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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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
14a-12
EMERITUS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(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
CALCULATION OF FILING FEE
================ ============== ============== ============ =========
Per unit price
or other
underlying
Title of each Aggregate value of Proposed
class of number of transaction maximum
securities to securities to computed aggregate
which which pursuant to value of Total fee
transaction transaction Exchange transaction paid
applies applies Act Rule 0-11
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( ) 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.
Amount Previously Paid:_____________ Filing Party: _________________
Form, Schedule or
Registration Statement No.:_________ Date Filed:_____________________
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[COMPANY LOGO]
[EMERITUS ASSISTED LIVING]
April 13, 1998
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders of Emeritus Corporation, a Washington corporation,
to be held on Wednesday, May 20, 1998, at 10:00 a.m. at the
Columbia Winery, Milestone Room, 14030 N.E. 145th Street,
Woodinville, Washington 98072.
The business matters to be acted on at the meeting are
described in the accompanying Notice of Annual Meeting of
Shareholders and Proxy Statement.
Your vote is very important. Whether or not you attend the
meeting, your shares should be represented and voted at the
meeting. Therefore, I urge you to mark, sign, date and promptly
return the enclosed proxy. If you decide to attend the meeting
and wish to vote in person, you will still have the opportunity
to do so.
On behalf of the Board of Directors, I would like to express
our appreciation for your continued interest in the affairs of
the Company.
Sincerely,
/s/ Daniel R. Baty
Daniel R. Baty
Chairman of the Board and
Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, MAY 20, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Emeritus Corporation, a Washington Corporation, (the "Company"), will
be held on Wednesday, May 20, 1998, at 10:00 a.m. at the Columbia
Winery, Milestone Room, 14030 N.E. 145th Street, Woodinville,
Washington 98072, for the following purposes:
(1) To elect three directors into the Class II of the Company's
Board of Directors.
(2) To approve the 1998 Employee Stock Purchase Plan.
(3) To amend the 1995 Stock Incentive Compensation Plan.
(4) To ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent public accountants for fiscal year
1998.
(5) To transact such other business as may come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on
March 27, 1998 as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting in
person.
To ensure representation at the Annual Meeting, shareholders are
urged to mark, sign, date and return the enclosed proxy as promptly as
possible, even if they plan to attend the Annual Meeting. A return
envelope, which requires no postage if mailed in the United States, is
enclosed for this purpose. Any shareholder attending the Annual
Meeting may vote in person even if such shareholder has returned a
proxy if the proxy is revoked in the manner set forth in the
accompanying Proxy Statement.
By Order of the Board of Directors
/s/ Daniel R. Baty
Daniel R. Baty
Chairman of the Board and
Chief Executive Officer
Seattle, Washington
April 13, 1998
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE. This will
ensure the presence of a quorum at the meeting. Promptly marking,
signing, dating and returning your proxy will save the Company the
expense of additional solicitation. Sending in your proxy will not
prevent you from voting your stock at the meeting if you desire to do
so, as your proxy is revocable at your option.
EMERITUS CORPORATION
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Emeritus Corporation, a
Washington Corporation (the "Company"), of proxies for use at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Wednesday, May 20, 1998, at 10:00 a.m. at the Columbia Winery,
Milestone Room, 14030 N.E. 145th Street, Woodinville, Washington 98072,
for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The principal executive offices of the
Company are located at 3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121. It is expected that this Proxy Statement and
accompanying form of proxy will be mailed to shareholders on or about
April 13, 1998.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of the Company's common stock (the "Common
Stock") at the close of business on March 27, 1998, are entitled to
notice of and to vote at the Annual Meeting. On that date there were
10,483,050 shares of Common Stock outstanding.
REVOCABILITY OF PROXIES
Shares represented at the Annual Meeting by properly executed
proxies in the accompanying form will be voted at the Annual Meeting
and, where the shareholder giving the proxy specifies a choice, the
proxy will be voted in accordance with the specification so made. A
proxy given for use at the Annual Meeting may be revoked by the
shareholder giving the proxy at any time prior to the exercise of the
powers conferred thereby. A proxy may be revoked either by (a) filing
with the Secretary of the Company prior to the Annual Meeting, at the
Company's principal executive offices, either a written revocation or a
duly executed proxy bearing a later date or (b) attending the Annual
Meeting and voting in person, regardless of whether a proxy has
previously been given. Presence at the Annual Meeting will not revoke
the shareholder's proxy unless such shareholder votes in person.
QUORUM AND VOTING
Under Washington law and the Company's Articles of Incorporation,
if a quorum is present at the Annual Meeting, (a) the three nominees
for election as directors who receive the greatest number of votes cast
for the election of directors at the Annual Meeting by the shares
present in person or represented by proxy at the Annual Meeting and
entitled to vote shall be elected directors, and (b) the proposals to
approve the 1998 Employee Stock Purchase Plan, to amend the 1995
Incentive Compensation Plan and to ratify the appointment of the
accountants will be approved if the votes cast in favor of such
proposals by the shares present in person or represented by proxy at
the Annual Meeting and entitled to vote exceed the votes cast against
such proposals. Abstention from voting will have no effect on the
election of directors or the approval of the proposals since they will
not represent votes cast at the Annual Meeting for the purposes of
electing directors and voting on such proposals. Because brokers have
discretion to vote shares of Common Stock held on behalf of beneficial
owners if no instructions for voting such shares are received as to the
matters to be voted upon at the Annual Meeting, there will be no
"broker nonvotes".
SOLICITATION OF PROXIES
Proxies will be solicited by certain of the Company's directors,
officers and regular employees, without payment of any additional
compensation to them. Proxies will be solicited by personal interview,
mail and telephone. Any costs relating to such solicitation of proxies
will be borne by the Company. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of
1
Common Stock for their expenses in forwarding solicitation materials to
such beneficial owners.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes: Class I,
Class II and Class III. At the Annual Meeting, each of three Class II
directors are to be elected to hold office for a term of three years
until the Company's annual meeting of shareholders in 2001, and until
such director's successor shall be elected and qualified. The Board of
Directors has no reason to believe that any of the nominees listed
below will be unable to serve as a director. If, however, any nominee
becomes unavailable, the proxies will have discretionary authority to
vote for a substitute nominee. Pursuant to a shareholders agreement
entered into in connection with the NorthStar Transaction, the Company
has agreed to take all necessary action to elect one director selected
by NorthStar, and to take further action with respect to the Board if
certain events occur. See "Certain Transactions - NorthStar
Transaction". Mr. Hamamoto was appointed a member of the Board in
November 1997 pursuant to this agreement.
NOMINEES FOR ELECTION
CLASS II DIRECTORS (TERM TO EXPIRE IN 2001)
Tom A. Alberg (age 58) has served as a director of the Company
since November 1995. Since January 1996, Mr. Alberg has been principal
of Madrona Investment Group, L.L.C., a private merchant banking firm.
Mr. Alberg was President and a director of LIN Broadcasting
Corporation, a cellular telephone company, from April 1991 to October
1995, and Executive Vice President of AT&T Wireless Services, a
provider of cellular telephone services, formerly McCaw Cellular
Communications, Inc., from July 1990 to October 1995. Mr. Alberg is
also a director of Active Voice Corporation, Amazon.com, Inc., Mosaix,
Inc., Visio Corporation and Teledesic Corporation.
Raymond R. Brandstrom (age 45), one of the Company's founders, has
served as its President and Chief Operating Officer and as a director
since its inception in 1993. From May 1992 to October 1996, Mr.
Brandstrom served as President of Columbia-Pacific Group, Inc.
("Columbia Pacific") and Columbia Management, Inc. ("Columbia
Management"), both of which companies are engaged in developing
independent-living facilities and providing consulting services for
that market. From May 1992 to May 1997, Mr. Brandstrom served as Vice
President and Treasurer of Columbia Winery, a company affiliated with
Mr. Baty that is engaged in the production and sale of still table
wines.
David T. Hamamoto (age 38) has served as a director of the Company
since November 1997. Mr. Hamamoto is a member of Northstar Capital
Partners LLC ("NorthStar"), a real estate fund that he founded in July
1997. Between 1983 and July 1997, Mr. Hamamoto was employed by
Goldman Sachs, most recently as co-founder and co-head of the Real
Estate Principal Investment Area of the Whitehall Funds. Mr. Hamamoto
is also Co-Chairman, Co-Chief Executive Officer and Co-President of
Northstar Capital Investment Corporation, a private investment firm.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
DIRECTOR NOMINEES.
CONTINUING DIRECTORS
CLASS I DIRECTORS (TERM TO EXPIRE IN 2000)
Patrick Carter (age 52) has served as a director of the Company
since November 1995. Since 1985, Mr. Carter has been Chief Executive
Officer and Managing Director of Westminister Health Care Holdings,
Plc., a publicly held operator of skilled-nursing facilities in the
United Kingdom.
Motoharu Iue (age 61) has served as a director of the Company
since April 1995. Mr. Iue has served as Chairman of the Board of Sanyo
North America Corporation ("Sanyo") and President of Three Oceans Inc.
("Three Oceans") since October 1996. Mr. Iue served as President of
Sanyo and as Chairman of the Board of Three Oceans and since 1992 has
served as Chief Executive Officer of Sanyo and Chief Executive Officer
of Three Oceans. Three Oceans Inc. is a 3.7% shareholder of the
Company. Mr. Iue has been a director of Sanyo since 1977.
2
CLASS III DIRECTORS (TERM TO EXPIRE IN 1999)
Daniel R. Baty (age 54), one of the Company's founders, has served
as its Chief Executive Officer and as a director since its inception in
1993 and became Chairman of the Board in April 1995. Mr. Baty has
served as the Chairman of the Board of Holiday Retirement Corp.
("Holiday"), an owner and operator of independent-living communities,
since 1987 and as its Chief Executive Officer from 1991 through
September 1997. Since 1984, Mr. Baty has served as Chairman of the
Board of Columbia Pacific and, since 1986, as Chairman of the Board of
Columbia Management, both of which companies are wholly owned by Mr.
Baty and engaged in developing independent-living facilities and
providing consulting services for that market.
William E. Colson (age 56) has served as a director of the Company
since 1995. Mr. Colson is a founder of Holiday and has been its
President and Chief Operating Officer since 1987. In September 1997,
Mr. Colson became Chief Executive Officer of Holiday.
INFORMATION ON COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Board of Directors has established a Compensation Committee
and an Audit Committee. The Company has no Nominating Committee, and
the full Board of Directors selects nominees for election as directors.
The Compensation Committee establishes salaries, incentives and
other forms of compensation for directors, officers and other key
employees of the Company, administers the 1995 Stock Incentive
Compensation Plan and recommends policies relating to benefit plans.
The Compensation Committee currently consists of Messrs. Alberg, Carter
and Iue. The Compensation Committee met four times in 1997.
The Audit Committee reviews the Company's accounting practices,
internal accounting controls and financial results and oversees the
engagement of the Company's independent auditors. The Audit Committee
currently consists of Messrs. Alberg and Carter. The Audit Committee
met twice in 1997.
During 1997, there were eight meetings of the Board of Directors,
and all board members attended at least 75% of the meetings of the
Board of Directors and of each committee of which he was a member.
COMPENSATION OF DIRECTORS
Nonemployee directors currently receive $500 for each meeting of
the Board of Directors or committee of the Board of Directors that they
attend. In September 1995, the Company established the Stock Option
Plan for Nonemployee Directors, which provides that each nonemployee
director who is initially elected or appointed to the Board of
Directors will, upon such election or appointment, be automatically
granted a fully vested option to purchase 2,500 shares of Common Stock.
In addition, each nonemployee director is automatically granted a fully
vested option to purchase 2,000 shares of Common Stock immediately
following each year's annual meeting of shareholders.
3
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to
compensation paid by the Company in the fiscal years ended December 31,
1995, 1996 and 1997 to the Company's Chief Executive Officer; Chief
Operating Officer; Vice President, Operations; Vice President, Finance;
and Vice President, Sales and Marketing (the "Named Executive
Officers"). None of the Company's other executive officers earned
salary and bonus in excess of $100,000 during the fiscal year ended
December 31, 1997.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
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Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Compensation (3) Options Compensation (1)
- ---------------------------------- ---- --------- ---------------- ------------ ----------------
Daniel R. Baty (2)................ 1997 $ - $1,363 64,000 $ -
Chairman and Chief 1996 $ - $2,190 50,000 $ -
Executive Officer 1995 $ - $3,568 50,000 $ -
Raymond R. Brandstrom............. 1997 $100,000 $1,363 57,000 $ -
President and Chief 1996 $100,000 $ 720 50,000 $ -
Operating Officer 1995 $100,000 $ - 35,000 $ -
Gary D. Witte (4)................. 1997 $151,667 $ 264 57,000 $ 9,167
Vice President, Operations 1996 $ 18,552 $ 110 50,000 $ 833
Kelly J. Price.................... 1997 $ 99,357 $1,363 44,000 $ -
Vice President, Finance 1996 $ 76,554 $ 982 10,000 $ -
Chief Financial Officer 1995 $ 44,134 $ 150 1,250 $ -
Sarah J. Curtis (5)............... 1997 $ 87,708 $1,334 22,000 $10,000
Vice President, Sales and
Marketing
- -----------
(1) Consists of $833 and $9,167 in housing allowances for 1996
and 1997, respectively, for Mr. Witte and $10,000 in
housing allowance for 1997 for Ms. Curtis.
