1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN RETIREMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
2
AMERICAN RETIREMENT CORPORATION
111 WESTWOOD PLACE, SUITE 200
BRENTWOOD, TENNESSEE 37027
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 3, 2001
As a shareholder of American Retirement Corporation, you are hereby given notice
of and invited to attend in person or by proxy the annual meeting of
shareholders of the Company to be held at American Retirement Corporation's
corporate offices at 111 Westwood Place, Suite 200, Brentwood, Tennessee, on
Thursday, May 3, 2001, at 11:00 a.m., central time, for the following purposes:
1. To elect three Class I directors to serve for a term of three
years; and
2. To transact such other business as may properly come before
the meeting.
Shareholders of record at the close of business on March 19, 2001 are entitled
to notice of and to vote at the meeting and any adjournment or postponement
thereof.
You can ensure that your shares of common stock are voted at the annual meeting
by signing and dating the enclosed proxy and returning it in the envelope
provided. Sending in a signed proxy will not affect your right to attend the
annual meeting and vote in person. WHETHER OR NOT YOU PLAN TO ATTEND, WE URGE
YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE
PROVIDED.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ GEORGE T. HICKS
-------------------------------------------
GEORGE T. HICKS
SECRETARY
Brentwood, Tennessee
April 6, 2001
3
AMERICAN RETIREMENT CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 3, 2001
This proxy statement contains information related to the annual meeting of
shareholders of American Retirement Corporation to be held at the date, time,
and place and for the purposes set forth in the accompanying notice of annual
meeting of shareholders, and at any adjournment or postponement thereof. This
proxy statement and the enclosed proxy are first being sent to shareholders on
or about April 6, 2001.
At the annual meeting, shareholders will elect three Class I directors.
Shareholders of record on the record date, March 19, 2001, are entitled to
notice of and to vote at the annual meeting. Each shareholder is entitled to one
vote for each share of common stock held on the record date.
The presence at the meeting, in person or by proxy, of at least a majority of
the outstanding shares of common stock entitled to vote is necessary to
constitute a quorum to transact business at the annual meeting. As of the record
date, 17,166,209 shares of the Company's common stock were outstanding. Proxies
received but marked as abstentions will be counted as present for purposes of
determining a quorum on all matters. Broker non-votes will also be counted as
present for purposes of determining a quorum on all matters presently known to
be brought to a vote at the annual meeting. A broker non-vote occurs when a
broker holding shares registered in street name is permitted to vote, in the
broker's discretion, on routine matters without receiving instructions from the
client, but is not permitted to vote without instructions on non-routine
matters, and the broker returns a proxy card with no vote (the "non-vote") on
the non-routine matter.
Shares of common stock represented by a proxy properly signed and received at or
prior to the annual meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. Shareholders are urged to specify
their choices by marking the appropriate boxes on the enclosed proxy. If a proxy
is dated, signed, and returned without specifying choices, the shares will be
voted as recommended by the Company's board of directors. A shareholder who
signs and returns a proxy may revoke it at any time before it is voted by
attending the annual meeting and electing to vote in person, by notifying the
secretary of the Company in writing, or by duly executing a proxy bearing a
later date. Shareholders whose shares of common stock are held in street name
who wish to attend the meeting and vote in person will need to obtain a proxy
form from the institution that holds their shares.
The affirmative vote of a plurality of the votes cast at the annual meeting is
required for the election of directors. Abstentions and broker non-votes will
not be counted as votes for or against any director nominee. Any other matters
that may properly come before the meeting or any adjournment thereof shall be
approved by the affirmative vote of a majority of the votes cast by the holders
of common stock represented and entitled to vote at the annual meeting, and
abstentions and "non-votes" will have no effect on the outcome of the vote.
The board of directors knows of no other matters that are to be brought to a
vote at the annual meeting. If any other matter does come before the annual
meeting, the persons appointed in the proxy or their substitutes will vote in
accordance with the recommendation of the board of directors or, if no
recommendation is given, in their best judgment.
4
ELECTION OF DIRECTORS
The board of directors of the Company is divided into three classes, each class
to be as nearly equal in number as possible. The current board of directors is
comprised of ten members. At each annual meeting of shareholders, directors
comprising one class are elected for a three-year term. The terms of the three
Class I directors will expire at the annual meeting. The board of directors has
nominated Christopher J. Coates, Daniel K. O'Connell and Lawrence J. Stuesser,
all of whom are currently serving as directors of the Company, to be reelected
to serve until the annual meeting of shareholders in 2004 and until their
successors are duly elected and qualified. The terms of the Class II and Class
III directors will expire at the annual meeting in 2002 and 2003, respectively.
Each of the nominees has consented to serve, if elected. If any of the nominees
should become unable or unwilling to serve as a director, the persons named in
the proxy may vote for such other person or persons as may be designated by the
board of directors. Certain information with respect to the nominees for
election as Class I directors and with respect to the Class II and Class III
directors (who are not being elected at the annual meeting) is set forth below.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" ALL OF THE
DIRECTOR NOMINEES.
Name Age Principal Occupation/Directorships Director Since
- ---- --- ---------------------------------- --------------
DIRECTOR NOMINEES
Class I Directors
(Terms Expire 2004)
Christopher J. Coates 50 Mr. Coates has served as president and chief operating officer of the 1998
Company and its predecessors since January 1993. From 1988 to 1993,
Mr. Coates served as chairman of National Retirement Company, a
senior living management company acquired by a subsidiary of the
Company in 1992. From 1985 to 1988, Mr. Coates was senior director
of the Retirement Housing Division of Radice Corporation, following
that Company's purchase in 1985 of National Retirement Consultants, a
company formed by Mr. Coates.
