit; Compensation; Nominating and Governance; Quality of Care Other RMR Managed Public Company Boards:
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| Dr. Wagner has served as chief physician executive of Wellforce, a Specific Qualifications, Attributes, Skills and Experience: • Professional skills and experience in healthcare industry • Demonstrated leadership capability, including through his service in many healthcare management, professional and academic positions; • Business experience as the chief executive of a large medical organization; • Extensive experience in, and knowledge of, the healthcare
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18 14 FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement
Adam D. Portnoy
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FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 19
16 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
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Members
"TheDonna D. Fraiche (Chair)
Bruce M. Gans, M.D.
Barbara D. Gilmore
Gerard M. Martin
Michael E. Wagner, M.D.
2 meetings in the fiscal year ended December 31, 2019
Our Nominating and Governance Committee regularly evaluates the Board's leadership structure and corporate governance to promote the best long term interestsis comprised solely of the Company."
Additional Committee Members: Bruce M. Gans M.D. and Barbara D. GilmoreMeetings Held in 2017: 1
Purpose and Primary Responsibilities:The principal purposes of the Nominating and Governance Committee are: (1)Independent Directors. Its primary role is to identify individuals qualified to become Board members, consistent with criteria approved by theour Board, and to recommend candidates to the entire Board for nomination or selection as Board members for each annual meeting of stockholders (or special meeting of stockholders at which Directors are to be elected) or when vacancies occur; (2) to perform certain assessments of theour Board and Company management;Board committees, including to assess the independence of Directors and (3)Director nominees, and to develop and recommend to theour Board a set of governance principles applicable to thefor our Company. Under its charter, theour Nominating and Governance Committee is also responsible for overseeing the evaluation of Company managementconsidering and reporting on our succession planning to the extent not overseen by the Compensation Committee or another committee of theour Board.
Independence:Each member of theMr. Martin and Dr. Wagner were appointed to our Nominating and Governance Committee meets the independence requirements of the Nasdaq, the Exchange Act and the Company's Governance Guidelines.on February 26, 2020.
"The Quality of Care Committee works to ensure the highest level of care and services for the Company's valued residents."Members
Additional Committee Members:Bruce M. Gans, M.D. (Chair)
Donna D. Fraiche
Barbara D. Gilmore and
Gerard M. MartinMeetings Held in 2017: 4
Purpose and Primary Responsibilities:Michael E. Wagner, M.D.
3 meetings in the fiscal year ended December 31, 2019
The primary functionrole of theour Quality of Care Committee is to review and monitor the quality of healthcare and senior living services the Company provideswe provide to itsour residents, patients and customers. TheOur Quality of Care Committee also periodically makes recommendations to management to improve the quality of the Company'sour services and periodically reports to theour Board regarding its activities.
30 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
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The Board is elected by stockholdersDr. Wagner was appointed to oversee the Company's business and long term strategy. As part of fulfilling its responsibilities, the Board oversees the safeguarding of the assets of the Company, the maintenance of appropriate financial and other internal controls and the Company's compliance with applicable laws and regulations. Inherent in these responsibilities is the Board's understanding and oversight of the various risks facing the Company. The Board considers that risks should not be viewed in isolation and should be considered in virtually every business decision and as part of the Company's business strategy.
Oversight of Risk
The Board oversees risk as part of its general oversight of the Company. Oversight of risk is addressed as part of various Board and Board committee activities and through regular and special Board and Board committee meetings. The actual day to day business of the Company is conducted by management, and management implements risk management in its activities. The Company's Director of Internal Audit provides the Company advice and assistance with the Company's risk management function.
In discharging their oversight responsibilities, the Board and Board committees review regularly a wide range of reports provided to them by management, RMR LLC and other service providers, including:
The Board and Board committees discuss these matters among themselves and with representatives of RMR LLC, management of the Company, the Director of Internal Audit, counsel and the Company's independent auditors.
The Audit Committee takes a leading role in helping the Board fulfill its responsibilities for oversight of the Company's financial reporting, internal audit function, risk management and the Company's compliance with legal and regulatory requirements. The Audit Committee meets at least quarterly and reports its findings to the Board. The Board and Audit Committee review periodic reports from the Company's independent auditors regarding potential risks, including risks related to the Company's internal control over financial reporting. The Audit Committee also reviews annually, approves and oversees an internal audit plan developed by the Company's Director of Internal Audit and a compliance program developed by the Company's General Counsel and its Chief Compliance Officer with the goal of helping the Company systematically evaluate the effectiveness of its risk management, control, compliance and governance processes. The Audit Committee also meets periodically with the Company's Director of Internal Audit to review the results of the Company's internal audits, and directs or recommends to the Board actions or
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 31
changes it determines appropriate to enhance or improve the effectiveness of the Company's risk management.
Theour Quality of Care Committee reviews management reports on the Company's clinical operations and directs or recommends to management and the Board actions or changes it determines appropriate to improve the Company's clinical operations and to reduce risks arising from those operations.February 26, 2020.
The Compensation Committee evaluates
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 17
In the fiscal year 2019, our Board held seven meetings. In the fiscal year 2019, each then Director attended 75% or more of the aggregate of all meetings of our Board and the committees on which he or she served or that were held during the performance of the Company's Director of Internal Audit and RMR LLC's performance under the Company's business management agreement, including any perceived risks created by compensation arrangements. Also, the Compensation Committee and the Board consider that the Company has a share award program that requires share awards to executive officers to vest over a period of years. The Company believes that the use of share awards vesting over time rather than stock options mitigates the incentives for the Company's management to undertake undue risks and encourages management to make longer term and appropriately risk balanced decisions.
It is not possible to identify all of the risks that may affect the Company or to develop processes and controls to eliminate all risks and their possible effects, and processes and controls employed to address risks may be limited in their effectiveness. Moreover, it is necessary for the Company to bear certain risks to achieve its objectives. As a result of the foregoing and other factors, the Company's ability to manage risk is subject to substantial limitations.
To learn more about the risks facing the Company, you can review the matters discussed in Part I, "Item 1A. Risk Factors" and "Warning Concerning Forward Looking Statements" in which the Director served as a Director or committee member. Our policy with respect to Board members' attendance at meetings of our Board and annual meetings of stockholders can be found in our Governance Guidelines, the full text of which appears at our Annual Report. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known or that may currently be deemed to be immaterial also may materially adversely affect the Company's business, financial condition or results of operations in future periods.
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Stockholders may effectively communicate a point of view to the Board in a number of ways, including:
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The Board has established a process to facilitate communication by stockholders and other interested parties with Directors. Communications should be addressed to Directors in care of the Secretary, Five Star Senior Living Inc., 400 Centre Street, Newton, Massachusetts 02458 or by email to secretary@5ssl.com.
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The Company has adopted the Code to, among other things, provide guidance to our and our subsidiaries' directors, officers and employees and RMR LLC, its officers and employees and its parent's and subsidiaries' directors, officers and employees to ensure compliance with applicable laws and regulations.
The Company's stockholders, Directors, executive officers and persons involved in the Company's business can ask questions about the Code and other ethics and compliance issues, or report potential violations as follows: by writing to the Director of Internal Audit at Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458; by calling toll free (866) 295-7164; by emailing internal.audit@5ssl.com; or by filling out a report by visiting the Company's
32 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
website,www.fivestarseniorliving.com, clicking on "Investor Relations," then clicking on "Corporate Governance" and then clicking on "Report Human Resources, Auditing, Accounting and Financial Reporting, Code of Business Conduct and Ethics or Healthcare Compliance complaints or concerns." We intend to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our Code that apply to the principal executive officer, principal financial officer or controller, or persons performing similar functions, by posting such information on our website.
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All Directors receive compensation in Common Shares to align the interests of Directors with those of the Company's stockholders. The Company's Governance Guidelines codify our expectation that, subject to certain exemptions, each Director retain at least 50,000 Common Shares by the later of: (i) the date of the 2019 annual meeting of stockholders of the Company and (ii) five years from the annual meeting of stockholders of the Company at which the Director was initially elected or, if earlier, the first annual meeting of stockholders of the Company following the initial appointment of the Director to the Board.
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Pursuant to the Company's insider trading policy, Directors and executive officers are required to obtain pre-approval from at least two designated individuals before trading or agreeing to trade in, including by entering into a share trading plan such as a 10b5-1 trading plan, with respect to any Company security.
The Company's insider trading policy generally prohibits (i) the Company's Directors and officers, (ii) the directors and officers of the Company's subsidiaries, (iii) RMR Inc. and its directors and officers, (iv) other employees of the Company and its subsidiaries and (v) RMR LLC and its officers and employees, to the extent they are involved in RMR LLC's services to the Company, from, directly or indirectly through family members or others, purchasing or selling Common Shares or the Company's other equity or debt securities while in possession of material, non-public information concerning the Company. Similar prohibitions also apply to trading in the securities of RMR Inc. and the other public companies to which RMR LLC provides management or advisory services on the basis of material, non-public information learned in the course of performing services for those companies.
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The Company's business strategy incorporates and values environmental sustainability principles. The Company seeks to operate its properties in a manner that improves the environmental efficiency of their operations. The Company regularly considers ways to improve the Company's internal culture and the communities in which it operates. The Company's environmental sustainability and community engagement strategies are primarily implemented by its operations personnel and focus on a complementary set of objectives, including the following:
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 33
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Director Nominations and Stockholder Proposals for the 2019 Annual Meeting of Stockholders: In order for a stockholder to propose a nominee for election to the Board or propose business outside of Rule 14a-8 under the Exchange Act at the 2019 annual meeting of stockholders, the stockholder must comply with the advance notice and other requirements set forth in our Bylaws, which include, among other things, requirements as to the stockholder's timely delivery of advance notice, continuous requisite ownership of Common Shares, holding of a share certificate for such shares at the time of the advance notice and submission of specified information.
Deadline to Submit Nominations and Proposals for the 2019 Annual Meeting of Stockholders Under our Bylaws: To be timely, stockholder nominations and proposals intended to be made outside of Rule 14a-8 under the Exchange Act at the 2019 annual meeting of stockholders must be received by the Company's Secretary at the Company's principal executive offices, in accordance with the requirements of our Bylaws, not later than 5:00 p.m., Eastern time, on November 22, 2018 and not earlier than October 23, 2018; provided, that, if the date of the 2019 annual meeting of stockholders is more than 30 days earlier or later than May 17, 2019, then a stockholder's notice must be so delivered not later than 5:00 p.m., Eastern time, on the tenth day following the earlier of the day on which (i) notice of the date of the 2019 annual meeting of stockholders is mailed or otherwise made available or (ii) public announcement of the date of the 2019 annual meeting of stockholders is first made by the Company.
Deadline to Submit Proposals for the 2019 Annual Meeting of Stockholders for Purposes of Rule 14a-8: Stockholder proposals pursuant to Rule 14a-8 under the Exchange Act must be received at the Company's principal executive offices on or before November 22, 2018 in order to be eligible to be included in the proxy statement for the 2019 annual meeting of stockholders; provided, that, if the date of the 2019 annual meeting of stockholders is more than 30 days before or after May 17, 2019, such a proposal must be submitted within a reasonable time before the Company begins to print its proxy materials. Under Rule 14a-8, the Company is not required to include stockholder proposals in its proxy materials in certain circumstances or if conditions specified in the rule are not met.
The foregoing description of the requirements for a stockholder to propose a nomination for election to the Board at an annual meeting of stockholders or other business for consideration at an annual meeting of stockholders is only a summary and is not a complete listing of all requirements. Copies of our Bylaws, including the requirements for stockholder nominations and other proposals, may be obtained by writing to the Company's Secretary at Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, or from the SEC's website,www.sec.gov. Any stockholder considering making a nomination or other proposal should carefully review and comply with those provisions.
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The descriptions of agreements in this "Related Person Transactions" section do not purport to be complete and are subject to, and qualified in their entirety by, reference to the actual agreements, copies of certain of which are filed as exhibits to the Annual Report.
A "related person transaction" is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) or a proposed transaction in which (i) the Company was, is or will be a participant, (ii) the amount involved exceeds the lesser of $120,000 or 1.0% of the average of the Company's total assets at year end for the last two completed fiscal years and (iii) any related person had, has or will have a direct or indirect material interest.
A "related person" means any person who is, or at any time since January 1, 2017 was:
34 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
The Company has adopted written Governance Guidelines that describe the consideration and approval of related person transactions. Under these Governance Guidelines, the Company may not enter a transaction in which any Director or executive officer, any member of the immediate family of any Director or executive officer or other related person, has or will have a direct or indirect material interest unless that transaction has been disclosed or made known to the Board and the Board reviews and approves or ratifies the transaction by the affirmative vote of a majority of the disinterested Directors, even if the disinterested Directors constitute less than a quorum. If there are no disinterested Directors, the transaction must be reviewed, authorized and approved or ratified by both (i) the affirmative vote of a majority of the Board and (ii) the affirmative vote of a majority of the Independent Directors. In determining whether to approve or ratify a transaction, the Board, or disinterested Directors or Independent Directors, as the case may be, also act in accordance with any applicable provisions of the Company's Charter and Bylaws and consider all of the relevant facts and circumstances and approve only those transactions that they determine are fair and reasonable to the Company. All related person transactions described below were reviewed and approved or ratified by a majority of the disinterested Directors or otherwise in accordance with the Company's policies, Charter and Bylaws, each as described above. In the case of transactions with the Company by employees of the Company who are not Directors or executive officers of the Company, the employee must seek approval from an executive officer who has no interest in the matter for which approval is being requested. Copies of the Company's Governance Guidelines and the Code are available on the Company's website,www.fivestarseniorliving.com.
Compensation of Directors |
Our Board believes that competitive compensation arrangements are necessary to attract and retain qualified Independent Directors. On June 11, 2019, after conducting a market review with respect to leading companies of similar size to us as well as an industry peer group and other companies managed by RMR LLC or its subsidiaries, upon the recommendation of our Compensation Committee, our Board approved our compensation arrangements for our Independent Directors, including eliminating meeting fees with respect to meetings of our Board and its committees in favor of annual retainers, which our Board believes is consistent with market practice.
Under the currently effective Director compensation arrangements, each Independent Director receives an annual fee of $75,000 for services as a Director. The annual fee for any new Independent Director is prorated for the initial year. Each Independent Director who serves as a committee chair of our Audit Committee, Quality of Care Committee, Compensation Committee or Nominating and Governance Committee also receives an additional annual fee of $22,500, $22,500, $12,500 and $12,500, respectively, and our Lead Independent Director also receives an additional annual cash retainer fee of $17,500 for serving in this role. Directors are reimbursed for travel expenses they incur in connection with their duties as Directors and for out of pocket costs they incur in connection with their attending certain continuing education programs.
Each Independent Director and Managing Director also receives an award of Common Shares annually, which was 1,250 Common Shares in 2019 (giving effect to the one-for-ten reverse stock split affected on our Common Shares as of September 30, 2019). Managing Directors do not receive cash compensation for their services as Directors.
Director Share Ownership Guidelines |
Our Board believes it is important to align the interests of Directors with those of our stockholders, and for Directors to hold equity ownership positions in the Company. Accordingly, each Director is expected to retain at least 5,000 Common Shares, whether vested or not, within five years following: (i) if elected by stockholders, the annual meeting of stockholders of the Company at which such Director was initially elected or, (ii) if appointed by our Board, the first annual meeting of stockholders of the Company following the initial appointment of such Director to our Board. Compliance with these ownership guidelines is measured annually. Any Director who is prohibited by law or by applicable regulation of his, her or their employer from owning equity in the Company is exempt from this requirement. Our Nominating and Governance Committee may consider whether exceptions should be made for any Director on whom this requirement could impose a financial hardship.
As of March 16, 2020, all Directors have met or, within the applicable period, are expected to meet, these share ownership guidelines.
18 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
Fiscal Year 2019 Director Compensation |
The following table details the total compensation of the Directors for the fiscal year ended December 31, 2019 for services as a Director.
Name | | Fees Earned or Paid in Cash ($)(1) | | Stock Awards($)(2) | | All Other Compensation ($) | | Total ($) | | |||
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Jennifer B. Clark(4) | | — | | — | | — | | — | | |||
Donna D. Fraiche | | 127,500 | | 6,750 | | — | | 134,250 | | |||
Bruce M. Gans, M.D. | | 125,000 | | 6,750 | | — | | 131,750 | | |||
Barbara D. Gilmore | | 120,000 | | 6,750 | | — | | 126,750 | | |||
Gerard M. Martin(3) | | — | | 6,750 | | — | | 6,750 | | |||
Adam D. Portnoy(3) | | — | | 6,750 | | — | | 6,750 | | |||
Michael E. Wagner, M.D.(4) | | — | | — | | — | | — | | |||
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FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 19
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
Directors and Executive Officers |
The following table sets forth information regarding the beneficial ownership of the outstanding Common Shares by each Director and Director nominee, each of our named executive officers and our Directors, Director nominees, named executive officers and other executive officers as a group, all as of March 16, 2020. Unless otherwise noted, to our knowledge, voting power and investment power in the Common Shares are exercisable solely by the named person and the principal business address of the named person is c/o Five Star Senior Living Inc. 400 Centre Street, Newton, Massachusetts 02458. The number of shares in the table reflects the one-for-ten reverse stock split affected on our Common Shares as of September 30, 2019.
