1
EXHIBIT 10.2
ARC
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.1 ESTABLISHMENT OF PLAN.
American Retirement Corporation, a Tennessee corporation ("ARC") with
principal offices located in Nashville, Tennessee, adopts the following
employee stock purchase plan for its eligible employees, effective on July 1,
1997. This Plan shall be known as the ARC Employee Stock Purchase Plan.
1.2 PURPOSE.
The purpose of this Plan is to provide an opportunity for eligible
employees of the Employer to become shareholders in ARC. It is believed that
broad-based employee participation in the ownership of the business will help
to achieve the unity of purpose conducive to the continued growth of the
Employer and to the mutual benefit of its employees and shareholders.
1.3 QUALIFICATION.
This Plan is intended to be an employee stock purchase plan which
qualifies for favorable Federal income tax treatment under Section 423 of the
Code.
1.4 RULE 16B-3 COMPLIANCE.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, and should be interpreted in accordance therewith.
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the
meanings specified below:
2.1 Board of Directors: The Board of Directors of ARC.
2.2 Closing Market Price: The last sale price of the Stock as
reported on the New York Stock Exchange (or any other exchange or quotation
system, if applicable) on the date specified; or if no sales occurred on such
day, at the last sale price reported for the Stock; but if
2
there should be any material alteration in the present system of reporting
sales prices of such Stock, or if such Stock should no longer be listed on the
New York Stock Exchange (or other exchange or quotation system), or if the last
sale price reported shall be on a date more than 30 days from the date in
question, the market value of the Stock as of a particular date shall be
determined in such a method as shall be specified by the Plan Administrator.
2.3 Code: The Internal Revenue Code of 1986, as amended from time
to time.
2.4 Commencement Date: The first day of each Option Period
(January 1 and July 1). The first Commencement Date shall be July 1, 1997.
2.5 Contribution Account: The account established on behalf of a
Participant to which shall be credited the amount of the Participant's
contribution, pursuant to Article V.
2.6 Effective Date: July 1, 1997.
2.7 Employee: Each employee of an Employer except:
(a) any employee whose customary employment is twenty
(20) hours per week or less, or
(b) any employee whose customary employment is for not
more than five months in any calendar year.
2.8 Employer: ARC and any corporation which is a Subsidiary of ARC
(except for a Subsidiary which by resolutions of the Board of Directors is
expressly not authorized to become a participating Employer). The term
"Employer" shall include any corporation into which an Employer may be merged
or consolidated or to which all or substantially all of its assets may be
transferred, provided such corporation does not affirmatively disavow this
Plan.
2.9 Exercise Date: The last trading date of each Option Period on
the New York Stock Exchange.
2.10 Exercise Price: The price per share of the Stock to be
charged to Participants at the Exercise Date, as determined in Section 6.3.
2.11 Five-Percent Shareholder: An Employee who owns five percent
(5%) or more of the total combined voting power or value of all classes of
stock of ARC or any Subsidiary thereof. In determining this five percent test,
shares of stock which the Employee may purchase under outstanding options,
warrants or other convertible securities, as well as stock attributed to the
Employee from members of such Employee's family or otherwise under Section
424(d) of the Code, shall be treated as stock owned by the Employee in the
numerator, but shares of stock
2
3
which may be issued under options, warrants or other convertible
securities shall not be counted in the total of outstanding shares in the
denominator.
2.12 Grant Date: The first trading date of each Option Period on
the New York Stock Exchange.
2.13 Option Period: Successive periods of six (6) months (i)
commencing on July 1 and ending on December 31; and (ii) commencing on January
1 and ending on June 30.
2.14 Participant: Any Employee of an Employer who has met the
conditions for eligibility as provided in Article IV and who has elected to
participate in the Plan.
2.15 Plan: ARC Employee Stock Purchase Plan.
2.16 Plan Administrator: The committee composed of one or more
individuals to whom authority is delegated by the Board of Directors to
administer the Plan. The initial committee shall be the Compensation Committee
of the Board of Directors.