Daniel K. O'Connell 72 Mr. O'Connell has served as a director of the Company since its 1997
inception and as a director of various of the Company's predecessors
since 1985. Until his retirement in 1990, Mr. O'Connell worked for
Ryder System, Inc. for over 25 years in various capacities, including
legal counsel and chief financial officer. Mr. O'Connell is a
director of PNV, Inc., a company that provides television and
telecommunications services to truck drivers.
Lawrence J. Stuesser 58 Since June 1999, Mr. Stuesser has been a private investor. From June 1997
1996 to May 1999, Mr. Stuesser served as the president and chief
executive officer and a director of Computer People, Inc., an
information technology professional services and staffing company and
a subsidiary of Delphi Group plc, of which Mr. Stuesser also served
as a director. From July 1993 to May 1996, Mr. Stuesser was a
private investor and independent business consultant. From January
1991 to July 1993, Mr. Stuesser was chairman and chief executive
officer of Kimberly Quality Care, Inc., a home health care services
company. Mr. Stuesser is also a director of IntegraMed America,
Inc., a company providing products and services in the infertility
industry.
5
CONTINUING DIRECTORS
Class II Directors
(Terms Expire 2002)
Frank M. Bumstead 59 Since 1989, Mr. Bumstead has been president and a principal 1997
shareholder of Flood, Bumstead, McCready & McCarthy, Inc., a business
management firm that represents, among others, artists, songwriters,
and producers in the music industry. From 1993 to December 1998, Mr.
Bumstead also served as the chairman and chief executive officer of
FBMS Financial, Inc., an investment advisor registered under the
Investment Company Act of 1940. Mr. Bumstead is vice chairman and a
director of Response Oncology, Inc., a physician practice management
company specializing in oncology, and a director of TBA
Entertainment, Inc., an entertainment marketing and artist management
company. He is also a director of Syntroleum Corporation, a natural
gas processor and real estate company.
Clarence Edmonds 67 Mr. Edmonds has served as a director of the Company since its 1997
inception and as a director of various of the Company's predecessors
since 1987. Mr. Edmonds has served in various capacities, including
vice president and treasurer, of Massey Company, an investment
services firm, since 1969. Mr. Edmonds serves as president and a
co-trustee of the Jack C. Massey Foundation. Mr. Edmonds is a
certified public accountant.
Nadine C. Smith 43 Since August 2000, Ms. Smith has served as president and a member of 1997
the Board of Managers of Final Arrangements, LLC, and chief executive
officer of Arrange OnLine.com. Final Arrangements develops
application software and provides internet services to the death
services industry. From April 2000 to August 2000, Ms. Smith was the
president of Aegis Asset Management, Inc. Prior to April 2000, Ms.
Smith served as president and chief executive officer of Enidan
Capital Corp., an investment company that makes equity investments in
public and privately held companies. Previously, Ms. Smith was an
investment banker and principal with NC Smith & Co. and The First
Boston Corporation, and a management consultant with McKinsey & Co.
Ms. Smith is also a director of American Southwest Holdings.
2
6
Class III Directors
(Terms Expire 2003)
W. E. Sheriff 58 Mr. Sheriff has served as chairman and chief executive officer of the 1997
Company and its predecessors since April 1984. Mr. Sheriff serves on
the boards of several privately-held companies and various
educational and charitable organizations.
H. Lee Barfield II 54 Mr. Barfield has served as a director of the Company since its 1997
inception and as a director of various of the Company's predecessors
since 1978. Mr. Barfield is a member in the law firm of Bass, Berry
& Sims PLC, the Company's outside general counsel, and has served in
various capacities for that firm since 1974.
Robin G. Costa 34 Since January 1998, Ms. Costa has served as president of Maddox 1997
Companies, a group of over 40 entities involved in oil and gas
exploration, real estate development and investment, and other
investments. Ms. Costa has served in various capacities for the
Maddox Companies since 1985, including as chief operating officer
from 1994 to January 1998 and secretary and treasurer from 1992 to
1994.
John A. Morris, Jr., 54 Dr. Morris has served in varying capacities of the medical profession 1997
M.D. since 1977 and is currently a Professor of Surgery and the Director
of the Division of Trauma and Surgical Critical Care at the
Vanderbilt University School of Medicine, the Medical Director of the
Life Flight Air Ambulance Program at Vanderbilt University Hospital,
and an Associate in the Department of Health Policy and Management at
Johns Hopkins University.
The board of directors holds regular quarterly meetings and meets on other
occasions when required by special circumstances. The board of directors met
five times during 2000. Each director attended at least 75% of the total number
of meetings of the board of directors and the committees on which he or she
served.
The board of directors has standing executive, audit, and compensation
committees. The membership and functions of the committees are as follows:
Executive Committee -- This committee is authorized generally to act on
behalf of the board of directors between scheduled meetings of the
board, subject to certain limitations established by the board and
applicable corporate law. The current members of the executive
committee are Messrs. Bumstead and Sheriff and Dr. Morris. The
executive committee did not meet during 2000.
Audit Committee -- This committee makes recommendations to the board of
directors with respect to the Company's financial statements and the
appointment of independent auditors, reviews significant audit and
accounting policies and practices, meets with the Company's independent
auditors quarterly to review financial results and to discuss, among
other things, the scope of audits and reports, reviews the performance
of the overall accounting and financial controls of the Company, and
oversees the corporate compliance activities of the Company. The
current members of the audit committee are Mr. Edmonds and Mses. Costa
and Smith. The audit committee met four times during 2000.
