UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 23, 2006 (May 17, 2006)
AMERICAN RETIREMENT CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Tennessee 01-13031 62-1674303
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
111 Westwood Place, Suite 200, Brentwood, TN 37027
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (615) 221-2250
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry Into a Material Definitive Agreement.
2006 Stock Incentive Plan
At the Annual Meeting of Shareholders (the "Meeting") of American
Retirement Corporation (the "Company") held on May 17, 2006, the Company's
shareholders approved the American Retirement Corporation 2006 Stock Incentive
Plan (the "Stock Incentive Plan"). The Stock Incentive Plan authorizes awards in
respect of an aggregate of 4,000,000 shares. The Stock Incentive Plan is
effective as of May 17, 2006 and replaces the Company's 1997 Stock Incentive
Plan, as amended (the "1997 Plan"), under which plan the Board will not issue
further grants.
The following is a brief summary of the principal features of the Stock
Incentive Plan, which is qualified in its entirety by reference to the full text
of the Stock Incentive Plan, a copy of which is attached hereto as Exhibit 10.1
and incorporated herein by reference.
Shares Available for Awards under the Plan. Under the Stock Incentive
Plan, awards may be made in common stock of the Company. Subject to adjustment
as provided by the terms of the Stock Incentive Plan, the maximum number of
shares of common stock with respect to which awards may be granted under the
Stock Incentive Plan is 4,000,000 (which includes 1,019,857 shares under the
1997 Plan that were authorized but not granted). Except as adjusted in
accordance with the terms of the Stock Incentive Plan, no more than 4,000,000
shares of common stock authorized under the Stock Incentive Plan may be awarded
as incentive stock options and no more than 2,000,000 shares of common stock
authorized under the Stock Incentive Plan may be awarded as awards other than
options. The maximum number of shares with respect to which awards may be
granted under the Stock Incentive Plan shall be increased by the number of
shares with respect to which options or other awards were granted under the 1997
Plan as of the effective date of the Stock Incentive Plan, but which terminate,
expire unexercised, or are settled for cash, forfeited or cancelled or withheld
without delivery of the shares under the terms of the 1997 Plan after the
effective date of the Stock Incentive Plan. The aggregate number of shares with
respect to which awards may be granted under the Stock Incentive Plan (and the
number of restricted shares which may be granted under the Stock Incentive Plan)
shall, upon the consummation of certain equity issuances (such as a public
offering of additional shares of common stock) increase automatically by ten
percent (10%) of the number of shares issued in the equity issuance.
Shares of common stock subject to an award under the Stock Incentive
Plan that are cancelled, expire unexercised, forfeited, settled in cash or
otherwise terminated without delivery of the shares remain available for awards
under the Stock Incentive Plan. Shares of common stock issued under the Stock
Incentive Plan may be either newly issued shares or shares which have been
reacquired by the Company. Shares issued by the Company as substitute awards
granted solely in connection with the assumption of outstanding awards
previously granted by a company acquired by the Company, or with which the
Company combines, ("Substitute Awards") do not reduce the number of shares
available for awards under the Stock Incentive Plan.
In addition, the Stock Incentive Plan imposes individual limitations on
the amount of certain awards in order to comply with Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Under these limitations,
no single participant may receive options or stock appreciation rights ("SARs")
in any calendar year that, taken together, relate to more than 200,000 shares of
common stock, subject to adjustment in certain circumstances.
With certain limitations, awards made under the Stock Incentive Plan
may be adjusted by the Compensation Committee of the Company's Board of
Directors (the "Committee") in its discretion or to prevent dilution or
enlargement of benefits or potential benefits intended to be made available
under the Stock Incentive Plan in the event of any stock dividend,
reorganization, recapitalization, stock split, combination, merger,
consolidation, change in laws, regulations or accounting principles or other
relevant unusual or nonrecurring event affecting the Company.
Eligibility and Administration. Current and prospective officers and
employees, and directors of, and consultants to, the Company or its subsidiaries
or affiliates are eligible to be granted awards under the Stock Incentive Plan.