2.17 Stock: Those shares of common stock of ARC which are reserved
pursuant to Section 6.1 for issuance upon the exercise of options granted under
this Plan.
2.18 Subsidiary: Any corporation in an unbroken chain of
corporations beginning with ARC each of which (other than the last corporation
in the chain) owns stock possessing fifty percent (50%) or more of the combined
voting power of all classes of stock in one of the other corporations in such
chain.
ARTICLE III
SHAREHOLDER APPROVAL
3.1 SHAREHOLDER APPROVAL REQUIRED.
This plan must be approved by the shareholders of ARC within the
period beginning twelve (12) months before and ending twelve (12) months after
its adoption by the Board of Directors.
3.2 SHAREHOLDER APPROVAL FOR CERTAIN AMENDMENTS.
Without the approval of the shareholders of ARC, no amendment to this
Plan shall increase the number of shares reserved under the Plan, other than as
provided in Section 10.3. Approval by shareholders must comply with applicable
provisions of the corporate charter and bylaws of
3
4
ARC and with Tennessee law prescribing the method and degree of shareholder
approval required for issuance of corporate stock or options.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 CONDITIONS OF ELIGIBILITY.
Each Employee shall become eligible to become a Participant for each
Option Period on its Commencement Date if such Employee has been employed by
the Employer for a continuous period of at least one (1) year prior to the
Commencement Date. No Employee who is a Five-Percent Shareholder shall be
eligible to participate in the Plan. Notwithstanding anything to the contrary
contained herein, no individual who is not an Employee shall be granted an
option to purchase Stock under the Plan. For the purpose of satisfying the
service requirement for eligibility, all employees of ARC shall be granted
credit for service prior to the initial public offering with American
Retirement Corporation or with any partnership or other entity affiliated with
American Retirement Corporation.
4.2 APPLICATION FOR PARTICIPATION.
Each Employee who becomes eligible to participate shall be furnished a
summary of the Plan and an enrollment form. If such Employee elects to
participate hereunder, he shall complete such form and file it with his
Employer no later than ten (10) days prior to the Commencement Date for the
Option Period for which the Employee is enrolling. The completed enrollment
form shall indicate the amount of Employee contribution authorized by the
Employee. If no new enrollment form is filed by a Participant at least ten
(10) days in advance of any subsequent Option Period, that Participant shall be
deemed to have elected to continue to participate with the same contribution
level previously elected (subject to the limit of 15% of base pay). If any
Employee does not elect to participate for any given Option Period, he may
elect to participate on any future Commencement Date so long as he continues to
meet the eligibility requirements.
4.3 DATE OF PARTICIPATION.
All Employees who elect to participate shall be enrolled in the Plan
commencing with the first pay date after the Commencement Date following their
submission of the enrollment form. Upon becoming a Participant, the
Participant shall be bound by the terms of this Plan, including any amendments
whenever made.
4
5
4.4 ACQUISITION OR CREATION OF SUBSIDIARY.
If the stock of a corporation is acquired by ARC or another Employer
so that the acquired corporation becomes a Subsidiary, or if a Subsidiary is
created, the Subsidiary in either case shall automatically become an Employer
and its Employees shall become eligible to participate in the Plan on the first
Commencement Date after the acquisition or creation of the Subsidiary, as the
case may be. In the case of an acquisition, credit shall be given to Employees
of the acquired Subsidiary for service with such corporation prior to the
acquisition for purposes of satisfying the requirement of Section 4.1 of one
(1) year continuous employment. Notwithstanding the foregoing, the Board of
Directors may by appropriate resolutions (i) provide that the acquired or newly
created Subsidiary shall not be a participating Employer, (ii) specify that the
acquired or newly created Subsidiary will become a participating Employer on a
date other than the first Commencement Date after the acquisition or creation,
or (iii) attach any conditions whatsoever (including denial of credit for prior
service) to eligibility of the employees of the acquired or newly created
Subsidiary.