Name | | Aggregate Number of Shares Beneficially Owned* | | Percent of Outstanding Shares** | | Additional Information | ||||
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Adam D. Portnoy | | | 2,000,115 | | | 6.3% | | Includes 1,972,783 Common Shares owned by ABP Acquisition LLC, a wholly owned subsidiary of ABP Trust. Mr. Portnoy holds shares of beneficial interest in, and is the sole trustee of, ABP Trust. Voting and investment power with respect to such Common Shares may be deemed to be shared by Mr. Portnoy, ABP Trust and ABP Acquisition LLC. As set forth in the below table, DHC beneficially owns 10,691,658 Common Shares. Adam Portnoy is a managing trustee of DHC and DHC is managed by RMR LLC, which is a majority owned subsidiary of RMR Inc. and of which RMR Inc. is the managing member. Mr. Portnoy is the controlling stockholder of RMR Inc. Mr. Portnoy and RMR LLC may not act to vote or sell the Common Shares owned by DHC without the authorization of the board of trustees of DHC, which is comprised of five trustees. As a result, Mr. Portnoy has determined that he does not beneficially own the Common Shares owned by DHC and therefore the Common Shares owned by DHC are not referenced as beneficially owned by him in this table. | ||
Gerard M. Martin | | | 30,451 | | | Less than 1% | | |||
Katherine E. Potter | | | 30,223 | | | Less than 1% | | | ||
Jennifer B. Clark(2) | | | 25,316 | | | Less than 1% | | |||
Richard A. Doyle, Jr.(1) | | | 19,145 | | | Less than 1% | | | ||
Barbara D. Gilmore | | | 14,075 | | | Less than 1% | | Includes 1,000 Common Shares owned by Ms. Gilmore's husband. | ||
Bruce M. Gans, M.D. | | | 13,194 | | | Less than 1% | | | ||
Donna D. Fraiche | | | 10,100 | | | Less than 1% | | |||
Jeffrey C. Leer(1) | | | 8,199 | | | Less than 1% | | | ||
Margaret S. Wigglesworth | | | 7,500 | | | Less than 1% | | |||
Michael E. Wagner, M.D.(2) | | | 2,000 | | | Less than 1% | | | ||
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All Directors, Director nominees, named executive officers and other executive officers as a group (11 persons) | | | 2,160,318 | | | 6.8% | | |||
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20 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
Principal Stockholders |
Set forth in the table below is information about the number of Common Shares held by persons we know to be the beneficial owners of more than 5.0% of the outstanding Common Shares. The number of shares in the table reflects the one for ten reverse stock split as of September 30, 2019.
Name and Address | | Aggregate Number of Shares Beneficially Owned* | | Percent of Outstanding Shares** | | Additional Information | ||||
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Diversified Healthcare Trust and DHC Holdings LLC (together, the "DHC Parties") Two Newton Place 255 Washington Street, Suite 300 Newton, Massachusetts 02458 | | | 10,691,658 | | | 33.9% | | Based on a Schedule 13D/A filed with the SEC on March 18, 2020 by the DHC Parties: • DHC directly owns and has sole voting and dispositive power over 2,515,633 Common Shares and has shared voting power and dispositive voting power over 8,176,025 Common Shares and beneficially owns 10,691,658 Common Shares. • DHC Holdings LLC, a wholly owned subsidiary of DHC, beneficially owns and has shared voting and dispositive power over 8,176,025 Common Shares. | ||
ABP Acquisition LLC, ABP Trust and Adam D. Portnoy (collectively, the "ABP Parties") Two Newton Place 255 Washington Street, Suite 300 Newton, Massachusetts 02458 | | | 2,000,115 | | | 6.3% | | Based on a Schedule 13D/A filed with the SEC on January 2, 2020 by the ABP Parties: • ABP Acquisition LLC, a wholly owned subsidiary of ABP Trust, directly owns and has shared voting and dispositive power over 1,799,999 Common Shares. ABP Trust beneficially owns and has shared voting and dispositive power over these 1,972,783 Common Shares. • Adam Portnoy directly owns and has sole voting and dispositive power over 27,332 Common Shares and beneficially owns and has shared voting and dispositive power over 1,972,783 Common Shares. | ||
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The percentages indicated are based on 31,543,711 Common Shares outstanding as of March 18, 2020.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 21
The following tables and footnotes summarize the total compensation of our President and Chief Executive Officer, Executive Vice President, Chief Financial Officer and Treasurer and Senior Vice President, Chief Operating Officer who were serving as such officers as of December 31, 2019 and our former Executive Vice President, Chief Financial Officer and Treasurer who served during a portion of the fiscal year ended December 31, 2019, or our "named executive officers." The compensation information for the persons included in the compensation tables are for services rendered to the Company and its subsidiaries and do not include information regarding any compensation received by such persons for services rendered to RMR LLC. All applicable amounts have been adjusted to give effect to the one-for-ten reverse stock split affected on our Common Shares as of September 30, 2019. For further information regarding compensation received by the named executive officers, please see the section entitled "Related Person Transactions." For information regarding the compensation paid by RMR LLC and RMR Inc. to the named executive officers of RMR Inc., please see the documents filed by RMR Inc. with the SEC, including its Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and its Proxy Statement on Schedule 14A for its 2020 Annual Meeting of Shareholders. RMR Inc.'s filings with the SEC are not incorporated by reference into this Proxy Statement.
Summary Compensation Table |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards ($)(1) | | All Other Compensation ($) | | Total ($) | | ||||||||||
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Katherine E. Potter | | 2019 | | | 300,000 | | | 475,000 | | | 45,000 | | | 1,404 | (2) | 821,404 | | ||||||
President and Chief Executive Officer | | 2018 | | | 300,000 | | | 425,000 | | | 17,500 | | | 1,404 | (2) | 743,904 | | ||||||
Jeffrey C. Leer(3) | | 2019 | | | 145,000 | | | 205,000 | | | 33,750 | | | 397 | (2) | 384,147 | | ||||||
Executive Vice President, Chief Financial Officer and Treasurer | | | | | | | | | | | | ||||||||||||
Margaret S. Wigglesworth(4) | | 2019 | | | 109,616 | | | 115,385 | | | 33,750 | | | 108 | (2) | 258,859 | | ||||||
Senior Vice President, Chief Operating Officer | | | | | | | | | | | | ||||||||||||
Richard A. Doyle, Jr.(3)(5) | | 2019 | | | 132,693 | | | — | | | — | | | 623,269 | (5) | 755,962 | | ||||||
Former Executive Vice President, | | 2018 | | | 300,000 | | | 425,000 | | | 17,500 | | | 1,404 | (2) | 743,904 | | ||||||
Chief Financial Officer and Treasurer | | | | | | | | | | | | ||||||||||||
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22 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
2019 Outstanding Equity Awards at Fiscal Year End |
The agreements governing the Common Shares awarded by us to the named executive officers in 2019 in their capacity as our officers provided that one fifth of each award vested on the date of the award and an additional one fifth vests on each of the next four anniversaries of the award date. In the event a recipient who has been granted a Common Share award ceases continuing to render significant services as an employee or otherwise, to us, RMR LLC or any company to which RMR LLC provides management services or that is affiliated with RMR LLC during the vesting period, at the Company's option, the recipient shall forfeit the Common Shares that have not yet vested. Holders of vested and unvested Common Shares awarded under the Five Star Senior Living Inc. 2014 Equity Compensation Plan, as amended (the "2014 Equity Compensation Plan"), or under any prior equity compensation plans receive distributions that the Company makes, if any, on its Common Shares on the same terms as other holders of the Common Shares.
The following table shows the total Common Shares awarded by us to our named executive officers in their capacity as our officers or officers of RMR LLC that were unvested as of December 31, 2019.
| | | | Stock Awards | | ||||||||
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Name | | Year Granted | | Number of Shares or Units of Stock That Have Not Vested (#)(1) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | | ||||||
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Katherine E. Potter | | | 2019 | | | 8,000 | | | 29,680 | | |||
| | | 2018 | | | 3,000 | | | 11,130 | | |||
| | | 2017 | | | 1,600 | | | 5,936 | | |||
| | | 2016 | | | 800 | | | 2,968 | | |||
Jeffrey C. Leer(3) | | | 2019 | | | 6,000 | | | 22,260 | | |||
| | 2018 | | | 84 | | | 312 | | ||||
Margaret S. Wigglesworth | | | 2019 | | | 6,000 | | | 22,260 | | |||
Richard A. Doyle(4) | | | 2019 | | | — | | | — | | |||
| | 2018 | | | 3,000 | | | 11,130 | | ||||
| | 2017 | | | 2,000 | | | 7,420 | | ||||
| | 2016 | | | 1,000 | | | 3,710 | | ||||
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FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 23
Potential Payments upon Termination or Change in Control |
The form of share award agreement for awards made to our named executive officers provides for acceleration of vesting of all share awards (including those previously awarded) upon the occurrence of (i) a change in control of the Company (a "Change in Control") or (ii) RMR LLC ceasing to be the manager or shared services provider to the Company or certain employment termination events (a "Termination Event").
The following table describes the potential payments to our named executive officers upon a Change in Control or Termination Event, if such event had occurred, as of December 31, 2019.
Name | | Number of Shares Vested Upon Change in Control or Termination Event (#) | | Value Realized on Change in Control or Termination Event as of December 31, 2019 ($)(1) | | |||
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Katherine E. Potter | | 13,400 | | | 49,714 | | ||
Jeffrey C. Leer | | 6,084 | | | 22,572 | | ||
Margaret S. Wigglesworth | | 6,000 | | | 22,260 | | ||
Richard A. Doyle, Jr.(2) | | 6,000 | | | 22,260 | | ||
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Although we have no formal policy, plan or arrangement for payments to employees of the Company or RMR LLC in connection with the termination of their employment with the Company or RMR LLC, we may in the future provide on a discretionary basis for the acceleration of vesting of Common Shares previously awarded to them under the 2014 Equity Compensation Plan depending on various factors we then consider relevant and if we believe it is in our best interests to do so.
For a discussion of the consequences of a Change in Control or Termination Event under our business management agreement with RMR LLC, please see the section entitled "Certain Related Person Transactions."
24 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
PROPOSAL 2: APPROVAL OF THE AMENDED AND RESTATED 2014 EQUITY COMPENSATION PLAN
Our Board believes that the availability of equity-based compensation is a significant factor in our ability to attract, retain and motivate the employees, officers, directors and other service providers who are critical to our success. In order to achieve these objectives, our Board has unanimously approved, and unanimously recommends that stockholders approve, the Amended and Restated 2014 Equity Compensation Plan (the "Amended and Restated 2014 Equity Compensation Plan"), in the form attached as Annex A. The principal changes effected by the amendment and restatement (as compared to the Company's existing 2014 Equity Compensation Plan, or the "Predecessor Plan") are:
If stockholder approval of the Amended and Restated 2014 Equity Compensation Plan is not obtained, we will continue to use the Predecessor Plan as our equity compensation vehicle, until the available shares under that plan are exhausted or the term of that plan expires on September 30, 2024.
Summary of the Amended and Restated 2014 Equity Compensation Plan
The following summary of the material features of the Amended and Restated 2014 Equity Compensation Plan is qualified in its entirety by reference to the complete text of the Amended and Restated 2014 Equity Compensation Plan, attached as Annex A.
Purpose, Eligible Persons, Effective Date and Duration
The Amended and Restated 2014 Equity Compensation Plan will become effective on the date of the 2020 Annual Meeting of Stockholders, subject to stockholder approval. The purpose of the Amended and Restated 2014 Equity Compensation Plan is to encourage the employees, officers, directors and other service providers of the Company or of its subsidiaries to continue their association with us by providing favorable opportunities for them to participate in the ownership of Common Shares. The Amended and Restated 2014 Equity Compensation Plan allows us to grant awards with respect to Common Shares ("Stock Awards"), including restricted Common Shares ("Restricted Stock"), options to acquire Common Shares ("Options"), stock appreciation rights ("SARs"), restricted stock units ("RSUs") and other rights to compensation determined by the value of the Common Shares. Stock Awards, Restricted Stock, SARs, RSUs and other rights which may be granted under the Amended and Restated 2014 Equity Compensation Plan (not including Options) are referred to below collectively as "Other Rights." As of March 16, 2020, approximately 23,500 persons, principally employees, are eligible to receive Options and Other Rights pursuant to the Amended and Restated 2014 Equity Compensation Plan. The term of the Amended and Restated 2014 Equity Compensation Plan is scheduled to continue until the tenth anniversary of the 2020 Annual Meeting of Stockholders, after which the plan is scheduled to terminate. Any termination of the Amended and Restated 2014 Equity Compensation Plan will not affect awards made prior to termination, but no new awards will be made under the plan after termination.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 25
Shares Subject to the Plan
The Predecessor Plan currently provides that an aggregate of 507,259 Common Shares are available for grant under the plan pursuant to grants of Options and Other Rights. Since the 2014 Equity Compensation Plan was initially adopted, 345,395 shares of Restricted Stock have been granted pursuant to the plan. As of March 16, 2020, 174,648 Common Shares were available for grants of future awards under the plan, and there were 93,258 unvested shares of Restricted Stock outstanding, which remain subject to possible forfeiture to, or repurchase for nominal consideration by, us as provided in the restricted share award agreement. In addition, to the extent that Common Shares under the Amended and Restated 2014 Equity Compensation Plan are subject to an award which lapses or is forfeited, any Common Shares subject to such award will again become available for grant under the terms of the Amended and Restated 2014 Equity Compensation Plan. Common Shares issuable under the Amended and Restated 2014 Equity Compensation Plan may be authorized but unissued shares. In the event of any change in the number or kind of Common Shares outstanding pursuant to a reorganization, recapitalization, exchange of shares, stock dividend, split or combination of shares or similar event, appropriate adjustments will be made to the number of authorized Common Shares under the Amended and Restated 2014 Equity Compensation Plan, to the number of Common Shares subject to outstanding grants or awards, to the exercise price per share of Options or SARs and to the kind of shares which may be distributed under the Amended and Restated 2014 Equity Compensation Plan, among other things. The total amount of Common Shares subject to Options which constitute "incentive stock options" (as described below) that may be granted to any single individual in any calendar year under the plan may not exceed in the aggregate 100,000 and all Common Shares available under the plan may be granted as incentive stock options ("ISOs").
Administration
The Amended and Restated 2014 Equity Compensation Plan will be administered by our Compensation Committee. Among other things, our Compensation Committee makes determinations regarding: (i) the persons to whom Options and Other Rights will be granted; (ii) the number and the terms and conditions of Options or Other Rights granted to each such person, including the price per share to be paid upon exercise of any Option and the period within which each such Option or Other Right vests (if any) and, if applicable, may be exercised; and (iii) the interpretation of the Amended and Restated 2014 Equity Compensation Plan and the establishment of rules and regulations for its administration. Our Board may also undertake the roles and responsibilities of our Compensation Committee under the plan.
Options
Our Compensation Committee may grant Options to any individual eligible to participate in the plan. Our Compensation Committee makes determinations regarding the number of Common Shares subject to an Option, its exercise price, its vesting conditions, the manner and time of its exercise and whether the Option is intended to qualify as an ISO, which is an option which is eligible for favorable tax treatment under the Internal Revenue Code (the "Code"), as discussed in more detail below. ISOs may be issued only to employees of the Company or a subsidiary of the Company. Options that are not intended to qualify as ISOs are referred to as nonqualified stock options ("NSOs").
In the case of any Option, the exercise price may not be less than the "fair market value" of the Common Shares on the date the Option is granted; provided, however, that in the case of an employee who owns (or is considered to own under Section 424(d) of the Code) shares possessing more than 10% of the total combined voting power of all classes of the Company's shares or any of its subsidiaries, the price at which Common Shares may be purchased pursuant to an ISO may not be less than 110% of the fair market value of the Common Shares on the date the ISO is granted.
The duration of the ISOs and NSOs granted under the plan may be specified pursuant to each respective stock option agreement, but in no event can any ISO be exercisable after the expiration of 10 years after the date of grant. In the case of any employee who owns (or is considered under Section 424(d) of the Internal Revenue Code (the "Code") as owning) shares possessing more than 10% of the total combined
26 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
voting power of all classes of the Company's shares or any of the Company's subsidiaries, no ISO shall be exercisable after the expiration of five years from its date of grant. Options may be exercisable during their entire duration or during any lesser period of time, as specified in the Option agreement.
The Option exercise price may generally be paid in cash, in Common Shares owned by the optionee, by delivery of a recourse promissory note secured by the Common Shares acquired upon exercise of the Option or by means of a "cashless exercise" procedure.
Stock Appreciation Rights
Our Compensation Committee may grant SARs to eligible participants as to such number of Common Shares and on such terms and conditions as the committee may determine. SARs may be granted separately or in connection with ISOs or NSOs. Upon exercise of a SAR, the holder is entitled to receive payment equal to the excess of the fair market value, on the date of exercise, of the number of Common Shares for which the SAR is exercised, over the exercise price for such Common Shares under a related Option, or if there is not a related Option, over an amount per share stated in the written agreement setting forth the terms and conditions of the SAR which may not be less than the fair market value of the shares on the date of grant. Payment may be made in cash or other property, including Common Shares, in accordance with the provisions of the applicable SAR agreement. Upon the exercise of a SAR related to an Option, the Option shall terminate as to the number of Common Shares for which the SAR is exercised.