The Committee will administer the Stock Incentive Plan, except with respect to
awards to non-employee directors, for which the Stock Incentive Plan will be
administered by the Board. The Committee will be composed of not less than two
non-employee directors, each of whom will be a "Non-Employee Director" for
purposes of Section 16 of the Exchange Act and Rule 16b-3 thereunder, an
"outside director" within the meaning of Section 162(m) and the regulations
promulgated under the Code and will be an independent director as defined by the
listing standards of the New York Stock Exchange. Subject to the terms of the
Stock Incentive Plan, the Committee is authorized to select participants,
determine the type and number of awards to be granted, determine and later amend
(subject to certain limitations) the terms and conditions of any award,
interpret and specify the rules and regulations relating to the Stock Incentive
Plan, and make all other determinations which may be necessary or desirable for
the administration of the Stock Incentive Plan.
Stock Options and Stock Appreciation Rights. The Committee is
authorized to grant stock options, including both incentive stock options, which
can result in potentially favorable tax treatment to the participant, and
non-qualified stock options. The Committee may specify the terms of such grants
subject to the terms of the Stock Incentive Plan. The Committee is also
authorized to grant SARs, either with or without a related option. The exercise
price per share subject to an option is determined by the Committee, but may not
be less than the fair market value of a share of common stock on the date of the
grant, except in the case of Substitute Awards. The maximum term of each option
or SAR, the times at which each option or SAR will be exercisable, and the
provisions requiring forfeiture of unexercised options at or following
termination of employment generally are fixed by the Committee, except that no
option or SAR relating to an option may have a term exceeding ten years.
Incentive stock options that are granted to holders of more than ten percent of
the Company's voting securities are subject to certain additional restrictions,
including a five-year maximum term and a minimum exercise price of 110% of fair
market value.
A stock option or SAR may be exercised in whole or in part at any time,
with respect to whole shares only, within the period permitted thereunder for
the exercise thereof. Stock options and SARs shall be exercised by written
notice of intent to exercise the stock option or SAR and, with respect to
options, payment in full to the Company of the amount of the option price for
the number of shares with respect to which the option is then being exercised.
Payment of the option price must be made in cash or cash equivalents,
or, at the discretion of the Committee, (i) by transfer, either actually or by
attestation, to the Company of shares that have been held by the participant for
at least six months (or such lesser period as may be permitted by the Committee)
which have a fair market value on the date of exercise equal to the option
price, together with any applicable withholding taxes, or (ii) by a combination
of such cash or cash equivalents and such shares; provided, however, that a
participant is not entitled to tender shares pursuant to successive,
substantially simultaneous exercises of any stock option of the Company. Subject
to applicable securities laws and Company policy, the Company may permit an
option to be exercised by delivering a notice of exercise and simultaneously
selling the shares thereby acquired, pursuant to a brokerage or similar
agreement approved in advance by proper officers of the Company, using the
proceeds of such sale as payment of the option price, together with any
applicable withholding taxes. Until the participant has been issued the shares
subject to such exercise, he or she shall possess no rights as a shareholder
with respect to such shares.
Restricted Shares and Restricted Share Units. The Committee is
authorized to grant restricted shares of common stock and restricted share
units. Restricted shares are shares of common stock subject to transfer
restrictions as well as forfeiture upon certain terminations of employment prior
to the end of a restricted period or other conditions specified by the Committee
in the award agreement. A participant granted restricted shares of common stock
generally has most of the rights of a shareholder of the Company with respect to
the restricted shares, including the right to receive dividends and the right to
vote such shares. None of the restricted shares may be transferred, encumbered
or disposed of during the restricted period or until after fulfillment of the
restrictive conditions.
Each restricted share unit has a value equal to the fair market value
of a share of common stock on the date of grant. The Committee determines, in
its sole discretion, the restrictions applicable to the restricted share units.
A participant will be credited with dividend equivalents on any vested
restricted share units at the time of any payment of dividends to shareholders
on shares of common stock. Except as determined otherwise by the Committee,
restricted share units may not be transferred, encumbered or disposed of, and
such units shall terminate, without further obligation on the part of the
Company, unless the participant remains in continuous employment of the Company
for the restricted period and any other restrictive conditions relating to the
restricted share units are met.