ARTICLE V
CONTRIBUTION ACCOUNT
5.1 EMPLOYEE CONTRIBUTIONS.
The enrollment form signed by each Participant shall authorize the
Employer to deduct from the Participant's compensation an after-tax amount in
an exact number of dollars during each payroll period not less than five
dollars ($5.00) per bi-weekly payroll period (or $5.00 per semi-monthly payroll
period), nor more than an amount which is fifteen (15%) of the Participant's
base pay on the Commencement Date. The dollar amount deducted each payday
shall be credited to the Participant's Contribution Account. Participant
contributions will not be permitted to commence at any time during the Option
Period other than on a Commencement Date. No interest will accrue on any
contributions or on the balance in a Participant's Contribution Account.
5.2 MODIFICATION OF CONTRIBUTION RATE.
No change shall be permitted in a Participant's amount of withholding
except upon a Commencement Date, and then only if the Participant files a new
enrollment form with the Employer designating the new withholding rate at least
ten (10) days in advance of the Commencement Date for each Option Period.
Notwithstanding the foregoing, a Participant may notify the Employer at any
time at least thirty (30) days prior to the last day of the Option Period that
he wishes to discontinue his contributions. This notice shall be in writing
and on such forms as provided by the Employer and shall become effective as of
a date provided on the form not more than thirty (30) days following its
receipt by the Employer. The Participant shall become eligible to recommence
contributions on the next Commencement Date.
5
6
5.3 WITHDRAWAL OF CONTRIBUTIONS.
A Participant may elect to withdraw the balance of his Contribution
Account at any time during the Option Period at least thirty (30) days prior to
the last day of the Option Period. The option granted to a Participant shall
be canceled upon his withdrawal of the balance in his Contribution Account.
This election to withdraw must be in writing on such forms as may be provided
by the Employer. If contributions are withdrawn in this manner, further
contributions during that Option Period will be discontinued in the same manner
as provided in Section 5.2, and the Participant shall become eligible to
recommence contributions on the next Commencement Date.
5.4 LUMP SUM CONTRIBUTIONS.
Subject to the limitations described in Section 5.5 and Section 6.6, a
Participant who has not discontinued his contributions pursuant to Section 5.2
or elected to withdraw his contributions pursuant to Section 5.3 may make no
more than one lump sum contribution during each Option Period (except during
the last thirty (30) days of the Option Period). A lump sum contribution shall
be paid by check by the Participant delivered at least thirty (30) days prior
to the last day of the Option Period and shall be credited to Participant's
Contribution Account.
5.5 LIMITATIONS ON CONTRIBUTIONS.
During each Option Period the total contributions by a Participant to
his Contribution Account (including both contributions by payroll deduction
pursuant to Section 5.1 and lump sum contributions pursuant to Section 5.5)
shall not exceed fifteen percent (15%) of the Participant's base pay on the
Commencement Date (expressed as base pay for the applicable payroll period)
multiplied by the number of payroll periods during that Option Period. If a
Participant's total contributions should exceed this limit, the excess shall be
returned to the Participant after the end of the Option Period, without
interest.
ARTICLE VI
ISSUANCE AND EXERCISE OF OPTIONS
6.1 RESERVED SHARES OF STOCK.
ARC shall reserve two hundred fifty thousand (250,000) shares of Stock
for issuance upon exercise of the options granted under this Plan.
6
7
6.2 ISSUANCE OF OPTIONS.
On the Grant Date each Participant shall be deemed to receive an
option to purchase Stock with the number of shares and Exercise Price
determined as provided in this Article VI, subject to the maximum limit
specified in Section 6.6(a). All such options shall be automatically exercised
on the following Exercise Date, except for options which are canceled when a
Participant withdraws the balance of his Contribution Account or which are
otherwise terminated under the provisions of this Plan.