Stock Awards and Restricted Stock
Our Compensation Committee may grant to eligible participants a number of Common Shares (which may be, but are not required to be, shares of Restricted Stock) determined in the committee's discretion, subject to terms and conditions determined by the committee, including unconditional grants and grants with conditions that may require the holder to forfeit the Common Shares (or permit us to repurchase the Common Shares for nominal consideration) in the event that the holder ceases to provide services to us before a stated time. Unlike holders of Options and SARs, a holder of Restricted Stock has the rights of a stockholder to vote and to receive payment of dividends on the Restricted Stock, unless otherwise specified in the agreement that sets forth the terms on which the Restricted Stock is granted.
Restricted Stock Units
Our Compensation Committee may grant to eligible participants the right to receive a number of Common Shares, subject to terms and conditions determined by the committee, including conditions that may require the holder to forfeit such right in the event that the holder ceases to provide services to us before a stated time. Holders of RSUs do not have the rights of stockholders unless and until Common Shares are issued in respect of the award.
Other Stock Based Awards
Our Compensation Committee may grant to eligible participants other awards of, or determined with respect to, Common Shares, subject to terms and conditions determined by the committee.
Equitable Adjustment
If, while awards remain outstanding under the Amended and Restated 2014 Equity Compensation Plan, the Company merges or consolidates with another corporation or in the event of similar corporate events, then our Compensation Committee, in its discretion, may make equitable adjustments to awards under the plan to reflect such transaction.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 27
Change in Control or Termination Event
The Amended and Restated 2014 Equity Compensation Plan provides that upon either a Change in Control or a Termination Event (as such terms are defined in the plan), awards under the plan will become fully vested and (if applicable) exercisable.
Amendments to the Plan
Our Board may modify, revise or terminate the Amended and Restated 2014 Equity Compensation Plan at any time and from time to time, except that approval of our stockholders is required with respect to any amendment to change the aggregate number of Common Shares that may be issued under Options or granted pursuant to the plan, change the class of persons eligible to receive Options or Other Rights or make any other change that requires stockholder approval under applicable law or listing standard. Amendments adversely affecting outstanding Options or Other Rights may not be made without the consent of the holder of the Option or Other Right.
Other than with respect to equitable adjustments as described above, we may not increase the aggregate number of Common Shares that may be issued under Options or granted pursuant to the Amended and Restated 2014 Equity Compensation Plan without stockholder approval.
The closing price of the Common Shares on The Nasdaq Stock Market on April 14, 2020 was $3.35.
Tax Treatment
The following description of the United States federal income tax consequences of Options and Other Rights is general and does not purport to be complete.
Tax Treatment of Options
An optionee realizes no taxable income when a NSO is granted. Instead, the difference between the fair market value of the Common Shares subject to the NSO and the exercise price paid is taxed as ordinary compensation income when the NSO is exercised. The difference is measured and taxed as of the date of exercise, if the Common Shares are not subject to a "substantial risk or forfeiture", or as of the date or dates on which the risk terminates in other cases. An optionee may elect to be taxed on the difference between the exercise price and the fair market value of the Common Shares on the date of exercise, even though some or all of the Common Shares acquired are subject to a substantial risk of forfeiture. Gain on the subsequent sale of the Common Shares is taxed as capital gain. We receive no tax deduction on the grant of a NSO, but we are entitled to a tax deduction when the optionee recognizes taxable income on or after exercise of the NSO, in the same amount as the income recognized by the optionee.
Generally, an optionee incurs no federal income tax liability on either the grant or the exercise of an ISO, although an optionee will generally have taxable income for alternative minimum tax purposes at the time of exercise equal to the excess of the fair market value of the Common Shares subject to an ISO over the exercise price. Provided that the Common Shares are held for at least one year after the date of exercise of the related ISO and at least two years after its date of grant, any gain realized on subsequent sale of the Common Shares will be taxed as long term capital gain. If the Common Shares are disposed of within a shorter period of time, the optionee will recognize ordinary compensation income in an amount equal to the difference between the sales price and the ISO exercise price or (if less) the difference between the fair market value at the time of exercise and the ISO exercise price. We receive no tax deduction on the grant or exercise of an ISO, but we are entitled to a tax deduction if the optionee recognizes taxable income on account of a premature disposition of ISO Common Shares, in the same amount and at the same time as the optionee's recognition of income.
28 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
Tax Treatment of SARs
A recipient recognizes no income upon the grant of a SAR, but upon its exercise realizes ordinary compensation income in an amount equal to the cash or cash equivalent that he receives at that time. If the recipient receives Common Shares upon exercise of the SAR, the recipient recognizes ordinary income measured by the fair market value of the Common Shares so received (or, if the Common Shares are subject to a substantial risk of forfeiture, at the date or dates on which the risk expires, unless the recipient elects to be taxed at the time of exercise).
Tax Treatment of Restricted Stock and Other Stock Awards
A person who receives a grant of Restricted Stock generally will not recognize ordinary compensation income at the time the award is received, but will recognize ordinary compensation income when restrictions constituting a substantial risk of forfeiture lapse. The amount of such income will be equal to the excess of the aggregate fair market value, as of the date the restrictions lapse, over the amount (if any) paid by the holder for the Restricted Stock. Alternatively, a recipient of Restricted Stock may elect to be taxed instead on the excess of the fair market value of the Restricted Stock at the time of grant over the amount (if any) paid by the recipient for the Restricted Stock, notwithstanding the restrictions on the stock. Recipients of Stock Awards that are not subject to restrictions will recognize ordinary compensation income at the time the award is received, equal to the excess of the aggregate fair market value of the shares over the amount (if any) paid by the holder for the shares. All such taxable amounts are deductible by the Company at the time and in the amount of the ordinary compensation income recognized by the recipient.
Tax Treatment of Restricted Stock Units
In general, the grant of RSUs will not result in income for the person who receives the grant or in a tax deduction for the Company. Upon the settlement of such an award in cash or shares, the participant will recognize ordinary income equal to the aggregate value of the payment received, and the Company generally will be entitled to a tax deduction at the same time and in the same amount.
Interests of Certain Persons in Matters to Be Acted Upon
Our officers, employees, consultants, other service providers and non-employee directors are eligible to receive awards under the Amended and Restated 2014 Equity Compensation Plan in the discretion of our Compensation Committee. Future grants under the Amended and Restated 2014 Equity Compensation Plan will be made at the discretion of our Compensation Committee and thus are not determinable at this time.
Share Usage
The following table sets forth the annual share usage under the Predecessor Plan for the last three calendar years. The number of shares in the table reflects the one-for-ten reverse stock split affected on our Common Shares as of September 30, 2019.
Year | | Awards Granted (number of shares) | | Weighted Average Shares Outstanding | | ||||
---|---|---|---|---|---|---|---|---|---|
| | | | | | ||||
2017 | | | 59,060 | | | 4,920,369 | | ||
2018 | | | 47,100 | | | 4,968,734 | | ||
2019 | | | 85,800 | | | 5,006,210 | | ||
| | | | | |
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 29
Equity Compensation Plan Information
The following table shows information with respect to securities authorized for issuance under the equity compensation plans maintained by the Company as of December 31, 2019.
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | ||
---|---|---|---|---|---|---|---|---|
| | | | | | | | |
| (a) | | (b) | | (c) | | ||
Equity compensation plans approved by security holders—2014 Equity Compensation Plan | | None | | None | | 176,460 | | |
Equity compensation plans not approved by security holders | | None | | None | | None | | |
Total | | None | | None | | 176,460 | | |
| | | | | | | |
Approval of the Amended and Restated 2014 Equity Compensation Plan requires the affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting of Stockholders.
Our Board of Directors recommends a vote "FOR" the approval of the Amended and Restated 2014 Equity Compensation Plan.
30 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
As required by Section 14A of the Exchange Act, the Company seeks a non-binding advisory vote from its stockholders to approve the compensation of its named executive officers as described in the "Executive Compensation" section beginning on page 22.
Our executive compensation is designed to reward executive performance that contributes to our success and increases stockholder value, while encouraging behavior that is in our and our stockholders' long term best interests.
Our Board recommends that stockholders vote FOR the following resolution:
RESOLVED: That the stockholders of the Company approve, on a non-binding, advisory basis, the compensation paid by the Company to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K in this Proxy Statement.
Because your vote is advisory, it will not be binding upon our Board or our Compensation Committee. However, our Board values stockholders' opinions and our Compensation Committee will take into account the outcome of the vote, among other things, when considering future executive compensation decisions.
Our current policy, consistent with the prior vote of our stockholders, is to provide stockholders with an opportunity to approve, on an advisory basis, the compensation of our named executive officers every three years at the annual meeting of stockholders. The stockholders last approved the compensation of the Company, on an advisory basis, at the 2017 Annual Meeting. Accordingly, we are providing stockholders with an opportunity to approve this compensation at the 2020 Annual Meeting.
In evaluating our compensation process for 2019, our Compensation Committee generally considered the results of the most recent advisory vote of our stockholders on the compensation of the executive officers named in the proxy statement for the Company's 2017 annual meeting of stockholders.
Approval of the advisory vote to approve executive compensation requires the affirmative vote of a majority of the votes cast, in person or by proxy, at the 2020 Annual Meeting.
Our Board of Directors recommends a vote "FOR" the advisory vote to approve executive compensation.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 31
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF RSM US LLP AS INDEPENDENT AUDITORS
Our Audit Committee has the sole authority and responsibility to hire, evaluate and, when appropriate, replace our independent auditors and is directly responsible for the appointment, compensation and general oversight of the work of the independent auditors. Our Audit Committee is responsible for approving the audit and permissible non-audit services provided by the independent auditors and the associated fees.
Our Audit Committee evaluates the performance of our independent auditors annually and determines whether to re-engage the current independent auditors or consider other audit firms. In doing so, our Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors' technical expertise and knowledge of our operations and industry, the auditors' independence, legal proceedings involving the auditors, the results of Public Company Accounting Oversight Board ("PCAOB") inspections and peer quality reviews of the auditors and the auditors' reputation in the marketplace. In connection with the mandated rotation of the independent auditors' lead engagement partner, our Audit Committee and its chair consider the selection of the new lead engagement partner identified by the independent auditors.
Based on this evaluation, our Audit Committee has appointed RSM US LLP to serve as our independent auditors for the fiscal year ending December 31, 2020. RSM US LLP has served as our independent auditors since October 6, 2014, and is considered by management and our Audit Committee to be well qualified.
Our Audit Committee has determined to submit its selection of the independent auditors to our stockholders for ratification. This vote will ratify prior action by our Audit Committee and will not be binding upon our Audit Committee. However, our Audit Committee may reconsider its prior appointment of the independent auditors or consider the results of this vote when it determines who to appoint as our independent auditors in the future.
Audit Fees and All Other Fees |
The following table shows the fees for audit and other services provided to us by RSM US LLP for the fiscal years ended December 31, 2019 and 2018.
| | | | | | ||||||
| | 2019 Fees(1) | | 2018 Fees | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees | | | $ | 932,036 | | | | $ | 870,463 | | |
Audit Related Fees | | | — | | | | — | | | ||
Tax Fees | | | — | | | | — | | | ||
All Other Fees | | | — | | | | — | | | ||
| | | | | |
Audit Fees. This category includes fees associated with the annual financial statements audit and related audit procedures, an audit of internal control over financial reporting, work performed in connection with
32 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
any registration statements and any applicable Current Reports on Form 8-K and the review of any of the Company's Quarterly Reports on Form 10-Q.
Audit Related Fees. This category consists of services that are reasonably related to the performance of the audit or review of financial statements and are not included in "Audit Fees." These services principally include due diligence in connection with acquisitions, consultation on accounting and internal control matters, audits in connection with proposed or consummated acquisitions, information systems audits and other attest services.
Tax Fees. This category consists of fees for tax services, including tax compliance, tax advice and tax planning.
All Other Fees. This category consists of services that are not included in the above categories.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors |
Our Audit Committee has established policies and procedures that are intended to control the services provided by our independent auditors and to monitor their continuing independence. Under these policies, our independent auditors may not undertake any services unless the engagement is specifically approved by our Audit Committee or the services are included within a category that has been approved by our Audit Committee. The maximum charge for services is established by our Audit Committee when the specific engagement or the category of services is approved. In certain circumstances, our management is required to notify our Audit Committee when approved services are undertaken and our Audit Committee or its Chair may approve amendments or modifications to the engagement or the maximum fees. Our Director of Internal Audit is responsible for reporting to our Audit Committee regarding compliance with these policies and procedures.
Our Audit Committee will not approve engagements of the independent auditors to perform non-audit services for the Company if doing so will cause the independent auditors to cease to be independent within the meaning of applicable SEC or Nasdaq rules. In other circumstances, our Audit Committee considers, among other things, whether our independent auditors are able to provide the required services in a more or less effective and efficient manner than other available service providers and whether the services are consistent with the rules of the PCAOB. All services for which we engaged our independent auditors in fiscal year 2019 and 2018 were approved by our Audit Committee. The total fees for audit services provided by RSM US LLP in fiscal year 2019 and fiscal year 2018 are set forth above. We did not engage RSM US LLP to provide any non-audit services in 2019 or 2018.
Other Information |
We have been advised by RSM US LLP that neither the firm, nor any member of the firm, has any material interest, direct or indirect, in any capacity in the Company or its subsidiaries.
One or more representatives of RSM US LLP will be present at the 2020 Annual Meeting. The representatives will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Ratification of the appointment of the independent auditors requires the affirmative vote of a majority of all the votes cast, in person or by proxy, at the 2020 Annual Meeting.
Our Board of Directors recommends a vote "FOR" the ratification of the appointment of RSM US LLP as independent auditors.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 33
In the course of oversight by our Audit Committee (our "Audit Committee") of our Board of Directors of Five Star Senior Living Inc. (the "Company") of our financial reporting process, our Audit Committee has: (i) reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2019; (ii) discussed with RSM US LLP, our independent auditors, the matters required to be discussed under PCAOB Auditing Standard No. 1301; (iii) received the written disclosures and the letter from our auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding our independent auditors' communications with our Audit Committee concerning independence; (iv) discussed with our independent auditors their independence; and (v) considered whether the provision of non-audit services, if any, by our independent auditors is compatible with maintaining their independence and concluded that it is compatible at this time.
Based on the foregoing review and discussions, our Audit Committee recommended to our Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for filing with the Securities and Exchange Commission.
Barbara D. Gilmore,Chair Donna D. Fraiche Bruce M. Gans, M.D. Gerard M. Martin Michael E. Wagner, M.D. |
34 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
Proxy Materials and Voting Information
1. What is included in the proxy materials? What is a proxy statement and what is a proxy? |
The proxy materials for the 2020 Annual Meeting include the Notice Regarding the Availability of Proxy Materials, Notice of 2020 Annual Meeting, this Proxy Statement and our Annual Report to Stockholders for the year ended December 31, 2019 (collectively, the "proxy materials"). If you request a paper copy of these materials, the proxy materials will also include a proxy card or voting instruction form.
A proxy statement is a document that the SEC regulations require us to give you when it asks you to return a proxy designating individuals to vote on your behalf. A proxy is your legal designation of another person to vote the shares you own. That other person is called your proxy. We are asking you to designate the following three persons as your proxies for the 2020 Annual Meeting: Jennifer B. Clark, Secretary; Adam D. Portnoy, Managing Director; and Katherine E. Potter, President and Chief Executive Officer.
2. What is the difference between holding shares as a stockholder of record and as a beneficial owner? |
If your shares are registered directly in your name with our registrar and transfer agent, Equiniti Shareowner Services, you are considered a stockholder of record of those shares. If you are a stockholder of record, you should receive only one notice or proxy card for all the Common Shares you hold, whether in certificate or book entry form.
If your shares are held in an account you own at a bank or brokerage or you hold shares through another nominee, you are considered the "beneficial owner" of those shares. If you are a beneficial owner, you will receive voting instruction information from the bank, broker or other nominee through which you own your Common Shares.
If you hold some shares of record and some shares beneficially, you should receive a notice or proxy card for all the Common Shares you hold of record and a separate voting instruction form for the shares from the bank, broker or other nominee through which you own Common Shares.
3. What different methods can I use to vote? |
By Written Proxy. All stockholders of record can submit voting instructions by written proxy card. If you are a stockholder of record and receive a Notice Regarding the Availability of Proxy Materials, you may request a written proxy card by following the instructions included in the notice. If you are a beneficial owner, you may request a written proxy card or a voting instruction form from your bank, broker or other nominee. Proxies submitted by mail must be received by 11:59 p.m., Eastern time, on June 8, 2020 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the date of the reconvened meeting.
By Telephone or Internet. All stockholders of record also can authorize a proxy to vote their shares by touchtone telephone by calling 1-800-690-6903, or through the internet atwww.proxyvote.com, using the procedures and instructions described in your Notice Regarding the Availability of Proxy Materials or proxy card. Beneficial owners may authorize a proxy by telephone or internet if their bank, broker or other
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 35
nominee makes those methods available, in which case the bank, broker or nominee will include the instructions with the proxy voting materials. To authorize a proxy by telephone or internet, you will need the 16-digit control number provided on your Notice Regarding the Availability of Proxy Materials, proxy card or voting instruction form. The telephone and internet proxy authorization procedures are designed to authenticate stockholder identities, to allow stockholders to vote their shares and to confirm that their instructions have been recorded properly. Proxies submitted by telephone or through the internet must be received by 11:59 p.m., Eastern time, on June 8, 2020 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the date of the reconvened meeting.