Compensation Committee -- This committee has the responsibility for
reviewing and approving the salaries, bonuses, and other compensation
and benefits of executive officers, advising management regarding
benefits and other terms and conditions of compensation, and
administering the Company's stock incentive, stock purchase, 401(k),
and other executive compensation plans. The current members of the
compensation committee are Messrs. O'Connell and Stuesser. The
compensation committee met five times during 2000.
3
7
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Non-employee directors are
entitled to an annual retainer of $12,000 payable, in arrears, on the date of
each annual meeting of shareholders. Non-employee directors are also entitled to
a fee of $500 for each board meeting attended and $250 for each committee
meeting attended that is not on the same day as a meeting of the board of
directors. All directors are entitled to reimbursement for their actual
out-of-pocket expenses incurred in connection with attending meetings.
In addition, non-employee directors receive options to purchase shares of common
stock pursuant to the Company's 1997 Stock Incentive Plan. Options to purchase
9,000 shares of common stock were automatically granted to each person serving
as a non-employee director of the Company on the date of the Company's initial
public offering. Options granted to non-employee directors on the date of the
Company's initial public offering vested with respect to 5,000 shares on the
date of the 1998 annual meeting of shareholders, 2,000 shares on the date of the
1999 annual meeting of shareholders, and 2,000 shares on the date of the 2000
annual meeting of shareholders.
On the date of each annual meeting of the shareholders of the Company beginning
with the 2000 annual meeting, each non-employee director who will continue as a
director following such meeting will automatically receive an option to purchase
3,000 shares of common stock. Such options will vest with respect to all 3,000
shares on the date of the next annual meeting of shareholders. All options
automatically granted to a non-employee director will enable the optionee to
purchase shares of common stock at the fair market value of the common stock on
the date of grant. The terms of such options are ten years from the date of
grant. The exercise price may be paid in cash, shares of common stock previously
owned by the director, or a combination thereof. The board of directors has the
discretion to reduce, but not increase, the number of shares awardable to
non-employee directors.
4
8
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table shows the number of shares of common stock beneficially
owned by each current director (including the three nominees for director), each
of the executive officers named in the Summary Compensation Table beginning on
page six hereof, the directors and executive officers as a group, and each
shareholder known to management of the Company to own beneficially more than
five percent of the outstanding common stock. Unless otherwise indicated, the
Company believes that the beneficial owner set forth in the table has sole
voting and investment power.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1)(2) Class %
- ------------------------------------------------------------ --------------------------- ----------
W.E. Sheriff 697,884 (3) 4.1%
Christopher J. Coates 253,336 1.5%
Gregory B. Richard 11,114 *
H. Todd Kaestner 139,552 *
Ross C. Roadman 6,073 *
H. Lee Barfield II 632,577 (4) 3.7%
Frank M. Bumstead 27,000 *
Robin G. Costa 1,392,037 (5)(6) 8.1%
Clarence Edmonds 381,239 (7) 2.2%
John A. Morris, Jr., M.D. 370,490 (8) 2.2%
Daniel K. O'Connell 48,000 *
Nadine C. Smith 43,956 *
Lawrence J. Stuesser 62,000 *
Capital Guardian Trust Company 2,045,400 (9)(10) 11.9%
DNMC Public Holdings, L.L.C. 1,675,000 (11) 9.5%
DMAR Limited Partnership 1,372,037 (6) 8.0%
Dimensional Fund Advisors Inc. 895,500 (9)(12) 5.2%
LB/HRC Bond Investors Group 1,210,766 (9)(13) 6.7%
All directors and executive officers as a group (17 persons) 4,395,667 25.4%
- -------------------
* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock that certain persons presently have the right to acquire
pursuant to the conversion provisions of the Company's 5 3/4% Convertible
Subordinated Debentures Due 2002 ("conversion shares") are deemed
outstanding for the purpose of computing such person's percentage
ownership, but not deemed outstanding for the purpose of computing the
percentage ownership of the other persons shown in the table. Likewise,
shares subject to options held by directors and executive officers of the
Company that are exercisable within 60 days of the date hereof are deemed
outstanding for the purpose of computing such director's or executive
officer's beneficial ownership and the beneficial ownership of all
directors and executive officers as a group.
(2) Includes the following shares of common stock issuable upon the exercise
of options granted pursuant to the Company's 1997 Stock Incentive Plan
that the following persons are entitled to exercise within 60 days of the
date hereof: Messrs. Sheriff, Coates, and Kaestner, 6,667; Mr. Richard,
10,000; Mr. Roadman, 5,000; Mses. Costa and Smith, Dr. Morris, and Mssrs.
Barfield, Bumstead, Edmonds, O'Connell, and Stuesser, 12,000; and
directors and executive officers as a group (17 persons), 151,002.
(3) Includes 335,519 shares, including 4,166 conversion shares, beneficially
owned by a family limited partnership in which Mr. Sheriff is a general
partner and 4,000 shares beneficially owned by Mr. Sheriff's wife.
(4) Includes 2,708 conversion shares. Also includes 473,065 shares, including
208 conversion shares, beneficially owned by Mr. Barfield's wife.
(5) Address: 315 Losher, Suite 1, Hernando, MS 38632.
(6) Includes 1,372,037 shares beneficially owned by DMAR Limited Partnership.
Ms. Costa is President of Margaret Energy, Inc., the general partner of
DMAR. Also includes an aggregate of 8,000 shares beneficially owned by
trusts as to which Ms. Costa exercises voting and dispositive power.