6.3 DETERMINATION OF EXERCISE PRICE.
The Exercise Price of the options granted under this Plan for any
Option Period shall be the lesser of
(a) eighty-five percent (85%) of the Closing Market Price
of the Stock on the Exercise Date, or
(b) eighty-five percent (85%) of the Closing Market Price
of the Stock on the Grant Date.
6.4 PURCHASE OF STOCK.
On an Exercise Date, all options shall be automatically exercised,
except that the options of a Participant who has terminated employment pursuant
to Section 7.1 or who has withdrawn all his contribution shall expire. The
Contribution Account of each Participant shall be used to purchase the maximum
number of whole shares of Stock determined by dividing the Exercise Price into
the balance of the Participant's Contribution Account. Any money remaining in
a Participant's Contribution Account representing a fractional share shall
remain in his Contribution Account to be used in the next Option Period along
with new contributions in the next Option Period; provided, however, that if
the Participant does not enroll for the next Option Period, the balance
remaining shall be returned to such Participant in cash.
6.5 TERMS OF OPTIONS.
Options granted under this Plan shall be subject to such amendment or
modification as the Employer shall deem necessary to comply with any applicable
law or regulation, including but not limited to Section 423 of the Code, and
shall contain such other provisions as the Employer shall from time to time
approve and deem necessary.
7
8
6.6 LIMITATIONS ON OPTIONS.
The options granted hereunder are subject to the following limitations:
(a) The maximum number of shares of Stock which may be
purchased by any Participant on an Exercise Date
shall be seven hundred (700) shares. This maximum
number of shares shall be adjusted upon the
occurrence of an event described in Section 10.3.
(b) No Participant shall be permitted to purchase during
any calendar year Stock under this Plan (and any
other plan of the Employer or Subsidiary which is
qualified under Section 423 of the Code) having a
market value in excess of $25,000 (as determined on
the Grant Date for the Option Period during which
each such share of Stock is purchased).
(c) No option may be granted to a Participant if the
Participant immediately after the option is granted
would be a Five-Percent Shareholder.
(d) No Participant may assign, transfer or otherwise
alienate any options granted to him under this Plan,
otherwise than by will or the laws of descent and
distribution, and such options must be exercised
during the Participant's lifetime only by such
Participant.
6.7 PRO-RATA REDUCTION OF OPTIONED STOCK.
If the total number of shares of Stock to be purchased under option by
all Participants on an Exercise Date exceeds the number of shares of Stock
remaining authorized for issuance under Section 6.1, a pro-rata allocation of
the shares of Stock available for issuance will be made among Participants in
proportion to their respective Contribution Account balances on the Exercise
Date, and any money remaining in the Contribution Accounts shall be returned to
the Participants.
6.8 STATE SECURITIES LAWS.
Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to issue shares of Stock to any Participant if to do so
would violate any State securities law applicable to the sale of Stock to such
Participant. In the event that the Company refrains from issuing shares of
Stock to any Participant in reliance on this Section, the Company shall return
to such Participant the amount in such Participant's Contribution Account that
would otherwise have been applied to the purchase of Stock.
8
9
ARTICLE VII
TERMINATION OF PARTICIPATION
7.1 TERMINATION OF EMPLOYMENT.
Any Employee whose employment with the Employer is terminated during
the Option Period prior to the Exercise Date for any reason except death,
disability or retirement at or after age 65 shall cease being a Participant
immediately. The balance of that Participant's Contribution Account shall be
paid to such Participant as soon as practical after his termination. The
option granted to such Participant shall be null and void from and after his
termination of employment.
7.2 DEATH.
If a Participant should die while employed by the Employer, no further
contributions on behalf of the deceased Participant shall be made. The legal
representative of the deceased Participant may elect to withdraw the balance in
said Participant's Contribution Account by notifying the Employer in writing at
least thirty (30) days prior to the last day of the Option Period during which
the Participant died. In the event no election to withdraw is made in a timely
manner, the balance accumulated in the deceased Participant's Contribution
Account shall be used to purchase shares of Stock in accordance with Section
6.4. Any money remaining which is insufficient to purchase a whole share shall
be paid to the legal representative.
7.3 RETIREMENT.
If a Participant should retire from the employment of the Employer at
or after attaining age 65, no further contributions on behalf of the retired
Participant shall be made. The Participant may elect to withdraw the balance
in his Contribution Account by notifying the Employer in writing at least
thirty (30) days prior to the last day of the Option Period during which the
Participant retired. In the event no election to withdraw is made in a timely
manner, the balance accumulated in the retired Participant's Contribution
Account shall be used to purchase shares of Stock in accordance with Section
6.4, and any money remaining which is insufficient to purchase a whole share
shall be paid to the retired Participant.
7.4 DISABILITY.
If a Participant should terminate employment with the Employer on
account of disability, as determined by reference to the definition of "total
disability" in the Company's then current long-term disability plan (which as
of the Effective Date is insured by Guarantee Mutual Life Company, Group Policy
No. 01-001-0646), no further contributions on behalf of the disabled
Participant shall be made. The Participant may elect to withdraw the balance
in his Contribution Account by notifying the Employer in writing at least
thirty (30) days prior to the last day of the Option Period during which the
Participant became disabled. In the event no election to withdraw
9
10
is made in a timely manner, the balance accumulated in the disabled
Participant's Contribution Account shall be used to purchase shares of Stock in
accordance with Section 6.4, and any money remaining which is insufficient to
purchase a whole share shall be paid to the disabled Participant.
ARTICLE VIII
OWNERSHIP OF STOCK
8.1 STOCK CERTIFICATES.
Certificates for Stock purchased through exercise of the options
granted hereunder shall be issued as soon as practical after the Exercise Date.
Certificates may be issued, at the request of the Participant, in the name of
the Participant, jointly in the name of the Participant and a member of the
Participant's family, or to the Participant as custodian for the Participant's
child under the Gift to Minors Act.
8.2 PREMATURE SALE OF STOCK.
If a Participant (or former Participant) sells or otherwise disposes
of any shares of Stock obtained under this Plan
(a) prior to two (2) years after the Grant Date of the
option under which such shares were obtained, or
(b) prior to one (1) year after the Exercise Date on
which such shares were obtained,
that Participant (or former Participant) must notify the Employer immediately
in writing concerning such disposition.
ARTICLE IX
ADMINISTRATION AND AMENDMENT
9.1 ADMINISTRATION.
The Plan Administrator shall (i) administer the Plan and keep records
of the Contribution Account balance of each Participant, (ii) interpret the
Plan, and (iii) determine all questions arising as to eligibility to
participate, amount of contributions permitted, determination of the Exercise
Price, and all other matters of administration. The Plan Administrator shall
have such duties, powers and discretionary authority as may be necessary to
discharge the foregoing duties, and
10
11
may delegate any or all of the foregoing duties to any individual or
individuals (including officers or other Employees who are Participants). The
Board of Directors shall have the right at any time and without notice to
remove or replace any individual or committee of individuals serving as Plan
Administrator. All determinations by the Plan Administrator shall be
conclusive and binding on all persons. Any rules, regulations, or procedures
that may be necessary for the proper administration or functioning of this Plan
that are not covered in this Plan document shall be promulgated and adopted by
the Plan Administrator.
9.2 AMENDMENT.
The Board of Directors of ARC may at any time amend the Plan in any
respect, including termination of the Plan, without notice to Participants. If
the Plan is terminated, all options outstanding at the time of termination
shall become null and void and the balance in each Participant's Contribution
Account shall be paid to that Participant. Notwithstanding the foregoing, no
amendment of the Plan as described in Section 3.2 shall become effective until
and unless such amendment is approved by the shareholders of ARC.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES.