Performance Awards. A performance award consists of a right that is
denominated in cash or shares of common stock, valued in accordance with the
achievement of certain performance goals during certain performance periods as
established by the Committee, and payable at such time and in such form as the
Committee shall determine. Performance awards may be paid in a lump sum or in
installments following the close of a performance period or on a deferred basis,
as determined by the Committee. Termination of employment prior to the end of
any performance period, other than for reasons of death or total disability,
will result in the forfeiture of the performance award. A participant's rights
to any performance award may not be transferred, encumbered or disposed of in
any manner, except by will or the laws of descent and distribution.
Performance awards are subject to certain specific terms and conditions
under the Stock Incentive Plan. Unless otherwise expressly stated in the
relevant award agreement, each award granted to a Covered Officer under the
Stock Incentive Plan is intended to be performance-based compensation within the
meaning of Section 162(m). Performance goals for Covered Officers will be
limited to one or more of the following financial performance measures relating
to the Company or any of its subsidiaries, operating units, business segments or
divisions: (a) earnings before interest, taxes, depreciation, amortization
and/or rent; (b) not operating income or profit (including or excluding entry
fee income); (c) operating efficiencies (including but not limited to same store
sales and occupancy rates); (d) return on equity, assets, capital, capital
employed or investment; (e) after tax or pre-tax operating income; (f) net
income; (g) earnings or book value per share (or fully diluted share); (h) cash
flow(s), operating cash flow(s), cash earnings or net resale cash flows; (i)
total sales or revenues (including those from specified sources such as entry
fee sales); (j) capital expenditures; (k) stock price or total shareholder
return; (l) dividends; (m) debt reduction; (n) strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets,
business expansion goals (such as net move-ins), and goals relating to
acquisitions or divestitures; (o) enterprise value; or (p) any combination
thereof. Each goal may be expressed on an absolute and/or relative basis, may be
based on or otherwise employ comparisons based on internal targets, the past
performance of the Company or any subsidiary, operating unit (such as the
Company's communities), business segment or division of the Company (whether or
not consolidated and whether or not created solely for performance measurement
purposes) and/or the past or current performance of other companies, and in the
case of earnings-based measures, may use or employ comparisons relating to
capital, shareholders' equity and/or shares outstanding; or to assets or net
assets. The Committee may appropriately adjust any evaluation of performance
under criteria set forth in the Stock Incentive Plan to exclude any of the
following events that occurs during a performance period: (i) asset write-downs,
(ii) litigation or claim judgments or settlements, (iii) the effect of changes
in tax law, accounting principles or other such laws or provisions affecting
reported results, (iv) accruals for reorganization and restructuring programs
and (v) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and analysis
of financial condition and results of operations appearing in the Company's
annual report to shareholders for the applicable year.
To the extent necessary to comply with Section 162(m) of the Code, with
respect to grants of performance awards, no later than 90 days following the
commencement of each performance period (or such other time as may be required
or permitted by Section 162(m)), the Committee will, in writing, (1) select the
performance goal or goals applicable to the performance period, (2) establish
the various targets and bonus amounts which may be earned for such performance
period, and (3) specify the relationship between performance goals and targets
and the amounts to be earned by each Covered Officer for such performance
period. Following the completion of each performance period, the Committee will
certify in writing whether the applicable performance targets have been achieved
and the amounts, if any, payable to Covered Officers for such performance
period. In determining the amount earned by a Covered Officer for a given
performance period, subject to any applicable award agreement, the Committee
shall have the right to reduce (but not increase) the amount payable at a given
level of performance to take into account additional factors that the Committee
may deem relevant to the assessment of individual or corporate performance for
the performance period. With respect to any Covered Officer, the maximum annual
number of shares in respect of which all performance awards may be granted under
the Stock Incentive Plan is 300,000 and the maximum annual amount of all
performance awards that are settled in cash is $3,000,000.
Other Stock-Based Awards. The Committee is authorized to grant any
other type of awards that are denominated or payable in, valued by reference to,
or otherwise based on or related to shares of common stock. The Committee will
determine the terms and conditions of such awards, consistent with the terms of
the Stock Incentive Plan.