In Person. All stockholders of record may vote in person at the meeting. Beneficial owners may vote in person at the meeting if they have a legal proxy, as described in the response toquestion 11.
A stockholder may revoke a proxy at any time before it is voted at the 2020 Annual Meeting, subject to the proxy voting deadlines described above, by authorizing a proxy again on a later date by internet or by telephone (only the last internet or telephone proxy submitted prior to the meeting will be counted), by signing and returning a later dated proxy card or by attending the meeting and voting in person or by sending an original written statement revoking the prior proxy to the Secretary of the Company at our principal executive office (or by hand delivery to the Secretary before the taking of the vote at the 2020 Annual Meeting). If you are a beneficial owner, see the response toquestion 11.
Beneficial owners who wish to change their votes should contact the organization that holds their shares.
4. Who may vote at the 2020 Annual Meeting? |
Holders of record of Common Shares as of the close of business on March 16, 2020, the record date, may vote at the meeting. Holders of Common Shares are entitled to one vote for each Common Share held on the record date.
5. What if I authorize a proxy and do not specify how my shares are to be voted? |
If you submit a signed proxy card or authorize a proxy by internet or telephone, but do not indicate how your Common Shares should be voted on one or more proposals, then the proxies will vote your shares as our Board recommends on those proposals. Other than the proposals listed on pages 10, 25, 31 and 32, we do not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, the proxies may vote your shares in accordance with their discretion.
6. What is a quorum? How are abstentions and broker non-votes counted? |
A quorum of stockholders is required for stockholders to take action at the 2020 Annual Meeting. The presence, in person or by proxy, of stockholders entitled to cast one-third of all the votes entitled to be cast at the 2020 Annual Meeting constitutes a quorum.
Abstentions and broker non-votes (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owner or the person entitled to vote and (ii) the broker does not have discretionary voting power on a particular matter), if any, are included in determining whether a quorum is present. Abstentions are not votes cast and, therefore, will not be included in vote totals and will have no effect on the outcome of any Proposal to be voted on at the 2020 Annual Meeting. A proxy marked "WITHHOLD" with respect to Proposal 1 will have the same effect as an abstention. Broker non-votes are not votes cast and, therefore, will not be included in vote totals and will have no effect on
36 FIVE STAR SENIOR LIVING INC. �� 2020 Proxy Statement
the outcome of Proposal 1, Proposal 2 or Proposal 3. There can be no broker non-votes on Proposal 4 as it is a matter on which, if you hold your shares in street name and do not provide voting instructions to the broker, bank or other nominee that holds your shares, the nominee has discretionary authority to vote on your behalf.
7. Can I access the proxy materials on the internet? How can I sign up for the electronic proxy delivery service? |
The Notice of 2020 Annual Meeting, this Proxy Statement and the Annual Report are available atwww.proxyvote.com. You may access these proxy materials on the internet through the conclusion of the 2020 Annual Meeting.
Instead of receiving future copies of our proxy materials by mail, stockholders of record and most beneficial owners may elect to receive these materials electronically. Opting to receive your future proxy materials electronically will reduce the environmental impact of our annual meeting, save us the cost of printing and mailing documents, and also will give you an electronic link to our proxy voting site. Your Notice Regarding the Availability of Proxy Materials instructs you as to how you may request electronic delivery of future proxy materials.
8. How are proxies solicited and what is the cost? |
We bear all expenses incurred in connection with the solicitation of proxies. We will request banks, brokers and other nominees to forward proxy materials to the beneficial owners of our Common Shares and to obtain their voting instructions. We will reimburse those firms for their expenses of forwarding proxy materials.
Proxies may also be solicited, without additional compensation, by our Directors and officers and by RMR LLC, its officers and employees and its parent's and subsidiaries' directors, trustees, officers and employees, by mail, telephone or other electronic means or in person.
9. What is householding? |
As permitted by the Exchange Act, we may deliver only one copy of the Notice Regarding the Availability of Proxy Materials, Notice of 2020 Annual Meeting, this Proxy Statement and the Annual Report to Stockholders residing at the same address, unless the stockholders have notified us of their desire to receive multiple copies of those documents. This practice is known as "householding."
We will deliver a separate copy of any of those documents to you if you write to the Company at Investor Relations, Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, or call the Company at (617) 796-8245. If you want to receive separate copies of our notices regarding the availability of proxy materials, notices of annual meetings, proxy statements and annual reports in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker or other nominee, or you may contact us at the above address or telephone number.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 37
2020 Annual Meeting Information
10. How do I attend the 2020 Annual Meeting in person? |
Attendance at the meeting is limited to our Directors and officers, stockholders as of the record date (March 16, 2020) or their duly authorized representatives or proxies, and other persons permitted by the Chairman of the meeting. All attendees need to bring photo identification for admission.
If you have questions regarding these admission procedures, please call Investor Relations at (617) 796-8245.
11. How can I vote in person at the meeting if I am a beneficial owner? |
If you are a beneficial owner and want to vote your shares at the 2020 Annual Meeting, you need a legal proxy from your bank, broker or other nominee. You also need to follow the procedures described in the response toquestion 10 and to bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided to you at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not have a legal proxy, you can still attend the meeting by following the procedures described in the response toquestion 10. However, you will not be able to vote your shares at the meeting without a legal proxy. We encourage you to vote your shares in advance, even if you intend to attend the meeting.
Company Documents, Communications and Stockholder Proposals
12. How can I view or request copies of the Company's SEC filings and other documents? |
You can visit our website to view our Governance Guidelines, Board committee charters and the Code. To view these documents, go towww.fivestarseniorliving.com, click on "Investor Relations" and then click on "Corporate Governance." To view the Company's SEC filings and Forms 3, 4 and 5 filed by the Company's Directors and executive officers, go towww.fivestarseniorliving.com, click on "Investor Relations" and then click on "Financial Information & SEC Filings."
We will deliver free of charge, upon request, a copy of our Governance Guidelines, Board committee charters, the Code or the Annual Report to any stockholder requesting a copy. Requests should be directed to Investor Relations at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
38 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
13. How can I communicate with the Company's Directors? |
Any stockholder or other interested person who wants to communicate with our Directors should write to the party for whom the communication is intended, c/o Secretary, Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or email secretary@fivestarseniorliving.com. The communication will then be delivered to the appropriate party or parties.
14. How do I submit a nomination or other proposal for action at the 2021 annual meeting of stockholders? |
A proposal for action to be presented by any stockholder at the Company's 2021 annual meeting of stockholders must be submitted as follows:
Proposals should be sent to our Secretary at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
For additional information regarding how to submit a stockholder proposal, see page 9 of this Proxy Statement.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 39
The descriptions of agreements in this "Related Person Transactions" section do not purport to be complete and are subject to, and qualified in their entirety by, reference to the actual agreements, copies of certain of which are filed as exhibits to our Annual Report.
A "related person transaction" is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) or a proposed transaction in which (i) we were, are or will be a participant, (ii) the amount involved exceeds the lesser of $120,000 or 1.0% of the average of the Company's total assets at year end for the last two completed fiscal years and (iii) any related person had, has or will have a direct or indirect material interest.
A "related person" means any person who is, or at any time since January 1, 2019 was:
We have adopted written Governance Guidelines that describe the consideration and approval of related person transactions. Under these Governance Guidelines, we may not enter into a transaction in which any Director or executive officer, any member of the immediate family of any Director or executive officer or other related person, has or will have a direct or indirect material interest unless that transaction has been disclosed or made known to our Board and our Board reviews and approves or ratifies the transaction by the affirmative vote of a majority of the disinterested Directors, even if the disinterested Directors constitute less than a quorum. If there are no disinterested Directors, the transaction must be reviewed, authorized and approved or ratified by both (i) the affirmative vote of a majority of our Board and (ii) the affirmative vote of a majority of the Independent Directors. In determining whether to approve or ratify a transaction, our Board, or disinterested Directors or Independent Directors, as the case may be, also act in accordance with any applicable provisions of our Charter and Bylaws and consider all of the relevant facts and circumstances and approve only those transactions that they determine are fair and reasonable to the Company. All related person transactions described below were reviewed and approved or ratified by a majority of the disinterested Directors or otherwise in accordance with our policies, Charter and Bylaws, each as described above, and Maryland law. In the case of transactions with the Company by employees of the Company who are subject to the Code but who are not Directors or executive officers of the Company, the employee must seek approval from an executive officer who has no interest in the matter for which approval is being requested. Copies of our Governance Guidelines and the Code are available on our website,www.fivestarseniorliving.com.
Certain Related Person Transactions
Relationship with SNH.DHC. The Company was formerly a 100% owned subsidiary of SNHDHC until SNHDHC distributed the Common Shares it then owned to its shareholders in 2001. SNHDHC is currently one of the Company'sour largest stockholders,stockholder, beneficially owning, as of December 31, 2017, 4,235,000March 16, 2020, 10,691,658 Common Shares, or 8.4%33.9% of theour outstanding Common Shares. SNH isWe manage for the Company's largest landlord andaccount of DHC a substantial majority of the Company manages certain senior living communities for SNH.
One of the Company's former Managing Directors, Barry M. Portnoy, was a managing trustee of SNH until his death on February 25, 2018. One of the Company's current Managing Directors,we operate. Adam D. Portnoy, Barry M. Portnoy's son,the Chair of our Board and one of our Managing Directors, also serves as the chair of the board of trustees and as a managing trustee of SNH. The Company's Chief Financial Officer and Treasurer was formerly SNH's chief financial officer and treasurer from 2007 through 2015. RMR LLC provides management services to both the Company and SNH. RMR Inc., the managing member of RMR LLC, is controlled by ABP Trust, which is controlled by its current sole trustee, Adam D. Portnoy. SNH's executive officers are officers of RMR LLC. The Company's President and Chief Executive Officer, Chief Financial Officer and Treasurer and Senior Vice President and General Counsel are officers of RMR LLC.
In order to effect SNH's distribution of Common Shares to its shareholders in 2001 and to govern relations with SNH thereafter, the Company entered agreements with SNH and others, including RMR LLC. Since then, the Company has entered various leases, management agreements andDHC. Our other Managing
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 35
agreements with SNH that include provisions that confirm and modify these undertakings. Among other things, these agreements provide that:
Senior Living Communities Leased from SNH. SNH is the Company's largest landlord and the Company is SNH's largest tenant. As of December 31, 2017, the Company leased 185 senior living communities from SNH pursuant to five leases with SNH.
The Company's total annual rent payable to SNH was $207.0 million as of December 31, 2017. The Company's total rent expense under all of the Company's leases with SNH, net of lease inducement amortization and the amortization of the deferred gain from certain properties the Company sold to SNH was $203.6 million for the year ended December 31, 2017, which amount included $5.5 million, of percentage rent.
36 40 FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement
The following table isTable of Contents
Director and Secretary also serves as a summarymanaging trustee and secretary of DHC. RMR LLC provides management services to both us and DHC. Our President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Treasurer and DHC's executive officers are officers and employees of RMR LLC.
On April 1, 2019, we entered into a transaction agreement with DHC (the "Transaction Agreement") to restructure our business arrangements with DHC (the "Restructuring Transaction"), which was completed effective January 1, 2020. Historically, we leased most of the Company'sDHC owned senior living communities that we operated. Pursuant to the Restructuring Transaction, among other things, our previously existing master leases with SNHDHC for 166 of our senior living communities and our previously existing management and pooling agreements for 78 of DHC's senior living communities were terminated and replaced with new management agreements and a related omnibus agreement (collectively, the "New Management Agreements"). Currently, all of these senior living communities are managed by us pursuant to the New Management Agreements.
Restructuring our Business Arrangements with DHC. Pursuant to the Transaction Agreement, effective January 1, 2020 (the "Conversion Time"):
Lease | Number of Properties | Annual Minimum Rent as of December 31, 2017 | Current Expiration Date | Remaining Renewal Options | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | |
1. | Lease No. 1 for skilled nursing facilities ("SNFs") and independent and assisted living communities | 83 | $ | 59.7 million | December 31, 2024 | Two 15-year renewal options. | |||||
2. | Lease No. 2 for SNFs and independent and assisted living communities | 47 | $ | 66.4 million | June 30, 2026 | Two 10-year renewal options. | |||||
3. | Lease No. 3 for independent and assisted living communities | 17 | $ | 35.6 million | December 31, 2028 | Two 15-year renewal options. | |||||
4. | Lease No. 4 for SNFs and independent and assisted living communities | 29 | $ | 35.5 million | April 30, 2032 | Two 15-year renewal options. | |||||
5. | Lease No. 5 for independent and assisted living communities | 9 | $ | 9.8 million | December 31, 2028 | Two 15-year renewal options. | |||||
| | | | | | | | | | | |
Under13, 2019; and
The Company's leases with SNH are "triple net" leases, which generally require the Company to pay rent and all property operating expenses, to indemnify SNH from liability which may arise by reason of SNH's ownership of the properties, to maintain the properties at the Company's expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to maintain insurance on the properties for the Company's and SNH's benefit. In the event of any damage, or immaterial condemnation, of a leased property, the Company is generally required to rebuild with insurance or condemnation proceeds or, if such proceeds are insufficient, other amounts made available by SNH, if any, but if other amounts are made available by SNH, the Company's rent will be increased accordingly. In the event of any material or total condemnation of a leased property, the lease will terminate with respect to that leased property, in which event SNH will be entitledAlso pursuant to the condemnation proceeds andTransaction Agreement: (1) commencing February 1, 2019, the Company's rent will be reduced accordingly. In the event of any material or total destruction of the leased property, the Company may terminate the lease with respect to that leased property, in which event the Company is required to pay to SNH any shortfall in theaggregate amount of proceeds SNH receives from insurance compared to the replacement cost of that leased property and the Company's rent will be reduced accordingly.
Under the Company's leases with SNH, the Company may request that SNH purchase certain improvements to the leased communities in return for rent increases in accordance with a formula specified in the applicable lease; however, SNH is not obligated to purchase such improvements and the Company is not obligated to sell them to SNH. During the year ended December 31, 2017, the Company sold $39.8 million of such improvements and the Company's annualmonthly minimum rent payable to SNH increasedDHC by approximately $3.2us under our master leases with DHC was reduced to $11.0 million, as of February 1, 2019, subject to adjustment, and subsequently reduced in accordance with the termsTransaction Agreement as result of DHC's subsequent sales of certain of the applicable leases.
During the quarter ended June 30, 2017, the Company and SNH agreed to amend the applicable lease for certain construction, expansion and development projects at twoleased senior living communities, the
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 37
Company leasesand no additional rent was payable to DHC by us from SNH. Ifsuch date through the Conversion Time; and when(2) on April 1, 2019, DHC purchased from us approximately $49.2 million of unencumbered Qualifying PP&E (as defined in the Company requests that SNH purchase improvementsTransaction Agreement) related to these specific projects from them, the Company's annual rent payable to SNH will increase by an amount equal to the interest rate then applicable to SNH's borrowings under its revolving credit facility plus 2.0% per annum of the amount SNH purchased. This amount of increased rent will apply until 12 months after a certificate of occupancy is issued with respect to the project; thereafter, the Company's annual rent payable to SNH will be revised to equal the amount otherwise determined pursuant to the capital improvement formula specified in the applicable lease.
In August 2017, the Company sold to SNH a land parcel adjacent to a senior living community located in Delaware that SNH leases to the Company for approximately $750,000, excluding closing costs. This land parcel was added to the applicable lease and the Company's annual minimum rent payable to SNH increased by approximately $33,000 in accordance with the terms of that lease.
Senior Living Communities Managed for the Account of SNH. As of December 31, 2017, the Company managed 70DHC's senior living communities for SNH's account. The Company earned base management fees from SNH of $13.0 million forthen leased and operated by us.
Pursuant to the year ended December 31, 2017. In addition, the Company earned incentive fees of $0 and fees for the Company's management of capital expenditure projects at the communities the Company managed for the account of SNH of $0.8 million for the year ended December 31, 2017.
The Company and SNH have 12 pooling agreements that currently combine most of the Company's management agreements with SNH that include assisted living units (the "AL Management Agreements"). The pooling agreements combine various calculations of revenues and expenses from the operations of the applicable communities covered by such agreements. The Company's ALNew Management Agreements, and pooling agreements generally provide that the Company receives from SNH:
The Company's management agreements with SNH for the part of the senior living community owned by SNH and locatedNew Management Agreements expire in Yonkers, New York that is not2034, subject to the requirements of New York healthcare licensing laws, as described elsewhere herein, and for the assisted living community owned by SNH and located in Villa Valencia, California, are not currently included in any of the Company's pooling agreements with SNH.
The Company also has a pooling agreement with SNH that combines all of the Company's management agreements with SNH for senior living communities consisting only of independent living units.
The Company's management agreements with SNH generally expire between 2030 and 2041, and are subjectour right to automatic renewalextend for two consecutive 15 yearfive-year terms if we achieve certain performance targets for the combined managed communities portfolio, unless earlier terminated or timely notice of nonrenewal is delivered. These management agreementsThe New Management Agreements also generally provide that the Company,DHC has, and in some cases and SNH eachwe have, the option to terminate the agreements upon the acquisition by a person or group of more than 9.8% of the other's voting stock and upon certain change in control events affecting the other party, as defined in the applicable agreements, including the adoption of any stockholder proposal (other than a precatory proposal) with respect to the other party, or the election to the board of directors or trustees, as applicable, of the other party of any individual, if such proposal or
38 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
individual was not approved, nominated or appointed, as the case may be, by a majority of the other party's board of directors or board of trustees, as applicable, in office immediately prior to the making of such proposal or the nomination or appointment of such individual.