The Employer will pay all expenses of administering this Plan that may
arise in connection with the Plan.
10.2 NO CONTRACT OF EMPLOYMENT.
Nothing in this Plan shall be construed to constitute a contract of
employment between an Employer and any Employee or to be an inducement for the
employment of any Employee. Nothing contained in this Plan shall be deemed to
give any Employee the right to be retained in the service of an Employer or to
interfere with the right of an Employer to discharge any Employee at any time,
with or without cause, regardless of the effect which such discharge may have
upon him as a Participant of the Plan.
10.3 ADJUSTMENT UPON CHANGES IN STOCK.
The aggregate number of shares of Stock reserved for purchase under
the Plan as provided in Section 6.1, and the calculation of the Exercise Price
as provided in Section 6.3, shall be adjusted by the Plan Administrator
(subject to direction by the Board of Directors) in an equitable manner to
reflect changes in the capitalization of ARC, including, but not limited to,
such changes as result from merger, consolidation, reorganization,
recapitalization, stock dividend, dividend
11
12
in property other than cash, stock split, combination of shares, exchange of
shares and change in corporate structure. If any adjustment under this Section
10.3 would create a fractional share of Stock or a right to acquire a
fractional share of Stock, such fractional share shall be disregarded and the
number of shares available under the Plan and the number of shares covered
under any options granted pursuant to the Plan shall be the next lower number
of shares, rounding all fractions downward.
10.4 EMPLOYER'S RIGHTS.
The rights and powers of any Employer shall not be affected in any way
by its participation in this Plan, including but not limited to the right or
power of any Employer to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge or to consolidate
or to dissolve, liquidate or sell, or transfer all or any part of its business
or assets.
10.5 LIMIT ON LIABILITY.
No liability whatever shall attach to or be incurred by any past,
present or future shareholders, officers or directors, as such, of ARC or any
Employer, under or by reason of any of the terms, conditions or agreements
contained in this Plan or implied therefrom, and any and all liabilities of any
and all rights and claims against ARC, an Employer, or any shareholder, officer
or director as such, whether arising at common law or in equity or created by
statute or constitution or otherwise, pertaining to this Plan, are hereby
expressly waived and released by every Participant as a part of the
consideration for any benefits under this Plan; provided, however, no waiver
shall occur, solely by reason of this Section 10.5, of any right which is not
susceptible to advance waiver under applicable law.
10.6 GENDER AND NUMBER.
For the purposes of the Plan, unless the contrary is clearly
indicated, the use of the masculine gender shall include the feminine, and the
singular number shall include the plural and vice versa.
10.7 GOVERNING LAW.
The validity, construction, interpretation, administration and effect
of this Plan, and any rules or regulations promulgated hereunder, including all
rights or privileges of any Participants hereunder, shall be governed
exclusively by and in accordance with the laws of the State of Tennessee,
except that the Plan shall be construed to the maximum extent possible to
comply with Section 423 of the Code and the Treasury regulations promulgated
thereunder.
12
13
10.8 HEADINGS.
Any headings or subheadings in this Plan are inserted for convenience
of reference only and are to be ignored in the construction of any provisions
hereof.
10.9 SEVERABILITY.
If any provision of this Plan is held by a court to be unenforceable
or is deemed invalid for any reason, then such provision shall be deemed
inapplicable and omitted, but all other provisions of this Plan shall be deemed
valid and enforceable to the full extent possible under applicable law.
IN WITNESS WHEREOF, the Employer has adopted this Plan effective July
1, 1997, subject to approval by the shareholders of ARC on or before the
expiration of the time period specified in Section 3.1.
Date: __________, 1997 AMERICAN RETIREMENT CORPORATION
By:___________________________
Title:________________________
Attest:
______________________________________________
13