Non-Employee Director Awards. The Board may provide that all or a
portion of a non-employee director's annual retainer, meeting fees and/or other
awards or compensation as determined by the Board be payable in non-qualified
stock options, restricted shares, restricted share units and/or other
stock-based awards, including unrestricted shares, either automatically or at
the option of the non-employee directors. The Board will determine the terms and
conditions of any such awards, including those that apply upon the termination
of a non-employee director's service as a member of the Board.
Termination of Employment. The Committee will determine the terms and
conditions that apply to any award upon the termination of employment with the
Company, its subsidiaries and affiliates, and provide such terms in the
applicable award agreement or in its rules or regulations.
Change in Control. Unless otherwise provided in an award agreement or
other contractual agreement between the Company and an award holder, if, within
18 months following a Change in Control (as defined in the Stock Incentive
Plan), an award holder's employment with the Company (or its successor) is
terminated because of death, disability, Good Reason (as defined in the Stock
Incentive Plan), or by the Company for any reason other than for Cause (as
defined in the Stock Incentive Plan), all outstanding awards vest, become
immediately exercisable and payable and have all restrictions lifted.
Amendment and Termination. The Board may amend, alter, suspend,
discontinue or terminate the Stock Incentive Plan or any portion of the Stock
Incentive Plan at any time, except that shareholder approval must be obtained
for any such action if such approval is necessary to comply with any tax or
regulatory requirement with which the Board deems it desirable or necessary to
comply. The Committee may waive any conditions or rights under, amend any terms
of, or alter, suspend, discontinue, cancel or terminate any award, either
prospectively or retroactively. The Committee does not have the power, however,
to amend the terms of previously granted options to reduce the exercise price
per share subject to such option or to cancel such options and grant substitute
options with a lower exercise price per share than the cancelled options. The
Committee also may not materially and adversely affect the rights of any award
holder without the award holder's consent.
The Committee may also make adjustments in the terms and conditions of,
and the criteria included in, awards under the Stock Incentive Plan in
recognition of unusual or nonrecurring events affecting the Company or its
financial statements or of changes in applicable laws, regulations or accounting
principles whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
The Committee may also cancel, rescind, or other limit or restrict any
unexpired, unpaid or deferred awards under the Stock Incentive Plan at any time
if a participant does not comply with all applicable provisions of the award
agreement and the Stock Incentive Plan, or if the participant engages in
Detrimental Activity (as defined in the Stock Incentive Plan). In addition, the
Committee may provide in an award agreement that if during the period beginning
on the grant date and continuing through a date that is five years following the
later of the exercise or vesting of an award, the participant engages in any
Detrimental Activity, the participant will forfeit any gain realized on the
vesting or exercise of the award and must repay any gain to the Company.
Other Terms of Awards. The Company may take action, including the
withholding of amounts from any award made under the Stock Incentive Plan, to
satisfy withholding and other tax obligations. The Committee may provide for
additional cash payments to participants to defray any tax arising from the
grant, vesting, exercise or payment of any award. Except as permitted by the
applicable award agreement, awards granted under the Stock Incentive Plan
generally may not be pledged or otherwise encumbered and are not transferable
except by will or by the laws of descent and distribution, or as permitted by
the Committee in its discretion.
Certain Federal Income Tax Consequences. The following is a brief
description of the Federal income tax consequences generally arising with
respect to awards under the Stock Incentive Plan.
Tax consequences to the Company and to participants receiving awards
will vary with the type of award. Generally, a participant will not recognize
income, and the Company is not entitled to take a deduction, upon the grant of
an incentive stock option, a nonqualified option, a SAR, or a restricted share
or restricted share unit award. A participant will not have taxable income upon
exercising an incentive stock option (except that the alternative minimum tax
may apply). Upon exercising an option other than an incentive stock option, the
participant generally must recognize ordinary income equal to the difference
between the exercise price and fair market value of the freely transferable and
non-forfeitable shares of common stock acquired on the date of exercise.
If a participant sells shares of common stock acquired upon exercise of
an incentive stock option before the end of two years from the date of grant or
one year from the date of exercise, the participant generally must recognize
ordinary income equal to the difference between (i) the fair market value of the
shares of common stock at the date of exercise of the incentive stock option
(or, if less, the amount realized upon the disposition of the shares), and (ii)
the exercise price. Otherwise, a participant's disposition of shares of common
stock acquired upon the exercise of an option (including an incentive stock
option for which the incentive stock option holding period is met) generally
will result in short-term or long-term capital gain or loss measured by the
difference between the sale price and the participant's tax basis in the shares
of common stock. A participant's tax basis generally will be the sum of the
exercise price of the option plus any amount previously recognized as ordinary
income in connection with the exercise of the option.
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option. The Company generally is not entitled to a tax deduction relating to
amounts that represent a capital gain to a participant. Accordingly, the Company
will not be entitled to any tax deduction with respect to an incentive stock
option if the participant holds the shares of common stock for the incentive
stock option holding period prior to disposition of the shares.
Similarly, the exercise of a SAR will result in the participant
recognizing ordinary income on the value of the SAR at the time of exercise. The
Company will be allowed a deduction for the amount of ordinary income recognized
by a participant with respect to a SAR. Upon a grant of restricted shares, the
participant will recognize ordinary income on the fair market value of the
common stock at the time shares of restricted stock vest unless a participant
makes an election under Section 83(b) of the Code to be taxed at the time of
grant. The participant also is subject to capital gains treatment on the
subsequent sale of any common stock acquired through the exercise of a SAR or
restricted share award. For this purpose, the participant's basis in the common
stock is its fair market value at the time the SAR is exercised or the
restricted shares become vested (or at the time of grant, if an election under
Section 83(b) is made). Payments made under performance awards are taxable as
ordinary income at the time an individual attains the performance goals and the
payments are made available to, and are transferable by, the participant.
Section 162(m) of the Code generally disallows a public company's tax
deduction for compensation paid in excess of $1 million in any tax year to its
five most highly compensated executives. However, compensation that qualifies as
"performance-based compensation" is excluded from this $1 million deduction
limit and therefore remains fully deductible by the company that pays it. The
Company intends that (i) performance awards and (ii) options granted (a) with an
exercise price at least equal to 100% of fair market value of the underlying
shares of common stock at the date of grant and (b) to employees the Committee
expects to be named executive officers at the time a deduction arises in
connection with such awards, qualify as "performance-based compensation" so that
these awards will not be subject to the Section 162(m) deduction limitations.
The foregoing discussion is general in nature and is not intended to be
a complete description of the federal income tax consequences of the Stock
Incentive Plan. This discussion does not address the effects of other federal
taxes or taxes imposed under state, local or foreign tax laws. Participants in
the Stock Incentive Plan are urged to consult a tax advisor as to the tax
consequences of participation.
The Stock Incentive Plan is not intended to be a "qualified plan" under
Section 401(a) of the Code.
Item 9.01. Financial Statements and Exhibits.
Exhibits
10.1 American Retirement Corporation 2006 Stock Incentive Plan (incorporated
by reference as Appendix B to the Company's Proxy Statement for its
Annual Meeting of Shareholders held on May 17, 2006)
10.2 Form of Non-Qualified Stock Option Agreement (Officers and Employees)
10.3 Form of Non-Qualified Stock Option Agreement (Directors)
10.4 Form of Restricted Share Award Agreement (Officers and Employees)
10.5 Form of Restricted Share Award Agreement (Directors)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN RETIREMENT CORPORATION
Date: May 23, 2006 By: /s/ Bryan D. Richardson
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Bryan D. Richardson
Executive Vice President - Finance and
Chief Financial Officer
EXHIBIT INDEX
10.1 American Retirement Corporation 2006 Stock Incentive Plan (incorporated
by reference as Appendix B to the Company's Proxy Statement for its
Annual Meeting of Shareholders held on May 17, 2006)
10.2 Form of Non-Qualified Stock Option Agreement (Officers and Employees)
10.3 Form of Non-Qualified Stock Option Agreement (Directors)
10.4 Form of Restricted Share Award Agreement (Officers and Employees)
10.5 Form of Restricted Share Award Agreement (Directors)