In June 2017,FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 41
The New Management Agreements also provide DHC with the Company and SNH agreedright to amendterminate the applicable management and pooling agreementsNew Management Agreement for a construction, expansion and development project at a senior livingany community that SNH owns and that is managed bydoes not earn 90% of the Company. SNH's minimum return on invested capitaltarget EBITDA for this specific project will increase by an amount equal to the interest rate then applicable to its borrowings under its revolving credit facility plus 2.0% per annum. This amountsuch community for two consecutive calendar years or in any two of increased minimum return will apply until 12 months after a certificate of occupancy is issuedthree consecutive calendar years, with respect to the project; thereafter, the amount of annual minimum return on invested capital will be revised to equal the amount otherwise determined pursuant to the applicable management and pooling agreements. The Company and SNH also agreed that the commencement of the measurement period commencing January 1, 2021 (and the first termination not possible until the beginning of calendar year 2023); provided DHC may not in any calendar year terminate communities representing more than 20% of the combined revenues for determining whetherall communities for the specified annual minimum returncalendar year prior to such termination. Pursuant to a guaranty agreement dated as of January 1, 2020, made by us in favor of DHC's applicable subsidiaries, we have guaranteed the payment and performance of each of our applicable subsidiary's obligations under the applicable management and pooling agreements has been achieved will be deferred until 12 months after a certificate of occupancy is issued with respect to the project.New Management Agreements.
In November 2017,connection with the CompanyTransaction Agreement, we entered a transaction agreement with SNHinto the DHC credit facility pursuant to which DHC extended to us a $25 million line of credit. The DHC credit facility matured and was terminated on January 1, 2020, in connection with the Company agreedcompletion of the Restructuring Transaction. There were no borrowings outstanding under the DHC credit facility at the time of such termination and we did not make any borrowings under the DHC credit facility during its term.
Senior Living Communities Formerly Leased from DHC. Under our master leases with DHC, which terminated as of January 1, 2020, we paid DHC annual rent plus percentage rent equal to sell six4.0% of the increase in gross revenues at the applicable senior living communities over base year gross revenues as specified in the applicable lease.
The following table is a summary of our leases with DHC as of December 31, 2019:
Lease | | Number of Properties | | Annual Rent as of December 31, 2019 | ||
---|---|---|---|---|---|---|
| | | | | ||
1. DHC Lease No. 1(1) | | | 73 | | $31.2 million | |
2. DHC Lease No. 2(1) | | | 39 | | 39.3 million | |
3. DHC Lease No. 3(2) | | | 17 | | 26.7 million | |
4. DHC Lease No. 4(1) | | | 28 | | 25.7 million | |
5. DHC Lease No. 5(2) | | | 9 | | 6.9 million | |
| | | | | ||
Total | | | 166 | | $129.8 million | |
| | | | |
We paid $129.8 million in total rent to SNH.DHC for the year ended December 31, 2019. As of December 31, 2019, we had no outstanding rent payable to DHC.
As of December 31, 2019, our leases with DHC were "triple net" leases, which generally required us to pay rent and all property operating expenses, to indemnify DHC from liability which may arise by reason of its ownership of the properties, to maintain the properties at our expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to maintain insurance on the properties for DHC's and our benefit.
Under our leases with DHC, we had the right to request that DHC purchase certain improvements to the leased communities, and, until we entered the Transaction Agreement, in return for the purchases the annual rent payable to DHC would increase in accordance with a formula specified in the applicable lease. Pursuant to this transaction agreement, the Company also agreed that, asTransaction Agreement, the salesimprovements of these communities occur, (i) the Company and SNH would enter new management agreementsapproximately $110 million we sold to DHC for the Companycommunities we leased from DHC during the year ended December 31, 2019, did not result in increased rent payable by us to manage these senior living communitiesDHC. An increase in the annual rent payable by us to DHC of $1.5 million for SNH and (ii) the new management agreements would be combined pursuant to two new pooling agreements to be entered between the Company and SNH. In December 2017, January 2018 and February 2018, the Companyimprovements sold to and began managing forDHC in 2019 but prior to entering into the account of, SNH, two of these senior living communities located in Alabama and Indiana, one of these senior living communities located in Tennessee and another one of these senior living communities located in Arizona, respectively, and in connection with those sales entered management agreements with SNH for each of these senior living communities and two pooling agreements with SNH. The first pooling agreement combines the management agreements for five of these senior living communities. PursuantTransaction Agreement was adjusted pursuant to the terms of the Transaction Agreement.
In December 2019, we and DHC entered into an agreement to sell to a third party one senior living community located in Nebraska that DHC owns and we previously leased and currently manage for a
42 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
sales price of approximately $5.6 million, excluding closing costs. The parties have since determined to terminate this agreement.
During the year ended December 31, 2019, we and DHC sold to third parties 18 SNFs located in California, Kansas, Iowa and Nebraska that DHC owned and leased to us for an aggregate sales price of approximately $29.5 million, excluding closing costs. As a result of these sales, the annual minimum rent payable to DHC by us under our master leases with DHC was reduced in accordance with the terms of the Transaction Agreement.
Senior Living Communities Managed for the Account of DHC and its Related Entities. As of December 31, 2019, we managed 78 senior living communities for the account of DHC. We earned base management fees of approximately $15.0 million, no incentive fees and $0.84 million of fees for our management of capital expenditure projects with respect to the communities we managed for the account of DHC for the year ended December 31, 2019. In connection with the completion of the Restructuring Transaction, effective as of January 1, 2020, we and DHC terminated these long term management and pooling agreements for fiveand replaced them with the New Management Agreements, the terms of these seniorwhich are discussed above.
For the year ended December 31, 2019, we had pooling agreements with DHC that combined most of our management agreements with DHC that included assisted living units, or our "AL Management Agreements." The pooling agreements combined various calculations of revenues and expenses from the operations of the applicable communities SNH will paycovered by such agreements. Our AL Management Agreements and the Company pooling agreements generally provided that we received from DHC:
For AL Management Agreements that became effective from and after May 2015, our pooling agreements provided that our management fee is 5.0% of thesethe gross revenues realized at the applicable community, and our annual incentive fee is 20.0% of the annual net operating income of the applicable community remaining after DHC realizes its requisite annual minimum return.
Our management agreements with DHC for the part of the senior living community owned by DHC and located in Yonkers, New York that is not subject to the requirements of New York healthcare licensing laws, as described elsewhere herein, and for the assisted living communities owned by DHC and located in Villa Valencia, California and Aurora, Colorado were not included in any of our pooling agreements with DHC. We also had a pooling agreement with DHC that combined our management agreements with DHC for senior living communities consisting only of independent living units.
In April 2019, we began managing a senior living community located in Oregon with 318 living units for the account of DHC pursuant to our then existing management and pooling agreements will expire in 2041 and will be subject to automatic renewals for two 15 year periods thereafter, unless earlier terminated or timely notices of nonrenewal are delivered. The remaining sales under the transaction agreement are subject to conditions, including SNH's assumption of certain applicable mortgage debt and receipt of any applicable regulatory approvals. The conditions to these sales may not be met and some or all of these sales may not be completed, may be delayed or the terms of these sales or the management and pooling agreements for these communities may change.arrangements with DHC.
Also in November 2017, the Company amended the Company's preexisting pooling agreements with SNH, among other things, toWe also provide that, with respect to SNH's right to terminate all of the management agreements covered by a preexisting pooling agreement if it does not receive its annual minimum return
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 39
under such agreement in each of three consecutive years, the commencement year for the measurement period for determining whether the specified annual minimum return under the applicable pooling agreement has been achieved will be 2017.
In addition to management services, the Company also provides certain other services to residents at some of the senior living communities we manage for the Company manages for SNH,account of DHC, such as rehabilitation services. At senior living communities the Company manageswe manage for the account of SNHDHC where the Company provideswe provide rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay the Companyus for those rehabilitation services. At senior living communities the Company manageswe manage for the account of SNHDHC where the Company provideswe provide both inpatient and outpatient rehabilitation services, SNHDHC generally pays the Companyus for these services and charges for such services are included in amounts charged
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 43
to residents, third party payers or government programs. The CompanyWe earned revenues of $7.5$5.9 million for the year ended December 31, 20172019 for rehabilitation services the Companywe provided at senior living communities the Company manageswe manage for the account of SNHDHC and that are payable by SNH.DHC.
D&R Yonkers LLC. In order to accommodate certain requirements of New York healthcare licensing laws, we manage a part of the senior living community SNHthat DHC owns for the subtenant entity, which is affiliated with DHC and the Company manages that is located in Yonkers, New York is subleased by a subsidiarymembers of SNH to D&R Yonkers LLC. D&R Yonkers LLC is owned by the Company's Chief Financial Officer and Treasurer and SNH'swhich are DHC's president and chief operating officer. The Company manages this part of the community pursuant to a long term management agreement with D&R Yonkers LLC under which the Company earnsofficer and chief financial officer and treasurer. We earn a management fee equal to 3.0% of the gross revenues realized at that part of the community and no incentive fee is payable to the Company.community. The Company's management agreement with D&R Yonkers LLC expires on August 31, 2022, and is subject to renewal for eight consecutive five yearfive-year terms, unless earlier terminated or timely notice of nonrenewal is delivered. Pursuant to the Company's management agreement with D&R Yonkers LLC, the Companyterminated. We earned management fees of approximately $0.3$0.28 million for the year ended December 31, 2017.2019 under this management agreement.
Pursuant to the Transaction Agreement, we agreed to expand our Board of Directors within six months of January 1, 2020 to add an Independent Director (as defined in our Bylaws) reasonably satisfactory to DHC. On February 26, 2020, our Board of Directors elected Michael E. Wagner, M.D. as an Independent Director, which satisfied our agreement with DHC to expand our Board of Directors.
In order to effect DHC's distribution of our Common Shares to its shareholders in 2001 and to govern our relationship with DHC thereafter, we entered agreements with DHC and RMR LLC. Since then, we have entered various leases, management agreements and other agreements with DHC that include provisions that confirm and modify these undertakings. Among other things, these agreements provide that:
Relationships with RMR LLC and Others Related to It. RMR LLC provides business management services to the Company pursuant to a business management agreement. The Company hasWe have relationships and historical and continuing transactions with DHC, RMR LLC, RMR Inc.ABP Trust, Adam D. Portnoy and others related to them.them, including other companies to which RMR LLC is a majority owned subsidiaryor its subsidiaries provide management services and some of RMR Inc. ABP Trust is the controlling shareholderwhich have directors, trustees or officers who are also our Directors or officers. The Chair of RMR Inc. Oneour Board and one of the Company'sour Managing Directors, Adam D. Portnoy, is the current sole trustee of, and owns beneficial interest in, ABP Trust. Our former Managing Director, Barry M. Portnoy, served as a trustee and owned a majority of the beneficial interest in ABP Trust. ABP Acquisition LLC, the Company's largest stockholder, is a subsidiary of ABP Trust. Adam D. Portnoy is a managing director and an officer and, as the current sole trustee of ABP Trust, is the controlling shareholder of RMR Inc. and is an officer of RMR LLC. Adam D. Portnoy, as the current sole trustee of ABP Trust, beneficially owns all the class A membership units of RMR LLC. Barry M. Portnoy served as the Company's Managing Director and a managing director and anthe president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. RMR Inc. is the managing member of RMR LLC. Jennifer Clark, our other Managing Director and Secretary, is a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR LLC until his death on February 25, 2018. Mr. Bruce J. Mackey Jr., the Company's President and Chief Executive Officer, Mr. Richard A. Doyle, Jr., the Company's Chief Financial Officeran officer of ABP Trust and Treasurer, and Ms. Katherine E. Potter, the Company's Senior Vice President and General Counselcertain of our officers are also officers and employees of RMR LLC. The Company'sSome of our Independent Directors also serve as independent directorstrustees or independent trusteesdirectors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam D. Portnoy serves as the chair of the boards of directors or boards of trustees of several of these public companies and as a
44 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
managing director or managing trustee or trustee of all these companies. Other officers of the public companies to which RMR LLC or its subsidiaries provide management services and, until his death, Barry M. Portnoy servedserve as a managing directordirectors or managing trustee or trusteetrustees of allcertain of thosethese companies. In addition, officers of RMR LLC and RMR Inc. serve as the Company'sour officers and officers of other companies to which RMR LLC or its subsidiaries provide management services.
Because at least 80.0% of Ms. Potter's and Messrs. Mackey'sLeer's and Doyle's and Ms. Potter's business time was devoted to services to the Company during 2017,2019, 80.0% of Messrs. Mackey's and Doyle's and Ms. Potter'stheir total cash compensation (that is, the combined base salary and cash bonus paid by the Company and RMR LLC) was paid by the Company and the remainder was paid by RMR LLC. Ms. Potter and Messrs. MackeyLeer and Doyle and Ms. Potter arewere also eligible to participate in certain RMR LLC benefit plans and to receive
40 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
share awards from RMR Inc. and other companies to which RMR LLC or its subsidiaries provide management services. The Company believesWe believe the compensation itwe paid to these officers reasonably reflected their division of business time and efforts; however, periodically, these individualsMs. Potter and Mr. Leer may divide their business time and efforts differently than they do currently and their compensation from the Companyus may become disproportionate to this division.
Management Agreement with RMR LLC. RMR LLC provides business management services to the Companyus pursuant to aour business management agreement. These business management services may include, but are not limited to, services related to compliance with various laws and rules applicable to the Company'sour status as a publicpublicly traded company, maintenance of the Company'sour senior living communities, evaluation of business opportunities, accounting and financial reporting, capital markets and financing activities, investor relations and general oversight of the Company'sour daily business activities, including legal matters, human resources, insurance programs and the like.
Fees. The Company paysWe pay RMR LLC an annual business management fee equal to 0.6% of the Company'sour revenues. Revenues are defined as the Company'sour total revenues from all sources reportable under generally accepted accounting principles ("GAAP"),GAAP, less any revenues reportable by the Companyus with respect to communities for which the Company provideswe provide management services plus the gross revenues at those communities determined in accordance with GAAP. Pursuant to theour business management agreement with RMR LLC, the Companywe recognized business management fees of $9.3$9.1 million for the year ended December 31, 2017.2019.
Term and Termination. The current term of the Company'sour business management agreement with RMR LLC ends on December 31, 20182019 and automatically renews for successive one year terms unless the Companywe or RMR LLC gives notice of nonrenewal before the end of an applicable term. RMR LLC may terminate theour business management agreement upon 120 days' written notice, and the Company has the right towe may terminate the business management agreement upon 60 days' written notice, subject to approval by a majority vote of the Company'sour Independent Directors. If the Company terminateswe terminate or electselect not to renew theour business management agreement other than for cause, as defined, the Company iswe are obligated to pay RMR LLC a termination fee equal to 2.875 times the sum of the annual base management fee and the annual internal audit services expense, which amounts are based on averages during the 24 consecutive calendar months prior to the date of notice of nonrenewal or termination.
Expense Reimbursement. Pursuant to the Company's business management agreement, the Company isWe are generally responsible for all of itsour operating expenses, including certain expenses incurred or arranged by RMR LLC on the Company'sour behalf. Under the Company'sour business management agreement, the Company reimburseswe reimburse RMR LLC for the Company'sour allocable costs for the Company'sour internal audit function. TheOur Audit Committee appoints the Company'sour Director of Internal Audit and theour Compensation Committee approves the costs of the Company'sour internal audit function. The amounts recognized as expense for internal audit costs were $0.28 million for the year ended December 31, 2017 was approximately $0.3 million.2019.
Transition Services. RMR LLC has agreed to provide certain transition services to the Companyus for 120 days following an applicable termination by the Companyus or notice of termination by RMR LLC.
Vendors. Pursuant to the Company's businessour management agreement with RMR LLC, RMR LLC may from time to time negotiate on the Company'sour behalf with certain third party vendors and suppliers for the procurement of goods and services to the Company.us. As part of this arrangement, the Companywe may enter agreements with RMR LLC and other companies to which RMR LLC provides management services for the purpose of obtaining more favorable terms from such vendors and suppliers.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement 45
Share Awards to RMR LLC Employees. The Company hasWe have historically grantedmade share awards to certain RMR LLC employees who are not also Directors, officers or employees of the Companyus under the Company'sour equity compensation plans. During the year ended December 31, 2017, the Company granted2019, we awarded to such persons annual share awards of 92,800 Common Shares to such persons. Those share awards had an17,150 common shares, valued at $77 thousand, in aggregate, value of approximately $0.1 million, based upon the closing price of the Common Sharesour common shares on the Nasdaq on the date of grant. Onedates the awards were made. Generally, one fifth of those sharethese awards vestedvest on the grantaward date and one fifth vests on each
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 41
of the next four anniversaries of the grantaward date. In certain instances, we may accelerate the vesting of an award, such as in connection with the award holder's retirement as an officer of us or an officer or employee of RMR LLC. These share awards to such RMR LLC employees are in addition to the fees the Company pays to RMR LLC and the Company's share awards to itsour Managing Directors, officersas Director compensation, and employees. In 2017, the Companyfees we paid to RMR LLC. During the year ended December 31, 2019 we purchased 13,379 Common Shares,5,724 common shares, at the closing price of the Common Sharescommon shares on the Nasdaq on the date of purchase, from certain of the Company'sour officers and employees and other officers and employees of ours and RMR LLC who are not also Directors, officers or employees of the Company in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of Common Shares.our common shares.