(2) Mr. Baty is not currently paid salary by the Company. On
April 17, 1995, the Company purchased investment
securities in The Standish Care Company (now Carematrix
Corporation) from a corporation wholly owned by Mr. Baty.
Such investment securities were purchased by the Company
at such corporation's original cost, which exceeded the
then current market value of such securities. The excess
of the cost to the Company over market value at the time
of purchase was $426,000 and has been treated for
financial reporting purposes as compensation to Mr. Baty
for 1995.
(3) Consists of amounts paid for parking fees and health club
memberships.
(4) In November 1996, Mr. Witte was hired as the Company's
Vice President, Operations.
(5) In March 1997, Ms. Curtis was hired as the Company's Vice
President, Sales and Marketing. Ms. Curtis's current
annual base salary is $110,000.
4
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding
options granted during the fiscal year ended December 31, 1997 to the
Named Executive Officers.
Options Granted in Last Fiscal Year
Individual Grants
- ------------------------------------------------------------------------------
Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term(4)
Options Employees in Price Expiration ---------------------------
Name Granted(#)(1) Fiscal Year(2) ($/Share)(3) Date 5% 10%
- --------------------- ------------- -------------- ------------ ---------- ------------ -------------
Daniel R. Baty 64,000 9.1% $13.375 11/20/07 $538,334 $1,364,244
Raymond R. Brandstrom 57,000 8.1% $13.375 11/20/07 $479,454 $1,215,029
Gary D. Witte 57,000 8.1% $13.375 11/20/07 $479,454 $1,215,029
Kelly J. Price 44,000 6.3% $13.375 11/20/07 $370,104 $ 937,917
Sarah J. Curtis 22,000 3.1% $13.375 11/20/07 $185,052 $ 468,959
- ------------------
(1) The options have terms of ten years and generally vest 20% per
year commencing one year from the date of grant. Upon the occurrence
of certain corporate transactions, the exercisability of the options
may be accelerated.
(2) Based on an aggregate of 703,000 shares subject to options granted
to employees in the fiscal year ended December 31, 1997.
(3) The option exercise price is equal to the closing price of the
Common Stock on the American Stock Exchange, Inc. on the date of grant.
(4) Future value of current-year grants assuming appreciation of 5%
and 10% per year over the 10-year option period. The actual value
realized may be greater or less than the potential realizable values
set forth in the table. The assumed rates of growth are prescribed by
the Securities and Exchange Commission (the "Commission") for
illustrative purposes only and are not intended to predict or forecast
future stock prices.
FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised options during the
fiscal year ended December 31, 1997. The following table sets forth
certain information regarding options held as of the end of such fiscal
year by each of the Named Executive Officers.
Aggregated Options Exercises in 1997 and Fiscal Year-Ended Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1997 (#) December 31, 1997(1) ($)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- ------------- ----------- -------------
Daniel R. Baty 30,000 134,000 $22,500 $90,000
Raymond R. Brandstrom 24,000 118,000 $22,500 $90,000
Gary D. Witte 10,000 97,000 $22,500 $90,000
Kelly J. Price 2,500 52,750 $ 4,500 $18,000
Sarah J. Curtis - 22,000 $ - $ -
(1) Options to purchase an aggregate of 160,000 shares held on a
combined basis by the Named Executive Officers were in-the-money at the
fiscal year-end based on the $12.75 closing price of the Common Stock
on the American Stock Exchange, Inc. on December 31, 1997.
5
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") consists
of three nonemployee directors. The Committee is responsible for
establishing and administering the Company's executive compensation
programs. The objectives of these programs are to pay competitively in
order to attract qualified executive personnel who best meet the
Company's needs; retain and motivate these executives to achieve
superior performance; link individual compensation to individual and
company performance; and align executives' financial interests with
those of the Company's shareholders.
Executive compensation generally consists of two components: base
salary and long-term incentive awards. The Committee has established
each executive's compensation package by considering (a) the salaries
of executive officers in similar positions in companies in the same
industry as the Company and in related industries, (b) the experience
and contribution levels of the individual executive officer, and (c)
the Company's financial performance. Companies used as a reference for
considering compensation levels include some but not all of the
companies constituting the peer group in the Stock Performance Graph.
The Company also relies on the recommendations of the Chief Executive
Officer in matters related to the individual performance of the other
executive officers, because the Committee believes that the Chief
Executive Officer is the most qualified to make this assessment. Base
salaries for executive officers generally are designed to be less than
those paid by competitors in the assisted-living industry. These lower
base salaries are combined with stock option grants so that a
significant portion of the executives pay is tied to the Company's
performance.
Base Salaries. In 1997, base salaries were established as
described above.
Stock Options. Stock options are granted to provide a long-term
incentive opportunity that is directly linked to shareholder value.
They are granted with an exercise price equal to the market value of
the Common Stock on the date of grant, and become exercisable in 20%
annual increments beginning one year after the date of grant. To
encourage stock retention, all options are granted as incentive stock
options to the maximum extent possible under the Internal Revenue Code
of 1986, as amended (the "Code"). In 1997, stock options were
granted to a total of 149 employees of the Company in recognition of
their dedication, commitment and hard work. After considering the
performance of each executive, the Committee determined the number of
options to be granted to each executive officer.
Annual Incentives. To date, the Committee has not established a
regular annual incentive or bonus plan for the Company's executive
officers. None of the Company's executive officers were awarded a
bonus in 1997.
The Company's Chief Executive Officer, Mr. Baty, a founder of the
Company, has a significant equity position in the Company. As of the
record date, Mr. Baty owned shares and exercisable options representing
28.8% of the Company's Common Stock. Mr. Baty receives no base salary
or bonus. The compensation pattern was established prior to the
Company's initial public offering and the Committee has continued it,
recognizing that the principal compensation of Mr. Baty will be the
increased value of his equity stake in the Company.
Section 162(m) of the Internal Revenue Code (the "Code") includes
potential limitations on the deductibility for federal income tax
purposes of compensation in excess of $1 million paid or accrued with
respect to any of the executive officers whose compensation is required
to be reported in the Company's Proxy Statement. Certain performance-
based compensation that has been approved by shareholders is not
subject to the deduction limit. The Company's stock option plans are
structured to qualify options granted thereunder as performance-based
compensation under Section 162(m). For 1998, the Committee does not
contemplate that there will be any such nondeductible compensation.
Compensation Committee
Tom A. Alberg, Chair
Patrick Carter
Motoharu Iue
6
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on shares
of the Company's Common Stock with the cumulative total return of the
AMEX Market Value Index and a peer group selected by the Company for
the period beginning on November 21, 1995, the first day of trading for
the Company's Common Stock, and ending on December 31, 1997, the end of
the Company's last fiscal year.
Comparison of Cumulative Total Return Among
Emeritus Corporation, the AMEX Market Value Index and the
Peer Group
[GRAPH APPEARS HERE]
Emeritus AMEX New Old
Corporation Market Peer Group Peer Group
----------- -------- ---------- ----------
November 21, 1995 100 100 100 100
December 31, 1995 78 105 98 98
December 31, 1996 90 112 102 84
December 31, 1997 85 136 179 147
Assumes $100 invested in the Common Stock, the AMEX Market Value
Index and the peer groups, with all dividends reinvested. Stock price
performance shown above for the Common Stock is historical and not
necessarily indicative of future price performance.
The new peer group consists of eight companies primarily involved
in the provision of assisted-living services: Alternative Living
Services Inc., ARV Assisted Living, Inc., Assisted Living Concepts
Inc., Atria Communities, Inc., Carematrix Corp. (formerly The Standish
Care Company), Greenbriar Corp., Regent Assisted Living Inc. and
Sunrise Assisted Living Inc.
The old peer group consists of nine companies primarily involved
in the provision of assisted-living services: Alternative Living
Services Inc., ARV Assisted Living, Inc., Assisted Living Concepts
Inc., Atria Communities, Inc., Carematrix Corp. (formerly The Standish
Care Company), Greenbriar Corp., Just Like Home, Inc., Regent Assisted
Living Inc. and Sunrise Assisted Living Inc. The Company changed its
peer group by eliminating Just Like Home, Inc., ("JLH"). The Company
believed that the inclusion of JLH in its performance graph did not
show a true representation of how the industry performed as a group
primarily due to the small size of JLH when compared to other assisted-
living communities within its peer group.
7
CHANGE OF CONTROL ARRANGEMENTS
Change of Control Agreements
The Company has entered into senior management employment
agreements (the "Agreements") with Messrs. Brandstrom, Witte, and Price
and Ms. Curtis. The Agreements provide certain benefits in the event
that an executive's employment is terminated by the Company for any
reason other than death, "disability," "cause" or by an executive for
"good reason" following a "change in control" (as those terms are
defined in the Agreements). Such benefits include (a) payment of an
amount equal to three times the sum of an executive's annual base
salary and target bonus for the current fiscal year (adjusted as set
forth below); (b) any payment necessary to offset certain tax
obligations incurred as a result of such salary and bonus payments; and
(c) at the Company's option, either the continuation of life insurance,
disability, medical, dental and similar employee benefits for three
years following termination or a cash payment equal to the present
value of such welfare benefits. Whether or not an executive is
terminated following a change in control, he or she shall be entitled
to the following benefits: (a) an annual base salary no less than
current market salary; (b) an annual bonus equal to at least the
average of the annual bonuses paid in the two years preceding a change
in control; and (c) continued participation in employee benefit plans.
On each anniversary, the Agreements are automatically extended for
another year, unless the Company otherwise notifies the executive at
least sixty days prior to such anniversary. Once a change in control
occurs, the Agreements remain in effect for three years from that date.
Option Plan
In the event of (a) the merger or consolidation of the Company in
which it is not the surviving corporation or pursuant to which shares
of Common Stock are converted into cash, securities or other property
(other than a merger in which holders of Common Stock immediately
before the merger have the same proportionate ownership of the capital
stock of the surviving corporation immediately after the merger); (b)
the sale, lease, exchange or other transfer of all or substantially all
of the Company's assets (other than a transfer to a majority-owned
subsidiary); or (c) the approval by the holders of Common Stock of any
plan or proposal for the Company's liquidation or dissolution (each, a
"Corporate Transaction"), each outstanding option under the Company's
stock option plan will automatically accelerate so that it will become
100% vested and exercisable immediately before the Corporate
Transaction, except that acceleration will not occur if, in the opinion
of the Company's accountants, it would render unavailable "pooling of
interest" accounting for the Corporate Transaction and except to the
extent that options are assumed by the successor corporation. The
vesting of such assumed options accelerates at the time an optionee's
employment is terminated by the Company for reasons other than "cause"
or by the optionee for "good reason" following a change of control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Baty currently serves as the Chairman of the Board and Chief
Executive Officer of the Company and also serves as the Chairman of the
Board of Holiday. Mr. Colson, a director of the Company is the
President, Chief Operating Officer and Chief Executive Officer of
Holiday.
Columbia House I, Limited Partnership, ("Columbia House"), which
is partially owned indirectly by Mr. Baty, develops, owns and leases
low income senior housing projects. In 1996 and 1997, the Company
entered into one and four agreements, respectively, with Columbia
House to provide certain administrative support, due diligence and
financial support services to Columbia House with respect to the
acquisition, development and administration of Columbia House
communities. The agreements have terms ranging from two to four years,
with options to renew, and provide for management fees ranging from 4%
to 6% of gross operating revenues, payable monthly for management
agreements and fixed fees payable monthly for administrative
agreements. Fees earned under these agreements were $103,000 in 1997,
of which $16,000 was receivable as of December 31, 1997. The Company
also had receivables of $137,000 due from Columbia House as of December
31, 1997 representing advances made on various Columbia House
communities. Such advances do not bear interest.
Prior to the Company's initial public offering in November 1995,
Mr. Baty had personally guaranteed much of the Company's third-party
financing, including mortgage debt and rental payments under leases.
Certain of those guarantees terminated when the underlying properties
met certain loan-to-value standards or debt-service coverage ratios and
others terminated when properties were refinanced. Since the
Company's initial public offering, Mr. Baty has guaranteed $6.6 million
of the Company's mortgage financing.
8
In February 1998, the Company and XL Management Company L.L.C.
("XL Management"), an affiliate of Holiday Retirement Corp., an owner
and operator of independent-living communities in which Messrs. Baty
and Colson are principal shareholders and executive officers, entered
into four management agreements whereby XL Management will provide
management services relating to four newly developed assisted-living
communities located in Texas. The agreements consist of initial terms
of two years six months and management fees based on 6% of gross
revenues payable monthly. The Company will pay a bonus fee per
community to XL Management based on occupancy; one year after managing
the communities, if occupancy is between 75% and 89%, XL Management
will receive a bonus fee of $25,000 and if occupancy is 90% or greater
the bonus fee will be $50,000.
During 1995, Messrs. Baty and Brandstrom, the Company's two most
senior executive officers, CEO and President, formed a New York general
partnership (the "Partnership") to facilitate the operation of assisted-
living communities in the state of New York, which generally requires
that natural persons be designated as the licensed operators of
assisted-living communities. The Company and the Partnership have
entered into Administrative Services Agreements that extend for the
term of the underlying leases. The fees payable to the Company under
the Administrative Services Agreements have been established at a level
that would equal or exceed the profit of the community operated
efficiently at full occupancy and, unless reset by agreement of the
parties, will increase automatically on an annual basis in accordance
with changes in the Consumer Price Index. In addition, the Company has
agreed to indemnify the partners against losses and in exchange the
partners have agreed to assign any profits to the Company. As part of
the general noncompetition agreements of the CEO and President, each
has agreed that, in the event he were to cease to be a senior executive
of the Company, he would transfer his interest in the Partnership for a
nominal charge to his successor at the Company or other person
designated by the Company.