(7) Includes 4,166 conversion shares owned by Mr. Edmonds, 335,888 shares
owned by The Jack C. Massey Foundation, of which Mr. Edmonds serves as a
co-trustee, 5,000 shares beneficially owned by a trust of which Mr.
Edmonds and his wife serve as co-trustees and lifetime beneficiaries, and
24,185 shares, including 4,166 conversion shares, beneficially owned by
Mr. Edmonds' wife. Mr. Edmonds disclaims beneficial ownership of his
wife's shares.
(8) All shares are beneficially owned by partnerships owned and controlled by
Dr. Morris, his brother, and other members of Dr. Morris's family.
(9) Based solely upon information set forth in a Schedule 13G filed with the
Securities and Exchange Commission.
(10) Address: 11100 Santa Monica Boulevard, Los Angeles, California 90025.
Capital Guardian, a bank, reported that it has sole voting power with
respect to 1,641,000 shares of common stock and sole dispositive power
with respect to 2,045,400 shares.
(11) Based solely upon information set forth in a Schedule 13D filed jointly by
DNMC Public Holdings, L.L.C., Walton Street Real Estate Fund II, L.P.,
Walton Street Managers II, L.P., and WSC Managers II, L.P. with the
Securities and Exchange Commission. Address: 900 North Michigan Avenue,
Chicago, Illinois 60611. These entities engage principally in the business
of investing in securities and real estate. Includes 375,000 conversion
shares.
(12) Address: 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(13) Address: c/o Lehman Brothers Holdings, LLC, 3 World Financial Center, 12th
Floor, New York, NY 10285. LB/HRC Bond Investors Group consists of Lehman
Brothers Inc. and Holiday Retirement Corporation and certain persons
affiliated with Lehman Brothers Inc. and Holiday Retirement Corporation.
Such persons disclaim the existence of a group pursuant to Rule 13d-5
promulgated under the Securities Exchange Act of 1934. Includes 920,166
conversion shares.
5
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid or accrued by the
Company during 1998, 1999, and 2000 on behalf of the Company's Chief Executive
Officer and the four other most highly-paid executive officers of the Company,
(collectively, the "named executive officers").
Long-Term
Compensation
Awards
Annual Compensation ---------------------
---------------------- Securities Underlying All Other
Name and Principal Positions Fiscal Year Salary($) Bonus($) Options(#) Compensation($)
- ---------------------------- ----------- --------- -------- --------------------- ---------------
W.E. Sheriff, 2000 271,500 6,773 -- 79,610 (1)
Chairman and Chief 1999 270,000 -- 70,000 93,500 (1)
Executive Officer 1998 237,667 78,017 225,000 90,000 (1)
Christopher J. Coates, 2000 202,000 5,039 -- --
President and Chief 1999 200,000 -- 95,000 2,835 (2)
Operating Officer 1998 178,667 58,567 60,000 8,604 (2)
Gregory B. Richard, 2000 171,355 2,122 30,000 --
Executive Vice President - 1999 -- -- -- --
Operations 1998 -- -- -- --
H. Todd Kaestner, 2000 162,000 4,041 -- --
Executive Vice President - 1999 160,000 -- 52,500 2,268 (2)
Corporate Development 1998 140,000 45,892 42,000 6,146 (2)
Ross C. Roadman, 2000 151,500 41,279 -- --
Senior Vice President - 1999 131,928 -- 115,000 --
Strategic Planning and 1998 -- -- -- --
Investor Relations
- -----------------
(1) Reflects insurance premiums paid by the Company for insurance policies
benefiting Mr. Sheriff.
(2) Reflects contributions by the Company under the Company's Section 162
deferred compensation plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning an option granted in 2000
to Gregory B. Richard. The Company did not grant options in 2000 to any other
named executive officer. None of the named executive officers were granted stock
appreciation rights.
Individual Grants
-----------------------------------------------------------
Percent of
Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal or Base Expiration ----------------------------
Name Granted(#)(1) Year(%) Price($/Sh) Date 5%($) 10%($)
- ------------------ ------------- ---------- ----------- ---------- ----------- ----------
Gregory B. Richard 30,000 16.4 6.3125 1/10/10 119,097 301,815
- -----------------
(1) The option vests and becomes exercisable in three equal, annual installments
commencing on the first anniversary of the date of grant.
6
10
FISCAL YEAR-END OPTION VALUES
The following table provides information as to the number and value of the
unexercised options held by the named executive officers at December 31, 2000.
None of the named executive officers exercised options during 2000. During 2000,
certain of the named executive officers voluntarily cancelled options to
purchase an aggregate of 724,500 shares. None of the named executive officers
has held or exercised stock appreciation rights.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money
Fiscal Year-End(#) Options at Fiscal Year-End($)(1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------ ----------- ------------- ----------- -------------
W.E. Sheriff 6,667 13,333 -- --
Christopher J. Coates 6,667 13,333 -- --
Gregory B. Richard -- 30,000 -- --
H. Todd Kaestner 6,667 13,333 -- --
Ross C. Roadman 5,000 10,000 -- --
- -----------------
(1) Based on the closing price of the Company's common stock on the New
York Stock Exchange on December 31, 2000 ($3.05).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The compensation paid to the Company's executive officers is reviewed and
approved annually by the compensation committee of the board of directors, which
is composed of non-employee directors. In addition to reviewing and approving
salary and bonus arrangements for the Company's executive officers, the
compensation committee approves long-term incentive awards for the executive
officers and the other key employees of the Company and administers the stock
incentive plan, stock purchase plan, 401(k) plan, and other compensation plans
maintained by the Company.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS
The objectives of the Company's executive compensation program are to:
- attract, motivate, and retain the executives responsible for
the success of the Company;
- reward key executives based upon corporate and individual
performance; and
- provide incentives designed to maximize shareholder value.
The compensation committee reviews the Company's executive officer compensation
program annually to ensure that the compensation paid to the Company's executive
officers is consistent with the Company's business strategy, corporate culture,
and operating performance. The compensation committee also reviews the
compensation policies of similar companies in the senior living industry to
ensure that the Company's compensation policies are competitive with other
companies in the industry. The three primary components of the Company's
executive officer compensation program are a base salary, the potential for a
performance-based annual bonus, and periodic grants of stock options.
7
11
BASE SALARIES. Base salaries for the Company's executive officers, as well as
changes in such salaries, are based upon a number of factors, including:
- recommendations by the chief executive officer;
- annual base salaries of similarly situated executives at
companies the committee deems to be comparable to the Company;
- the nature of the executive officer's position;
- the committee's subjective determination of the executive
officer's contribution to the performance of the Company;
- the experience of the officer; and
- the term of the officer's employment with the Company.
The chief executive officer reviews all salary recommendations with the
compensation committee, which then approves or disapproves such recommendations.
In August 2000, the compensation committee reviewed the base salaries for the
Company's executive officers. Based upon a review of the base compensation
payable to executive officers of comparable companies and discussions with the
Company's chief executive officer, the committee determined that the base
compensation levels for the Company's executive officers were competitive with
the average base compensation levels of executive officers with similar
responsibilities at comparable companies. Therefore none of the executive
officers received substantial increases in base salary for 2000.
ANNUAL BONUSES. Approximately $87,500 related to annual bonuses was accrued on
behalf of the executive officers of the Company for fiscal 2000. Bonuses for
2000 provided for the payment of approximately $50,000 of bonuses based upon
certain 2000 earning targets and approximately $37,500 accrued on behalf of an
executive officer upon his initial employment by the Company. The compensation
committee has approved an officers' compensation plan for 2001 that provides for
the payment of bonuses based upon the attainment of certain 2001 earnings
targets.
STOCK OPTIONS. In order to align the long-term interests of the executive
officers with those of shareholders, the compensation committee from time to
time awards stock options to the Company's executive officers. The terms of
these options, including the sizes of the grants, are determined by the
compensation committee based upon the recommendations of the Company's chief
executive officer and the committee's subjective discretion. Awards of stock
options to executive officers have been historically at then-current market
prices and with periodic vesting over three years. In 2000, the compensation
committee granted options to purchase an aggregate of 55,000 shares of common
stock to executive officers upon initial employment by the Company.
SECTION 162 DEFERRED COMPENSATION PLAN. In addition, the Company maintains a
non-qualified deferred compensation plan that allows executive officers who are
deemed "highly compensated" under Internal Revenue Service guidelines to make
after-tax contributions to an investment account established in such executive
officer's name. The Company makes additional contributions at the discretion of
the committee. For 2000, the Company did not make any contributions to the
deferred compensation plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
In establishing the compensation of W.E. Sheriff, the Company's chief executive
officer, the compensation committee utilized the same compensation policies
applicable to executive officers in general. During 2000, Mr. Sheriff received
an increase in his base salary of $1,500 and received a bonus for fiscal year
2000 of $6,773.
8
12
LIMITATIONS ON THE DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code generally disallows a corporate
deduction for compensation over $1.0 million paid to the Company's chief
executive officer and any of the four other most highly compensated officers.
The $1.0 million limitation applies to all types of compensation, including
restricted stock awards and amounts realized on the exercise of stock options
and stock appreciation rights, unless the awards and plan under which the awards
are made qualify as "performance based" under the terms of the code and related
regulations. The Company currently anticipates that the compensation of its
executive officers will be deductible under Section 162(m) because executive
officer compensation is presently below the $1.0 million limit. In the event
compensation paid to the Company's chief executive officer or any of the four
other most highly compensated executive officers exceeds the $1.0 million limit,
the Company will attempt to structure such compensation in a manner that will
comply with the limits of Section 162(m).
DANIEL K. O'CONNELL LAWRENCE J. STUESSER
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the compensation committee are Mr. O'Connell and Mr.
Stuesser. Mr. Barfield served as a member of the compensation committee from May
2000 to February 2001. Mr. Barfield is a member in the law firm of Bass, Berry &
Sims PLC, the Company's outside general counsel.
AUDIT COMMITTEE REPORT
The audit committee of the board is responsible for providing independent,
objective oversight of the Company's accounting function and internal controls.
The audit committee of the board of directors is composed of three directors who
are independent directors as defined under the applicable rules of the New York
Stock Exchange. The audit committee operates under a written charter adopted by
the Board of Directors, a copy of which is included as Appendix A to this proxy
statement. The audit committee reviews the Company's financial reporting process
on behalf of the board of directors. Management has the primary responsibility
for internal controls and the financial reporting process. The Company's
independent auditors are responsible for performing an independent audit on
whether the Company's consolidated financial statements are in accordance with
auditing standards generally accepted in the United States of America and to
issue a report thereon. The audit committee's responsibility is to monitor and
oversee these processes.
In this context, the audit committee has reviewed and discussed with management
and the independent auditors the audited December 31, 2000 financial statements.
The audit committee also discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). In addition, the audit committee has
received from the independent auditors the written disclosures required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) and has discussed with them their independence from the Company and
its management. The audit committee has considered whether the independent
auditors' provision of information technology and other non-audit services to
the Company is compatible with the auditor's independence.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to the board of directors, and the board has approved,
that the audited financial statements be included in our Annual Report on Form
10-K for the year ended December 31, 2000, for filing with the Securities and
Exchange Commission.
ROBIN G. COSTA CLARENCE EDMONDS NADINE C. SMITH
The foregoing report of the audit committee shall not be deemed incorporated by
reference by any general statement incorporating by reference the Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.
9
13
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENTS
The Company has developed ten assisted living residences for an unaffiliated
third-party. Following completion of construction, the residences were leased by
such unaffiliated third-party to affiliates of John Morris, a director of the
Company. The Company agreed to manage such residences pursuant to management
agreements that provide for the payment of management fees to the Company based
on a percentage of the gross revenues of each residence and require the Company
to fund operating losses above a specified amount. The Company has agreements
with similar terms with unaffiliated parties. During 2000, the Company
recognized $562,000 of management fees pursuant to these management agreements.
In addition, pursuant to the management agreements the Company is required to
pay operating losses of the communities above specified limits. As of December
31, 2000, approximately $1.2 million was due to the Company from these
affiliates. Such amounts are expected to be reimbursed through the future
acquisition of the leasehold interests of these affiliates. During 2000, the
Company acquired the leasehold interests in four of these communities from
affiliates of Dr. Morris for $6.2 million.
FREEDOM GROUP TRANSACTION - ONGOING OBLIGATIONS
In July 1998, the Company consummated the acquisition of Freedom Group, Inc. and
certain entities affiliated with Freedom Group and Robert G. Roskamp, a former
director of the Company and Freedom Group's founder and chairman, and certain
related transactions. As part of the transactions with Freedom Group, the
Company entered into a 20-year management agreement, with two ten-year renewal
options, for Freedom Plaza, a retirement community located in Peoria, Arizona.
The owners of the community include a charitable foundation of which Mr. Roskamp
is a director. Pursuant to the management agreement, the Company receives a
management fee equal to all cash receipts from the community that is in excess
of operating expenses, refunds of entrance fees, capital expenditure reserves,
debt service, and certain payments to the community's owners. During 2000, the
Company recognized $972,000 in management fees pursuant to the management
agreement. The Company has also provided the Arizona Department of Insurance
(DOI) with a limited guaranty relating to the financial performance of the
managed community, and has notified the Arizona DOI of the Company's intention
to enter into a lease of the community, if the Company can reach acceptable
terms with the owner.
The Company also entered into a 20-year management agreement, with two ten-year
renewal options, for Freedom Square, a retirement community located in Seminole,
Florida in which Mr. Roskamp owns a 98% interest. In connection with the
management agreement, the Company assumed Freedom Group's existing guaranty of
approximately $19.9 million of the mortgage debt associated with the community,
$18.6 million of which was outstanding at December 31, 2000. Pursuant to the
management agreement, the Company receives a management fee equal to all cash
receipts from the community that is in excess of operating expenses, refunds of
entrance fees, capital expenditure reserves, debt service, and certain payments
to the community's owner. The Company also acquired an option to purchase
Freedom Square upon the occurrence of certain events, including the expiration
of the agreement, for a formula purchase price. During 2000, the Company
recognized $519,000 in management fees pursuant to the management agreement.
The Company also entered into a three-year management agreement for Freedom
Village Brandywine, a retirement community located in Brandywine, Pennsylvania
that was owned by a partnership in which Mr. Roskamp owns a 70.0% interest.
Pursuant to the management agreement, the Company received a management fee
equal to 5.0% of the gross revenues of the community. The Company paid a
non-refundable deposit of $2.0 million to acquire an option to purchase the
Freedom Village Brandywine community for a purchase price of $14.0 million, plus
the assumption of certain specified liabilities. On May 26, 2000, the Company
assigned its purchase option to a third party, which exercised the option and
purchased the property. The Company subsequently acquired approximately $18.0
million of assets limited to use which it pledged to this third party and
simultaneously entered into a series of agreements with this party to lease and
operate this community. The Company also assumed Freedom Group's remaining
development obligations relating to Freedom Village Brandywine. During 2000, the
Company recognized $212,000 in management fees pursuant to the management
agreement.
10
14
Pursuant to the transactions with Freedom Group, the Company also entered into
an agreement to provide development services related to the development and
construction of Sarasota Bay Club, a retirement community in Sarasota, Florida.
The Sarasota Bay Club is owned by a limited liability Company in which Mr.
Roskamp owns a 57.5% interest. In return for its development services and costs
associated therewith, the Company received aggregate development fees of $2.1
million during the three year period ended December 31, 2000. The Company was to
manage the community following its completion pursuant to a five-year management
agreement that provides for a management fee equal to 5.0% of the gross revenues
of the community. In consideration of the Company's payment of a $2.0 million
fully-refundable deposit, the Company acquired an option to purchase the
community for a price to be negotiated. During the third quarter of 2000, the
Company decided to cancel the purchase option, the $2.0 million deposit was
refunded, and the management agreement for this community was terminated on
December 31, 2000. The Company recognized $750,000 of development fees and
$65,300 in management fees related to this community in 2000.
In connection with the transactions with Freedom Group, Mr. Roskamp entered into
a three-year consulting agreement with the Company that provides for annual
payments of $150,000 to Mr. Roskamp. The Company also granted certain
contractual registration rights to Mr. Roskamp.
FREEDOM PLAZA CARE CENTER ("FPCC")
W.E. Sheriff, the Company's Chairman and Chief Executive Officer, owns 50% of
Maybrook Realty, Inc., which in October 1999 acquired a 128-bed skilled nursing
center then known as Hacienda de Vida, located in Peoria, Arizona. Maybrook
simultaneously leased the nursing center to Freedom Plaza, which, in turn,
operates the nursing center as a part of the Freedom Plaza retirement campus
under the name FPCC. As described above, the Freedom Plaza retirement community
(including FPCC after October 1999) is managed by the Company pursuant to a
management agreement providing the Company with a net cash flow management fee.
The Company has guaranteed the payment and performance of Freedom Plaza's
obligations under its lease with Maybrook. Mr. Sheriff has also agreed to
indemnify the Company from any loss or liability that the Company incurs under
the guaranty of such lease.
The Company is serving as the developer of an expansion of FPCC. Pursuant to the
terms of its development agreement with Maybrook, the Company is to receive a
development fee of $125,000. The Company recognized $78,125 of the development
fee during 2000. Maybrook has also granted to the Company an option to acquire
the health center for a formula purchase price beginning in October 2009.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and persons who beneficially own more
than ten percent of the common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Such directors, officers,
and greater than ten percent shareholders are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms furnished to
the Company, or written representations from certain reporting persons, the
Company believes that during 2000 its officers, directors, and greater than ten
percent beneficial owners were in compliance with all applicable filing
requirements.
11
15
PERFORMANCE GRAPH
The following graph compares the cumulative returns of $100 invested on May 30,
1997, the date of the Company's initial public offering, in (a) the Company; (b)
the Standard and Poor's 500 Stock Index; and (c) a self-constructed peer group,
as described below, assuming reinvestment of all dividends.
[CHART]
30-May-97 31-Dec-97 31-Dec-98 31-Dec-99 31-Dec-00
--------- --------- --------- --------- ---------
ACR $100.0 $129.0 $101.2 $ 51.2 $ 19.7
S&P 500 $100.0 $114.9 $145.5 $174.0 $156.3
Peer Group $100.0 $141.4 $191.1 $ 53.8 $ 36.1
The Company's self-constructed peer group is composed of the following senior
living companies: Alterra Healthcare Corporation, Assisted Living Concepts,
Inc., Balanced Care Corporation, Capital Senior Living Corporation, Emeritus
Corporation, Greenbrier Corporation, Regent Assisted Living, Inc., Sunrise
Assisted Living, Inc., and ARV Assisted Living, Inc.
Brookdale Living Communities, Inc., which is included in the peer group until
2000, was acquired by a private Company in September 2000. CareMatrix
Corporation, which is included in the peer group until 2000, filed for
bankruptcy in November 2000. Both companies have been removed from the 2000 peer
group. During 2000, the Company determined, with the addition of numerous
Free-standing Assisted Living communities, that Assisted Living Concepts, Inc.,
Balanced Care Corporation, and Capital Senior Living Corporation should be added
to the Company's peer group. The prior period returns have been restated to
include these three companies in all measurement periods.
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder in accordance with applicable rules
and regulations for presentation at the Company's annual meeting of shareholders
in 2002 and received at the Company's executive offices no later than November
30, 2001 will be included in the Company's proxy statement and form of proxy
relating to such annual meeting.
12
16
In addition, the Company's bylaws contain an advance notice provision that
provides that for a shareholder proposal to be brought before and considered at
the next annual meeting of shareholders, such shareholder must provide notice
thereof to the Secretary of the Company no later than November 30, 2001 and the
proposal and the shareholder must comply with Regulation 14A under the
Securities Exchange Act. In the event that a shareholder proposal intended to be
presented for action at the next annual meeting is not received prior to
November 30, 2001 proxies solicited by the board of directors in connection with
the annual meeting will be permitted to use their discretionary voting authority
with respect to the proposal, whether or not the proposal is discussed in the
proxy statement for the annual meeting.
INDEPENDENT AUDITORS
KPMG LLP, which has been the Company's independent auditors since its
organization, has been selected as the independent auditors of the Company for
the 2001 fiscal year. The Company has been informed that representatives of KPMG
LLP plan to attend the annual meeting. Such representatives will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions by the shareholders.
FEES BILLED TO THE COMPANY BY KPMG LLP DURING 2000
Audit Fees. The aggregate fees billed for professional services rendered by KPMG
LLP for the audit of the Company's consolidated annual financial statements for
the year ended December 31, 2000 and the limited reviews of the condensed
financial statements included in the Company's Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission during 2000 were $263,000.
Financial Information Systems Design and Implementation Fees. KPMG LLP performed
no services and therefore billed no fees relating to operating or supervising
the operation of the Company's information systems or local area network or for
designing or implementing the Company's financial information management systems
during 2000.
All Other Fees. The aggregate fees billed for all other services rendered to the
Company by KPMG LLP in 2000, including tax related services, totaled $557,900.
The audit committee of the board of directors has considered whether the
provision of non-audit services by KPMG LLP is compatible with maintaining the
auditor's independence.
PROXY SOLICITATION COSTS
The enclosed form of proxy is solicited on behalf of the board of directors of
the Company. The cost of solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling, and mailing this
proxy statement. Such solicitation will be made by mail and may also be made by
the Company's regular officers or employees personally or by telephone or
telecopy. The Company may reimburse brokers, custodians, and their nominees for
their expenses in sending proxies and proxy materials to beneficial owners.
FINANCIAL STATEMENTS AVAILABLE
A copy of the Company's 2000 Annual Report containing audited financial
statements accompanies this proxy statement. The annual report does not
constitute a part of the proxy solicitation material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000 MAY BE OBTAINED, WITHOUT CHARGE, BY ANY SHAREHOLDER TO WHOM
THIS PROXY STATEMENT IS SENT, UPON WRITTEN REQUEST TO GEORGE T. HICKS,
SECRETARY, AMERICAN RETIREMENT CORPORATION, 111 WESTWOOD PLACE, SUITE 200,
BRENTWOOD, TENNESSEE 37027.
13
17
APPENDIX A
CHARTER
OF
AUDIT COMMITTEE
OF
AMERICAN RETIREMENT CORPORATION
The Audit Committee (the "Committee") is appointed by the Board of
Directors (the "Board") to assist the Board in monitoring on a periodic basis
the processes used by the Company to produce financial statements, the Company's
systems of internal accounting and financial controls, and the independence of
the Company's outside auditors.
In discharging its responsibilities, the Committee is empowered to
investigate any matter with full access to all books, records, facilities and
personnel of the Company and the power to retain outside counsel, auditors or
other experts or consultants for this purpose. The Committee shall make regular
reports to the Board.
The Committee shall review and reassess the adequacy of this Charter on
an annual basis and submit it annually to the Board for approval.
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition and experience will meet the applicable
listing standards of the New York Stock Exchange.
Accordingly, as determined by the Board, all of the members will be
directors:
1. Who have no relationship to the Company that may interfere
with the exercise of their independence from management and the Company; and
2. Who are financially literate or who become financially
literate within a reasonable period of time after appointment to the Committee.
In addition, at least one member of the Committee will have accounting or
related financial management expertise.
The Committee's monitoring responsibility recognizes that the Company's
management is responsible for preparing the Company's financial statements in
accordance with generally accepted accounting principles and that the outside
auditors are responsible for auditing those financial statements. Additionally,
the Committee recognizes that the Company's financial management, as well as its
outside auditors, have more time, knowledge and more detailed information on the
Company and its financial reports than do Committee members; consequently, in
carrying out its responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements and is not conducting
an audit or investigation of the financial statements or determining that the
Company's financial statements are true and complete or are in accordance with
generally accepted accounting principles. Nor is it the duty of the Committee to
resolve disagreements, if any, between management and the outside auditors or to
ensure compliance with laws and regulations or the Company's Code of Conduct.
18
The following functions shall be the common recurring activities of the
Committee in carrying out its monitoring responsibilities. These functions are
set forth as a guide with the understanding that the Committee may diverge from
this guide as it deems appropriate given the circumstances.
- - The Committee shall review and discuss with management and the outside
auditors the annual audited financial statements to be included in the
Company's Annual Report on Form 10-K (or the Annual Report to
Shareholders if distributed prior to the filing of Form 10-K) and
review and consider with the outside auditors the matters required to
be discussed by Statements of Auditing Standards ("SAS") No. 61 and No.
90, as may be modified or supplemented. Additionally, the Committee
shall consider whether to recommend to the Board that the audited
financial statements be included in the Company's Annual Report on Form
10-K.
- - As a whole, or through the Committee chair, the Committee shall review
and discuss with the outside auditors the Company's interim financial
results to be included in the Company's quarterly reports to be filed
with Securities and Exchange Commission on Form 10-Q and the matters
required to be discussed by SAS No. 61 and No. 90, as may be modified
or supplemented. This review will occur prior to the Company's filing
of the Form 10-Q.
- - The Committee shall discuss with management and the outside auditors
the quality and adequacy of the Company's internal controls that could
significantly affect the Company's financial statements.
- - The Committee shall:
- - request from the outside auditors annually a formal written statement
delineating all relationships between the outside auditors and the
Company that may impact the objectivity and independence of the outside
auditors, consistent with Independence Standards Board Standard No. 1,
as may be modified or supplemented.
- - discuss with the outside auditors in an active dialogue any such
disclosed relationships or services and their impact on the outside
auditors' independence; and
- - if determined appropriate by the Committee, recommend that the Board
take appropriate action in response to the outside auditor's report to
satisfy itself of the outside auditor's independence.
- - The Committee, subject to any action that may be taken by the Board,
shall have the ultimate authority and responsibility to select (or
nominate for shareholder approval), evaluate and, where appropriate,
replace the outside auditors, and the outside auditors are ultimately
accountable to the Board and the Committee.
19
PROXY AMERICAN RETIREMENT CORPORATION PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS OF AMERICAN RETIREMENT
CORPORATION (THE "COMPANY") TO BE HELD ON MAY 3, 2001.
The undersigned hereby appoints W.E. Sheriff and George T. Hicks, and
each of them, as proxies, with full power of substitution, to vote all shares of
the undersigned as shown on the reverse side of this proxy at the Annual Meeting
of Shareholders of the Company to be held at the American Retirement Corporate
Offices, 111 Westwood Place, Suite 200, Brentwood, Tennessee, on Thursday, May
3, 2001 at 11:00 a.m., central time, and any adjournments thereof.
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO
CHOICE IS SPECIFIED, SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES.
(PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE.)
20
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
AMERICAN RETIREMENT CORPORATION
MAY 3, 2001
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. Election of Directors: FOR [ ] WITHHOLD [ ]
FOR ALL, except Nominee(s) written below):
[ ]
----------------------------------------------
NOMINEES: Christopher J. Coates
Daniel K. O'Connell
Lawrence J. Stuesser
2. In their discretion on any other matter that may properly come
before said meeting or any adjournments thereof.
PLEASE SIGN BELOW AND RETURN PROMPTLY
Signature(s) Dated: , 2001
------------------------------------ -------------
NOTE: PLEASE SIGN ABOVE AND RETURN PROMPTLY. Please sign exactly as your name
appears hereon. If registered in the names of two or more persons, each
should sign. Executors, administrators, trustees, guardians, attorneys,
and corporate officers should show their full titles.