On occasion, the Company hasRetirement and Separation Arrangements. In connection with their respective retirement, we entered into arrangementsretirement agreements with our former employees of RMR LLC in connectionofficers, Bruce J. Mackey Jr. and Richard A. Doyle. Additionally, we entered into a separation agreement with the termination of their employment with RMR LLC, providing for the acceleration of vesting of Common Share awards previously granted to them under the Company's equity compensation plan. Additionally, each of the Company's President and Chief Executive Officer, Chief Financial Officer and Treasurer andour former Senior Vice President, Senior Living Operations, R. Scott Herzig. Pursuant to these agreements, we made cash payments of $0.6 million and General Counsel$0.51 million to Mr. Mackey and Mr. Herzig, respectively, in January 2019 and made cash payments of $0.26 million to Mr. Doyle in each of June 2019 and January 2020. In addition, we made release payments to Mr. Mackey, in cash, in an aggregate amount of $0.33 million during 2017 received share awards from RMR Inc.the year ended December 31, 2019 and other companies$0.11 million in January 2020, and made transition payments to which RMR LLC or its subsidiaries provide management services, including SNH,Mr. Mackey and Mr. Doyle, in their capacities as officerscash, in an aggregate amount of RMR LLC.$96 thousand and $56 thousand, respectively, during the year ended December 31, 2019.
Other.RMR LLC conducts a Leadership Development Program for which certain of its employees take part in a two year rotational program, working at each of the Company, RMR LLC and certain other companies to which RMR LLC or its subsidiaries provide management services. The employee remains on RMR LLC's payroll during this rotational program and the Company reimburses RMR LLC for the applicable employee costs for the period of time that the employee works for the Company. The amount recognized as expense for these costs for the year ended December 31, 20172019, was approximately $0.2$0.14 million.
The Company hasOne of our Managing Directors, Adam Portnoy, is a director and controlling shareholder of Sonesta. We have in the past held, and likely will in the future hold, business meetings at hotels operated by Sonesta, which is owned in part by one of the Company's Managing Directors, Adam D. Portnoy, and the remainder was owned by Barry M. Portnoy until his death, and whichalso manages certain hotels owned by HPT,Service Properties Trust, a company to which RMR provides management services, and the Company'sour Directors, officers and employees have in the past stayed, and are likely in the future to stay, overnight at hotels operated by Sonesta when traveling for Company business. The Company paysWe pay Sonesta for the use of meeting space and related services and payspay Sonesta or reimburses the Company'sour Directors, officers and employees for the costs of these hotel stays.
Relationship with ABP Trust. Adam Portnoy, one of our Managing Directors, directly and indirectly through ABP Acquisition LLC, a whollyTrust and its subsidiaries, beneficially owned, subsidiaryin aggregate, approximately 6.3% of our outstanding Common Shares as of January 1, 2020 and prior to that, since November 2016, owned in excess of 30% of our outstanding Common Shares. Adam Portnoy is the sole trustee and an officer and the controlling shareholder of ABP Trust, which is the indirect controlling shareholder of RMR LLC and whichInc. Our Secretary is controlled by its current sole trustee, Adam D. Portnoy, onealso an officer of the Company's Managing Directors, is currently the Company's largest stockholder, owning, as of December 31, 2017, 17,999,999 Common Shares, or 35.6% of the outstanding Common Shares.
The Company leases itsABP Trust. We lease our headquarters from anothera subsidiary of ABP Trust. The headquarters' lease currently requires the Company to pay annual rent of approximately $0.9 million which amount is subject to fixed increases. The Company'sOur rent expense for itsour headquarters, including utilities and real estate taxes that it payswe pay as additional rent, was $1.6$1.9 million for the year ended December 31, 2017.2019.
We are party to a Consent, Standstill, Registration Rights and Lock-Up Agreement, dated October 2, 2016, with Adam Portnoy, ABP Trust and certain other related persons, or the ABP Parties, under which, among other things, the ABP Parties have each agreed not to transfer, except for certain permitted transfers as provided for therein, any of our Common Shares acquired after October 2, 2016, but not including shares issued under our equity compensation plans, for a lock-up period that ends on the earlier of (i) the 10 year anniversary of such agreement, (ii) January 1st of the fourth calendar year after our first
46 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
taxable year to which no then existing net operating loss or certain other tax benefits may be carried forward by us, but no earlier than January 1, 2022, (iii) the date that we enter into a definitive binding agreement for a transaction that, if consummated, would result in a change of control of us, (iv) the date that our Board of Directors otherwise approves and recommends that our stockholders accept a transaction that, if consummated, would result in a change of control of us and (v) the consummation of a change of control of us.
Under the Consent, Standstill, Registration Rights and Lock-Up Agreement, the ABP Parties also each agreed, for a period of 10 years, not to engage in certain activities involving us without the approval of our Board of Directors, including not to effect or seek to effect any tender or exchange offer, merger, business combination, recapitalization, restructuring, liquidation or other extraordinary transaction involving us, other than the acquisition by the ABP Parties of our Common Shares prior to March 31, 2017, or solicit any proxies to vote any of our voting securities. These provisions do not restrict activities taken by an individual in her or his capacity as a Director, officer or employee of us.
Relationship with AIC. The Company,Until its dissolution on February 13, 2020, we, ABP Trust, SNHDHC and four other companies to which RMR LLC provides management services currently owneach owned 14.3% of AIC, an Indiana insurance company, in equal amounts, and are parties to a shareholders agreement regarding AIC.company.
All of the Company's Directors and almost all of the trustees and directors of the other AIC shareholders currently serve on the board of directors of AIC. RMR LLC provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC. Pursuant to this agreement, AIC pays RMR LLC a service fee equal to 3.0% of the total annual net earned premiums payable under then active policies issued or underwritten by AIC or by a vendor or an agent of AIC on its behalf or in furtherance of AIC's business.
The CompanyWe and the other AIC shareholders participatehistorically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The Companypolicies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage from unrelated third party insurance providers.
We paid aggregate annual premiums,
42 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
including taxes and fees, of approximately $4.3$3.1 million in connection with this insurance program for the policy year ending June 30, 2018, which amount may be adjusted from time2019.
In connection with its dissolution, AIC distributed approximately $9.0 million to time aseach of the Company acquires or disposes of properties that are includedand each other AIC shareholder as an initial liquidation distribution in this insurance program.December 2019.
Directors' and Officers' Liability Insurance. The Company,We, RMR Inc., RMR LLC and certain other companies to which RMR LLC or its subsidiaries provide management services, including SNH,DHC, participate in a combined directors' and officers' liability insurance policy. ThisThe current combined policy expires in September 2019. The Company2020. We paid an aggregate premiumpremiums of approximately $0.2$0.19 million in 2019 for this policy.
The foregoing descriptions of the Company's agreements with RMR Inc., RMR LLC, SNH and AIC are summaries and are qualified in their entirety by the terms of the agreements. A further description of the terms of certain of those agreements is included in the Annual Report. In addition, copies of certain of the agreements evidencing these relationships are filed with the SEC and may be obtained from the SEC's website,www.sec.gov. The Company may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 43
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, Directors and certain persons who own more than 10.0% of the outstanding Common Shares are required by Section 16(a) of the Exchange Act and related regulations:
To the Company's knowledge, based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2017, our executive officers, Directors and greater than 10.0% beneficial owners timely filed all required Section 16(a) reports.
44 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
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The following table sets forth information regarding the beneficial ownership of then outstanding Common Shares by each Director nominee, each Director, each of our named executive officers, and our Directors, Director nominees and executive officers as a group, all as of March 21, 2018. Unless otherwise noted, to the Company's knowledge, voting power and investment power in the Common Shares are exercisable solely by the named person and the principal business address of the named person is c/o Five Star Senior Living Inc., 400 Centre Street, Newton, Massachusetts 02458.
Name and Address | Aggregate Number of Shares Beneficially Owned* | Percent of Outstanding Shares** | Additional Information | |||||
Adam D. Portnoy | | 18,150,499 | | 35.92% | Includes 17,999,999 Common Shares owned by ABP Acquisition LLC, a wholly owned subsidiary of ABP Trust. Voting and investment power with respect to such Common Shares may be deemed to be held by Adam D. Portnoy as ABP Trust's current sole trustee. | |||
| | | | As set forth in the below table, SNH beneficially owns 4,235,000 Common Shares. Adam D. Portnoy is a managing trustee of SNH and SNH is managed by RMR LLC, which is a majority owned subsidiary of RMR Inc. and of which RMR Inc. is the managing member. Adam D. Portnoy and RMR LLC may not act to vote or sell the Common Shares owned by SNH without the authorization of the board of trustees of SNH, which is currently comprised of five trustees. As a result, Adam D. Portnoy has determined that he does not beneficially own the Common Shares owned by SNH and therefore the Common Shares owned by SNH are not referenced as beneficially owned by him in this table. | ||||
Bruce J. Mackey Jr. | 846,017 | 1.67% | ||||||
Gerard M. Martin | | 244,121 | | Less than 1% | Includes 12,371 Common Shares owned by a corporation that is controlled by a grantor trust, of which Mr. Martin is a trustee. | |||
R. Scott Herzig | 233,909 | Less than 1% | ||||||
Barbara D. Gilmore | | 115,751 | | Less than 1% | Includes 10,000 Common Shares owned by Ms. Gilmore's husband. | |||
Bruce M. Gans, M.D. | 106,940 | Less than 1% | ||||||
Richard A. Doyle, Jr. | | 141,450 | | Less than 1% | | |||
Donna D. Fraiche | 76,000 | Less than 1% | ||||||
All Directors and executive officers as a group (nine persons) | | 20,060,687 | | 39.7% | | |||
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FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 4547
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Set forth in the table below is information about the numberTable of shares held by persons the Company knows to be the beneficial owners of more than 5.0% of the Common Shares.
Name and Address | Aggregate Number of Shares Beneficially Owned* | Percent of Outstanding Shares** | Additional Information | |||||
| | | | | | | | |
ABP Acquisition LLC, ABP Trust, Adam D. Portnoy and Barry M. Portnoy (collectively, the "ABP Parties") Two Newton Place 255 Washington Street, Suite 300 Newton, Massachusetts 02458 | | 18,394,621 | | 36.4% | Based on a Schedule 13D filed with the SEC on November 14, 2016, by the ABP Parties, a Form 4 filed by Barry M. Portnoy with the SEC on May 15, 2017 and a Form 4 filed by Adam D. Portnoy with the SEC on March 21, 2018: • ABP Acquisition LLC, a wholly owned subsidiary of ABP Trust, directly owns and has shared voting and dispositive power over 17,999,999 Common Shares. ABP Trust beneficially owns and has shared voting and dispositive power over these 17,999,999 Common Shares. • Adam D. Portnoy directly owns and has sole voting and dispositive power over 150,500 Common Shares and beneficially owns and has shared voting and dispositive power over 17,999,999 Common Shares. • Barry M. Portnoy directly owns and has sole voting and dispositive power over 244,122 Common Shares and beneficially owns and has shared voting and dispositive power over 17,999,999 Common Shares. | |||
Senior Housing Properties Trust Two Newton Place 255 Washington Street, Suite 300 Newton, Massachusetts 02458 | 4,235,000 | 8.4% | Based on a Schedule 13G/A filed with the SEC on February 9, 2016, by SNH, SNH beneficially owns and has sole voting and dispositive power over 4,235,000 Common Shares. |
46 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
William F. Thomas ("W.F. Thomas"), Robert D. Thomas ("R.D. Thomas"), Gemini Properties ("Gemini") and David R. Ford (collectively, the "Thomas Brothers") 1516 South Boston Avenue Suite 301 Tulsa, Oklahoma 74119 | | 3,116,753 | | 6.2% | Based on Schedule 13D/A filed with the SEC on December 16, 2016, by the Thomas Brothers: • W.F. Thomas beneficially owns 3,116,753 and has sole voting and dispositive power over 317,511 Common Shares and has shared voting and dispositive power over 2,799,242 Common Shares. By virtue of (i) his role as an advisor to certain donor advised charitable funds, W.F. Thomas may be deemed to beneficially own 20,000 Common Shares and (ii) his role as an advisor to an individual retirement fund, W.F. Thomas may be deemed to beneficially own an additional 2,150 Common Shares; W.F. Thomas disclaims such beneficial ownership. • R.D. Thomas beneficially owns and has shared voting and dispositive power over 3,022,076 Common Shares. R.D. Thomas does not have sole voting or dispositive power over any Common Shares. By virtue of his position in relation to family investment funds, R.D. Thomas may be deemed to have beneficial ownership of 39,800 Common Shares. By virtue of (x) his position in relation to a family trust account, R.D. Thomas may be deemed to have beneficial ownership of 18,500 Common Shares, and (y) his role as an advisor to certain donor advised charitable funds, R.D. Thomas may be deemed to beneficially own 186,684 Common Shares; R.D. Thomas disclaims such beneficial ownership. • By virtue of (A) their respective roles as partners of an Oklahoma general partnership, Gemini, W.F. Thomas and R.D. Thomas may be deemed to beneficially own 1,915,164 Common Shares, and (B) their respective roles as co-advisors to a donor advised charitable investment fund, W.F. Thomas and R.D. Thomas may be deemed to beneficially own 861,928 Common Shares; both W.F. Thomas and R.D. Thomas in their individual capacity each disclaim such beneficial ownership. • Gemini beneficially owns and has shared voting and dispositive power over 1,915,164 Common Shares. Gemini does not have sole voting or dispositive power over any Common Shares. |
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 47
control events, as defined. If the violation of these ownership limitations causes a lease or contract default, stockholders causing the default may become liable to the Company or to other stockholders for damages. The ABP Parties received (i) exceptions to the ownership restrictions set forth in our Charter that would allow the ABP Parties and certain related persons to acquire and own, in aggregate, up to 38.0% of the issued and outstanding Common Shares and (ii) waivers for any default or event of default under any lease, management or other agreement between or among the Company and SNH, or any of the Company's or SNH's subsidiaries, arising or resulting from the grant of such exceptions or the acquisition by the ABP Parties, in aggregate, of up to 18,000,000 Common Shares. In addition, in order to help the Company preserve the tax treatment of the Company's net operating losses and other tax benefits, our Bylaws generally provide that transfers of the Company's shares to a person, entity or group that is then, or would become as a result, an owner of 5.0% or more of the Company's outstanding shares under applicable standards would be void in total for transferees then already owning 5.0% or more of the Company's shares, and for transferees that would otherwise become owners of 5.0% or more of the Company's shares, to the extent the transfer would so result in such level of ownership by the proposed transferee and to the extent not approved by the Company. The 5.0% ownership limitation under our Bylaws is determined based on applicable tax rules. Each of the ABP Parties, SNH, W.F. Thomas, R.D. Thomas and Gemini have represented to the Company that they do not own 5.0% or more of the Company's shares under those applicable tax rules or in violation of the 5.0% ownership limitation under our Bylaws. The percentages indicated are based on approximately 50,524,424 Common Shares outstanding as of the Record Date, February 23, 2018.
48 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
EXECUTIVE COMPENSATION
The following tables and footnotes summarize the total compensation of the Company's President and Chief Executive Officer, Chief Financial Officer and Treasurer and Senior Vice President and Chief Operating Officer who were serving as such officers as of December 31, 2017, or the Company's "named executive officers." The compensation information for the persons included in the compensation tables are for services rendered to the Company and its subsidiaries and do not include information regarding any compensation received by such persons for services rendered to RMR LLC. For information regarding the compensation paid by RMR LLC and RMR Inc. to RMR Inc.'s named executive officers, please see the documents filed by RMR Inc. with the SEC, including its Annual Report on Form 10-K and its Proxy Statement on Schedule 14A for its 2018 Annual Meeting of Shareholders. RMR Inc.'s filings with the SEC are not incorporated by reference into this Proxy Statement.