The Company has entered into noncompetition agreements with
Messrs. Baty and Brandstrom which provide that each of such persons
will not compete, directly or indirectly, with the Company in the
ownership, operation or management of assisted-living communities
anywhere in the United States and Canada during the term of such
individual's employment and for a period of two years following his
termination of employment with the Company. The agreements do provide,
however, that such persons may hold (a) up to a 10% limited partnership
interest in a partnership engaged in such business, (b) less than 5% of
the outstanding equity securities of a public company engaged in such
business, and (c) interests in the Green Meadows-Painted Post community
described under "Painted Post Partners Transactions." Such agreements
do not limit Mr. Baty's current role with Holiday. Mr. Baty has agreed
that if Holiday operates or manages assisted-living communities, other
than as a limited component of independent-living communities
consistent with its current operations, he will not personally be
active in the management, operation or financing of such facilities nor
will he hold any ownership or other interest therein.
CERTAIN TRANSACTIONS
In February 1998, the Company entered into a joint venture with
Sanyo Electric Co. Ltd., ("Sanyo") of Osaka, Japan, with which Mr. Iue
is affiliated, to provide assisted-living services in Japan. The joint
venture, Sanyo Emeritus Corporation, has been formed to provide a
residential based health care alternative for Japan's growing elderly
population. The joint venture will be initially capitalized with Y50
million ($384,000 U.S.), with each company providing half the funds.
The joint venture is expected to complete its first assisted-living
project in Japan by the year 2000.
In October 1997, a group of institutional investors led by
NorthStar Capital Partners LLC ("NorthStar"), of which Mr. Hamamoto is
a principal, purchased 25,000 shares of Series A Convertible
Exchangeable Redeemable Preferred Stock (the "Series A Preferred
Stock"), representing approximately 10% ownership in the Company for
$25 million (the "NorthStar Transaction"). Each share of Series A
Preferred Stock is convertible into that number of shares of the
Company's Common Stock equal to the liquidation value of a share of
Series A Preferred Stock ($1,000) divided by the conversion price of
$18.20 per share. Currently the Series A Preferred Stock is
convertible into an aggregate of 1,373,626 shares of Common Stock. The
Series A Preferred Stock is also exchangeable into convertible debt at
the option of the Company. The conversion price is subject to
adjustment in the event of stock dividends, stock subdivisions and
combinations, and extraordinary distributions. The Series A Preferred
Stock has a mandatory redemption date of October 24, 2004.
Pursuant to a Shareholders Agreement entered into in connection
with this investment, the Company and Mr. Baty are required to take all
necessary action (a) to elect one director selected by NorthStar, (b)
at such time as NorthStar invests an additional $25 million in the
Company, to elect a second additional director selected by NorthStar,
and (c) if the size of the Board is increased, to elect additional
directors so that NorthStar's representation shall not be less than one-
seventh of the entire Board. These rights terminate in certain events
relating to NorthStar's sale of capital stock or a change of control of
NorthStar. NorthStar may not transfer any of the Preferred Stock for
one year and thereafter such transfers are subject to the
9
Company's right of first refusal. In addition, if Mr. Baty sells
shares of Common Stock representing 50% or more of his ownership
position, NorthStar is entitled to participate in such sale on a pro
rata basis. NorthStar has agreed not to purchase any additional voting
securities of the Company, such agreement to expire 18 months after
NorthStar ceases to own 5% of the outstanding Common Stock on a fully
diluted basis.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") requires the Company's officers and directors, and
persons who own more than 10% of a registered class of the Company's
equity securities, to file reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company
with the Commission. Officers, directors and greater than 10%
shareholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no
forms were required for those persons, the Company believes that during
the 1997 fiscal year all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were
complied with by such persons, except the following five forms (four
which were filed approximately four months late and one which was filed
approximately one month late due to an administrative oversight); Forms
3 of Columbia Pacific Group, Inc., B.F., Limited Partnership and David
T. Hamamoto and Forms 4 of Daniel R. Baty and B.F.P., L.L.C.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 20, 1998, certain
information with respect to the beneficial ownership of Common Stock by
(a) each person known by the Company to beneficially own more than 5%
of the Common Stock, (b) each director and director nominee of the
Company, (c) each of the Named Executive Officers, and (d) all
directors and executive officers of the Company as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of
the Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such
shares.
Common Stock
---------------------------------
-
Amount and Nature of Percent of
Name and Address Beneficial Ownership Class
------------------------------------------------- --------------------- ----------
Daniel R. Baty(1) (5)........................ 3,032,880 28.8%
c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Raymond R. Brandstrom(6)..................... 370,575 3.5%
Gary D. Witte(7)............................. 10,000 *
Kelly J. Price(11)........................... 61,350 1.0%
Sarah J. Curtis.............................. - -
Motoharu Iue(2)(8)........................... 389,500 3.7%
Tom A. Alberg(8)............................. 17,500 *
Patrick Carter(8)............................ 4,500 *
William E. Colson(8)(9)...................... 14,500 *
David Hamamoto(11)........................... 2,500 *
Nicholas Company, Inc.(3).................... 1,008,500 9.6%
700 North Water Street
Milwaukee, WI 53202
Sirach Capital Management(4)................. 1,106,800 10.6%
3323 One Union Square
600 University Street
Seattle, WA 98101
All directors and executive officers as a group (12
persons)(1)(2)(9)(10)...................... 4,125,059 39.0%
* Less than 1%.
10
(1) Includes 2,529,400 shares held by B.F., Limited Partnership., of
which Columbia Pacific, a company wholly owned by Mr. Baty, is the
general partner and of which Mr. Baty is a limited partner.
(2) Includes 385,000 shares held by Three Oceans, a U.S. affiliate of
Sanyo, a publicly traded Japanese company. Mr. Iue is an executive
of U.S. affiliates of Sanyo. Mr. Iue disclaims beneficial
ownership of shares of Common Stock held by Three Oceans.
(3) Includes 621,000 shares held by Nicholas II, Inc., a Maryland
corporation. Albert O. Nicholas, president, director and majority
shareholder of Nicholas Company, Inc., may be deemed to have
indirect beneficial ownership over the shares, based upon publicly
available information reported as of December 31, 1997 on Schedule
13-G.
(4) Sirach Capital Management may be deemed to have voting and
dispositive power over the shares, based upon publicly
available information reported as of December 31, 1997 on Schedule
13-G.
(5) Includes options exercisable within 60 days for the purchase of
30,000 shares.
(6) Includes options exercisable within 60 days for the purchase of
24,000 shares.
(7) Includes options exercisable within 60 days for the purchase of
10,000 shares.
(8) Includes options exercisable within 60 days for the purchase of
4,500 shares.
(9) Includes 10,000 shares held by Holiday Retirement, Corp., of which
Mr. Colson is the principal shareholder and Chief
Executive Officer.
(10) Includes options exercisable within 60 days for the purchase
of 107,500 shares.
(11) Includes options exercisable within 60 days for the purchase
of 2,500 shares.
PROPOSAL TO APPROVE THE 1998
EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
Subject to shareholder approval, the Board of Directors adopted
the 1998 Employee Stock Purchase Plan (the "Purchase Plan") in April
1998. The purposes of the Purchase Plan are to assist qualified
employees of the Company and certain designated subsidiaries in
acquiring a stock ownership interest in the Company, help employees
provide for their future security and encourage them to remain in the
employ of the Company and its subsidiaries.
The proposed Purchase Plan is attached to this Proxy Statement as
Appendix A and is incorporated herein by reference. The following
description of the Purchase Plan is a summary of certain important
provisions and does not purport to describe the details of the Purchase
Plan. Please see Appendix A for more detailed information.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PURCHASE PLAN.
DESCRIPTION OF THE PURCHASE PLAN.
Eligibility to Participate. The Purchase Plan is an employee
benefit program that enables qualified employees of the Company and its
designated subsidiaries to purchase shares of Common Stock through
payroll deductions without incurring broker commissions. To
participate, an individual employee must: (a) have worked for the
Company or any designated subsidiary of the Company for at least six
months, (b) customarily work more than twenty hours per week, and (iii)
customarily work for at least five months in any calendar year, unless
the Plan Administrator, in its discretion, increases or decreases the
above eligibility requirements within the limits permitted by the Code.
An employee is not eligible to participate or continue participation in
the Purchase Plan if the employee owns or will own, as a result of such
participation, shares possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or any
related corporation. Nonemployee directors of the Company are not
eligible to participate in the Purchase Plan. As of April 3, 1998,
approximately 3,800 employees of the Company and designated
subsidiaries are expected to be eligible to participate in the Purchase
Plan.
For purposes of the Purchase Plan, "designated subsidiary"
includes all domestic subsidiaries of the Company. The Plan
Administrator, in its discretion, can designate other subsidiaries as
eligible to participate in the Purchase Plan.
11
Shares Subject to the Plan. Subject to adjustment as provided in
the Purchase Plan, an aggregate of up to 200,000 shares of Common Stock
is authorized for issuance under the Purchase Plan. The Common Stock
issued under the Purchase Plan may be either authorized but unissued
shares or shares now held or subsequently acquired by the Company as
treasury shares.
Stock Purchases. The Purchase Plan is divided into offering and
purchase periods, both of which are currently scheduled to begin on the
first day of the month and end on the last day of such month. The first
offering/purchase period is scheduled to begin on July l, 1998 and end
on July 31, 1998. Subject to the limitations set forth in the Purchase
Plan, the Plan Administrator has the authority to establish different
terms for future offering and purchase periods and to establish
different commencing and ending dates for such periods. During each
offering period, participating employees accumulate funds in an account
used to buy Common Stock through payroll deductions at a rate of not
less than l% nor more than 15% of such participant's base pay during
each payroll period in the purchase period.
At the end of each monthly offering period, the market price is
determined and the participating employees' accumulated funds are used
to purchase the appropriate number of whole shares of Common Stock. No
participant may purchase more than $25,000 in fair market value of
Common Stock for any calendar year under the Purchase Plan. The
purchase price per share of Common Stock under the Purchase Plan will
be as established by the Plan Administrator, but may not be less than
the lower of 85% of the per share fair market value of the Common Stock
on either the first day of the offering period or the last day of the
purchase period. The Purchase Plan will initially be implemented with a
purchase price equal to 100% of the fair market value of the Common
Stock on the last day of the offering/purchase period. For purposes of
the Purchase Plan, "fair market value" means the closing price of the
Common Stock on the American Stock Exchange for such day. On April 2,
1998, the closing trading price for the Company's Common Stock was
$13.25.
A participant is not eligible to continue his or her participation
in the Purchase Plan in the event of termination of employment for any
reason. If termination occurs on or prior to the last business day of
an offering period, the balance in the participant's account will be
paid to the participant or to his or her estate. Neither payroll
deductions credited to a participant's account nor any rights with
regard to the purchase of shares under the Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by
the participant, other than by will or the laws of descent and
distribution.
Administration. The Purchase Plan will be administered by the
Company's Office of Compensation and Benefits or any other Company
group or executive officer designated by the Board of Directors or the
Compensation Committee (the "Plan Administrator"), except for those
items expressly reserved to the Board or the Committee under the Plan.
The Plan Administrator will have the authority to interpret the
Purchase Plan and to make such rules and regulations as it deems
necessary to administer the Purchase Plan, so long as such
interpretation, administration or application with respect to purchases
under the Purchase Plan corresponds with the requirements of Section
423 of the Code.
Amendment of the Purchase Plan. The Board of Directors has the
power to amend, suspend or terminate the Purchase Plan, provided that,
to the extent required by Section 423 of the Code or any applicable law
or regulation, any amendment that would increase the number of shares
available under the Purchase Plan, modify the class of employees
eligible to participate in the Purchase Plan or otherwise require
shareholder approval must be approved by the Company's shareholders.
The Compensation Committee of the Board of Directors may also amend the
Purchase Plan, provided that such amendment does not require
shareholder approval pursuant to Section 423 of the Code or any
applicable law or regulation.
Term of the Plan. The Purchase Plan will continue in effect until
May 20, 2008.
FEDERAL INCOME TAX CONSEQUENCES.
The Company intends that the Purchase Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code. The following
discussion summarizes the material federal income tax consequences to
the Company and the participants in connection with the Purchase Plan.
The discussion is general in nature and does not address issues
relating to the income tax circumstances of any individual employee.
Additionally, the discussion is based on federal income tax laws in
effect on the date hereof and which are subject to change. The
discussion does not address the consequences of state, local or foreign
tax laws. Participants are urged to consult their tax advisers
regarding the consequences of participation in the Purchase Plan
(including state, local or foreign consequences) based on their
particular circumstances.
12
Under the Code, the Company is deemed to grant participants an
"option" on the first day of each monthly offering period to purchase
as many shares of Common Stock as the participant will be able to
purchase with the payroll deductions credited to his or her account
during the offering period. On the last day of each offering period,
the market price is determined and the participant is deemed to have
exercised the "option" and to have purchased the number of shares of
Common Stock his or her accumulated payroll deductions will purchase at
the market price on the last day of the offering period.
A participant in the Purchase Plan will not recognize income for
federal income tax purposes either upon the grant of an "option" or
upon the exercise of an "option." Currently, participants will not be
offered any discount on the purchase price of the Common Stock
underlying "options"; instead they must pay an "exercise" (purchase)
price equal to the fair market value of the shares on the last day of
the offering period. Accordingly, any gain or loss realized on the
disposition of the shares will be capital gain or loss. Capital gains
will be characterized as long-term if the shares are held for more than
twelve months. Long-term capital gains from shares of Common Stock held
for more than twelve months but less than 18 months will be subject to
taxation at a maximum rate of 28%, and long-term capital gains from
shares of Common Stock held for more than 18 months will be subject to
taxation at a maximum rate of 20%. Capital gains from shares held one
year or less ("short-term capital gains") are not eligible for reduced
rates but are instead subject to the same top tax rate as ordinary
income (currently 39.6%).
If participants are given the opportunity to purchase shares of
Common Stock at a discount, their tax treatment will depend on whether
they held the shares of Common Stock for the longer of two years after
the "option" was granted or one year after the "option" was exercised
and shares of Common Stock were purchased. Under the one month offering
period in the Purchase Plan, a participant must hold the Common Stock
for at least one year and eleven months after it is purchased to gain
favorable tax treatment. When a participant disposes of Common Stock
after this holding period, he or she will recognize ordinary income
equal to the excess of the fair market value at the time of disposition
over the exercise price or, if less, the excess of the fair market
value at the time of grant over the exercise price. Any additional gain
will be long-term capital gain.
If a participant sells shares acquired through the exercise of an
"option" before expiration of the holding period, he or she will
recognize ordinary income to the extent that the fair market value of
the Common Stock when purchased exceeds the exercise price. The amount
of the ordinary income will be added to the participant's basis in the
shares, and any additional gain or loss recognized on the disposition
of the shares will be a capital gain or loss.
The Company may not take a deduction with respect to shares of
Common Stock issued to a Participant for which the holding period set
forth above is met. However, if a participant disposes of shares of
Common Stock before the end of such holding period, the Company is
entitled to a deduction equal in amount to the income that the
participant recognizes with respect such disposition.
PROPOSAL TO AMEND THE 1995 STOCK INCENTIVE
COMPENSATION PLAN
1995 Stock Incentive Compensation Plan
General. The purpose of the 1995 Stock Incentive Compensation Plan
(the "Incentive Plan") is to enhance the long-term shareholder value of
the Company by offering opportunities to employees, directors,
officers, consultants, agents, advisors and independent contractors
providing services to the Company to participate in the Company's
growth and success, and to encourage them to remain in the service of
the Company and its subsidiaries and to acquire and maintain stock
ownership in the Company.
Proposed Amendments. In April 1998, the Board of Directors
adopted, subject to shareholder approval, amendments to increase the
number of shares of Common Stock in the Incentive Plan from an
aggregate maximum of 1,100,000 to 1,450,000 shares and to increase the
number of shares of Common Stock subject to options or stock
appreciation rights that may be issued to a single participant in a
given year from 250,000 to 300,000 shares, to the extent required for
compliance with Section 162(m) of the Code. As of April 3, 1998,
360,350 shares were available for the grant of new awards under the
Incentive Plan. The total number of shares subject to outstanding
awards under all of the Company's plans, plus the number of shares
available for new award grants under all such plans, is approximately
13.6% of the Company's total outstanding Common Shares.
13
The Incentive Plan, as amended, is attached to this Proxy
Statement as Appendix B and is incorporated herein by reference. The
following description of the Purchase Plan is a summary of certain
important provisions and does not purport to describe the details of
the Purchase Plan. Please see Appendix B for more detailed information.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE INCENTIVE PLAN.
DESCRIPTION OF THE INCENTIVE PLAN
Eligibility to Receive Awards. Awards may be granted under the
Incentive Plan to those employees, directors, and officers of the
Company and its subsidiaries that the Plan Administrator from time to
time selects. Awards may also be granted to consultants, agents,
advisors and independent contractors who provide services to the
Company and its subsidiaries. Approximately 300 individuals are
eligible to receive awards under the Incentive Plan.
Awards. The Incentive Plan provides for grants of stock options,
stock appreciation rights, stock awards (including restricted stock),
other stock-based awards and dividend equivalent rights. Awards may be
made singly, in combination or in tandem so that the settlement or
payment of one automatically reduces or cancels the other. Awards may
also be made in combination or in tandem with, as alternatives to, or
as the payment form for, grants or rights under any other employee or
compensation plan of the Company or in substitution for, or by the
assumption of, awards issued under plans of an acquired entity.
Stock Subject to the Incentive Plan. Subject to adjustment as
provided in the Incentive Plan, a maximum of 1,450,000 shares of Common
Stock will be available for issuance under the Incentive Plan. Shares
issued pursuant to the Incentive Plan will be drawn from authorized but
unissued shares. Any shares of Common Stock subject to an award that
subsequently cease to be subject to the award (other than because of
exercise or settlement of the award in stock) will again be available
for issuance in connection with future grants of awards under the
Incentive Plan.
Subject to adjustment as provided in the Incentive Plan, no more
than 300,000 shares of Common Stock may be subject to awards of options
or stock appreciation rights ("SARs") under the Incentive Plan to any
one participant in a single fiscal year, to the extent required for
compliance with Section 162(m) of the Code. Section 162(m) precludes
the Company from taking a tax deduction for compensation payments to
certain executives in excess of $1 million, unless such payments
qualify for the "performance-based" exemption from the $1 million
limitation.
Administration. A committee or committees appointed by the Board
and consisting of at least two members of the Board will administer the
Incentive Plan (the "Plan Administrator") and will have the authority
to determine all matters relating to awards under the Incentive Plan,
including the persons to whom awards are granted, the type of awards,
the number of shares of Common Stock subject to an award, and all
terms, conditions, restrictions and limitations of awards. The Plan
Administrator, in its sole discretion, may accelerate the
exercisability of or waive any or all of the restrictions and
conditions applicable to any award.
Terms and Conditions of Stock Option Grants. Options granted under
the Incentive Plan may be incentive stock options ("ISOs") or
nonqualified stock options ("NSOs"). The per share option price for
each option granted under the Incentive Plan will be determined by the
Plan Administrator, but will be not less than 100% of the fair market
value of the underlying shares of Common Stock on the date of grant for
ISOs and not less than 85% of the fair market value on the date of
grant for NSOs. For purposes of the Incentive Plan, "fair market value"
means the closing price, or if there is no closing price, the mean
between the high and low sale price of shares of Common Stock on the
American Stock Exchange on the day the option is granted.
The Plan Administrator has broad discretion to determine the terms
and conditions under which options are exercisable, but under no
circumstances may an option have a term exceeding ten years from the
date it is granted. The exercise price for shares purchased under
options may be paid in cash or by check, or, unless the Plan
Administrator determines otherwise at any time, by a combination of
cash, check, shares of Common Stock which have been held for at least
six months, or delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker. The Plan
Administrator may also permit payment by a full-recourse promissory
note or other forms of consideration.
14
Each option will be exercisable according to a vesting schedule
determined by the Plan Administrator. If no vesting schedule is set
forth in the instrument evidencing the option, the option will become
exercisable in three equal annual installments beginning one year after
the date of grant. The Plan Administrator will also determine the
circumstances under which an option will be exercisable in the event
the optionee ceases to provide services to the Company or one of its
subsidiaries. If not so established, options generally will be
exercisable for three years after termination of services as a result
of retirement, early retirement, disability or death and for three
months after all other terminations, but in no event later than the
remaining term of the option. In the event of an optionee's death, an
option may be exercised, to the extent the option is exercisable upon
the optionee's death, by the personal representative of the optionee's
estate within three years of the date of death, but in no event later
than the remaining term of the option. An option will terminate
automatically if the optionee's services are terminated for cause, as
that term is defined in the Incentive Plan.
SARs. An SAR gives its holder the right to receive an appreciation
distribution from the Company equal to the difference between the value
of the Common Stock subject to the right at the time of exercise and
the exercise price of the right. SARs may be issued on a stand-alone
basis or in tandem with options. For SARs granted in tandem with
options, the exercise price will be the same as the option exercise
price and once a tandem SAR is exercised, the related option
terminates. Stand-alone SARs will have such terms as the Plan
Administrator establishes, but will not be less than 85% of the fair
market value of the Common Stock on the date the right was granted, and
the term of the right, if not otherwise established by the Plan
Administrator, will be for 10 years from the date of grant. The
appreciation distribution for SARs will be paid in shares of Common
Stock, cash or any combination of shares and cash, as the Plan
Administrator may determine. Unless otherwise provided by the Plan
Administrator, the provisions of the Incentive Plan regarding
exercisability of options after the termination of a holder's services
shall apply equally, to the extent applicable, to SARs.
Stock Awards. The Plan Administrator is authorized to make awards
(including awards of restricted stock) of Common Stock to participants
on such terms and conditions and subject to such restrictions, if any
(whether based on performance standards, periods of service or
otherwise), as the Plan Administrator may determine. Restrictions may
include forfeiture rights in favor of the Company.
Other Stock-Based Awards. The Plan Administrator has the
discretion to authorize any other stock-based awards consistent with
the purpose of the Incentive Plan.
Dividend Equivalent Rights. Any awards under the Incentive Plan
may, in the Plan Administrator's discretion, earn Dividend Equivalent
Rights that entitle the holder to be credited with an amount equal to
the cash or stock dividends or other distributions that would have been
paid on the shares of Common Stock covered by such award had such
shares been issued and outstanding on the dividend record date. The
Plan Administrator is authorized to establish such rules and procedures
governing the crediting of Dividend Equivalent Rights as it deems
necessary or appropriate.
Transferability. Except to the extent permitted by the Plan
Administrator in its sole discretion and by Section 422 of the Code, no
award will be assignable or otherwise transferable by the holder other
than by will or the laws of descent and distribution, and during the
holder's lifetime, the award may be exercised only by the holder.
Withholding. The Company may require an award holder to pay to the
Company any applicable withholding taxes that the Company is required
to withhold with respect to the grant, exercise, payment or settlement
of any award. The withholding tax may be paid in cash or, subject to
the Incentive Plan and applicable law, the Plan Administrator may
permit the holder to satisfy such obligations by the withholding or
delivery of shares of Common Stock.
Loans, Loan Guarantees and Installment Payments. Subject to
applicable statutes and regulations, the Company may extend credit,
arrange credit, guarantee obligations, and otherwise aid award holders
with financing their purchases of Common Stock pursuant to an award.
Corporate Transaction. Except as otherwise provided in an
instrument evidencing the award, in the event of certain corporate
transactions (as defined in the Incentive Plan), each option or stock
award that is at the time outstanding will automatically accelerate so
that each such award becomes, immediately prior to such corporate
transaction, 100% vested, unless the award is assumed or replaced by
the successor corporation. Any awards that are assumed or replaced in
the corporate transaction and do not otherwise accelerate at that time
will be accelerated in the event the holder's employment or services
subsequently terminate within two years following the corporate
transaction, unless the employment or services are terminated by the
Company for cause or by the holder voluntarily without good reason, as
15
those terms are defined in the Incentive Plan.
Further Adjustment of Awards. The Plan Administrator has the
discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the
Company, as defined by the Plan Administrator, to take such further
action as it determines to be necessary or advisable, and fair and
equitable to a holder, with respect to awards.
Amendment and Termination. The Incentive Plan may be suspended or
terminated by the Board or by the shareholders of the Company at any
time. The Board may amend the Incentive Plan, as it deems advisable,
provided that, to the extent required by Section 422 of the Code or any
applicable law or regulation, any amendment that would increase the
number of shares available under the Incentive Plan, modify the class
of persons eligible to receive options or otherwise require shareholder
approval must be approved by the Company s shareholders.
NEW PLAN BENEFITS.
Since awards under the Incentive Plan are discretionary, total
awards that may be granted for the current fiscal year are not
determinable until completion of the year. During 1997, options to
purchase an aggregate of 323,000 common shares were granted under the
Incentive Plan to all executive officers of the Company as a group at
an average exercise price of $13.38, and options to purchase an
aggregate of 369,500 common shares were granted under the Incentive
Plan to all other employees of the Company as a group (including
officers who are not executive officers) at an average exercise price
of $13.43. Options granted under the Incentive Plan during 1997 to the
named executive officers are set forth under "Option Grants in Last
Fiscal Year." No options were granted under the Incentive Plan during
1997 to directors or nominees who are not also executive officers of
the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the federal income tax
consequences of the Incentive Plan based on current provisions of the
Code, which are subject to change. Any such changes could be applied on
a retroactive basis and could adversely alter the consequences
discussed herein. The summary does not cover any state or local tax
consequences of participation in the Incentive Plan and does not
address issues related to the tax consequences of any individual
participant. Participants are urged to consult with their tax advisors
regarding the effect of participation in the Incentive Plan based on
their particular circumstances.
Incentive Stock Options ("ISOs"). An optionee will not have any
income at the time an ISO is granted. When an optionee exercises an ISO
while employed by the Company or one of its subsidiaries or within
three months (one year in the case of disability) after termination of
employment, no ordinary income will be recognized by the optionee at
that time. (However the excess (if any) of the fair market value of the
shares acquired upon such exercise over the option price is a
preference item that may cause the optionee to be subject to an
"alternative minimum tax.") If the shares acquired upon exercise are
not disposed of within either one year from the date of exercise and
two years from the date of grant of the option, the excess (if any) of
the sales proceeds over the aggregate option price of such shares will
be mid-term or long-term capital gain eligible for favorable rates
under the Code. If the shares are sold prior to the expiration of such
periods (a "disqualifying disposition"), the optionee will recognize
ordinary income in the year of the disqualifying disposition equal to
the excess of the fair market value of the shares at the time the ISO
is exercised (or, if less, the sales proceeds) over the option price.
Any additional gain will be capital gain. If an ISO is exercised by the
optionee more than three months (one year in the case of disability)
after termination of employment, the tax consequences are the same as
those described below for nonqualified stock options.
The Company is not entitled to a tax deduction as the result of
the grant or exercise of an ISO. If the optionee has ordinary income
taxable as compensation as a result of a disqualifying disposition, the
Company will be entitled to a deduction at the same time and in the
same amount as the optionee, assuming that the deduction is not
otherwise disallowed by the Code.
Nonqualifed Stock Options ("NSOs"). An optionee will not have any
income at the time an NSO is granted. When an optionee exercises an
NSO, the difference between the option price and the fair market value
of the shares on the date of exercise will be ordinary income (subject
to payroll taxes and tax withholding) to the optionee and will be
allowed as a deduction to the Company for federal income tax purposes,
assuming that the deduction is not otherwise disallowed by the Code.
When an optionee disposes of shares acquired by exercise of the option,
16
any amount received in excess of the market value of the shares on the
date of exercise will be treated as long-term, mid-term or short-term
capital gain, depending upon the holding period of the shares. If the
amount received is less than the market value of the shares on the date
of exercise, the loss will be treated as long-term or short-term
capital loss, depending upon the holding period of the shares.
Stock-for-Stock Exchanges. Additional special rules apply if the
exercise price for an option is paid for in shares previously owned by
the optionee rather than in cash. Participants considering the use of
previously owned shares to pay the exercise price of an option should
consult their tax advisors.
Stock Appreciation Rights. Generally, when a participant exercises
an SAR, the amount of cash and the fair market value of the shares
received will be ordinary income (subject to payroll taxes and tax
withholding) to the participant and will be allowed as a deduction for
federal income taxes purposes to the Company.
PROPOSAL FOR RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG Peat Marwick LLP,
independent public accountants, to continue as independent auditors of
the Company for the fiscal year ending December 31, 1998. KPMG Peat
Marwick LLP has audited the accounts since July 28, 1995. The Board of
Directors is submitting its selection of KPMG Peat Marwick LLP to the
shareholders for ratification.
A representative of KPMG Peat Marwick LLP is expected to be
present at the Annual Meeting, with the opportunity to make a
statement, if the representative so desires, and is expected to be
available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
OTHER BUSINESS
The Board of Directors does not intend to present any business at
the Annual Meeting other than as set forth in the accompanying Notice
of Annual Meeting of Shareholders, and has no present knowledge that
any others intend to present business at the Annual Meeting. If,
however, other matters requiring the vote of the shareholders properly
come before the Annual Meeting or any adjournment or postponement
thereof, the persons named in the accompanying form of proxy will have
discretionary authority to vote the proxies held by them in accordance
with their judgment as to such matters.
SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the proxy
materials for the Company's 1999 Annual Meeting of Shareholders must be
received in writing by the Company not later than December 11, 1998.
Such proposals should be directed to the Corporate Secretary,
Emeritus Corporation, 3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121.
17
ANNUAL REPORT
A copy of the Company's 1997 Annual Report, which includes the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, accompanies this Proxy Statement.
By Order of the Board of Directors
/s/ Daniel R. Baty
Daniel R. Baty
Chairman of the Board and
Chief Executive Officer
Seattle, Washington
April 13, 1998
18
Appendix A
EMERITUS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the Emeritus Corporation 1998 Employee Stock
Purchase Plan (the "Plan") are to (a) assist qualified employees of
Emeritus Corporation, a Washington corporation (the "Company"), and its
designated subsidiary corporations in acquiring a stock ownership
interest in the Company pursuant to a plan that is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and (b) help employees
provide for their future security and encourage them to remain in the
employ of the Company and its subsidiary corporations. Stock purchased
under the Plan may be paid for by regular payroll deductions. Only
employees of the Company and its designated subsidiary corporations are
eligible to participate in the Plan, and participation is voluntary.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as
set forth below.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Company's Compensation Committee or another
committee appointed by the Board and given authority by the Board to
administer the Plan.
"Company" means Emeritus Corporation, a Washington corporation.
"Designated Subsidiary" includes all domestic Subsidiary
Corporations and such other Subsidiary Corporations as may be
designated from time to time by the Board or the Committee as eligible
to participate in the Plan.
"Eligible Compensation" means all regular cash compensation,
including overtime, cash bonuses and commissions. Regular cash
compensation does not include severance pay, hiring and relocation
bonuses, pay in lieu of vacation or sick leave, or any other special
payments, or any gain from stock option exercises.
"Eligible Employee" means any employee of the Company or any
Designated Subsidiary who is in the employ of the Company or a
Designated Subsidiary on one or more Offering Dates and who meets the
following criteria:
(a) the employee does not, immediately after the Option is
granted, own stock (as defined by the Code) possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or of its Parent or Subsidiary Corporations;
(b) the employee has been employed for at least six months;
provided, however, that the Plan Administrator, in its sole discretion,
may reduce or increase (to up to two years) this minimum requirement
for future Offering Periods;
(c) the employee's customary employment is for more than 20 hours
per week; provided, however, that the Plan Administrator, in its sole
discretion, may reduce this minimum hourly requirement for future
Offering Periods; and
(d) the employee's customary employment is for more than five
months in any calendar year; provided, however, that the Plan
Administrator, in its sole discretion, may reduce this minimum
requirement for future Offering Periods.
If the Company permits any employee of a Designated Subsidiary to
participate in the Plan, then all employees of that Designated
Subsidiary who meet the requirements of this paragraph shall also be
considered Eligible Employees.
"Enrollment Period" has the meaning set forth in Section 6.1.
19
"ESPP Broker" has the meaning set forth in Section 10.
"Offering" has the meaning set forth in Section 5.1.
"Offering Date" means the first day of an Offering.
"Offering Period" has the meaning set forth in Section 5.1.
"Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of Stock.
"Parent Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company
if, at the time of the granting of the Option, each of the
corporations, other than the Company, owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
"Participant" means any Eligible Employee who has elected to
participate in an Offering in accordance with the procedures set forth
in Section 6.1 and who has not withdrawn from the Plan or whose
participation in the Plan is not terminated.
"Plan" means the Emeritus Corporation 1998 Employee Stock Purchase
Plan, as it may be amended from time to time.
"Plan Administrator" has the meaning set forth in Section 3.1.
"Purchase Date" means the last day of each Purchase Period.
"Purchase Period" has the meaning set forth in Section 5.2.
"Purchase Price" has the meaning set forth in Section 8.
"Stock" means the Common Stock, $.000l par value per share, of the
Company.
"Subscription" has the meaning set forth in Section 6.1.
"Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the
Company if, at the time of the granting of the Option, each of the
corporations, other than the last corporation in the unbroken chain,
owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Company's Office of
Compensation and Benefits or any other Company group or executive
officer designated by the Board or the Committee, except for those
items expressly reserved to the Board or the Committee under the Plan.
Any decisions made by the Board, the Committee or the Plan
Administrator shall be applicable equally to all Eligible Employees.
3.2 Administration and Interpretation by the Plan Administrator
Subject to the provisions of the Plan, the Plan Administrator
shall have the authority, in its sole discretion, to determine all
matters relating to Options granted under the Plan, including all
terms, conditions, restrictions and limitations of Options; provided,
however, that all Participants granted Options pursuant to the Plan
shall have the same rights and privileges within the meaning of Code
Section 423. The Plan Administrator shall also have exclusive authority
to interpret the Plan and may from time to time adopt, and change,
rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and
its rules and regulations, and all actions taken and determinations
20
made by the Plan Administrator pursuant to the Plan, unless reserved to
the Board or the Committee, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's other officers or
employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 19,
a maximum of 200,000 shares of Stock may be sold under the Plan. Shares
sold under the Plan shall be drawn from authorized and unissued shares
or shall be shares acquired by the Company. Any shares of Stock subject
to an Option that cease to be subject to the Option (other than by
reason of exercise of the Option), including, without limitation, in
connection with the cancellation or termination of the Option, shall
again be available for sale in connection with future grants of Options
under the Plan.
SECTION 5. OFFERING DATES
5.1 Offering Periods
The Plan shall be implemented by a series of offerings (each, an
"Offering"). Except as otherwise set forth below, each Offering shall
commence on the first day of the month and end on the last day of such
month. The first offering period (the "Offering Period") shall begin on
July l, 1998 and end on July 31, 1998. Successive Offering Periods
shall likewise begin on the first day of the month and end on the last
day of such month. Notwithstanding the foregoing, the Board or the
Committee may establish (a) a different term for one or more future
Offerings and (b) different commencing and ending dates for such
Offerings; provided, however, that an Offering Period may not exceed
five years; and provided, further, that if the Purchase Price may be
less than 85% of the fair market value of the Stock on the Purchase
Date, the Offering Period may not exceed 27 months. In the event the
first or the last day of an Offering Period is not a regular business
day, then the first day of the Offering Period shall be deemed to be
the next regular business day and the last day of the Offering Period
shall be deemed to be the last preceding regular business day. An
employee who becomes eligible to participate in the Plan after an
Offering Period has commenced shall not be eligible to participate in
such Offering but may participate in any subsequent Offering, provided
that such Eligible Employee is still an Eligible Employee as of the
commencement of any such subsequent Offering. Eligible Employees may
not participate in more than one Offering at a time.
5.2 Purchase Periods
Each Offering Period shall consist of consecutive purchase periods
(each, a "Purchase Period"). Except as otherwise set forth below, each
Purchase Period shall continue for one calendar month and shall be
coterminous with an Offering Period. The Purchase Period for the first
Offering shall commence on July l, 1998 and end on July 31, 1998.
Successive Purchase Periods shall likewise commence on the first day of
the month and end on the last day of such month. Notwithstanding the
foregoing, the Board or the Committee may establish for any future
Offering (a) different terms for one or more Purchase Periods within
the Offering Period and (b) different commencing dates and Purchase
Dates for any such Purchase Periods. The last day of each Purchase
Period shall be the Purchase Date for such Purchase Period. In the
event the first or last day of a Purchase Period is not a regular
business day, then the first day of the Purchase Period shall be deemed
to be the next regular business day and the last day of the Purchase
Period shall be deemed to be the last preceding regular business day.
SECTION 6. PARTICIPATION IN THE PLAN
6.1 Initial Participation
An Eligible Employee shall become a Participant on the first
Offering Date after satisfying the eligibility requirements and
delivering to the Plan Administrator during the enrollment period
established by the Plan Administrator (the "Enrollment Period") a
subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in
the Plan;
(b) authorizing payroll deductions and stating the amount to be
deducted regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each
Purchase Period.
21
An Eligible Employee who does not deliver a Subscription to the
Plan Administrator during the Enrollment Period shall not participate
in the Plan for that Offering Period or any subsequent Offering Period
unless such Eligible Employee subsequently enrolls in the Plan by
delivering a Subscription to the Plan Administrator during the
Enrollment Period for such subsequent Offering Period. The Plan
Administrator may, from time to time, change the Enrollment Period for
any future Offering as deemed advisable by the Plan Administrator in
its sole discretion for the proper administration of the Plan.
6.2 Continued Participation
Unless the Plan Administrator determines otherwise for any future
Offering, a Participant shall automatically participate in the next
Offering Period until such time as the Participant withdraws from the
Plan pursuant to Section 11.2 or terminates employment as provided in
Section 12.
SECTION 7. LIMITATIONS ON RIGHT TO PURCHASE SHARES
7.1 $25,000 Limitation
No Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, any Parent
Corporation or any Subsidiary Corporation) at a rate that exceeds
$25,000 in fair market value, determined as of the Offering Date for
each Offering Period (or such other limit as may be imposed by the
Code), for each calendar year in which a Participant participates in
the Plan (or any other employee stock purchase plan described in this
Section 7.1).
7.2 Pro Rata Allocation
In the event the number of shares of Stock that might be purchased
by all Participants in the Plan exceeds the number of shares of Stock
available in the Plan, the Plan Administrator shall make a pro rata
allocation of the remaining shares of Stock in as uniform a manner as
shall be practicable and as the Plan Administrator shall determine to
be equitable. Fractional shares may be issued under the Plan unless the
Board or the Committee determines otherwise.
SECTION 8. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be
acquired in an Offering pursuant to the exercise of all or any portion
of an Option granted under the Plan shall be the fair market value of
the Stock on the Purchase Date. Notwithstanding the foregoing, the
Board or the Committee may establish a different Purchase Price for any
future Offering, which shall not be less than 85% of the lesser of (a)
the fair market value of the Stock on the Offering Date of such
Offering and (b) the fair market value of the Stock on the Purchase
Date. The fair market value of the Stock on the Offering Date or on the
Purchase Date shall be the closing price for the Stock as reported for
such day by the American Stock Exchange. If no sales of the Stock were
made on the American Stock Exchange on the transaction date, fair
market value shall mean the closing price for the Stock as reported for
the next preceding day on which sales of the Stock were made on the
American Stock Exchange.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 General Rules
Subject to Section 9.12, stock that is acquired pursuant to the
exercise of all or any portion of an Option may be paid for only by
means of payroll deductions from the Participant's Eligible
Compensation. Except as set forth in this Section 9, the amount of
compensation to be withheld from a Participant's Eligible Compensation
during each pay period shall be determined by the Participant's
Subscription.
9.2 Change Notices
Except as set forth in Section 11.1 and unless the Plan
Administrator determines otherwise for an Offering, a Participant may
not elect during an Offering Period to increase or decrease the amount
withheld from his or her compensation for future pay periods within
such Offering Period. Unless otherwise determined by the Plan
Administrator for a future Offering, a Participant may elect to
increase or decrease the amount to be withheld from his or her
compensation for future Offerings; provided, however, that notice of
22
such election must be delivered to the Plan Administrator in such form
and in accordance with such terms as the Plan Administrator may
establish for an Offering.
9.3 Percent Withheld
The amount of payroll withholding with respect to the Plan for any
Participant during any pay period shall be at least 1% of the
Participant's Eligible Compensation for such pay period, but shall not
exceed 15% of the Participant's Eligible Compensation for such pay
period. Amounts shall be withheld only in whole percentages.
9.4 Payroll Deductions
Payroll deductions shall commence on the first payday following
the Offering Date and shall continue through the last payday of the
Offering Period unless sooner altered or terminated as provided in the
Plan.
9.5 Memorandum Accounts
Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account but shall be deposited
with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate
purpose.
9.6 No Interest
No interest shall be paid on payroll deductions received or held
by the Company.
9.7 Acquisition of Stock
On each Purchase Date of an Offering Period, each Participant
shall automatically acquire, pursuant to the exercise of the
Participant's Option, the number of shares of Stock arrived at by
dividing the total amount of the Participant's accumulated payroll
deductions for the Purchase Period by the Purchase Price; provided,
however, that the number of shares of Stock purchased by the
Participant shall not exceed the number of whole shares of Stock so
determined, if the Board or the Committee has determined for any future
Offering that fractional shares may not be issued under the Plan.
9.8 Carryover of Account
Any cash balance remaining in the Participant's account at the
termination of each Offering shall be refunded to the Participant as
soon as practical after the Purchase Date without the payment of any
interest; provided, however, that if the Participant participates in
the next Offering, any cash balance remaining in the Participant's
account shall be applied to the purchase of Stock in the new Offering,
provided such purchase complies with Section 7.1.
9.9 Withholding Obligations
At the time the Option is exercised, in whole or in part, or at
the time some or all of the Stock is disposed of, the Participant shall
make adequate provision for federal and state withholding obligations
of the Company, if any, that arise upon exercise of the Option or upon
disposition of the Stock. The Company may withhold from the
Participant's compensation the amount necessary to meet such
withholding obligations.
9.10 Termination of Participation
No Stock shall be purchased on behalf of a Participant on a
Purchase Date if his or her participation in the Plan has terminated
prior to such Purchase Date.
9.11 Procedural Matters
The Plan Administrator may, from time to time, establish (a)
limitations on the frequency and/or number of any permitted changes in
the amount withheld during an Offering, (b) an exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars,
(c) payroll withholding in excess of the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
23
processing of properly completed withholding elections, and (d) such
other limitations or procedures as deemed advisable by the Plan
Administrator, in its sole discretion, that are consistent with the
Plan and in accordance with the requirements of Code Section 423.
9.12 Leaves of Absence
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under
the Code, a Participant may continue participation in the Plan by
delivering cash payments to the Plan Administrator on the Participant's
normal paydays equal to the amount of his or her payroll deduction
under the Plan had the Participant not taken a leave of absence.
SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 ESPP Broker
If the Plan Administrator designates or approves a stock brokerage
or other financial services firm (the "ESPP Broker") to hold shares
purchased under the Plan for the accounts of Participants, the
following procedures shall apply. Promptly following each Purchase
Date, the number of shares of Stock purchased by each Participant shall
be deposited into an account established in the Participant's name with
the ESPP Broker. A Participant shall be free to undertake a disposition
of the shares of Stock in his or her account at any time, but, in the
absence of such a disposition, the shares of Stock must remain in the
Participant's account at the ESPP Broker until the holding period set
forth in Code Section 423 has been satisfied. With respect to shares of
Stock for which the Code Section 423 holding periods have been
satisfied, the Participant may move those shares of Stock to another
brokerage account of the Participant's choosing or request that a stock
certificate be issued and delivered to him or her. A Participant who is
not subject to payment of U.S. income taxes may move his or her shares
of Stock to another brokerage account of his or her choosing or request
that a stock certificate be delivered to him or her at any time,
without regard to the Code Section 423 holding period.
10.2 Notice of Disposition
By entering the Plan, each Participant agrees to promptly give the
Company notice of any Stock disposed of within the later of one year
from the Purchase Date and two years from the Offering Date for such
Stock, showing the number of such shares disposed of and the Purchase
Date and Offering Date for such Stock. This notice shall not be
required if and so long as the Company has a designated ESPP Broker.
SECTION 11. VOLUNTARY WITHDRAWAL
11.1 Withdrawal From an Offering
A Participant may withdraw from an Offering by delivering to the
Plan Administrator a notice of withdrawal in the form required by the
Plan Administrator for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such
withdrawal is to be effective or by any other date specified by the
Plan Administrator for any future Offering. If a Participant withdraws
after the Purchase Date for a Purchase Period of an Offering, the
withdrawal shall not affect Stock acquired by the Participant in that
Purchase Period and any earlier Purchase Periods. Unless the Plan
Administrator establishes a different rule for any future Offering,
withdrawal from an Offering shall not result in withdrawal from the
Plan and any succeeding Offering therein. A Participant is prohibited
from again participating in the same Offering at any time upon
withdrawal from such Offering.
11.2 Withdrawal From the Plan
A Participant may withdraw from the Plan by delivering to the Plan
Administrator a notice of withdrawal in the form required by the Plan
Administrator for such purpose. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such
withdrawal is to be effective or by any other date specified by the
Plan Administrator for any future Offering. If a Participant withdraws
after the Purchase Date for a Purchase Period of an Offering, the
withdrawal shall not affect Stock acquired by the Participant in that
Purchase Period and any earlier Purchase Periods. In the event a
Participant voluntarily elects to withdraw from the Plan, the
withdrawing Participant may not resume participation in the Plan during
the same Offering Period but may participate in any subsequent Offering
under the Plan by again satisfying the definition of a Participant.
24
11.3 Return of Payroll Deductions
Upon withdrawal from an Offering pursuant to Section 11.1 or
withdrawal from the Plan pursuant to Section 11.2, the withdrawing
Participant's accumulated payroll deductions that have not been applied
to the purchase of Stock shall be returned as soon as practical after
the withdrawal, without the payment of any interest, to the
Participant, and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to
any other Offering under the Plan.
SECTION 12. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement, disability or death, or the failure of a
Participant to remain an Eligible Employee, shall immediately terminate
the Participant's participation in the Plan. The payroll deductions
credited to the Participant's account since the last Purchase Date
shall, as soon as practical, be returned to the Participant or, in the
case of a Participant's death, to the Participant's legal
representative, and all the Participant's rights under the Plan shall
terminate. Interest shall not be paid on sums returned to a Participant
pursuant to this Section 12.
SECTION 13. RESTRICTIONS UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable
otherwise than by will or by the applicable laws of descent and
distribution and shall be exercisable during the Participant's lifetime
only by the Participant. The Plan Administrator will not recognize, and
shall be under no duty to recognize, any assignment or purported
assignment by a Participant, other than by will or by the applicable
laws of descent and distribution, of the Participant's interest in the
Plan, of his or her Option, or of any rights under his or her Option.
SECTION 14. NO RIGHTS OF SHAREHOLDER UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a
Participant shall not be deemed to be a shareholder of the Company, and
he or she shall not have any of the rights or privileges of a
shareholder. A Participant shall have the rights and privileges of a
shareholder of the Company when, but not until, the shares have been
issued following exercise of the Participant's Option.
SECTION 15. AMENDMENT OF THE PLAN
The Board or the Committee may amend the Plan in such respects as
it shall deem advisable; provided, however, that, to the extent
required for compliance with Code Section 423 or any applicable law or
regulation, shareholder approval will be required for any amendment
that will (a) increase the total number of shares as to which Options
may be granted under the Plan, (b) modify the class of employees
eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation.
SECTION 16. TERMINATION OF THE PLAN
The Board may suspend or terminate the Plan at any time. Unless
the Plan shall theretofore have been terminated by the Board, the Plan
shall terminate on, and no Options shall be granted after May 20, 2008,
except that such termination shall have no effect on Options granted
prior thereto. No Options shall be granted during any period of
suspension of the Plan.
SECTION 17. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person
(including any Eligible Employee or Participant) the right to remain in
the employ of the Company or a Subsidiary Corporation or to affect the
right of the Company and the Subsidiary Corporations to terminate the
employment of any person (including any Eligible Employee or
Participant) at any time with or without cause.
25
SECTION 18. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation
or incentive plans in effect for the Company or any Subsidiary
Corporation. Nothing in the Plan shall be construed to limit the right
of the Company or any Subsidiary Corporation to (a) establish any other
forms of incentives or compensation for employees of the Company or any
Subsidiary Corporation or (b) grant or assume options otherwise than
under the Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
SECTION 19. ADJUSTMENTS
19.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock
dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to shareholders
other than a normal cash dividend, or other change in the Company's
corporate or capital structure results in (a) the outstanding shares,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of securities of the Company
or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by
the holders of shares of Stock, then (subject to any required action by
the Company's shareholders), the Board or the Committee, in its sole
discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in (i) the maximum number and kind of
securities subject to the Plan as set forth in Section 4 and (ii) the
number and kind of securities that are subject to any outstanding
Option and the per share price of such securities. The determination by
the Board or the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
19.2 Merger, Acquisition or Liquidation of the Company
In the event of the merger or consolidation of the Company into
another corporation, the acquisition by another corporation of all or
substantially all of the Company's assets, or the liquidation or
dissolution of the Company, the Purchase Date with respect to
outstanding Options shall be the business day immediately preceding the
effective date of such merger, consolidation, acquisition, liquidation
or dissolution unless the Board or the Committee shall, in its sole
discretion, provide for the assumption or substitution of such Options
in a manner complying with Code Section 424(a).
19.3 Limitations
The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
SECTION 20. REGISTRATION
The Company shall be under no obligation to any Participant to
register for offering or resale under the Securities Act of 1933, as
amended, or register or qualify under state securities laws, any shares
of Stock. The Company may issue certificates for shares with such
legends and subject to such restrictions on transfer and stop-transfer
instructions as counsel for the Company deems necessary or desirable
for compliance by the Company with federal and state securities laws.
SECTION 21. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by
the Company's shareholders.
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Appendix B
EMERITUS CORPORATION
AMENDED AND RESTATED 1995 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Emeritus Corporation 1995 Stock Incentive Plan
(the "Plan") is to enhance the long-term profitability and shareholder
value of Emeritus Corporation, a Washington corporation (the
"Company"), by offering incentives and rewards to those employees,
directors, officers, consultants, agents, advisors and independent
contractors of the Company and its Subsidiaries (as defined in Section
2 below) who are key to the Company's growth and success, and to
encourage them to remain in the service of the Company and its
Subsidiaries and to acquire and maintain stock ownership in the
Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as
set forth below:
2.1 Award
"Award" means an award or grant made to a Participant pursuant to
the Plan, including, without limitation, awards or grants of Options,
Stock Appreciation Rights, Stock Awards, Other Stock-Based Awards or
any combination of the foregoing (including any Dividend Equivalent
Rights granted in connection with such Awards).
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction
or confession of a crime punishable by law (except minor violations),
in each case as determined by the Plan Administrator, and its
determination shall be conclusive and binding.
2.4 Code
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 Common Stock
"Common Stock" means the common stock, par value $.0001 per share,
of the Company.
2.6 Corporate Transaction
"Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any merger
or consolidation of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Common Stock are converted into cash, securities or other property,
other than a merger of the Company in which the holders of the Common
Stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger;
(b) Approval by the holders of the Common Stock of any sale,
lease, exchange or other transfer in one transaction or a series of
related transactions of all or substantially all of the Company's
assets other than a transfer of the Company's assets to a majority-
owned subsidiary (as the term "subsidiary" is defined in Section 8.3 of
the Plan) of the Company; or
27
(c) Approval by the holders of the Common Stock of any plan
or proposal for the liquidation or dissolution of the Company.
2.7 Disability
"Disability" means "disability" as that term is defined for
purposes of the Company's Group Life, Disability Income, Medical and
Dental Plan or other similar successor plan applicable to salaried
employees.
2.8 Dividend Equivalent Right
"Dividend Equivalent Right" means an Award granted under Section
12 of the Plan.
2.9 Early Retirement
"Early Retirement" means retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.10 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11 Fair Market Value
"Fair Market Value" means the closing price, or if there is no
closing price, the mean between the high and low sale price of shares
of Common Stock on the American Stock Exchange on the day the option is
granted or, if no Common Stock was traded on such date, on the next
succeeding day on which Common Stock is so traded.
2.12 Good Reason
"Good Reason" means the occurrence of any of the following events
or conditions:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Holder's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately
prior thereto; the assignment to the Holder of any duties or
responsibilities that, in the Holder's reasonable judgment, are
inconsistent with such status, title, position or responsibilities; or
any removal of the Holder from or failure to reappoint or reelect the
Holder to any of such positions, except in connection with the
termination of the Holder's employment for Cause, for Disability or as
a result of his or her death, or by the Holder other than for Good
Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Company's requiring the Holder (without the Holder's
consent) to be based at any place outside a 35-mile radius of his or
her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Company's business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;
(d) the Company's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent
thereof) in which the Holder was participating at the time of a
Corporate Transaction, including, but not limited to, the Plan, or (ii)
provide the Holder with compensation and benefits at least equal (in
terms of benefit levels and/or reward opportunities) to those provided
for under each employee benefit plan, program and practice as in effect
immediately prior to the Corporate Transaction (or as in effect
following the Corporate Transaction, if greater);
(e) any material breach by the Company of any provision of
the Plan; or
(f) any purported termination of the Holder's employment or
service for Cause by the Company that does not comply with the terms of
the Plan.
28
2.13 Grant Date
"Grant Date" means the date designated in a resolution of the Plan
Administrator as the date an Award is granted. If the Plan
Administrator does not designate a Grant Date in the resolution, the
Grant Date shall be the date the Plan Administrator adopted the
resolution.
2.14 Holder
"Holder" means: (a) the Participant to whom an Award is granted;
(b) for a Holder who has died, the personal representative of the
Holder's estate, the person(s) to whom the Holder's rights under the
Award have passed by will or by the applicable laws of default and
distribution or the beneficiary designated in accordance with Section
14; or (c) the person(s) to whom an Award has been transferred in
accordance with Section 14.
2.15 Incentive Stock Option
"Incentive Stock Option" means an Option to purchase Common Stock
granted under Section 7 of the Plan with the intention that it qualify
as an "incentive stock option" as that term is defined in Section 422
of the Code.
2.16 Nonqualified Stock Option
"Nonqualified Stock Option" means an Option to purchase Common
Stock granted under Section 7 of the Plan other than an Incentive Stock
Option.
2.17 Option
"Option" means the right to purchase Common Stock granted under
Section 7 of the Plan.
2. 18 Other Stock-Based Award
Other Stock-Based Award" means an Award granted under Section 11
of the Plan.
2. 19 Participant
"Participant" means an individual who is a Holder of an Award or,
as the context may require, any employee, director, officer,
consultant, agent, advisor or independent contractor of the Company or
a Subsidiary who has been designated by the Plan Administrator as
eligible to participate in the Plan.
2.20 Plan Administrator
"Plan Administrator" means any committee of the Board designated
to administer the Plan under Section 3.1 of the Plan.
2.21 Restricted Stock
"Restricted Stock" means shares of Common Stock granted under
Section 10 of the Plan the rights of ownership of which are subject to
restrictions prescribed by the Plan Administrator.
2.22 Retirement
"Retirement" means retirement as of the individual's normal
retirement date under a company's profit sharing, savings or other
similar plan applicable to salaried employees, or as otherwise
established by the Plan Administrator.
2.23 Stock Appreciation Right
"Stock Appreciation Right" means an Award granted under Section 9
of the Plan.
29
2.24 Stock Award
"Stock Award" means an Award granted under Section 10 of the Plan.
2.25 Subsidiary
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or
indirectly controlled by the Company or in which the Company has a
significant ownership interest, as determined by the Plan
Administrator, and any entity that may become a direct or indirect
parent of the Company.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by a committee or committees (which
term includes subcommittees) appointed by, and consisting of two or
more members of, the Board (the "Plan Administrator"). If and so long
as the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, the Board shall consider in selecting the Plan
Administrator and the membership of any committee acting as Plan
Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a)
"outside directors" as contemplated by Section 162(m) of the Code and
(b) "nonemployee directors" as contemplated by Rule 16b-3 under the
Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible
Participants to different committees, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such
term as the Board may determine, subject to removal by the Board at any
time.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the
Plan, the Plan Administrator shall have exclusive authority, in its
discretion, to determine all matters relating to Awards under the Plan,
including the selection of individuals to be granted Awards, the type
of Awards, the number of shares of Common Stock subject to an Award,
all terms, conditions, restrictions and limitations, if any, of an
Award and the terms of any instrument that evidences the Award. The
Plan Administrator shall also have exclusive authority to interpret the
Plan and may from time to time adopt, and change, rules and regulations
of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and
regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, shall be conclusive and binding on
all parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's officers as it so
determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section
15.1 of the Plan, a maximum of 1,450,000 shares of Common Stock shall
be available for issuance under the Plan. Shares issued under the Plan
shall be drawn from authorized and unissued shares or shares now held
or subsequently acquired by the Company as treasury shares.
4.2 Individual Award Limit
Subject to adjustment from time to time as provided in Section
15.1, not more than 300,000 shares of Common Stock may be made subject
to Awards of Options or Stock Appreciation Rights under the Plan to any
individual Participant in any one fiscal year of the Company, such
limitation to be applied in a manner consistent with the requirements
of, and only to the extent required for compliance with, the exclusion
from the limitation on deductibility of compensation under Section
162(m) of the Code.
4.3 Reuse of Shares
30
Any shares of Common Stock that have been made subject to an Award
that cease to be subject to the Award (other than by reason of exercise
or payment of the Award to the extent it is exercised for or settled in
shares) shall again be available for issuance in connection with future
grants of Awards under the Plan. Shares that are subject to tandem
Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers and key
employees (including directors who are also employees) of the Company
and its Subsidiaries as the Plan Administrator from time to time
selects. Awards may also be made to consultants and agents who provide
services to the Company and its Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole
discretion, to determine the type or types of Awards to be made under
the Plan. Such Awards may include, but are not limited to, Incentive
Stock Options, Nonqualified Stock Options, Stock Appreciation Rights,
Stock Awards, Other Stock-Based Awards and Dividend Equivalent Rights.
Awards may be made singly, in combination or in tandem so that the
settlement or payment of one automatically reduces or cancels the
other. Awards may also be made in combination or in tandem with, as
alternatives to, or as the payment form for, grants or rights under any
other employee or compensation plan of the Company.
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for
awards issued under other plans, or assume under the Plan awards issued
under other plans, if the other plans are or were plans of other
entities ("Acquired Entities") (or the parent of the Acquired Entity)
and the new Award is substituted, or the old award is assumed, by
reason of a merger, consolidation, acquisition of property or of stock,
reorganization or liquidation (the "Acquisition Transaction"). In the
event that a written agreement pursuant to which the Acquisition
Transaction is completed is approved by the Board and said agreement
sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator
without any further action by the Plan Administrator, except as may be
required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such Awards shall be deemed to be Participants and
Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as
Nonqualified Stock Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be
as determined by the Plan Administrator, but shall not be less than
100% of the Fair Market Value of the Common Stock on the Grant Date
with respect to Incentive Stock Options and not less than 85% of the
Fair Market Value of the Common Stock on the date such Option is
granted with respect to Nonqualified Stock Options.
7.3 Term of Options
The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the
Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each
31
instrument that evidences an Option the time at which or the
installments in which the Option shall become exercisable, which
provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option,
the Option shall vest and become exercisable according to the following
schedule, which may be waived or modified by the Plan Administrator at
any time:
Period of Holder's Continuous
Employment or
Service With the Company or
Its Subsidiaries Percent of Total Option That Is
From the Option Grant Date Vested and Exercisable
After 1 year 33 1/3%
After 2 year 33 1/3%
After 3 year 33 1/3%
To the extent that the right to purchase shares has accrued
thereunder, an Option may be exercised from time to time by written
notice to the Company, in accordance with procedures established by the
Plan Administrator, setting forth the number of shares with respect to
which the Option is being exercised and accompanied by payment in full
as described in Section 7.5 of the Plan. The Plan Administrator may
determine at any time that an Option may not be exercised as to less
than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be
paid in full to the Company by delivery of consideration equal to the
product of the Option exercise price and the number of shares
purchased. Such consideration must be paid in cash or by check, or,
unless the Plan Administrator in its sole discretion determines
otherwise, either at the time the Option is granted or at any time
before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either
actually or, if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, by attestation) Common
Stock already owned by the Holder for at least six months (or any
shorter period necessary to avoid a charge to the Company's earnings
for financial reporting purposes) having a Fair Market Value on the day
prior to the exercise date equal to the aggregate Option exercise price
or (b) if and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a
brokerage firm designated by the Company to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Option
exercise price and any withholding tax obligations that may arise in
connection with the exercise and (ii) the Company to deliver the
certificates for such purchased shares directly to such brokerage firm,
all in accordance with the regulations of the Federal Reserve Board. In
addition, to the extent permitted by the Plan Administrator in its sole
discretion, the exercise price for shares purchased under an Option may
be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 7.5, by (y) a
full-recourse promissory note delivered pursuant to Section 16 or (z)
such other consideration as the Plan Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each
instrument that evidences an Option whether the Option will continue to
be exercisable, and the terms and conditions of such exercise, if a
Holder ceases to be employed by, or to provide services to, the Company
or its Subsidiaries, which provisions may be waived or modified by the
Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option will be exercisable according to the
following terms and conditions, which may be waived or modified by the
Plan Administrator at any time. In case of termination of the Holder's
employment or services other than by reason of death or Cause, the
Option shall be exercisable, to the extent of the number of shares
purchasable by the Holder at the date of such termination, only: (a)
within three years after the date of termination of the Holder's
employment or services if such termination is coincident with
Retirement, Early Retirement at the Company's request or Disability or
(b) within three months after the date of termination of the Holder's
employment or services if such termination of the Holder's employment
or services is for any reason other than Retirement, Early Retirement
at the Company's request or Disability, but in no event later than the
remaining term of the Option. Any Option exercisable at the time of the
Holder's death may be exercised, to the extent of the number of shares
purchasable by the Holder at the date of the Holder's death, by the
personal representative of the Holder's estate entitled thereto at any
time or from time to time within three years after the date of death,
but in no event later than the remaining term of the Option. In case of
termination of the Holder's employment or services for Cause, the
Option shall automatically terminate upon first notification to the
Holder of such termination, unless the Plan Administrator determines
otherwise. If a Holder's employment or services with the Company are
suspended pending
32
an investigation of whether the Holder shall be terminated for Cause,
all the Holder's rights under any Option likewise shall be suspended
during the period of investigation. Any portion of an Option that is
not exercisable on the date of termination of the Holder's employment
or services shall terminate on such date unless the Plan Administrator
determines otherwise. A transfer of employment or services between or
among the Company and its Subsidiaries shall not be considered a
termination of employment or services. Unless the Plan Administrator
determines otherwise, a leave of absence approved in accordance with
Company procedures shall not be considered a termination of employment
or services, except that with respect to Incentive Stock Options such
leave of absence shall be subject to any requirements of Section 422 of
the Code.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and
conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of
the Grant Date) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time during any calendar year
(under the Plan and all other stock option plans of the Company)
exceeds $100,000, such portion in excess of $100,000 shall be treated
as a Nonqualified Stock Option. In the event the Participant holds two
or more such Options that become exercisable for the first time in the
same calendar year, such limitation shall be applied on the basis of
the order in which such Options are granted.
8.2 10% Shareholders
If a Participant owns 10% or more of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market
Value of the Common Stock on the Grant Date and the Option term shall
not exceed five years.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its
parent corporations or subsidiary corporations may not be granted
Incentive Stock Options. For purposes of this Section 8.3 of the Plan,
"parent corporation" and "subsidiary corporation" shall have the
meanings attributed to those terms for purposes of Section 422 of the
Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 Exercisability
An Option designated as an Incentive Stock Option must be
exercised within three months after termination of employment for
reasons other than death to qualify for Incentive Stock Option tax
treatment, except that in the case of termination of employment due to
Disability, such Option must be exercised within one year after such
termination.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights
The Plan Administrator may grant a Stock Appreciation Right
separately or in tandem with a related Option.
9.2 Tandem Stock Appreciation Rights
A Stock Appreciation Right granted in tandem with a related Option
will give the Holder the right to surrender to the Company all or a
portion of the related Option and to receive an appreciation
distribution (in shares of Common Stock or cash or any combination of
shares and cash, as the Plan Administrator shall determine at any time)
in an amount equal to the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of
the right, which shall be the same as the exercise price of the related
Option. A tandem Stock Appreciation Right will have the same other
terms and provisions as the related Option. Upon and to the extent a
tandem Stock Appreciation Right is exercised, the related Option will
terminate.
33
9.3 Stand-Alone Stock Appreciation Rights
A Stock Appreciation Right granted separately and not in tandem
with an Option will give the Holder the right to receive an
appreciation distribution in an amount equal to the excess of the Fair
Market Value for the date the Stock Appreciation Right is exercised
over the per share exercise price of the right. A stand-alone Stock
Appreciation Right will have such terms as the Plan Administrator may
determine, except that the per share exercise price of the right must
be at least equal to 85% of the Fair Market Value on the Grant Date and
the term of the right, if not otherwise established by the Plan
Administrator, shall be 10 years from the Grant Date.
9.4 Exercise of Stock Appreciation Rights
Unless otherwise provided by the Plan Administrator in the
instrument that evidences the Stock Appreciation Right, the provisions
of Section 7.6 of the Plan relating to the termination of a Holder's
employment or services shall apply equally, to the extent applicable,
to the Holder of a Stock Appreciation Right.
SECTION 10. STOCK AWARDS
10.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common
Stock to Participants on such terms and conditions and subject to such
restrictions, if any (whether based on performance standards, periods
of service or otherwise), as the Plan Administrator shall determine,
which terms, conditions and restrictions shall be set forth in the
instrument evidencing the Award. The terms, conditions and restrictions
that the Plan Administrator shall have the power to determine shall
include, without limitation, the manner in which shares subject to
Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of Restricted
Stock shall occur by reason of termination of the Holder's services.
10.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions
prescribed in respect to a Stock Award, or upon the Holder's release
from any terms, conditions and restrictions of a Stock Award, as
determined by the Plan Administrator, the Company shall release, as
soon as practicable, to the Holder or, in the case of the Holder's
death, to the personal representative of the Holder's estate or as the
appropriate court directs, the appropriate number of shares of Common
Stock.
10.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan
Administrator may, in its sole discretion, waive the forfeiture period
and any other terms, conditions or restrictions on any Restricted Stock
under such circumstances and subject to such terms and conditions as
the Plan Administrator shall deem appropriate.
SECTION 11. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan
pursuant to which shares of Common Stock (which may, but need not, be
shares of Restricted Stock pursuant to Section 10 of the Plan) are or
may in the future be acquired, or Awards denominated in stock units,
including ones valued using measures other than market value. Such
Other Stock-Based Awards may be granted alone or in addition to or in
tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.
SECTION 12. DIVIDEND EQUIVALENT RIGHTS
Any Awards under the Plan may, in the Plan Administrator's
discretion, earn Dividend Equivalent Rights. In respect of any Award
that is outstanding on the dividend record date for Common Stock, the
Participant may be credited with an amount equal to the cash or stock
dividends or other distributions that would have been paid on the
shares of Common Stock covered by such Award had such covered shares
been issued and outstanding on such dividend record date. The Plan
34
Administrator shall establish such rules and procedures governing the
crediting of Dividend Equivalent Rights, including the timing, form of
payment and payment contingencies of such Dividend Equivalent Rights,
as it deems are appropriate or necessary.
SECTION 13. LOANS, LOAN GUARANTEES AND INSTALLMENT
PAYMENTS
To assist a Holder (including a Holder who is an officer or
director of the Company) in acquiring shares of Common Stock pursuant
to an Award granted under the Plan, the Plan Administrator may
authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (a) the extension of
a loan to the Holder by the Company, (b) the payment by the Holder of
the purchase price, if any, of the Common Stock in installments, or (c)
the guarantee by the Company of a loan obtained by the grantee from a
third party. The terms of any loans, installment payments or
guarantees, including the interest rate and terms of repayment, will be
subject to the Plan Administrator's discretion. Loans, installment
payments and guarantees may be granted with or without security. The
maximum credit available is the purchase price, if any, of the Common
Stock acquired plus the maximum federal and state income and employment
tax liability that may be incurred in connection with the acquisition.
SECTION 14. ASSIGNABILITY
No Option, Stock Appreciation Right, Other Stock-Based Award or
Dividend Equivalent Right granted under the Plan may be assigned,
pledged or transferred by the Holder other than by will or by the laws
of descent and distribution, and during the Holder's lifetime, such
Awards may be exercised only by the Holder or a permitted assignee or
transferee of the Holder (as provided below). Notwithstanding the
foregoing, and to the extent permitted by Section 422 of the Code, the
Plan Administrator, in its sole discretion, may permit such assignment,
transfer and exercisability and may permit a Holder of such Awards to
designate a beneficiary who may exercise the Award or receive
compensation under the Award after the Holder's death; provided,
however, than any Award so assigned or transferred shall be subject to
all the same terms and conditions contained in the instrument
evidencing the Award.
SECTION 15. ADJUSTMENTS
15.1 Adjustment of Shares
In the event that at any time or from time to time a stock
dividend, ,stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to shareholders
other than a normal cash dividend, or other change in the Company's
corporate or capital structure results in (a) the outstanding shares,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of securities of the Company
or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by
the holders of shares of Common Stock of the Company, then the Plan
Administrator, in its sole discretion, shall make such equitable
adjustments as it shall deem appropriate in the circumstances in (i)
the maximum number of and kind of securities subject to the Plan as set
forth in Section 4.1 of the Plan, (ii) the maximum number and kind of
securities that may be made subject to Awards to any individual
Participant as set forth in Section 4.2 of the Plan, and (iii) the
number and kind of securities that are subject to any outstanding Award
and the per share price of such securities, without any change in the
aggregate price to be paid therefor. The determination by the Plan
Administrator as to the terms of any of the foregoing adjustments shall
be conclusive and binding. Notwithstanding the foregoing, a Corporate
Transaction shall not be governed by this Section 15.1 but shall be
governed by Section 15.2
15.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the
Award, in the event of any Corporate Transaction, each Option, Stock
Appreciation Right or Stock Award that is at the time outstanding shall
automatically accelerate so that each such Award shall, immediately
prior to the specified effective date for the Corporate Transaction,
become 100% vested, except that such acceleration will not occur if in
the opinion of the Company's accountants it would render unavailable
"pooling of interest" accounting for a Corporate Transaction that would
otherwise qualify for such accounting treatment. All such Awards shall
terminate and cease to remain outstanding immediately following the
consummation of the Corporate Transaction, except to the extent assumed
by the successor corporation or its parent corporation. Any such Awards
that are assumed or replaced in the Corporate Transaction and do not
otherwise accelerate at that time shall be accelerated in the event the
Holder's employment or services should subsequently terminate within
two years following such Corporate Transaction, unless such employment
or services are terminated by the Company for Cause or by the Holder
voluntarily without Good Reason. Notwithstanding the foregoing, no
35
Incentive Stock Option shall become exercisable pursuant to this
Section 15.2 without the Holder's consent, if the result would be to
cause such Option not to be treated as an Incentive Stock Option
(whether by reason of the annual limitation described in Section 8.1 of
the Plan or otherwise).
15.3 Further Adjustment of Awards
Subject to Section 15.2 of the Plan, the Plan Administrator shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the
Company, as defined by the Plan Administrator, to take such further
action as it determines to be necessary or advisable, and fair and
equitable to Participants, with respect to Awards. Such authorized
action may include (but shall not be limited to) establishing, amending
or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional
time for exercise, payment or settlement or lifting restrictions,
differing methods for calculating payments or settlements, alternate
forms and amounts of payments and settlements, and other modifications,
and the Plan Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to
individual Participants. The Plan Administrator may take such action
before or after granting Awards to which the action relates and before
or after any public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation or change in control that is
the reason for such action.
15.4 Limitations
The grant of Awards will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
SECTION 16. WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the
amount of any withholding taxes that the Company is required to
withhold with respect to the grant, exercise, payment or settlement of
any Award. In such instances, the Plan Administrator may, in its
discretion and subject to the Plan and applicable law, permit the
Holder to satisfy withholding obligations, in whole or in part, by
paying cash, by electing to have the Company withhold shares of Common
Stock or by transferring shares of Common Stock to the Company, in such
amounts as are equivalent to the Fair Market Value of the withholding
obligation.
SECTION 17. AMENDMENT AND TERMINATION OF PLAN
17.1 Amendment of Plan
The Plan may be amended by the shareholders of the Company. The
Board may also amend the Plan in such respects as it shall deem
advisable; however, to the extent required for compliance with Section
422 of the Code or any applicable law or regulation, shareholder
approval will be required for any amendment that will (a) increase the
total number of shares as to which Options may be granted or that may
be used in payment of Stock Appreciation Rights, Other Stock-Based
Awards or Dividend Equivalent Rights under the Plan or that may be
issued as Restricted Stock, (b) materially modify the class of persons
eligible to receive Awards, (c) materially increase the benefits
accruing to Participants under the Plan, or (d) otherwise require
shareholder approval under any applicable law or regulation.
17.2 Termination of Plan
The shareholders or the Board may suspend or terminate the Plan at
any time. The Plan will have no fixed expiration date; provided,
however, that no Incentive Stock Options may be granted more than 10
years after the Plan's effective date.
17.3 Consent of Holder
The amendment or termination of the Plan shall not, without the
consent of the Holder of any Award under the Plan, alter or impair any
rights or obligations under any Award theretofore granted under the
Plan.
36
SECTION 18. GENERAL
18.1 Notification
The Plan Administrator shall promptly notify a Participant of an
Award, and a written grant shall promptly be executed and delivered by
or on behalf of the Company.
18.2 Continued Employment or Services; Rights in Awards
Neither the Plan, participation in the Plan as a Participant nor
any action of the Plan Administrator taken under the Plan shall be
construed as giving any Participant or employee of the Company any
right to be retained in the employ of the Company or limit the
Company's right to terminate the employment or services of the
Participant or employees.
18.3 Registration
The Company shall be under no obligation to any Participant to
register for offering or resale under the Securities Act of 1933, as
amended, or register or qualify under state securities laws, any shares
of Common Stock, security or interest in a security paid or issued
under, or created by, the Plan. The Company may issue certificates for
shares with such legends and subject to such restrictions on transfer
and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and
state securities laws.
18.4 No Rights as a Shareholder
No Option, Stock Appreciation Right or Other Stock-Based Award
shall entitle the Holder to any dividend (except to the extent provided
in an Award of Dividend Equivalent Rights), voting or other right of a
shareholder unless and until the date of issuance under the Plan of the
shares that are the subject of such Awards, free of all applicable
restrictions.
18.5 Compliance With Laws and Regulations
It is the Company's intention that, so long as any of the
Company's equity securities are registered pursuant to Section 12(b) or
12(g) of the Exchange Act, the Plan shall comply in all respects with
Rule 16b-3 under the Exchange Act, and, if any Plan provision is later
found not to be in compliance with such Rule, the provision shall be
deemed null and void, and in all events the Plan shall be construed in
favor of its meeting the requirements of Rule 16b-3. Notwithstanding
anything in the Plan to the contrary, the Board, in its sole
discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions
of the Plan, any Option granted as an Incentive Stock Option pursuant
to the Plan shall, to the extent permitted by law, be construed as an
"incentive stock option" within the meaning of Section 422 of the Code.
18.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing
contained herein shall require the Company to segregate any monies or
other property, or shares of Common Stock, or to create any trusts, or
to make any special deposits for any immediate or deferred amounts
payable to any Participant, and no Participant shall have any rights
that are greater than those of a general unsecured creditor of the
Company.
18.7 Severability
If any provision of the Plan or any Award is determined to be
invalid, illegal or unenforceable in any jurisdiction, or as to any
person, or would disqualify the Plan or any Award under any law deemed
applicable by the Plan Administrator, such provision shall be construed
or deemed amended to conform to applicable laws, or, if it cannot be so
construed or deemed amended without, in the Plan Administrator's
determination, materially altering the intent of the Plan or the Award,
37
such provision shall be stricken as to such jurisdiction, person or
Award, and the remainder of the Plan and any such Award shall remain in
full force and effect.
SECTION 19. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by
the Board, so long as it is approved by the Company's shareholders at
any time within 12 months of such adoption.
38
[PROXY CARD]
[FRONT]
EMERITUS CORPORATION
PROXY FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY
20, 1998
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoint(s) Daniel R. Baty and Raymond
R. Brandstrom, and each of them, as proxies with full power of
substitution and hereby authorizes them to represent and to vote as
designated below all the shares of Common Stock of Emeritus Corporation
held of record by the undersigned on March 27, 1998 at the 1998 Annual
Meeting of Shareholders to be held at the Columbia Winery, Milestone
Room, 14030 N.E. 145th Street, Woodinville, Washington 98072, at 10:00
a.m. on Wednesday, May 20, 1998, with authority to vote upon the
following matters and with discretionary authority as to any other
matters that may properly come before the meeting or any adjournment or
postponement thereof.
In their discretion, the proxies are authorized to vote upon such
other business as may properly be brought before the meeting or any
adjournment or postponement thereof. This Proxy, when properly
executed, will be voted in the manner directed herein by the
undersigned. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR
ALL NOMINEES" IN ITEM 1 AND "FOR" ALL THE OTHER ITEMS.
The undersigned acknowledges receipt from the Company prior
to the execution of this Proxy of a Notice of Annual Meeting of
Shareholders and a Proxy Statement dated April 13, 1998.
IMPORTANT - Please Date and Sign on the Other Side
[BACK]
Please mark
your votes ( )
as indicated
FOR WITHHOLD AUTHORITY
All to vote for all nominees
1. ELECTION OF DIRECTORS Nominees listed below 2. APPROVAL OF THE 1998 EMPLOYEE STOCK PURCHASE PLAN ( ) ( ) ( )
Election of the ( ) ( ) 3. AMENDMENT OF THE 1995 STOCK INCENTIVE COMPENSATION ( ) ( ) ( )
following nominees to PLAN
serve as directors in
the class indicated and
for the term indicated
until their successors
are elected and
qualified:
Class II (term expiring 2001): 4. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT ( ) ( ) ( )
Tom A. Alberg Raymond R. Brandstrom David T. Hamamoto MARWICK LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTS FOR FISCAL YEAR 1998
Unless otherwise directed, all votes will be apportioned I plan to attend the Annual Meeting ( )
equally among those persons for whom authority is given
to vote.
Write name(s) of nominee(s) for whom vote is withheld
below.
________________________________________________
Please sign below exactly as your name appears
on your stock certificate. When shares are
held jointly, each person must sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. An authorized person should sign on
behalf of corporations, partnerships and
associations and give his or her title.
Date ____________________________________, 1998
------------------------------------------------
Signature
------------------------------------------------
Signature if held jointly
YOUR VOTE IS IMPORTANT, PROMPT RETURN OF THIS PROXY CARD WILL HELP SAVE
THE EXPENSE OF ADDITIONAL SOLICITATION EFFORTS