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Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | |||||||||||||
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Bruce J. Mackey Jr. | | 2017 | $ | 300,000 | $ | 600,000 | $ | 127,500 | $ | 1,112 | $ | 1,028,612 | |||||||
President and Chief | | 2016 | | 300,000 | | 700,000 | | 208,250 | | 1,112 | | 1,209,362 | |||||||
Executive Officer | | | | | | | |||||||||||||
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Richard A. Doyle, Jr. | 2017 | 300,000 | 425,000 | 75,000 | 1,112 | 801,112 | |||||||||||||
Chief Financial Officer | 2016 | 300,000 | 400,000 | 122,500 | 1,112 | 823,612 | |||||||||||||
and Treasurer | |||||||||||||||||||
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R. Scott Herzig | | 2017 | | 300,000 | | 360,000 | | 60,000 | | 1,112 | | 721,112 | |||||||
Senior Vice President | | 2016 | | 300,000 | | 335,000 | | 98,000 | | 1,112 | | 734,112 | |||||||
and Chief Operating | | | | | | | |||||||||||||
Officer | | | | | | | |||||||||||||
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FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 49
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Stock Awards | ||||||||||
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Name | Year Granted | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | |||||||
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Bruce J. Mackey Jr. | | 2017 | | 68,000 | $ | 102,000 | ||||
| | 2016 | | 51,000 | | 76,500 | ||||
| | 2015 | | 34,000 | | 51,000 | ||||
| | 2014 | | 15,000 | | 22,500 | ||||
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Richard A. Doyle, Jr.(3) | 2017 | 40,000 | 60,000 | |||||||
2016 | 30,000 | 45,000 | ||||||||
2015 | 6,000 | 9,000 | ||||||||
2014 | 700 | 1,050 | ||||||||
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R. Scott Herzig | | 2017 | | 32,000 | | 48,000 | ||||
| | 2016 | | 24,000 | | 36,000 | ||||
| | 2015 | | 16,000 | | 24,000 | ||||
| | 2014 | | 7,000 | | 10,500 | ||||
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50 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
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From time to time, we have entered into arrangements with former employees of ours or RMR LLC in connection with the termination of their employment with us or RMR LLC, providing for the acceleration of vesting of Common Shares previously awarded to them under the Five Star Quality Care, Inc. 2014 Equity Compensation Plan and, in certain instances, payments for future services to us as a consultant or part time employee and continuation of health care and other benefits. Although we have no formal policy, plan or arrangement for payments to employees of ours or RMR LLC in connection with their termination of employment with us or RMR LLC, we may in the future provide on a discretionary basis for similar payments depending on various factors we then consider relevant and if we believe it is in our best interests to do so.
The form of share award agreement for awards made to our named executive officers provides for acceleration of vesting of all share awards (including those previously awarded) upon the occurrence of (i) a change in control of the Company (a "Change in Control") or (ii) RMR LLC ceasing to be the manager or shared services provider to the Company or certain employment termination events (a "Termination Event").
The following table describes the potential payments to our named executive officers upon a Change in Control or Termination Event, if such event had occurred, as of December 31, 2017.
Name | Number of Shares Vested Upon Change in Control or Termination Event (#) | Value Realized on Change in Control or Termination Event as of December 31, 2017 ($)(1) | |||||
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Bruce J. Mackey Jr. | | 168,000 | $ | 252,000 | |||
Richard A. Doyle, Jr. | 76,700 | 115,050 | |||||
R. Scott Herzig | | 79,000 | | 118,500 | |||
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For a discussion of the consequences of a Change in Control or Termination Event under the Company's business management agreement with RMR LLC, see the above "Related Person Transactions" section.
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 51
REPORT OF THE AUDIT COMMITTEE
In the course of the Audit Committee's oversight of the Company's financial reporting process, the Audit Committee has: (i) reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2017; (ii) discussed with RSM US LLP, the Company's independent auditors, the matters required to be discussed under PCAOB Auditing Standard No. 1301; (iii) received the written disclosures and the letter from the auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors' communications with the Audit Committee concerning independence; (iv) discussed with the independent auditors their independence; and (v) considered whether the provision of non-audit services by the independent auditors is compatible with maintaining their independence and concluded that it is compatible at this time.
Based on the foregoing review and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for filing with the SEC.
52 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
RATIFICATION OF THEAPPOINTMENT OF RSM US LLPAS INDEPENDENT AUDITORS (ITEM 2)
The Audit Committee has the sole authority and responsibility to hire, evaluate and, when appropriate, replace our independent auditors and is directly responsible for the appointment, compensation and general oversight of the work of the independent auditors. The Audit Committee is responsible for approving the audit and permissible non-audit services provided by the independent auditors and the associated fees.
The Audit Committee evaluates the performance of our independent auditors annually and determines whether to reengage the current independent auditors or consider other audit firms. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors' technical expertise and knowledge of our operations and industry, the auditors' independence, legal proceedings involving the auditors, the results of PCAOB inspections and peer quality reviews of the auditors and the auditors' reputation in the marketplace. In connection with the mandated rotation of the independent auditors' lead engagement partner, the Audit Committee and its chair consider the selection of the new lead engagement partner identified by the independent auditors.
Based on this evaluation, the Audit Committee has appointed RSM US LLP to serve as the Company's independent auditors for the fiscal year ending December 31, 2018. RSM US LLP has served as the Company's independent auditors since October 6, 2014, and is considered by management and the Audit Committee to be well qualified. Further, the Audit Committee and the Board believe that the continued retention of RSM US LLP to serve as the independent registered public accounting firm is in the best interests of the Company and its stockholders.
The Audit Committee has determined to submit its selection of the independent auditors to the Company's stockholders for ratification. This vote will ratify prior action by the Audit Committee and will not be binding upon the Audit Committee. However, the Audit Committee may reconsider its prior appointment of the independent auditors or consider the results of this vote when it determines to appoint our independent auditors in the future.
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The following table shows the fees for audit and other services provided to the Company by RSM US LLP for the fiscal years ended December 31, 2017 and 2016.
| 2017 Fees(1) | 2016 Fees | ||||
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Audit Fees | $ | 864,495 | $ | 922,857 | ||
Audit Related Fees | — | — | ||||
Tax Fees | | — | | — | ||
All Other Fees | — | — | ||||
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Audit Fees. This category includes fees associated with the annual financial statements audit and related audit procedures, the audit of internal control over financial reporting, work performed in connection with any registration statements and any applicable Current Reports on Form 8-K and the review of any of the Company's Quarterly Reports on Form 10-Q.
FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement 53
Audit Related Fees. This category consists of services that are reasonably related to the performance of the audit or review of financial statements and are not included in "Audit Fees." These services principally include due diligence in connection with acquisitions, consultation on accounting and internal control matters, audits in connection with proposed or consummated acquisitions, information systems audits and other attest services.
Tax Fees. This category consists of fees for tax services, including tax compliance, tax advice and tax planning.
All Other Fees. This category consists of services that are not included in the above categories.
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The Audit Committee has established policies and procedures that are intended to control the services provided by our independent auditors and to monitor their continuing independence. Under these policies, no services may be undertaken by our independent auditors unless the engagement is specifically approved by the Audit Committee or the services are included within a category that has been approved by the Audit Committee. The maximum charge for services is established by the Audit Committee when the specific engagement or the category of services is approved. In certain circumstances, our management is required to notify the Audit Committee when approved services are undertaken and the Audit Committee or its Chair may approve amendments or modifications to the engagement or the maximum fees. Our Director of Internal Audit is responsible for reporting to the Audit Committee regarding compliance with these policies and procedures.
The Audit Committee will not approve engagements of the independent auditors to perform non-audit services for the Company if doing so will cause the independent auditors to cease to be independent within the meaning of applicable SEC or Nasdaq rules. In other circumstances, the Audit Committee considers, among other things, whether our independent auditors are able to provide the required services in a more or less effective and efficient manner than other available service providers and whether the services are consistent with the Public Company Accounting Oversight Board Rules.
All services for which the Company engaged its independent auditors in 2017 and 2016 were approved by the Audit Committee. The total fees for audit services provided by RSM US LLP in 2017 and 2016 are set forth above and, for 2017, include estimated fee amounts. The Company did not engage RSM US LLP to provide any non-audit services in 2017 or 2016.
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The Company has been advised by RSM US LLP that neither the firm, nor any member of the firm, has any material interest, direct or indirect, in any capacity in the Company or its subsidiaries.
One or more representatives of RSM US LLP will be present at the 2018 Annual Meeting. The representatives will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Ratification of the appointment of the independent auditors requires the affirmative vote of a majority of all the votes cast, in person or by proxy, at the 2018 Annual Meeting. If stockholders fail to approve the proposal, the Board may reconsider its prior appointment of the independent auditors or consider the results of this vote when it determines to appoint our independent auditors in the future.
The Board of Directors recommends a vote "FOR" the ratification of the appointment of RSM US LLP as independent auditors.
54 FIVE STAR SENIOR LIVING INC. 2018 Proxy Statement
OTHER INFORMATION
At this time, the Company knowswe know of no other matters that will be brought before the meeting. If, however, other matters properly come before the meeting or any postponement or adjournment thereof, the persons named in the accompanying proxy card intend to vote the shares for which they have been appointed or authorized as proxy in accordance with their discretion on such matters to the maximum extent that they are permitted to do so by applicable law.
As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the 2020 Annual Meeting may be held virtually solely by means of remote communication or live webcast. If we take this step, we will announce the decision to do so in advance, and will provide details on how to participate in a press release and on our website atwww.fivestarseniorliving.com.
Jennifer B. Clark
Secretary
Newton, MassachusettsMarch 22, 2018April 15, 2020
48 FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement
ANNEX A—AMENDED AND RESTATED PLAN
FIVE STAR SENIOR LIVING INC.
AMENDED AND RESTATED 2014 EQUITY COMPENSATION PLAN
Effective , 2020
The purpose of this Amended and Restated 2014 Equity Compensation Plan (the "Plan") is to encourage employees, officers, directors and other individuals (whether or not employees) who render services to Five Star Senior Living Inc. (the "Company") and its Subsidiaries (as hereinafter defined), to continue their association with the Company and its Subsidiaries by providing opportunities for them to participate in the ownership of the Company and in its future growth through the granting of options to acquire the Company's stock ("Options"), stock awards, including stock to be transferred subject to restrictions ("Stock Awards") and other rights, including Stock Appreciation Rights (as defined in Section 6), to receive compensation in amounts determined by the value of the Company's stock ("Other Rights"). The term "Subsidiary" as used in the Plan means a corporation or other business entity of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent or more of the total combined voting power of all classes of stock, in the case of a corporation, or fifty percent or more of the total combined interests by value, in the case of any other type of business entity.
The Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Board") or by the Board itself. The Compensation Committee shall from time to time determine to whom awards shall be granted under the Plan, whether Options granted shall be incentive stock options ("ISOs") or nonqualified stock options ("NSOs"), the terms of the Options (including vesting provisions) and the number of shares of Common Stock (as hereinafter defined) that may be granted under Options, and the number of shares subject to (and other terms of) Stock Awards or Other Rights. The Compensation Committee shall report to the Board the names of individuals to whom Options, Stock Awards or Other Rights are to be granted, the number of shares covered and the terms and conditions of each grant. The determinations and actions described in this Section 2 and elsewhere in the Plan may be made by the Compensation Committee or by the Board, as the Board shall direct in its discretion, and references in the Plan to the Compensation Committee shall be understood to refer to the Board in any such case. The Compensation Committee shall have the authority to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. All questions of interpretation and application of such rules and regulations of the Plan and of awards granted hereunder shall be subject to the determination of the Compensation Committee in its discretion, which determination shall be final and binding. The Plan is intended to be administered in such a manner as to permit those Options granted hereunder and specially designated under Section 5 hereof as an ISO to qualify as incentive stock options as described in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed in a manner consistent with that interpretation. For so long as Section 16 of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), is applicable to the Company, each member of the Committee shall be a "non-employee director" or the equivalent within the meaning of Rule 16b-3 under the Exchange Act, and shall meet such other requirements as the Board may determine to be necessary or appropriate.
With respect to persons subject to Section 16 of the Exchange Act ("Insiders"), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed to be modified so as to be in compliance with such Rule, or, if such modification is not possible, it shall be deemed to be null and void, to the extent permitted by law and deemed advisable by the Committee.
FIVE STAR SENIOR LIVING INC. 20182020 Proxy Statement 55A-1
The total number of shares of capital stock of the Company that may be subject to Options, Stock Awards and Other Rights under the Plan shall be 2,907,259 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), inclusive of shares of Common Stock subject to awards outstanding on the Restatement Effective Date (as defined below). All of shares of capital stock of the Company available under the Plan may be granted as ISOs. Shares issued under the Plan may be from authorized but unissued shares of Common Stock. The maximum number of shares of Common Stock subject to ISOs that may be granted to any Optionee in the aggregate in any calendar year shall not exceed 100,000 shares. The limits set forth in this Section 3 shall be subject to adjustment in accordance with the provisions of Section 10. Awards (including those issued under the Plan prior to the Restatement Effective Date) that fail to vest or, if applicable, are not fully exercised prior to the award's expiration or termination shall again become available for grant under the terms of the Plan.
The individuals who shall be eligible to receive Option grants, Stock Awards and Other Rights under the Plan shall be employees, officers, directors and other individuals who render services to the management, operation or development of the Company or a Subsidiary and who have contributed or may be expected to contribute to the success of the Company or a Subsidiary. ISOs shall not be granted to any individual who is not (i) an employee of the Company or (ii) an employee of a Subsidiary who is treated as an employee of the Company for purposes of Section 422 of the Code. The term "Optionee," as used in the Plan, refers to any individual to whom an Option has been granted.
Every Option shall be evidenced by a written Stock Option Agreement in such form as the Compensation Committee shall approve from time to time, specifying the number of shares of Common Stock that may be purchased pursuant to the Option, the time or times at which the Option shall become exercisable in whole or in part, whether the Option is intended to be an ISO or an NSO and such other terms and conditions as the Compensation Committee shall approve, and containing or incorporating by reference the following terms and conditions.
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known to the Board to have occurred at arm's length between willing and knowledgeable investors, (2) an appraisal by an independent party or (3) any other method of valuation undertaken in good faith by the Board, or some or all of the above as the Board shall in its discretion elect; or (ii) if the Common Stock is at the time listed or admitted to trading on any stock exchange, including any market that is outside of the United States, or the NASDAQ, then the Fair Market Value shall be the closing sale price of the Common Stock on the date in question on the principal exchange or the NASDAQ, as the case may be, on which the Common Stock is then listed or admitted to trading. If no reported sale of Common Stock takes place on the date in question on the principal exchange or the NASDAQ, as the case may be, then the most recent previous reported closing sale price of the Common Stock (or, in the Board's discretion, the reported closing asked price) of the Common Stock on such date on the principal exchange or the NASDAQ, as the case may be, shall be determinative of Fair Market Value. Without limitation of the authority of the Compensation Committee under Section 10 hereof, unless approved by the Company's stockholders, no Option shall be settled, canceled, forfeited, exchanged or surrendered in exchange or otherwise in consideration for either (A) a new Option or SAR (as defined below) with an exercise price that is less than that of such settled, canceled, forfeited, exchanged or surrendered Option (B) a Stock Award or Other Right with an intrinsic value at issuance in an amount greater than the excess of the Fair Market Value of the Common Stock over the exercise price per share applicable to the Option or (C) in exchange for a payment in cash in an amount greater than the excess of the Fair Market Value of the Common Stock over the exercise price per share applicable to the Option.
Alternatively, payment of the exercise price may be made:
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement A-3
In the case of an exercise pursuant to clause (1) or (2) above, the Company may require the Optionee to pay to the Company in cash or by check, the amount of any withholding tax due in connection with the exercise. At the time specified in an Optionee's notice of exercise, the Company shall, without issue or transfer tax to the Optionee, in the discretion of the Company, either (A) register the Optionee's ownership of such shares in book-entry form or (B) deliver to him at the main office of the Company, or such other place as shall be mutually acceptable, a stock certificate for the shares as to which his Option is exercised. If the Optionee fails to pay for or to accept delivery of all or any part of the number of shares specified in his notice upon tender of delivery thereof, his right to exercise the Option with respect to those shares shall be terminated, unless the Company otherwise agrees.
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The Committee may grant Stock Appreciation Rights ("SARs") in respect of such number of Common Stock subject to the Plan as it shall determine, in its discretion, and may grant SARs either separately or in connection with Options, as described in the following sentence. An SAR granted in connection with an Option may be exercised only to the extent of the surrender of the related Option, and to the extent of the exercise of the related Option the SAR shall terminate. Common Stock covered by an Option that terminates upon the exercise of a related SAR shall cease to be available under the Plan. The terms and conditions of an SAR related to an Option shall be contained in the Stock Option Agreement, and the terms of an SAR not related to any Option shall be contained in an SAR Agreement. The base value per share for share subject to an SAR shall be at least 100 percent of the Fair Market Value of the shares on the date on which the Compensation Committee awards the SAR. Without limitation of the authority of the Compensation Committee under Section 10 hereof, unless approved by the Company's stockholders, no SAR shall be settled, canceled, forfeited, exchanged or surrendered in exchange or otherwise in consideration for (A) a new SAR or Option with a base value per share or exercise price that is less than that of such settled, canceled, forfeited, exchanged or surrendered SAR, (B) a Stock Award or Other Right with an intrinsic value at issuance in an amount greater than the excess of the Fair Market Value of the Common Stock over the exercise price per share applicable to the Option or (C) in exchange for a payment in cash in an amount greater than the excess of the Fair Market Value of the Common Stock over the base value per share applicable to the SAR. Upon exercise of an SAR, the Optionee shall be entitled to receive from the Company an amount equal to the excess of the Fair Market Value, on the exercise date, of the number of shares of Common Stock as to which the SAR is exercised, over the exercise price for those shares under a related Option or, if there is no related Option, over the base value stated in the SAR Agreement. Any amount payable by the Company upon exercise of an SAR shall be paid in the form of cash or other property (including Common Stock), as provided in the Stock Option Agreement or SAR Agreement governing the SAR.
The Compensation Committee may grant or award Stock Awards in respect of such number of shares of Common Stock, and subject to such terms or conditions (if any), as it shall determine and specify in a Stock Award Agreement, and may award shares of Common Stock which are not subject to vesting or forfeiture conditions. The Compensation Committee may provide in a Stock Option Agreement for an Option to be exercisable for Common Stock subject to forfeiture conditions and restrictions on transfer ("Restricted Stock").
A holder of Restricted Stock shall have all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any cash dividends, unless the Compensation Committee shall otherwise determine. Unless a grantee's Restricted Stock Agreement provides to the contrary, unvested shares of Restricted Stock granted under the Plan shall not be transferred without the written consent of the Compensation Committee. In addition, at the time of termination for any reason of a grantee's employment or other service relationship with the Company or a Subsidiary, the Company shall have the right, in the case of unvested Restricted Stock, (1) to cause the forfeiture of such shares of Restricted Stock for no consideration (2) to purchase all or any of such shares of Restricted Stock at a price equal to the lower of (a) the price paid to the Company for such shares of Restricted Stock or (b) the Fair Market Value of such shares of Restricted Stock at the time of repurchase, (3) to waive vesting requirements, (4) to permit continued vesting based on such criteria as the Compensation Committee shall determine or (5) to provide for such other treatment as the Compensation Committee shall determine and set forth in the applicable agreement.. Nothing in the Plan shall be construed to give any person the right to require the Company to purchase any Common Stock granted as Restricted Stock.
Certificates representing Restricted Stock shall be imprinted with a legend to the effect that the shares represented may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with the terms of the Restricted Stock Agreement. If shares of Restricted Stock are held in book entry form, statements evidencing those shares shall include a similar legend. If the Compensation Committee so determines, the holder of Restricted Stock may be required to deposit certificates representing the Restricted Stock with the President, Treasurer, Secretary or other officer of the Company or with an escrow agent designated by the Compensation Committee, together with a stock power or other instrument of transfer appropriately endorsed in blank.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement A-5
The grant of Options, Stock Awards and Other Rights shall be made by action of the Compensation Committee; provided, however, that if an individual to whom a grant has been made fails to execute and deliver to the Compensation Committee a Stock Option Agreement, Stock Award Agreement or agreement with respect to an Other Award within thirty days after it is submitted to him, the Option, Stock Award or Other Award granted under the agreement shall be voidable by the Company at its election, without further notice to the grantee.
The Company shall not be required to transfer Common Stock or to sell or issue any shares upon the exercise of any Option or SAR or Other Award if the issuance of such shares will result in a violation by the recipient or the Company of any provisions of any law, statute or regulation of any governmental authority. Specifically, in connection with the Securities Act of 1933, as amended from time to time (the "Securities Act"), the Company shall not be required to issue shares unless the Compensation Committee has received evidence satisfactory to it to the effect that the holder of the Restricted Stock or the Option or SAR or Other Award will not transfer such shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that registration is not required. Any determination in this connection by the Compensation Committee shall be conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the transfer of Common Stock to comply with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable state securities laws.
In the event that the outstanding shares of Common Stock are hereafter changed for a different number or kind of shares or other securities of the Company, by reason of a reorganization, recapitalization, exchange of shares, stock split, combination of shares or dividend payable in shares or other securities or in the event of a similar corporate event, a corresponding adjustment shall be made by the Compensation Committee in the number and kind of shares or other securities covered by outstanding Options, Stock Awards and Other Rights and for which Options, Stock Awards and Other Rights may be granted under the Plan. Any such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option, but the price per share specified in each Stock Option Agreement shall be correspondingly adjusted; provided, however, that no adjustment shall be made with respect to an ISO that would constitute a modification as defined in Section 424 of the Code without the consent of the holder. Any such adjustment made by the Compensation Committee shall be conclusive and binding upon all affected persons, including the Company and all award recipients.
If while unexercised Options remain outstanding under the Plan the Company merges or consolidates with a wholly-owned subsidiary for the purpose of reincorporating itself under the laws of another jurisdiction, the Optionees will be entitled to acquire shares of common stock of the reincorporated Company upon the same terms and conditions as were in effect immediately prior to such reincorporation (unless such reincorporation involves a change in the number of shares or the capitalization of the Company, in which case proportional adjustments shall be made as provided above) and the Plan, unless otherwise rescinded by the Board, will remain the Plan of the reincorporated Company.
Except as otherwise provided in the preceding paragraph, if the Company or a subsidiary is merged or consolidated with another corporation, whether or not the Company is the surviving entity, or if the Company is liquidated or sells or otherwise disposes of all or substantially all of its assets to another entity while unexercised awards remain outstanding under the Plan, or if other circumstances occur in which the Compensation Committee in its sole and absolute discretion deems it appropriate for the provisions of this paragraph to apply (in each case, an "Applicable Event"), then: (a) in the discretion of the Compensation Committee, each holder of an outstanding award under the plan shall be entitled, upon exercise or vesting of the award (as applicable), to receive in lieu of shares of Common Stock, such stock
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or other securities or property as he or she would have received had he exercised or vesting in the award immediately prior to the Applicable Event; or (b) the Compensation Committee may, in its sole and absolute discretion, cancel all outstanding and unexercised awards as of the effective date of any such Applicable Event; or (c) the Compensation Committee may, in its sole discretion, convert some or all awards under the Plan into awards to purchase (or with respect to) the stock or other securities of the surviving corporation pursuant to an Applicable Event; or (d) the Compensation Committee may, in its sole and absolute discretion, cause the outstanding and unexercised awards to be cancelled in exchange for a payment in cash equal to the value (if any) of the shares subject to such award (less any applicable exercise or base price), pursuant to an Applicable Event; provided, however, that notice of any cancellation pursuant to clause (b) above shall be given to each holder of an Option or SAR not less than thirty days preceding the effective date of such Applicable Event. The Compensation Committee may, in its sole discretion, provide for a combination of the foregoing treatments and/or for different treatment hereunder of different awards and there is no requirement for all awards of the same type to receive the same treatment hereunder. Notwithstanding the foregoing, immediately upon the occurrence of a "Change in Control" or "Termination Event" (as each is defined on Exhibit A hereto) all awards issued and outstanding under the Plan shall become fully vested and exercisable (as the case may be), whether or not the holder of the award experiences a termination of employment or service in connection with the Change in Control.
Except as expressly provided to the contrary in this Section 10 or as otherwise determined by the Compensation Committee, the issuance by the Company of shares of stock of any class for cash or property or for services, either upon direct sale, upon the exercise of rights or warrants, upon conversion of shares or obligations of the Company convertible into such shares or other securities or otherwise, shall not affect the number, class or price of shares of Common Stock then subject to outstanding Options, Stock Awards or Other Rights.
Notwithstanding any provision of the Plan to the contrary, if the Compensation Committee determines, after full consideration of the facts, that:
then the recipient's right to exercise an Option or SAR shall terminate as of the date of such act (in the case of (a) or (b)) or such termination (in the case of (c)), the recipient shall forfeit all unexercised Options and SARS (or the holder shall forfeit all Other Rights) and the Company shall have the right to repurchase all or any part of the shares of Common Stock acquired by the recipient upon any previous exercise of any Option or SAR (or any previous acquisition by the holder of a Stock Award, whether then
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement A-7
vested or unvested), at a price equal to the lower of (a) the amount paid to the Company upon such exercise or acquisition, or (b) the Fair Market Value of such shares at the time of repurchase. If an Optionee or holder of a SAR whose behavior the Company asserts falls within the provisions of the clauses above has exercised or attempts to exercise an Option or SAR prior to consideration of the application of this Section 11 or prior to a decision of the Compensation Committee, the Company shall not be required to recognize such exercise until the Compensation Committee has made its decision and, in the event any exercise shall have taken place, it shall be of no force and effect (and shall be void ab initio) if the Compensation Committee makes an adverse determination; provided, however, that if the Compensation Committee finds in favor of the recipient then the recipient will be deemed to have exercised the Option or SAR as of the date he or she originally gave notice of his or her attempt to exercise or actual exercise, as the case may be. The decision of the Compensation Committee as to the cause of an Optionee's (or holder of a Stock Award or Other Right) discharge and the damage done to the Company shall be final, binding and conclusive. No decision of the Compensation Committee, however, shall affect in any manner the finality of the discharge of such Optionee (or holder of a Stock Award or Other Right) by the Company. For purposes of this Section 11, reference to the Company shall include any Subsidiary. Notwithstanding anything herein to the contrary, the Compensation Committee may provide, either in an award agreement or separately, that the provisions of this Section 11 shall not apply following a change in control of the Company (as defined by the Compensation Committee).
Neither the Plan nor any Stock Option Agreement, Stock Award Agreement or agreement with respect to an Other Award shall give a director or other service provider the right to continue to perform services for the Company or a Subsidiary or give the Company or a Subsidiary the right to require the director or service provider to continue to perform services.
Without limiting the foregoing, the Compensation Committee may in its discretion permit any Optionee's (or holder of a Stock Award or Other Right) withholding obligation to be paid in whole or in part in the form of shares of Common Stock by withholding from the shares to be issued or by accepting delivery from the Optionee (or holder of a Stock Award or Other Right) of shares already owned by him. The Fair Market Value of the shares for such purposes shall be determined as set forth in Section 5(b). An Optionee (or holder of a Stock Award or Other Right) may not make any such payment in the form of shares of Common Stock acquired upon the exercise of an ISO until the shares have been held by him for at least two years after the date the ISO was granted and at least one year after the date the ISO was exercised. If payment of withholding taxes is made in whole or in part in shares of Common Stock, the Optionee (or holder of a Stock Award or Other Right) shall deliver to the Company stock certificates registered in his name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such stock certificates. The Compensation Committee may approve comparable procedures to those set forth in the preceding sentence in the event of shares held in book-entry form. If the
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Optionee (or holder of a Stock Award or Other Right) is subject to Section 16(a) of the Exchange Act, his ability to pay his withholding obligation in the form of shares of Common Stock shall be subject to such additional restrictions as may be necessary to avoid any transaction that might give rise to liability under Section 16(b) of the Exchange Act.
The Plan was originally effective as of the date of the Company's 2014 Annual Meeting of Stockholders, and this amendment and restatement shall be effective as of the date of the Company's 2020 Annual Meeting of Stockholders (the "Restatement Effective Date") subject to approval by the holders of a majority of the outstanding shares of capital stock present, or represented, and entitled to vote thereon (voting as a single class) at a duly held meeting of the stockholders of the Company. Awards of Options, Other Rights or Stock Awards that are conditioned upon the approval of the Plan by the stockholders may be granted prior to approval. The Compensation Committee may grant Options, Stock Awards or Other Rights under the Plan from time to time until the close of business on , 2030.(1) The Board may at any time amend the Plan; provided, however, that without approval of the Company's stockholders there shall be no: (a) change in the number of shares of Common Stock that may be issued under the Plan, except by operation of the provisions of Section 10, either to any one participant or in the aggregate; (b) change in the class of persons eligible to receive Options, Stock Award or Other Rights; or (c) other change in the Plan that requires stockholder approval under applicable law or regulation. No amendment shall adversely affect outstanding Options (or Stock Awards or Other Rights) without the consent of the Optionee (or holder of the Stock Award or Other Right). The Plan may be terminated at any time by action of the Board, but any such termination will not terminate any Option, Stock Award or Other Right then outstanding without the consent of the Optionee or the holder of such Stock Award or Other Right.
FIVE STAR SENIOR LIVING INC. 2020 Proxy Statement A-9
A "Change in Control" shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall have occurred:
A "Termination Event" shall occur if The RMR Group LLC (or any entity controlled by, under common control with or controlling The RMR Group LLC) ceases to be the manager or shared services provider to the Company.
For purposes of the definitions set forth on this Exhibit A, the following definitions shall apply, with capitalized terms used but not defined in this Exhibit A having the meaning set forth in the Plan:
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
"Director" is a member of the Board of Directors of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities and (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of shares of the Company.
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THANK YOU
Thank you for being a stockholder of Five Star Senior Living Inc.
AUTHORIZE YOUR PROXY BY INTERNET - www.proxyvote.com Use the internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m., Eastern time, on May 16, 2018.June 8, 2020. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to submit your voting instructions. AUTHORIZE YOUR PROXY BY TELEPHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m., Eastern time, on May 16, 2018.June 8, 2020. Have your proxy card in hand when you call and then follow the instructions. FIVE STAR SENIOR LIVING INC. C/O BROADRIDGE FINANCIAL SOLUTIONS, INC. P.O. BOX 1342 BRENTWOOD, NY 11717 If the meeting is postponed or adjourned, the above times will be extended to 11:59 p.m., Eastern time, on the day before the reconvened meeting. AUTHORIZE YOUR PROXY BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Five Star Senior Living Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by Five Star Senior Living Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically by email or over the internet. To sign up for electronic delivery, please follow the instructions above to vote using the internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E40010-P02813D04990-P36522 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. FIVE STAR SENIOR LIVING INC. For Withhold 1. Election of Directors. For WithholdNominee (for Independent Director in Group I): Barbara D. Gilmore ! ! For ! ! Against Abstain Nominee (for Independent Director in Group II): Donna D. Fraiche Nominee (for Managing Director in Group II)I): Gerard M. MartinAdam D. Portnoy 2. Approval of the Company's Amended and Restated 2014 Equity Compensation Plan. ! ! ! ! ! ! ! ! ! 3. Advisory vote to approve executive compensation. 4. Ratification of the appointment of RSM US LLP as independent auditors to serve for the 20182020 fiscal year. ! ! ! THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR PROPOSAL 2.PROPOSALS 2, 3 AND 4. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE PROXIES, IN THEIR DISCRETION, ARE AUTHORIZED TO VOTE AND OTHERWISE REPRESENT THE UNDERSIGNED ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR AT ANY POSTPONEMENT OR ADJOURNMENT THEREOF. ! For address changes, please check this box and write them on the back where indicated. (NOTE: Please sign exactly as your name(s) appear(s) hereon. All holders must sign. When signing as attorney, executor, administrator or other fiduciary, please give full title as such. Joint owners should each sign personally. If a corporation, please sign in full corporate name by authorized officer, indicating title. If a partnership, please sign in partnership name by authorized person, indicating title.) Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date The Board of Directors Recommends a Vote FOR both Nominees for Director in Proposal 1 and FOR Proposal 2.Proposals 2, 3 and 4.
FIVE STAR SENIOR LIVING INC. ANNUAL MEETING OF STOCKHOLDERS May 17, 2018,June 9, 2020, 9:30 a.m., Eastern timeTime Five Star Senior Living Inc. Two Newton Place, 255 Washington Street, Suite 100 Newton, Massachusetts 0245802458* Upon arrival, please present photo identification at the registration desk. Please see the Proxy Statement for additional attendance instructions. The 20182020 Annual Meeting of Stockholders of Five Star Senior Living Inc. will address the following items of business: 1. Election of the Directors named in the Proxy Statement to the Company's Board of Directors; 2.Approval of the Company's Amended and Restated 2014 Equity Compensation Plan; Advisory vote to approve executive compensation; Ratification of the appointment of RSM US LLP as independent auditors to serve for the 20182020 fiscal year; and 3. Transaction of such other business as may properly come before the meeting and at any postponements or adjournments of the meeting. 2. 3. 4. 5. * As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held virtually solely by means of remote communication or via a live webcast. If we take this step, we will announce the decision to do so in advance, and we will provide details on how to participate in a press release and on our website at www.fivestarseniorliving.com. Please retain a copy of the control number from this Proxy Card, in the event that the meeting is held by remote communication or live webcast. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR PROPOSAL 2. E40011-P02813PROPOSALS 2, 3 AND 4. D04991-P36522 FIVE STAR SENIOR LIVING INC. 400 Centre Street Newton, MA 02458 Proxy Important Notice Regarding the Availability of Proxy Materials: The proxy materials for the 20182020 Annual Meeting of Stockholders of Five Star Senior Living Inc. (the "Company"), including the Company's annual report and proxy statement, are available on the internet. To view the proxy materials or authorize your proxy by internet, by telephonevote online or by mail,telephone, please follow the instructions on the reverse side hereof. This proxy is solicited on behalf of the Board of Directors of Five Star Senior Living Inc. The undersigned stockholder of the Company hereby appoints Jennifer B. Clark, Bruce Mackey Jr. and Adam D. Portnoy and Katherine E. Potter, or any of them, as proxies for the undersigned, with full power of substitution in each of them, to attend the 20182020 Annual Meeting of Stockholders of the Company to be held at Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 100, Newton, Massachusetts 02458, on May 17, 2018,June 9, 2020, at 9:30 a.m., Eastern time,Time, and any postponement or adjournment thereof, to cast on behalf of the undersigned all the votes that the undersigned is entitled to cast at the meeting and otherwise to represent the undersigned at the meeting with all powers possessed by the undersigned if personally present at the meeting. The undersigned hereby acknowledges receipt of the annual report and the proxy statement, which includes the Notice of 20182020 Annual Meeting of Stockholders, each of which is incorporated herein by reference, and revokes any proxy heretofore given with respect to the meeting. THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS INSTRUCTED ON THE REVERSE SIDE HEREOF. IF THIS PROXY IS EXECUTED, BUT NO INSTRUCTION IS GIVEN, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST FOR BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR PROPOSAL 2.PROPOSALS 2, 3 AND 4. ADDITIONALLY, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST BY THE PROXIES, IN THEIR DISCRETION, ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR AT ANY POSTPONEMENT OR ADJOURNMENT THEREOF. See reverse for instructions on how to authorize a proxy. (If you noted any Address Changes/Comments above, please mark the corresponding box on the reverse side.) Address Changes/Comments: