UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Capital Senior Living Corporation

(Name of Registrant as Specified In Its Charter)

 

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CAPITAL SENIOR LIVING CORPORATION

14160 DALLAS PARKWAY, SUITE 300

DALLAS, TEXAS 75254

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 25, 2011

 

To the Stockholders of Capital Senior Living Corporation:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Capital Senior Living Corporation, a Delaware corporation (the “Company”), will be held at The Embassy Suites, 14021 Noel Road, Dallas, Texas 75240, at 10:00 a.m. Central Time, on the 25^th day of May, 2011, for the following purposes:

 

1. To elect three directors of the Company to hold office until the Annual Meeting to be held in 2014 or until their respective successors are duly qualified and elected;

 

2. To ratify the Audit Committee’s appointment of Ernst & Young LLP, independent accountants, as the Company’s independent auditors;

 

3. To cast an advisory vote on executive compensation;

 

4. To cast an advisory vote on the frequency of an advisory vote on executive compensation; and

 

5. To transact any and all other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.

 

The Board of Directors has fixed the close of business on March 28, 2011, as the record date (the “Record Date”) for the determination of stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment(s) or postponement(s) thereof. Only stockholders of record at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting. The stock transfer books will not be closed. A list of stockholders entitled to vote at the Annual Meeting will be available for examination at the Company’s principal executive offices for ten days prior to the Annual Meeting.

 

Important Notice Regarding Availability of Proxy Materials for the Stockholders Meeting to be held on May 25, 2011: The Proxy Statement and the 2010 Annual Report to Stockholders are also available at www.proxydocs.com/csu.  

 

You are cordially invited to attend the Annual Meeting; however, whether or not you expect to attend the Annual Meeting in person, you are urged to mark, sign, date, and mail the enclosed WHITE proxy card promptly so that your shares of stock may be represented and voted in accordance with your wishes and in order to help establish the presence of a quorum at the Annual Meeting. If you attend the Annual Meeting and wish to vote in person, you may do so even if you have already dated, signed and returned your WHITE proxy card.

 

Pursuant to the rules of the New York Stock Exchange, if you hold your shares in street name, brokers will not have discretion to vote your shares on the election of directors and the matters pertaining to executive compensation. Accordingly, if your shares are held in street name and you do not submit voting instructions to your broker, your shares will not be counted in determining the outcome of the election of the director nominees or the matters pertaining to executive compensation. We encourage you to provide voting instructions to your broker if you hold your shares in street name so that your voice is heard on these proposals.

 

By Order of the Board of Directors

 

 

April 22, 2011

Dallas, Texas

 

TABLE OF CONTENTS

 

CAPITAL SENIOR LIVING CORPORATION
14160 Dallas Parkway, Suite 300

Dallas, Texas 75254

 

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS

To Be Held May 25, 2011

 

Solicitation and Revocability of Proxies

 

The accompanying proxy is solicited by the Board of Directors on our behalf to be voted at the annual meeting of our stockholders to be held on May 25, 2011 (the “Annual Meeting”), at the time and place and for the purposes set forth in the accompanying notice and at any adjournment(s) or postponement(s) thereof. When proxies in the accompanying form are properly executed and received, the shares represented thereby will be voted at the Annual Meeting in accordance with the directions noted thereon, unless the proxy is subsequently revoked.

 

Any stockholder giving a proxy has the unconditional right to revoke his or her proxy at any time prior to the voting thereof either in person at the Annual Meeting by delivering a duly executed proxy bearing a later date or by giving written notice of revocation to us addressed to David R. Brickman, Vice President, General Counsel and Secretary, 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254. However, no such revocation shall be effective unless such notice of revocation has been received by us at or prior to the Annual Meeting.

 

Our principal executive offices are located at, and our mailing address is, 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254.

 

Our management does not intend to present any business at the Annual Meeting for a vote other than the matters set forth in the accompanying notice and has no knowledge that others will do so. If other matters requiring a vote of our stockholders properly come before the Annual Meeting, then it is the intention of the persons named in the accompanying form of proxy to vote the shares represented by the proxies held by them in accordance with their judgment on such matters.

 

This proxy statement and accompanying form of proxy are being mailed on or about April 22, 2011. The annual report to our stockholders covering our fiscal year ended December 31, 2010, mailed to our stockholders on or about April 22, 2011, does not form any part of the materials for solicitation of proxies.

 

In addition to the solicitation of proxies by use of the mail, our officers, directors and employees may solicit the return of proxies, either by mail, telephone, telecopy, or through personal contact. Such officers, directors and employees will not be additionally compensated by us but will be reimbursed for out-of-pocket expenses. We have retained Georgeson Shareholder Communications Inc. to assist in the solicitation of proxies for a fee of $7,500. This amount includes fees payable to Georgeson, but excludes salaries and expenses of our officers, directors and employees. Brokerage houses and other custodians, nominees, and fiduciaries will, in connection with shares of our common stock registered in their names, be requested to forward solicitation material to the beneficial owners of such shares of our common stock.

 

The cost of preparing, printing, assembling, and mailing the annual report, the accompanying notice, this proxy statement, and the enclosed form of proxy, as well as the reasonable cost of forwarding solicitation materials to the beneficial owners of shares of our common stock, and other costs of solicitation, are to be exclusively borne by us.

 

Some banks, brokers and other record holders have begun the practice of “householding” proxy statements and annual reports. “Householding” is the term used to describe the practice of delivering a single set of the proxy statement and annual report to any household at which two or more stockholders share an address. This procedure would reduce the volume of duplicative information and our printing and mailing costs. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement and the annual report to a stockholder at a shared address to which a single copy of the documents was delivered. A stockholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, should submit this request to David R. Brickman, Vice President, General Counsel and Secretary, at our principal executive offices, 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254 or by calling (972) 770-5600. Beneficial owners sharing an address who receive multiple copies of proxy materials and annual reports and who would like to receive a single copy of such materials

in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address in the future.

 

Date for Receipt of Stockholder Proposals

 

Stockholder proposals to be included in the proxy statement for the 2012 annual meeting of our stockholders must be received by us at our principal executive offices on or before December 24, 2011 for inclusion in the proxy statement relating to that meeting.

 

Our Amended and Restated Certificate of Incorporation establishes an advance notice procedure with regard to certain matters, including stockholder proposals and nominations of individuals for election to the Board of Directors to be made at an annual meeting of our stockholders. In general, notice of a stockholder proposal or a director nomination to be brought at an annual meeting of our stockholders must be received by us not less than 60 but not more than 90 days before the date of the meeting and must contain specified information and conform to certain requirements set forth in our Amended and Restated Certificate of Incorporation. The chairman of the meeting may disregard the introduction of any such proposal or nomination if it is not made in compliance with the foregoing procedures or the applicable provisions of our Amended and Restated Certificate of Incorporation.

 

Quorum and Voting

 

The record date for the determination of our stockholders entitled to notice of and to vote at the Annual Meeting was the close of business on March 28, 2011. At such time, there were 27,538,099 shares of our common stock issued and outstanding.

 

Each holder of our common stock is entitled to one vote per share on all matters to be acted upon at the Annual Meeting, and neither our Amended and Restated Certificate of Incorporation nor our Amended and Restated Bylaws allow for cumulative voting rights. The presence, in person or by proxy, of the holders of a majority of the issued and outstanding shares of our common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum to transact business. If a quorum is not present or represented at the Annual Meeting, the stockholders entitled to vote at the Annual Meeting, present in person or by proxy, may adjourn the Annual Meeting, from time to time, without notice or other announcement until a quorum is present or represented. Assuming the presence of a quorum, the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock represented in person or by proxy at the Annual Meeting and entitled to vote is required to (1) approve the election of directors, (2) ratify the appointment of the independent auditors, (3) approve, on an advisory basis, the Company’s executive compensation, and (4) approve, on an advisory basis, the frequency of an advisory vote on the Company’s executive compensation. Each proposal is tabulated separately. Abstentions and “broker non-votes” (as described below) will not be counted as votes cast “FOR” or “AGAINST” the proposal to which it relates, and therefore, generally have no effect on the outcome of the proposals.

 

The Board of Directors unanimously recommends that you vote (1) “FOR” the election of each of the director nominees, (2) “FOR” the ratification of the appointment of Ernst & Young LLP as our independent auditors for 2011, (3) “FOR” the approval, on an advisory basis, of the Company’s executive compensation, and (4) for, on an advisory basis, the option of “EVERY ONE YEAR” as the preferred frequency for advisory votes on the Company’s executive compensation. The Board of Directors also recommends that you vote “FOR” the ability of the proxy holders to vote the proxy in their discretion with respect to any other matters that properly come before the Annual Meeting.

 

If you hold shares registered directly in your name, and you sign and return a proxy card without giving specific voting instructions on how to vote, the persons named as proxy holders will vote your proxy in favor of the election of each director nominee named in this proxy statement, in favor of the ratification of the appointment of Ernst & Young LLP as our independent auditors, in favor of the approval, on an advisory basis, of the Company’s executive compensation, in favor of the approval, on an advisory basis, of holding an advisory vote on the Company’s executive compensation once every year, and as the proxy holders may determine in their discretion with respect to any other matters that properly come before the Annual Meeting.

 

If you hold shares in “street name” and do not submit specific voting instructions to your broker, bank or other nominee, the organization that holds your shares may generally vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. Discretionary items are proposals considered to be routine

under the rules of the New York Stock Exchange (“NYSE”) on which your broker may vote shares held in street name in the absence of your voting instructions. On non-discretionary items for which you do not submit specific voting instructions to your broker, bank, or other nominee, the shares will be treated as “broker non-votes.” Broker non-votes will be considered present at the Annual Meeting for purposes of determining a quorum at the Annual Meeting. The proposal to ratify the appointment of Ernst & Young LLP, independent accountants, as our independent auditors (Proposal 2) is considered to be routine and therefore may be voted upon by your broker, bank, or other nominee if you do not give instructions to such broker, bank, or other nominee. However, pursuant to the NYSE’s rules, brokers, banks, or other nominees will not have discretion to vote your shares on the election of directors (Proposal 1) and the advisory votes on executive compensation (Proposals 3 and 4) as such proposals are considered to be “non-routine” items. Accordingly, if your shares are held in street name and you do not submit voting instructions to your broker, bank or other nominee, your shares will not be counted in determining the outcome of the Proposals 1, 3 and 4 at the Annual Meeting.

 

Requests for Written Copies of Annual Report

 

We will provide, without charge, a copy of our annual report as filed with the SEC upon the written request of any registered or beneficial owner of our common stock entitled to vote at the Annual Meeting. Requests should be made by mailing David R. Brickman, Vice President, General Counsel and Secretary, at our principal executive offices, 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254 or calling (972) 770-5600. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants, including us.

 

Forward-Looking Statements

 

Certain information contained in this proxy statement constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. We caution readers that forward-looking statements, including, without limitation, those relating to our future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to several important factors herein identified. These factors include our ability to find suitable acquisition properties at favorable terms, financing, licensing and business conditions, risks of downturn in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, the availability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations, among others, and other risks and factors identified from time to time in our reports filed with the SEC.

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 8, 2011 by: (i) each person known by us to be the beneficial owner of more than five percent of our common stock; (ii) each of our directors; (iii) our Chief Executive Officer, our Chief Financial Officer and the three most highly compensated executive officers during 2010, or our “named executive officers;” and (iv) all of our executive officers and directors as a group. Except as otherwise indicated, the address of each person listed below is 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254.

 

 

 

 

(PROPOSAL 1)

 

Nominees and Continuing Directors

 

Unless otherwise directed in the enclosed proxy, it is the intention of the persons named in such proxy to vote the shares represented by such proxy for the election of each of the following named nominees as a member of the Board of Directors, each to hold office until the annual meeting of our stockholders to be held in 2014 and until his successor is duly qualified and elected or until his earlier resignation or removal. Messrs. Cohen and Hartberg are presently members of the Board of Directors and Dr. E. Rodney Hornbake is not presently a member of the Board of Directors.

 

 

The following is a brief biography of each nominee and each current director, including each director whose term will continue after the Annual Meeting.

 

Nominees for Election for Three-Year Terms Expiring at the 2014 Annual Meeting:

 

Lawrence A. Cohen has served as one of our directors since November 1996 and as Vice Chairman of the Board since November 1996. He has served as our Chief Executive Officer since May 1999 and was our Chief Financial Officer from November 1996 to May 1999. From 1991 to 1996, Mr. Cohen served as President and Chief Executive Officer of Paine Webber Properties Incorporated. Mr. Cohen serves on the boards of various charitable organizations and is active in several industry associations. Mr. Cohen was a founding member and is on the executive committee of the Board of Directors of the American Seniors Housing Association, serves on the board of the Assisted Living Federation of America (ALFA), and serves on the Operator Advisory Board of the National Investment Center for the Seniors Housing & Care Industry. Mr. Cohen is a licensed attorney and is also a Certified Public Accountant. He received an LLM from New York University School of Law, a JD from St. John’s University School of Law, and a BBA in Accounting from The George Washington University. Mr. Cohen has had positions with businesses involved in senior living for 26 years.

 

Craig F. Hartberg has been a director since February 2001. Mr. Hartberg served as a Small Business Advisor for the Louisiana Department of Development until his resignation effective February 1, 2010. Mr. Hartberg retired from the commercial banking industry in May 2000, having served in several capacities during his 28-year career. At the time of his retirement, Mr. Hartberg served as First Vice President, Senior Housing Finance for Bank One, Texas, N.A. Mr. Hartberg graduated from the Southwestern Graduate School of Banking at Southern Methodist University. He earned his Masters of Business Administration at the University of Wyoming, following his Honorable Discharge from twelve years active duty in the United States Air Force. Mr. Hartberg served as a member of the Board of Directors of the National Association of Senior Living Industry Executives and as a member of the Assisted Living Federation of America.

 

E. Rodney Hornbake, M.D. is nominated as a new director to the Board. Dr. Hornbake serves as the Managing Partner of Essex Internal Medicine, a private practice of internal medicine and geriatrics, that he formed in 2002. Dr. Hornbake served as Senior Vice President and Chief Medical Officer of Gentiva Health Services, Inc. (“Gentiva”), a provider of comprehensive home health services, from March 2000 to April 2002, and he has

continued to serve in a consulting role to Gentiva since April 2002. Gentiva was spun-off from Olsten Corporation, a staffing services company, that Dr. Hornbake joined as part of its management team in 1999. Dr. Hornbake also served as Medical Director of Care Centrix, a home care benefits management company, from November 1999 until 2002, and he continued to serve in a consulting role to Care Centrix from 2002 to 2010. Dr. Hornbake previously served as Vice President and Medical Director of the North Shore-LIJ Health System in New York from 1996 to 1999, as Chief Medical Officer for Aetna Professional Management Corporation from 1994 to 1996, and as Chief of Medicine for the Park Medical Group/Park Ridge Health System in New York from 1993 to 1994. Dr. Hornbake served as Clinical Assistant Professor of Medicine at the University of Connecticut from August 2002 to 2010 and as an Associate Professor (Adjunct) of Hofstra University from 1998 to 2004. Dr. Hornbake has served on the board of Equity Health Partners, a privately-held start-up technology company, since 2008, and served on the Commission on Office Laboratory Accreditation for ten years, including two years as its Chairman.

 

Directors Continuing in Office Until the 2012 Annual Meeting:

 

Keith N. Johannessen has been a director since 1999. Mr. Johannessen has served as our President since 1994 and our Chief Operating Officer since 1999. He previously served as our Executive Vice President from May 1993 to February 1994. Mr. Johannessen has more than 32 years of operational experience in seniors housing. He began his senior housing career in 1978 with Life Care Services Corporation and then joined Oxford Retirement Services, Inc. as Executive Vice President. Mr. Johannessen later served as Senior Manager in the health care practice of Ernst & Young LLP prior to joining the Company in 1993. He has served on the State of the Industry and Model Assisted Living Regulations Committees of the American Seniors Housing Association. Mr. Johannessen holds a BA degree.

 

Jill M. Krueger has been a director since February 2004. Ms. Krueger has served as President and Chief Executive of Health Resources Alliance, Inc., a company specializing in providing rehabilitative and wellness services, institutional pharmacy services and products and programs designed to promote independence, health and wellness for elderly persons. Ms. Krueger also manages Senior Care Network, a St. Louis based alliance, and ACCN Billing Service, a New York based physician billing company. Ms. Krueger was a partner at KPMG LLP responsible for overseeing the firm’s national Long-term Care and Retirement Housing Practice. Ms. Krueger served as a public commissioner for the Continuing Care Accreditation Commission and as a member of its financial advisory board from 1987 to 2001. Ms. Krueger serves on the Board of Directors and as the Treasurer for a non-profit organization known as Wisconsin Illinois Senior Housing. Ms. Krueger has served on the Board of Directors and is the Chairperson for the Audit Committee for Franciscan Sisters Communities of Chicago since 2003. She is also on the Fifth Third Bank — Illinois Affiliate Board of Directors and is a member of the advisory board for the Coalition in Leadership Aging Services Advisory Group.

 

Michael W. Reid has been a director since October 2009. Mr. Reid has nearly 31 years of investment banking and real estate experience, including heading Lehman Brothers REIT equity practice for nine years as Managing Director in the Global Real Estate Department. In that capacity, he was responsible for developing and implementing the business strategy for a successful REIT equity underwriting business. Mr. Reid also served as Chief Operating Officer at SL Green Realty Corp. from 2001-2004, where some of his responsibilities included strategic planning, finance and reporting, capital markets, operations and budgeting for a $4 billion publicly traded REIT. From 2004-2006, he served as President of Ophir Energy Corp., a company that invested in oil and gas production in Oklahoma. From 2006-2008, he served as Chief Operating Officer of Twining Properties, a real estate company specializing in high rise development in Cambridge, Massachusetts. Mr. Reid is currently a partner at Herald Square Properties, a real estate investment and management company focused on opportunities in the midtown Manhattan office market. Mr. Reid holds a Bachelor of Arts and Master of Divinity, both from Yale University.

 

Directors Continuing in Office Until the 2013 Annual Meeting:

 

James A. Moore has been a director since October 1997. Following the 2010 Annual Meeting of Stockholders, the Board of elected Mr. Moore as independent Chairman of the Board. Mr. Moore is also a member of the board of Atlantic Shores Senior Living Community, a cooperative ownership organization that owns a CCRC located in Virginia Beach, Virginia and a member of the board of Patmos Senior Living, a non-profit organization that oversees the boards of Kirby Pines and The Farms at Bailey Station, two CCRC communities in Memphis, Tennessee. Mr. Moore is President of Moore Diversified Services, Inc., a senior living consulting firm engaged in

market feasibility studies, investment advisory services, and marketing and strategic consulting in the senior living industry. Mr. Moore has over 41 years of industry experience and has conducted over 1,800 senior living consulting engagements in approximately 600 markets, in 49 states and six countries. Mr. Moore has authored numerous senior living and health care industry technical papers and trade journal articles, as well as the books Assisting Living — Pure & Simple Development and Operating Strategies and Assisted Living 2000, Assisted Living Strategies for Changing Markets, which was released in May 2001, and Independent Living and CCRCS, which was released in September 2009. Mr. Moore holds a Bachelor of Science degree in Industrial Technology from Northeastern University in Boston and an MBA in Marketing and Finance from Texas Christian University in Fort Worth, Texas.

 

Philip A. Brooks serves as Senior Vice President, Loan Production for CWCapital, LLC, a Boston-based mortgage finance company owned by affiliates of Fortress Investment Group. From 1996 to October 2010, Mr. Brooks served as Senior Vice President, Seniors Housing and Healthcare Finance Group for Berkadia Commercial Mortgage, LLC, a national mortgage bank (“Berkadia”), which was previously known as Capmark Finance Inc. and GMAC Commercial Mortgage. Prior to joining Capmark Finance, Inc., Mr. Brooks worked in the Fannie Mae Multifamily Group responsible for researching and launching finance products and helped manage the Delegated Underwriting and Servicing Products (“DUS”). While at Fannie Mae, he also launched Fannie’s DUS mortgage-backed securities program and implemented its seniors housing product line. Prior to Fannie Mae, Mr. Brooks was a mortgage banker with B.F. Saul Company, a large Mid-Atlantic investment firm, from 1988-1992. From 1983-1988, Mr. Brooks was an associate director for the Mortgage Bankers Association of America. Mr. Brooks has over 25 years experience in the commercial real estate finance industry. He was a founding member of the American Seniors Housing Association, a leading trade association promoting seniors housing, and was on the Board of Directors of the National Investment Center for the Seniors Housing & Care Industry, a leading trade association promoting the industry to the capital markets. On October 25, 2009, Capmark Financial Group Inc. and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.

 

Ronald A. Malone has served as Chairman of the Board of Directors of Gentiva, since June 2002 and as a member of the Clinical Quality Committee of the board of Gentiva since May 2009. Mr. Malone served as the Chief Executive Officer of Gentiva from June 2002 through December 2008 and as Executive Vice President and President, Home Health Services from 1999 until June 2002. Prior to joining Gentiva, he served as Executive Vice President and President, North American Staffing at Olsten Corporation. Mr. Malone has served as a director of the National Association for Home Health and Hospice and as chairman and president of the Alliance for Home Health Quality and Innovation. He is also director of Hill-Rom Holdings, Inc., where he serves as chairman of the compensation and management development committee, and Victor Technologies, an emerging company engaged in the distribution of specialized clinical devices.

 

When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board of Directors and the Nominating Committee of the Board of Directors focused primarily on the information discussed in each of the Directors’ individual biographies set forth above. In particular, with regard to Messrs. Cohen, Johannessen and Moore, the Board of Directors considered their strong background in the senior living industry — over 26 years in the case of Mr. Cohen, over 32 years in the case of Mr. Johannessen, and over 41 years in the case of Mr. Moore — in addition to the many years of experience with the Company represented by Messrs. Cohen and Johannessen, our Chief Executive Officer and Chief Operating Officer, respectively, and Mr. Moore, a director of our Company for over 13 years. The Board of Directors also considered the broad perspective brought by Mr. Moore’s significant experience in consulting in the senior living industry. With respect to Ms. Krueger, the Board of Directors considered her significant experience, expertise and background with regard to accounting matters, which includes specialization in health care, and rehabilitative and wellness services for elderly persons. With regard to Mr. Hartberg, the Board of Directors considered his strong background in commercial banking as well as his strong organizational and management skills, since the Company’s ability to finance its communities and realize the benefit from such financings are important factors in the success of the Company. With regard to Mr. Reid, the Board of Directors considered his nearly 31 years of experience in investment banking and real estate, including heading Lehman Brothers REIT equity practice for nine years as Managing Director in the Global Real Estate Department, and his senior level public company experiences, which experiences will help the Company identify and capitalize on opportunities to build its business as well as bring fresh insights that will benefit both the Board of Directors and the Company. With respect to Mr. Malone, the Board

of Directors considered his executive level and board experience with public companies and his extensive senior level operational experiences, particularly in health care and wellness services. With respect to Mr. Brooks, the Board of Directors considered his extensive experience in the senior living industry and strong background in senior housing financing. With regard to Dr. Hornbake, the Board of Directors considered his position as a practicing physician specializing in geriatrics, his strong understanding of emerging needs of the aging population, his service as Chief Medical Officer for a large health services organization, and his involvement in public policy as it affects seniors.

 

The Board of Directors does not anticipate that any of the aforementioned nominees for director will refuse or be unable to accept election as a director, or be unable to serve as a director. Should any of them become unavailable for nomination or election or refuse to be nominated or to accept election as a director, then the persons named in the enclosed form of proxy intend to vote the shares represented in such proxy for the election of such other person or persons as may be nominated or designated by the Board of Directors.

 

There are no family relationships among any of our directors, director nominees or executive officers.

 

The Board of Directors unanimously recommends a vote “FOR” the election of each of the individuals nominated for election as a director.

 

General

 

Our Board of Directors currently consists of nine directors. The Board of Directors has determined that Craig F. Hartberg, Peter L. Martin, James A. Moore, Jill M. Krueger, Michael W. Reid, Ronald A. Malone and Philip A. Brooks, each an existing director, and Dr. E. Rodney Hornbake, a nominee for director at the Annual Meeting, are each “independent” within the meaning of the corporate governance rules of the NYSE and no such individual has any relationship with us, except as a director and stockholder or as a nominee for director, as applicable. In addition, we have adopted a Director Independence Policy, as described in greater detail below under the heading “— Director Independence Policy,” which establishes guidelines for the Board of Directors to follow in making the determination as to which of our directors is “independent.” Our Director Independence Policy is available on our website at http://www.capitalsenior.com in the Investor Relations section and is available in print to any stockholder who requests it. The Board of Directors has determined that Messrs. Hartberg, Martin, Moore, Reid, Malone and Brooks and Ms. Krueger, each an existing director, and Dr. Hornbake, a nominee for director at the Annual Meeting, are each “independent” in accordance with our Director Independence Policy.

 

During 2010, the Board of Directors met 9 times, including regularly scheduled and special meetings, and did not act by unanimous written consent during 2010. During 2010, no director attended fewer than 75% of the aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings held by all committees of the Board of Directors on which such director served. Under our Corporate Governance Guidelines, each of our directors is expected to attend all meetings of the Board of Directors, the annual stockholders meeting and meetings of the committees of the Board of Directors on which they serve. Messrs. Cohen, Johannessen, Hartberg, Martin, Moore, Reid, Malone and Brooks and Ms. Krueger attended our 2010 annual meeting of stockholders. For meetings held prior to our 2010 Annual Meeting of Stockholders, at the start of each regularly scheduled executive session of the non-management directors, a presiding director was selected by a majority vote of the non-management directors. At the annual Board meeting held immediately following the 2010 Annual Meeting of Stockholders, the Board elected independent director Mr. Moore as Chairman of the Board and the non-management directors selected Mr. Moore to preside over each executive session of the non-management directors following such election.

 

Director Independence Policy

 

The Board of Directors undertakes an annual review of the independence of all non-management directors. In advance of the meeting at which this review occurs, each non-management director is asked to provide the Board of Directors with full information regarding the director’s business and other relationships with us to enable the Board of Directors to evaluate the director’s independence. Directors have an affirmative obligation to inform the Board of Directors of any material changes in their circumstances or relationships that may impact their designation by the Board of Directors as “independent.” This obligation includes all business relationships between, on the one hand, directors or members of their immediate family, and, on the other hand, us, whether or not such business relationships are described above.

 

No director qualifies as “independent” unless the Board of Directors affirmatively determines that the director has no material relationship with us. The following guidelines are considered in making this determination:

 

 

 

In addition, members of the Audit Committee may not accept any consulting, advisory or other compensatory fee from us or any of our subsidiaries or affiliates other than directors’ compensation.

 

The terms “us,” “we” and “our” refer to Capital Senior Living Corporation and any direct or indirect subsidiary of Capital Senior Living Corporation, which is part of the consolidated group. An “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares such person’s home.

 

Committees

 

Committees of the Board of Directors include the Audit Committee, the Nominating Committee, and the Compensation Committee.

 

Audit Committee

 

The Audit Committee consists of Messrs. Hartberg and Reid and Ms. Krueger, each of whom is “independent” as defined by the listing standards of the NYSE in effect as of the date of this proxy statement. The Board of Directors has determined that Ms. Krueger qualifies as an “audit committee financial expert” within the meaning of SEC regulations. The Board of Directors has adopted an amended and restated Audit Committee Charter which is available on our website at http://www.capitalsenior.com in the Investor Relations section and is also available in print to any stockholder who requests it. Pursuant to its charter, the Audit Committee serves as an independent party to oversee our financial reporting process and internal control system, to appoint, replace, provide for compensation of and to oversee our independent accountants and provide an open avenue of communication among the independent accountants and our senior management and the Board of Directors. The Audit Committee held 4 meetings during 2010, including regularly scheduled and special meetings, and did not act by unanimous written consent during 2010.

 

Nominating Committee

 

The Nominating Committee consists of Messrs. Malone, Brooks and Moore, each of whom is “independent” as defined by the listing standards of the NYSE in effect as of the date of this proxy statement. The Board of Directors has adopted an amended and restated Nominating Committee Charter, which, along with our Code of Business Conduct and Ethics and Corporate Governance Guidelines, is available on our website at http://www.capitalsenior.com in the Investor Relations section and each of which is available in print to any stockholder who requests it. Pursuant to its charter, the Nominating Committee:

 

 

 

The Nominating Committee held 2 regularly scheduled meetings during 2010. During 2010, the Nominating Committee did not hold any special meetings, nor did it act by unanimous written consent.

 

Compensation Committee

 

The Compensation Committee consists of Messrs. Moore, Hartberg and Martin each of whom is “independent” as defined by the listing standards of the New York Stock Exchange in effect as of the date of this proxy statement. The Compensation Committee held 8 meetings during 2010, including regularly scheduled and special meetings, and did not act by unanimous written consent during 2010. The Board of Directors has adopted an amended and restated Compensation Committee Charter which is available on our website at http://www.capitalsenior.com in the Investor Relations section and which is available in print to any stockholder who requests it. Pursuant to its charter, the Compensation Committee’s responsibilities include, among other things, the responsibility to:

 

 

The Compensation Committee’s processes for fulfilling its responsibilities and duties with respect to executive compensation and the role of our executive officers and management in the compensation process are each described under “Compensation Discussion and Analysis — Compensation Process” beginning on page 16 of this proxy statement.

 

In fulfilling its responsibilities and duties with respect to the compensation of our directors, the Compensation Committee periodically reviews the compensation paid to the non-employee directors of the companies in our peer group, and may recommend to the Board of Directors adjustments to our director compensation levels and practices so as to remain competitive with the companies in our peer group.

 

Pursuant to its charter, the Compensation Committee may retain such compensation consultants, outside counsel and other advisors as it may deem appropriate in its sole discretion and it has the sole authority to approve related fees and other retention terms. From time to time, the Compensation Committee has engaged third parties to compile statistical information with respect to the executive compensation practices of other comparable public companies. In July 2006, the Compensation Committee engaged Hewitt Associates LLC, an executive compensation consulting firm, to conduct a formal review of our compensation arrangements for our named executive officers and to provide advice regarding compensation trends and best practices, plan design, and the reasonableness of individual compensation awards. The Compensation Committee did not engage the services of compensation consultants, outside counsel or other advisors during 2010.

Board of Director’s Leadership Structure

 

Our Board separated the roles of Chairman of the Board and Chief Executive Officer by electing James A. Moore, a non-executive, independent director, as Chairman of the Board at the annual Board meeting held immediately following the 2010 Annual Meeting of Stockholders. The separation of the roles was implemented to allow Mr. Cohen, our Chief Executive Officer, to continue to focus his efforts on the successful management of the Company while allowing Mr. Moore, our independent Chairman, to focus his efforts on the continued development of a high-performing Board of Directors, including (1) ensuring the Board of Directors remains focused on the Company’s long-term strategic plans, (2) working with Company management to ensure the Board of Directors continues to receive timely and adequate information, (3) coordinating activities of the committees of the Board of Directors, and (4) ensuring effective stakeholder communications. The Board believes, due to the continued leadership and experience provided by these two individuals, that having separate positions is the appropriate leadership structure for the Company at this time and demonstrates our commitment to good corporate governance.

 

Board of Director’s Role in Risk Oversight

 

Our Company, like others, faces a variety of enterprise risks, including credit risk, liquidity risk, and operational risk. In fulfilling its risk oversight role, the Board focuses on the adequacy of the Company’s risk management process and overall risk management system. The Board believes an effective risk management system will (1) adequately identify the material risks that the Company faces in a timely manner, (2) implement appropriate risk management strategies that are responsive to the Company’s risk profile and specific material risk exposures, (3) integrate consideration of risk and risk management into business decision-making throughout the Company, and (4) include policies and procedures that adequately transmit necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant committee.

 

The Audit Committee has been designated to take the lead in overseeing risk management at the Board level. Accordingly, the Audit Committee schedules time for periodic review of risk management, in addition to its other duties. In this role, the Audit Committee receives information from management and other advisors, and strives to generate serious and thoughtful attention to the Company’s risk management process and system, the nature of the material risks the Company faces, and the adequacy of the Company’s policies and procedures designed to respond to and mitigate these risks.

 

Although the Board’s primary risk oversight has been assigned to the Audit Committee, the full Board also periodically receives information about the Company’s risk management system and the most significant risks that the Company faces. This is principally accomplished through the Audit Committee’s discussions with the full Board and summary versions of the briefings provided by management and advisors to the Committee.

 

In addition to the formal compliance program, the Board and the Audit Committee encourage management to promote a corporate culture that understands risk management and incorporates it into the overall corporate strategy and day-to-day business operations. The Company’s risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for the Company. As a result, the Board and Audit Committee periodically ask the Company’s executives to discuss the most likely sources of material future risks and how the Company is addressing any significant potential vulnerability.

 

Director Nominations

 

The Nominating Committee is responsible under its charter for identifying and recommending qualified candidates for election to the Board of Directors. In addition, stockholders who would like to recommend a candidate for election to the Board of Directors may submit the recommendation to the chairman of the Nominating Committee, in care of our General Counsel. Any recommendation must include name, contact information, background, experience and other pertinent information on the proposed candidate and must be received in writing by November 15, 2011 for consideration by the Nominating Committee for the 2012 annual meeting of our stockholders.

 

Although the Nominating Committee is willing to consider candidates recommended by our stockholders, it has not adopted a formal policy with regard to the consideration of any director candidates recommended by our stockholders. The Nominating Committee believes that a formal policy is not necessary or appropriate because of

the small size of the Board of Directors and because the current Board of Directors already has a diversity of business background, shareholder representation and industry experience.

 

The Nominating Committee does not have specific minimum qualifications that must be met by a candidate for election to the Board of Directors in order to be considered for nomination by the Nominating Committee. In identifying and evaluating nominees for director, the Nominating Committee considers each candidate’s qualities, experience, background and skills, as well as any other factors which the candidate may be able to bring to the Board of Directors that the Board of Directors currently does not possess. The process is the same whether the candidate is recommended by a stockholder, another director, management or otherwise. Although the Nominating Committee does not have a formal diversity policy in place for the director nomination process, an important factor in the Nominating Committee’s consideration and assessment of a candidate is the diversity of the candidate’s viewpoints, professional experience, education and skill set. The Nominating Committee does not pay a fee to any third party for the identification of candidates, but it has paid a fee in the past to a third party for a background check for a candidate.

 

With respect to this year’s nominees for director, Messrs. Cohen and Hartberg currently serve as directors of the Company and Dr. Hornbake does not currently serve as a director of the Company.

 

Code of Business Conduct and Ethics

 

The Board of Directors has adopted a Code of Business Conduct and Ethics governing all of our employees, including our Chief Executive Officer, Chief Financial Officer, our principal accounting officer and corporate controller. A copy of this Code of Business Conduct and Ethics is published in the “Corporate Governance Documents” section of the “Investor Relations” section of our website at www.capitalsenior.com. We intend to make all required disclosures concerning any amendments to, or waivers from, this Code of Business Conduct and Ethics on our website.

 

Website

 

Our internet website, www.capitalsenior.com, contains an Investor Relations section which provides links to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, SEC stock ownership reports, amendments to those reports and filings, Code of Business Conduct and Ethics, Corporate Governance Guidelines, Director Independence Policy and charters of the Nominating, Compensation and Audit Committees of the Board of Directors. These documents are available in print, free of charge, to any stockholder who requests them as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The materials on our website are not incorporated by reference into this proxy statement and do not form any part of the materials for solicitation of proxies.

 

Communication with Directors

 

Correspondence from stockholders and other interested parties may be sent to our directors, including our non-management directors, individually or as a group, in care of James A. Moore, the independent Chairman of our Board of Directors, with a copy to the Vice President, General Counsel and Secretary, David R. Brickman, at our principal executive offices, 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254.

 

All communication received as set forth above will be opened by the Chairman and Vice President, General Counsel and Secretary for the sole purpose of determining whether the contents represent a message to our directors. Appropriate communications other than advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee.

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis focuses on the compensation of the Company’s executive officers, including our “named executive officers” who are the individuals included in the Summary Compensation Table beginning on page 31 of this proxy statement. This section summarizes our executive compensation program and objectives and provides an overview of how and why the Compensation Committee of our Board of Directors, who is responsible for the oversight of our executive compensation program, made specific decisions involving the compensation of our named executive officers. We also refer you to our Annual Report on Form 10-K for the year ended December 31, 2010 for additional information regarding the Company’s 2010 financial results discussed below.

 

Executive Summary

 

Our executive compensation program is designed to meet three principal objectives:

 

 

We believe these objectives collectively link compensation to overall Company performance and directly link compensation to the objectives set forth in the Company’s 2010 Business Plan that was approved by our Board of Directors. These objectives help ensure that the interests of our named executive officers are closely aligned with the interests of our stockholders. We believe that Capital Senior has successfully achieved these objectives as demonstrated by the Company’s strong financial results during 2010, which exceeded the Company’s business plan despite a difficult economic environment. As described in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K, our fiscal 2010 financial results, based upon various measures, strongly increased relative to our fiscal 2009 results. The following table highlights the year-over-year comparison of some of the key financial metrics that we use in evaluating the Company’s performance for purposes of making compensation decisions.

 

 

The above table utilizes non-GAAP financial measures to describe the Company’s adjusted CFFO, adjusted EBITDAR and adjusted net income. These non-GAAP measures are used by many research analysts and investors to evaluate the performance and valuations of companies in our industry. Please refer to Appendix A to this proxy statement for important information concerning such non-GAAP financial measures, including a reconciliation of such measures to GAAP.

 

For fiscal 2010, we believe our compensation programs, which are designed to reward our named executive officers for the achievement of short-term and long-term strategic and operational goals and the achievement of

increased total stockholder return, delivered payments commensurate with Capital Senior’s strong financial performance. Below are the highlights of our executive compensation program for 2010:

 

 

 

 

Overview of Compensation Process

 

The Compensation Committee is ultimately responsible for reviewing and approving the base salary increases, other than annual base salary increases contemplated by existing employment agreements, and bonus levels of our executive officers, including our named executive officers, evaluating the performance of such individuals and reviewing any related matters. Equity and other forms of compensation for our executive officers, including our named executive officers, are also considered by the Compensation Committee.

 

Our executive compensation program for our named executive officers has historically consisted of annual cash compensation (base salary and a performance bonus) as well as periodic grants of long-term equity incentive awards, currently in the form of restricted shares. In addition, we have entered into employment agreements with each of our named executive officers which each provide for, among other things, severance benefits to be paid to such individuals upon the occurrence of certain events. Our executive compensation program has historically included a limited amount of personal benefits, including perquisites.

 

As discussed in greater detail below, the Compensation Committee typically meets quarterly to consider, among other things, increases to the base salaries of our executive officers whose employment agreements have anniversary dates arising in the upcoming quarter. In addition, the Compensation Committee determines on an annual basis whether performance bonuses are to be awarded under our incentive compensation plan (except that performance bonuses awardable pursuant to metrics that are determined on a quarterly basis are considered at the quarterly Compensation Committee meetings). Pursuant to our incentive compensation plan, which we refer to as our “Incentive Compensation Plan,” our named executive officers, other than Messrs. Brickman and Goodpaster, are entitled to receive performance bonuses, based upon our achievement, or any eligible named executive officer’s individual achievement, as applicable, of any performance objective of the Incentive Compensation Plan. In addition, the Compensation Committee typically meets in the first quarter of each year to approve the Incentive Compensation Plan for such year.

 

In applying the above-described objectives for our executive compensation program, the Compensation Committee primarily relies upon:

 

 

Input Received from our Senior Management.  As discussed in greater detail below, the Compensation Committee has historically relied in part upon the input and recommendations of our senior management when considering:

 

 

The Compensation Committee believes that the members of our senior management, by virtue of their positions with us, vast experience in the senior living industry, and role in overseeing the day-to-day performance of our named executive officers, are appropriately suited to make informed recommendations to the Compensation Committee with respect to the foregoing elements of our executive compensation program.

 

Peer Group Data.  Since our initial public offering in 1997, the Compensation Committee has consistently sought to structure our executive compensation program so that the amounts and forms of compensation which are paid to our named executive officers are generally commensurate with those paid to executive officers with

comparable duties and responsibilities at those companies in the senior living industry which the Compensation Committee, in consultation with our senior management, periodically determines to be the most directly comparable to us. In order to determine which companies in the senior living industry are the most directly comparable to us, the Compensation Committee and our senior management conduct an annual review to determine which such companies have:

 

 

We refer to such public companies collectively as our “peer group.” For 2010, the companies which comprised our peer group were Assisted Living Concepts, Inc., Brookdale Senior Living Inc., Emeritus Corporation, Five Star Quality Care, Inc. and Sunrise Assisted Living, Inc.

 

The Compensation Committee reviews publicly available information regarding the compensation arrangements offered by the companies in our peer group on an annual basis for purposes of obtaining a general understanding of current compensation practices, and generally endeavors to make the total compensation for our named executive officers to be comparable to the total compensation paid to executive officers with comparable duties and responsibilities at the companies in our peer group. The information reviewed is part of a larger competitive analysis and does not mandate a particular decision regarding the compensation received by the Company’s named executive officers. The Compensation Committee does not target the compensation of the Company’s named executive officers to fall within a specific percentile range of the peer group companies, but rather considers several factors, such as the experience levels of individuals and market factors, before exercising its discretion in determining the total compensation of the Company’s named executive officers. Based upon the results of such review, the Compensation Committee may determine to modify the amounts and/or the forms of compensation, which are available to our named executive officers, in light of the objectives which we have identified for our executive compensation program.

 

Industry Surveys.  The Compensation Committee typically reviews information compiled by third parties including, but not limited to, Hewitt Associates, Watson Wyatt and Mercer Human Resource Consulting, with respect to the executive compensation practices of other companies in order to assist it in determining the percentage range within which the base salary for our named executive officers for the upcoming year may increase from that paid to such individuals in the preceding year. For a more detailed description of the process by which the Compensation Committee determines the increases in base salaries for our named executive officers, please read “Forms of Compensation — Base Salary” below.

 

Other Factors.  Key factors which also affect the Compensation Committees’ judgment with respect to our executive compensation program include our financial performance, to the extent that it may be fairly attributed or related to the performance of a particular named executive officer, as well as the contribution of each named executive officer relative to his individual responsibilities and capabilities. While the Compensation Committee does consider our stock price performance, the Compensation Committee has not utilized it as the only measure of our financial performance, or the performance of our named executive officers, given the fact that it may not take into account a variety of factors including, but not limited to, the business conditions within the senior living industry as well as our long-term strategic direction and goals. Also, in applying these objectives, the Compensation Committee endeavors to achieve consistency with respect to the difference between the compensation of our named executive officers and the compensation of our other officers and employees and such differences found in the companies in our peer group.

 

Forms of Compensation

 

The following forms of compensation are currently utilized by the Compensation Committee in compensating our named executive officers:

 

 

BASE SALARY

 

The base salary for our named executive officers is established pursuant to the terms of each such individual’s employment agreement, and is subject to an annual increase. Such base salaries are paid in cash and are intended to reward our named executive officers for their performance during the fiscal year relative to their authority and responsibilities in their respective positions with us.

 

In the fourth quarter of each year, the Compensation Committee typically establishes a percentage range within which the base salary for our named executive officers for the upcoming year may increase from the preceding year. In determining this percentage range, the Compensation Committee typically reviews information compiled by third parties including, but not limited to, Hewitt Associates, Watson Wyatt and Mercer Human Resource Consulting, and generally targets the base salary of our named executive officers to be comparable to the base salaries paid to the members of management and executive officers with comparable duties and responsibilities at other companies. For 2010, the Compensation Committee set such percentage range at 2% - 2.5%.

 

At each quarterly meeting, the Compensation Committee typically reviews a list of those senior executives, including our named executive officers, whose employment agreements have anniversary dates arising in the upcoming quarter and authorizes our senior management to approve base salary increases for each such individual in its discretion within such percentage range. Each annual performance and compensation review takes place at the same quarterly meeting of the Compensation Committee at which it was authorized. In exercising its discretion, our senior management typically considers each such individual’s historical performance in his or her position with us, as reflected by the results of the annual performance and compensation review, as well as our financial performance within each such individual’s sphere of influence.

 

In the event that our senior management, following such evaluation, determines that the amount of any increase to the base salary of any such individual should be either greater than or less than the increase permitted by the percentage range, then our senior management informs the Compensation Committee of its recommendation. Then, the Compensation Committee ultimately determines the amount of the increase based upon both the recommendations of our senior management as well as its review of publicly-available information with respect to the base salaries paid to executives with comparable duties and responsibilities at the companies in our peer group. Any increase to the base salary of any such individual is typically effective as of the beginning of the pay period immediately following the anniversary date of such individual’s employment agreement.

 

The Compensation Committee believes that the members of our senior management are the most appropriate individuals to conduct the annual performance and compensation reviews by virtue of their role in overseeing the day-to-day performance of our senior executives, other than our Chief Executive Officer. The Compensation Committee believes that the members of our senior management are also the most appropriate individuals to ultimately determine the amount of the annual base salary increases within the percentage range since each member occupies a position with us which provides the requisite knowledge and experience to properly evaluate the performance of our senior executives, including our named executive officers, in their respective positions with us and in the context of our overall performance. Whenever our senior management considers an increase to the base salary of an individual member of our senior management, such individual is not permitted to participate in the deliberations of our senior management relating to an increase in such individual’s base salary.

 

On April 14, 2010, we entered into amendments (collectively, the “Employment Agreement Amendments”) to each of the employment agreements for Lawrence A. Cohen, our Chief Executive Officer, Keith N. Johannessen, our President and Chief Operating Officer, and Ralph A. Beattie, our Chief Financial Officer. Pursuant to the Employment Agreement Amendments, which were effective January 1, 2010 and approved by the Compensation Committee, the annual base salaries of Messrs. Cohen, Johannessen and Beattie, were set at $636,366, $375,006 and $350,115, respectively, subject to annual adjustment. The Employment Agreement Amendments were entered into in connection with the Compensation Committee’s periodic review and assessment of the compensation of our executive officers and reflect the Incentive Compensation Plan for 2010, which eliminated quarterly bonus awards for achieving quarterly EPS goals with a corresponding increase in base salaries, as discussed below.

 

For a further description of the base salaries paid to our named executive officers for 2010, please refer to the Summary Compensation Table beginning on page 31 of this proxy statement.

PERFORMANCE BONUS

 

Bonuses are typically awarded to our named executive officers, other than Messrs. Brickman and Goodpaster, annually pursuant to the Incentive Compensation Plan. The purpose of the Incentive Compensation Plan is to assist us in employing and retaining certain of our named executive officers by providing them with a competitive compensation opportunity based upon the achievement of specified performance objectives which the Compensation Committee has identified as bearing a direct relation to the accomplishment of our business plan for the applicable year.

 

Under the Incentive Compensation Plan, performance bonuses are typically targeted at a pre-determined percentage of each eligible named executive officer’s base salary for such year. These percentages are typically established by the Compensation Committee based upon its review of publicly-available information with respect to similar programs offered by the companies in our peer group. For 2010, such percentages were established at 75% for our Chief Executive Officer and 58% for our other eligible named executive officers. The Compensation Committee determined that the target performance bonus opportunity for our Chief Executive Officer should represent a higher percentage of his base salary than that of the other eligible named executive officers based upon (i) a general review of publicly available information regarding similar programs offered by the companies in our peer group, and (ii) its belief that our Chief Executive Officer, by virtue of his position with us, is in a position to exert a more significant influence as compared to the other eligible named executive officers over a number of the factors upon which performance bonuses under the Incentive Compensation Plan are contingent.

 

The target and maximum bonus opportunities under the Incentive Compensation Plan for 2010 for Messrs. Cohen, Johannessen, and Beattie were as follows:

 

 

There were no minimum bonus awards under the Incentive Compensation Plan for 2010 for our eligible named executive officers, and as a result, if the performance targets discussed in this section were not achieved, no performance bonuses would be payable to our eligible named executive officers for 2010.

 

Typically, of the maximum performance bonus amount that an eligible named executive officer may earn pursuant to the Incentive Compensation Plan, pre-determined percentages of such amount are contingent upon:

 

 

During the first quarter of each year, our senior management typically makes recommendations to the Compensation Committee regarding the percentage allocations to be made among the above-described categories for the year based upon its determinations as to the relative importance which the goals in each such category bear to the goals in the other categories with respect to the achievement of our business plan for the applicable year. In addition, for each category which contains multiple goals, our senior management also typically makes recommendations to the Compensation Committee regarding the percentage allocations among the goals within each such category based upon its determinations as to the relative importance which the goals in each such category bear to the other goal(s) in such category with respect to the achievement of our business plan for the applicable year. The Compensation Committee typically takes into account these recommendations from our senior management due to the fact that the members of our senior management are primarily responsible for the establishment of our business plan each year.

 

By approving the Incentive Compensation Plan in the first quarter of each year, the Compensation Committee and our senior management may examine the performance of each of our eligible named executive officers during the previous year, establish performance goals for our eligible named executive officers relative to such

performance, as well as determine the financial performance targets for the new fiscal year based in part upon the previous year’s performance.

 

The Compensation Committee typically meets annually to determine, among other things, whether performance bonuses are to be paid under the Incentive Compensation Plan to any of our eligible named executive officers based upon our achievement, or any eligible named executive officer’s individual achievement, as applicable, of any performance objective of the Incentive Compensation Plan during the previous year (provided that performance bonuses awardable pursuant to metrics that are determined on a quarterly basis are considered by the Compensation Committee at their quarterly meetings). In 2010, the only performance bonuses considered at the Compensation Committee’s quarterly meetings were those awardable pursuant to the aggregate acquisition transaction value target discussed below. The payment of performance bonuses, if any, to the eligible named executive officers is normally made, subject to payroll taxes and tax withholdings, in the pay period immediately following the date of such determination by the Compensation Committee.

 

The Incentive Compensation Plan represents the Compensation Committee’s determination that, although a substantial portion of the performance bonus opportunity for our eligible named executive officers should be dependent on measures which are reflective of our overall financial performance, the Incentive Compensation Plan should also reward the individual contributions of each eligible named executive officer to the achievement of elements of our business plan which are within such individual’s sphere of influence. In determining the corporate and individual performance metrics under our Incentive Compensation Plan, the Compensation Committee endeavors to undertake a thoughtful process to establish performance metrics that will reflect a balanced approach for measuring annual Company performance. This process typically includes a general review of publicly-available information with respect to similar programs utilized by the companies in our peer group and discussions with research analysts covering our industry and Company stockholders as to the best measures for measuring the performance and valuations of companies in our industry. During the first quarter of 2010, the Compensation Committee met five times during which it considered the most appropriate performance targets for the 2010 fiscal year and whether adjustments should be made to the structure of the Incentive Compensation Plan, in light of the objectives which the Compensation Committee has established for our executive compensation program.

 

Corporate Goals.  Of the maximum performance bonus amount that an eligible named executive officer may earn pursuant to the Incentive Compensation Plan, a pre-determined percentage of that amount is typically contingent on our achievement of certain objectively verifiable measures for our performance for the applicable year. These corporate goals are typically approved by the Compensation Committee in the first quarter of each fiscal year based upon the recommendations of our senior management regarding certain initiatives and the corresponding measures therefor which our senior management believes are directly related to the achievement of our business plan for that year. Typically, two or three distinct corporate goals are established and of the percentage of the maximum performance bonus amount that is contingent on the achievement of such corporate goals, varying percentages of such amount are allocated by the Compensation Committee to each corporate goal.

 

Under the Incentive Compensation Plan for 2010, our eligible named executive officers were entitled to receive a performance bonus equal to a maximum of 20% (25% for our Chief Executive Officer) of their respective base salaries for the year based upon our achievement of two distinct corporate goals with respect to Cash From Facility Operations, or CFFO, per share and Adjusted EBITDAR. The table below sets forth the target performance bonus opportunities of our eligible named executive officers under the Incentive Compensation Plan for 2010 with respect to the achievement of corporate goals.

 

 

CFFO Per Share.  First, of the maximum bonus percentage attributable to the achievement of corporate goals, 12% (13% for our Chief Executive Officer) was based on the Company’s achievement of a CFFO per outstanding share target during 2010, which was viewed as a very challenging performance target (particularly given the existing market and economic conditions). For purposes of the Incentive Compensation Plan for 2010, CFFO was defined as net cash provided by (used in) operating activities adjusted for changes in operating assets and

liabilities and recurring capital expenditures. Recurring capital expenditures included expenditures capitalized in accordance with GAAP that were funded from reserves pursuant to the Company’s mortgage loans and leases.

 

The targeted level of performance under the CFFO portion of the Incentive Compensation Plan for 2010 was CFFO per share of $0.64, which was based on the Company’s internal business plan. Achievement of the minimum threshold level of CFFO performance under the Incentive Compensation Plan for 2010 would result in our eligible named executive officers receiving a bonus equal to 12% (13% for our Chief Executive Officer) of their respective base salaries paid for the year. If the Company did not achieve the CFFO per share target, no amounts would be paid to the eligible named executive officers with respect to this bonus opportunity.

 

The following table sets forth the cash performance bonus opportunities of our eligible named executive officers under the Incentive Compensation Plan for 2010 with respect to the CFFO per share goal. As the Company achieved CFFO per share of $0.74 for 2010, which was approximately 115% of the target amount, the target was achieved and the amounts below were awarded to such named executive officers.

 

 

Adjusted EBITDAR.  Second, of the maximum bonus percentage attributable to the achievement of corporate goals, 8% (12% for our Chief Executive Officer) was based on the Company’s achievement of Adjusted EBITDAR target during 2010, which was viewed as a challenging performance target (again, given the existing market and economic conditions). For purposes of the Incentive Compensation Plan for 2010, Adjusted EBITDAR was defined as income from operations before provision for income taxes, interest, depreciation and amortization (including non-cash charges), facility lease expense, non-cash compensation expense, and provision for bad debt.

 

The targeted level of performance under the Adjusted EBITDAR portion of the Incentive Compensation Plan for 2010 was $63,165,118, which was based on the Company’s internal business plan. Achievement of 95% of the Adjusted EBITDAR performance under the Incentive Compensation Plan for 2010 would result in 95% of the portion of the award subject to the Adjusted EBITDAR target being earned by our eligible named executive officers. Achievement of the minimum threshold level of Adjusted EBITDAR performance under the Incentive Compensation Plan for 2010 would result in between 95% and 100% of the portion of the award subject to the Adjusted EBITDAR target being earned, subject to proration based on the actual Adjusted EBITDAR results reported for 2010. If the Company did not achieve 95% of the Adjusted EBITDAR target, no amounts would be paid to the eligible named executive officers with respect to this bonus opportunity.

 

The following tables set forth the cash performance bonus opportunities of our eligible named executive officers under the Incentive Compensation Plan for 2010 with respect to the Adjusted EBITDAR target. As the Company achieved Adjusted EBITDAR of $68,602,000 for 2010, which equaled approximately 109% of the target amount, the target was achieved and the amounts listed below at the 100% level were awarded to such named executive officers.

 

Lawrence A. Cohen

 

 

Keith N. Johannessen

 

Ralph A. Beattie

 

 

Excess CFFO Per Share.  Under the Incentive Compensation Plan for 2010, our eligible named executive officers were also eligible to receive an additional award in excess of the target bonus amounts of up to 26% (36% for CEO) of their respective base salaries for the year (in the amounts set forth in the tables below) to the extent the above CFFO per share target, or $0.64 per share, was exceeded by at least 5%, or $0.67 per share. If the Company’s actual CFFO per share did not exceed the target CFFO per share amount by 5%, no amounts would be paid to the eligible named executive officers with respect to this additional bonus. With respect to the amounts listed below, (1) the awards at the 105% and 110% CFFO per share Excess levels were payable in cash and (2) the awards listed at the 115%, 120% and 125% CFFO per share excess levels were payable as follows (i) 50% of the award in cash and (ii) 50% of the award in a grant of the Company’s common stock, which vests in three annual installments of 33%, 34% and 34%.

 

As the Company achieved CFFO per share of $0.74 for 2010, which equaled approximately 115.6% of the target amount of CFFO per share of $0.64, each eligible named executive officers received the amounts listed at the 115% level below. As discussed above, 50% of the award was payable in cash and 50% of the award was payable in a grant of the Company’s common stock, which vests in three annual installments of 33%, 34% and 34%.

 

Lawrence A. Cohen

 

 

Keith N. Johannessen

 

 

Ralph A. Beattie

 

 

Individual Goals.  Of the maximum performance bonus amount that an eligible named executive officer may earn pursuant to the Incentive Compensation Plan, a pre-determined percentage of that amount is typically contingent on the achievement by the eligible named executive officer of certain objectively verifiable individual goals for the corresponding year within such named executive officer’s sphere of influence. These individual goals

are typically approved by the Compensation Committee in the first quarter of each fiscal year based upon the recommendations of our senior management regarding certain initiatives and the corresponding measures therefor which our senior management believes are directly related to the achievement of our business plan for that year. Typically, several distinct individual goals are established for each eligible named executive officer and of the percentage of the maximum performance bonus amount that is contingent on the achievement of such individual goals, varying percentages of such amount are allocated by the Compensation Committee based upon the recommendations of our senior management to each individual goal.

 

Under the Incentive Compensation Plan for 2010, our eligible named executive officers were eligible to receive a cash performance bonus equal to a maximum of 12% (14% for our Chief Executive Officer) of their respective base salaries for the year based upon the achievement of such individual goals. The table below sets forth the performance bonus opportunities of our eligible named executive officers under the Incentive Compensation Plan for 2010 with respect to the achievement of individual goals.

 

 

Lawrence A. Cohen

 

CFFO Per Share.  With respect to our Chief Executive Officer, first, of the maximum cash bonus percentage attributable to the achievement of individual goals, 9% was based on the Company’s achievement of CFFO per share targets during 2010, upon the same terms and conditions as described above regarding the corporate goals portion of the Incentive Compensation Plan for 2010. Accordingly, achievement of the minimum threshold level of CFFO performance under the Incentive Compensation Plan for 2010, or CFFO per share of $0.64, would result in our Chief Executive Officer receiving a bonus equal to 9% of his base salary paid for the year. If the Company did not achieve the CFFO per share target, no amounts would be paid to Mr. Cohen with respect to this bonus opportunity.

 

The following table sets forth the performance bonus opportunity of Mr. Cohen under the Incentive Compensation Plan for 2010 with respect to his individual CFFO per share goal. As the Company achieved CFFO per share of $0.74 for 2010, the target was achieved and the amount listed below was awarded to Mr. Cohen.

 

 

Aggregate Value of Transactions.  Second, of the maximum cash bonus percentage attributable to the achievement of individual goals, 5% was based on the achievement of a target aggregate transaction value of $100,000,000 with respect to senior housing communities acquired by the Company during 2010, excluding any acquisition of the Company’s wholly-owned communities. 33% of such goal would be realized upon the Company’s acquisition of an aggregate of $50,000,000 of senior housing communities during 2010 and 66% of such goal would be realized upon the Company’s acquisition of an aggregate of $75,000,000 of senior housing communities during 2010. If the Company did not acquire an aggregate of at least $50,000,000 of senior housing communities, no amounts would be paid to Mr. Cohen with respect to this bonus opportunity.

 

The following table sets forth below the performance bonus opportunity of Mr. Cohen under the Incentive Compensation Plan for 2010 with respect to the acquisition aggregate transaction value goal. As the Company acquired senior housing communities with an aggregate transaction value of $188,550,000 during 2010, the target was achieved and the amount listed below at the $100,000,000 aggregate transaction value level was awarded to Mr. Cohen.

 

Keith N. Johannessen

 

Facility NOI.  With respect to our President and Chief Operating Officer, of the maximum cash bonus percentage attributable to the achievement of individual goals, 6% was based on facility net operating income, or Facility NOI. Facility NOI was defined as facility resident revenue less facility operating expenses, not including management fees, taxes and insurance, in the Company’s 2010 business plan. The targeted level of performance under the Facility NOI portion of award for 2010 was $83,853,000, which was based on the Company’s internal business plan. Achievement of the minimum threshold level of Facility NOI performance under the Incentive Compensation Plan for 2010 would result in our President and Chief Operating Officer receiving a bonus equal to 6% of his base salary paid for the year. If the Company did not achieve the Facility NOI target, no amounts would be paid to Mr. Johannessen with respect to this bonus opportunity.

 

The following table sets forth the performance bonus opportunity of Mr. Johannessen under the Incentive Compensation Plan for 2010 with respect to the Facility NOI target. As the Company achieved Facility NOI of $88,468,092 for 2010, the target was achieved and the amount listed below was awarded to Mr. Johannessen.

 

 

Resident Satisfaction.  Second, of the maximum cash bonus percentage attributable to the achievement of individual goals, 6% was based on resident satisfaction. Resident satisfaction is surveyed each year in our communities. The receipt of a 93% or higher favorable rating on all properties would result in 100% of the portion of the award subject to resident satisfaction being earned by our President and Chief Operating Officer. If the Company did not achieve resident satisfaction percentage target, no amounts would be paid to Mr. Johannessen with respect to this bonus opportunity.

 

The following table sets forth the performance bonus opportunity of Mr. Johannessen under the Incentive Compensation Plan for 2010 with respect to resident satisfaction. As the Company achieved resident satisfaction of 95% for 2010, the target was achieved and the amount listed below was awarded to Mr. Johannessen.

 

 

Ralph A. Beattie

 

Controllable G&A.  With respect to our Chief Financial Officer, of the maximum cash bonus percentage attributable to the achievement of individual goals, 4% was based on the budget for controllable general and administrative expense categories — accounting, finance, payroll/benefits, information systems, investor relations and administration, or Controllable G&A Categories. The targeted budget under the Controllable G&A Categories portion of the award for 2010 was $7,265,000, which was based on the Company’s internal business plan. Achievement of a Controllable G&A Categories budget under the Incentive Compensation Plan for 2010, as reported in the Company’s Annual Report on Form 10-K, would result in our Chief Financial Officer receiving a bonus equal to 4% of his base salary for the year. If the Company did not achieve the Controllable G&A Categories budget, no amounts would be paid to Mr. Beattie with respect to this bonus opportunity.

 

The following table sets forth the performance bonus opportunity of Mr. Beattie under the Incentive Compensation Plan for 2010 with respect to the Controllable G&A target budget. As the Company’s Controllable G&A for 2010 was $5,928,040, the target budget was achieved and the amount listed below was awarded to Mr. Beattie.

 

 

Corporate Insurance Premiums.  Second, of the maximum cash bonus percentage attributable to the achievement of individual goals, 2% was based on corporate insurance. Limiting aggregate growth in policy premiums to no more than a 5% increase over the previous policy period on comparable policies for all insurance except workers compensation, health and dental insurance would result in 100% of the portion of the award subject to corporate insurance being earned by our Chief Financial Officer. If the Company did not achieve target limitation

with respect to the aggregate growth in corporate insurance policy premiums, no amounts would be paid to Mr. Beattie with respect to this bonus opportunity.

 

The following table sets forth the performance bonus opportunity of Mr. Beattie under the Incentive Compensation Plan for 2010 with respect to the target limitation on corporate insurance premiums. As the Company’s corporate insurance premiums for 2010 were 17.2% less than those for 2009, the target was achieved and the amount listed below was awarded to Mr. Beattie.

 

 

Property Tax Reductions.  Third, of the maximum cash bonus percentage attributable to the achievement of individual goals, 2% was based on property tax reductions on our owned and leased communities. Property Tax Reductions was defined as a reduction in property tax based on the taxing authority’s tax rate applied to the difference between the appraised value by the taxing authorities and the value of property reached by agreement or appeal or by litigation. If the appeal process or litigation extended beyond March 31, 2011, the property consultant’s written opinion of the tax reduction would be used. A Property Tax Reduction of $150,000 for 2010 would result in 100% of the portion of the award subject to property tax reductions being earned by our Chief Financial Officer. If the Company did not achieve the Property Tax Reduction target, no amounts would be paid to the Mr. Beattie with respect to this bonus opportunity.

 

The following table sets forth the performance bonus opportunity of Mr. Beattie under the Incentive Compensation Plan for 2010 with respect to Property Tax Reductions target. As the Company achieved Property Tax Reductions of $194,012 for 2010, the target was achieved and the amount listed below was awarded to Mr. Beattie.

 

 

Aggregate Value of Transactions.  Fourth, of the maximum cash bonus percentage attributable to the achievement of individual goals, 2% was based on the achievement of a target aggregate transaction value of $100,000,000 with respect to senior housing communities acquired by the Company during 2010, excluding any acquisition of the Company’s wholly-owned communities. 33% of such goal would be realized upon the Company’s acquisition of an aggregate of $50,000,000 of senior housing communities during 2010 and 66% of such goal would be realized upon the Company’s acquisition of an aggregate of $75,000,000 of senior housing communities during 2010. If the Company did not acquire an aggregate of at least $50,000,000 of senior housing communities, no amounts would be paid to Mr. Beattie with respect to this bonus opportunity.

 

The following table sets forth below the performance bonus opportunity of Mr. Beattie under the Incentive Compensation Plan for 2010 with respect to the acquisition aggregate transaction value goal. As the Company acquired senior housing communities with an aggregate transaction value of $188,550,000 during 2010, the target was achieved and the amount listed below at the $1,000,000 aggregate transaction value level was awarded to Mr. Beattie.

 

 

Mortgage Financing.  Fifth, of the maximum cash bonus percentage attributable to the achievement of individual goals, 2% was based on securing mortgage financing for acquisitions of senior housing communities. Upon the closing of an acquisition of at least one senior housing community in 2010 with mortgage financing secured by our Chief Financial Officer, 100% of the portion of the award subject to acquisition financing would be earned by our Chief Financial Officer. If the Company did not achieve the acquisition financing target, no amounts would be paid to the Mr. Beattie with respect to this bonus opportunity.

The following table sets forth the performance bonus opportunity of Mr. Beattie under the Incentive Compensation Plan for 2010 with respect to the acquisitions financing target. As the Company did not acquire at least one senior housing community in 2010 with mortgage financing secured by Mr. Beattie, the target was not achieved and the amount listed below was not awarded to Mr. Beattie.

 

 

Other Named Executive Officers.  Messrs. Brickman and Goodpaster do not participate in the Incentive Compensation Plan, but the Compensation Committee has retained the ability to award annual cash performance bonuses to such named executive officers in its discretion pursuant to the terms of their employment agreements. The determination as to whether Messrs. Brickman and Goodpaster will receive a cash performance bonus with respect to a particular year is typically made by the Compensation Committee in the first quarter of the following year. In determining whether Messrs. Brickman and Goodpaster are entitled to receive a cash performance bonus, and if so, in what amount, the Compensation Committee typically reviews our financial performance for the relevant fiscal year, the past performance of each, total cash compensation necessary to retain top executive talent, and the budget for their respective internal departments. The Compensation Committee does not believe that the Incentive Compensation Plan is an appropriate method by which to determine the cash performance bonus which Messrs. Brickman and Goodpaster are entitled to receive each year, since the Incentive Compensation Plan has historically been heavily dependent upon measures which are related to the achievement of our business plan. The Compensation Committee does not believe that, in their capacities as our Vice President — General Counsel and Vice President — National Marketing, respectively, Messrs. Brickman and Goodpaster are in positions to influence the achievement of our business plan each year in the same manner as our other named executive officers.

 

For a further description of the cash performance bonuses paid to our named executive officers for 2010, please refer to the Summary Compensation Table beginning on page 31 of this proxy statement.

 

LONG-TERM INCENTIVES

 

On May 8, 2007, the date of the 2007 Annual Stockholders Meeting, the stockholders approved the 2007 Stock Incentive Plan, which we refer to as the “2007 Stock Incentive Plan.” Upon approval of the 2007 Stock Incentive Plan, the 1997 Stock Incentive Plan terminated and no additional awards will be granted under that plan. Awards granted thereunder may be made at such times and upon such vesting and other conditions as determined by the Compensation Committee, and may be made in the form of stock options, restricted share awards, stock appreciation rights, or SARs, cash awards and performance-based equity and cash awards. Pursuant to the terms of the 2007 Stock Incentive Plan, the Chief Executive Officer and each of the four highest paid employees as of December 31, 2010 are not eligible to receive awards under the 2007 Stock Option Plan in any fiscal year exceeding 100,000 shares.

 

The Compensation Committee has historically granted long-term incentive awards to our named executive officers on a case-by-case basis in connection with certain events which it determined have positively impacted our performance and/or increased stockholder value, and which it determined were substantially attributable to the performance of an individual named executive officer in his or her position with us. The Compensation Committee has also historically granted long-term incentive awards to our named executive officers in connection with events which have increased the number of outstanding shares of our common stock, so that our named executive officers maintained a relatively proportionate ownership interest in our equity after giving effect to such event as existed before such event. During 2010, except as described below pursuant to the Incentive Compensation Plan, the Compensation Committee determined not to grant any equity awards to our named executive officers. In making this determination, the Compensation Committee considered the total mix of compensation opportunity available to each of our named executive officers in 2010, including their base salaries and eligibility to receive cash incentive awards and other bonuses. The Compensation Committee also considered each of our named executive officers’ current stock ownership in the Company and determined that such level of stock ownership sufficiently aligned the interests of our named executive officers with those of our other stockholders. In March 2011, as a result of the Company’s achievement of the excess CFFO per share performance target under the Incentive Compensation Plan, Messrs. Cohen, Johannessen and Beattie were awarded 2,787, 1,186 and 1,107 shares of restricted stock,

respectively. These shares of restricted stock vest in three installments of 33%, 33% and 34% on March 1, 2012, March 1, 2013 and March 1, 2014, respectively.

 

In determining the amount and types of long-term incentive awards to be granted to our named executive officers, the Compensation Committee primarily relies upon:

 

 

For a description of the long-term incentives awarded to our named executive officers for 2010, please refer to the Grants of Plan-Based Awards Table beginning on page 35 of this proxy statement.

 

SEVERANCE ARRANGEMENTS

 

We have entered into employment agreements with each of our named executive officers which, among other things, provide for severance benefits to be paid upon the happening of certain events. Our employment agreements with Messrs. Brickman, Cohen, Johannessen and Goodpaster were each entered into in connection with our initial public offering in 1997. Leading up to our initial public offering, our Board of Directors, based upon input received from our legal counsel and legal counsel for our underwriters, determined that it was in our best interests to implement a company-wide severance plan structure, whereby severance benefits would be paid in certain events to members of our executive and senior management, including such named executive officers. Accordingly, our Board of Directors relied in large part upon both input received from such legal counsel as well as publicly-available information with respect to the severance practices of similarly-situated companies in order to determine which measures to use to calculate the amounts payable upon the happening of certain events as well as the selection of the types of events which would trigger a payment obligation under our severance plan structure.

 

Upon the commencement of his employment with us in 1999, we entered into an employment agreement with Mr. Beattie. In the course of negotiating Mr. Beattie’s employment agreement, we relied upon publicly-available information with respect to the severance practices of the companies in our peer group in order to determine which measures to use to calculate the amounts payable upon the happening of certain events as well as the selection of the types of events which would trigger a payment obligation in the event that Mr. Beattie’s employment with us is severed. In addition, the Compensation Committee also sought to achieve a degree of consistency with respect to the severance benefits available to our other named executive officers.

 

The Compensation Committee believes that such severance benefits advance the objectives which the Compensation Committee has identified for our executive compensation program by facilitating our ability to employ, retain and reward executives who are capable of leading us to the achievement of our business objectives.

 

In addition, the Compensation Committee believes that the formalization of our severance practices benefits us by providing certainty in terms of our obligations to our named executive officers in the event that our relationship with such individuals is severed.

 

Any time that the Compensation Committee considers the amount and mix of total compensation to be paid to our named executive officers it considers, among other things, the severance payments to which each named executive officer would be entitled to receive on the occurrence of the specified events. The Compensation Committee considers such information a relevant factor in analyzing proposed compensation arrangements, including raises in salary, bonus opportunities and grants of long-term incentive awards.

For a more detailed description of the severance arrangements which apply to our named executive officers, please refer to “Termination of Employment and Change in Control Arrangements” beginning on page 37 of this proxy statement.

 

PERQUISITES AND OTHER PERSONAL BENEFITS

 

Our named executive officers are eligible to participate in certain benefit plans generally available to all of our employees. The benefits available are the same for all of our employees, including our named executive officers, and include medical and dental coverage, long-term disability insurance and supplemental life insurance.

 

In addition, all of our employees, including our named executive officers, are eligible to participate in our 401(k) plan, which represents the only retirement benefit which we provide to our named executive officers. We may make discretionary matching cash contributions to the 401(k) plan in the amount of 100% of the named executive officer’s contributions, up to an amount not to exceed 2% of the named executive officer’s base salary. In establishing the amount of cash contributions made by our named executive officers to the 401(k) plan which we will match, we rely on publicly-available information with respect to the practices employed by the companies in our peer group.

 

Historically, our executive compensation program has contained limited perquisites. Other than the receipt of an automobile allowance by Mr. Cohen of approximately $500 per month, our named executive officers did not receive any special perquisites during 2010.

 

The Compensation Committee has determined to offer the above-described perquisites and other personal benefits in order to attract and retain our named executive officers by offering compensation opportunities that are competitive with those offered by similarly-situated companies in the senior living industry. In determining the total compensation payable to our named executive officers for a given fiscal year, the Compensation Committee will examine such perquisites and other personal benefits in the context of the total compensation which our named executive officers are eligible to receive. However, given the fact that such perquisites and other personal benefits which are available to our named executive officers represent a relatively insignificant portion of their total compensation, the availability of such items does not materially influence the decisions made by the Compensation Committee with respect to other elements of the total compensation to which our named executive officers are entitled or awarded. For a description of the perquisites and other personal benefits received by our named executive officers during 2010, please refer to the Summary Compensation Table beginning on page 31 of this proxy statement.

 

The foregoing discussion describes the compensation objectives and policies which were utilized with respect to our named executive officers during 2010. In the future, as the Compensation Committee continues to review each element of the executive compensation program with respect to our named executive officers, the objectives of our executive compensation program, as well as the methods which the Compensation Committee utilizes to determine both the types and amounts of compensation to award to our named executive officers, may change.

 

Compensation Committee Report on Executive Compensation

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management and, based upon such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement on Schedule 14A related to the Annual Meeting, for filing with the SEC.

 

Compensation Committee

 

James A. Moore, Chairman

Craig F. Hartberg

Peter L. Martin

Summary Compensation Table

 

The following table summarizes the compensation earned by our named executive officers in 2010, 2009 and 2008. The table specifically identifies the dollar value of compensation related to 2010, 2009 and 2008 earned by such named executive officers in the form of:

 

 

Other than Messrs. Brickman and Goodpaster, our named executive officers were not entitled to receive payments which would be characterized as “Bonus” payments for purposes of the Summary Compensation Table for 2010, 2009 and 2008. Amounts listed under “Non-Equity Incentive Plan Compensation,” represent cash performance bonus awards earned by our named executive officers for 2010, 2009 and 2008 pursuant to our Incentive Compensation Plan.

 

Based on the base salaries of our named executive officers for 2010, “Salary” accounted for approximately 62%, 67%, 67%, 77% and 81% of the total compensation of Messrs. Cohen, Johannessen, Beattie, Brickman and Goodpaster, respectively, while cash performance bonuses earned by our named executive officers, whether pursuant to our Incentive Compensation Plan for 2010 or otherwise, accounted for approximately 38%, 32%, 31%, 22% and 12% of the total compensation of Messrs. Cohen, Johannessen, Beattie, Brickman and Goodpaster, respectively. Based on the base salaries of our named executive officers for 2009, “Salary” accounted for approximately 38%, 35%, 46%, 63% and 76% of the total compensation of Messrs. Cohen, Johannessen, Beattie, Brickman and Goodpaster, respectively, while cash performance bonuses earned by our named executive officers, whether pursuant to our Incentive Compensation Plan for 2009 or otherwise, accounted for approximately 36%, 26%, 32%, 14% and 10% of the total compensation of Messrs. Cohen, Johannessen, Beattie, Brickman and Goodpaster, respectively. Based on the base salaries of our named executive officers for 2008, “Salary” accounted for approximately 68%, 71%, 66% and 80% of the total compensation of Messrs. Cohen, Johannessen, Beattie and Brickman, respectively, while cash performance bonuses earned by our named executive officers, whether pursuant to our Incentive Compensation Plan for 2008 or otherwise, accounted for approximately 31%, 27%, 32% and 18% of the total compensation of Messrs. Cohen, Johannessen, Beattie and Brickman, respectively. Mr. Goodpaster was not one of our named executive officers for 2008, and accordingly, information with respect to Mr. Goodpaster’s compensation for such year is not provided.

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth certain information with respect to grants of plan-based awards to the named executive officers in 2010. The estimated possible payouts under non-equity incentive plan awards represent the bonus award opportunities granted to our eligible named executive officers in 2010 under the Incentive Compensation Plan.

 

 

 

 

Employment Agreements

 

We entered into an employment agreement with Mr. Cohen in November 1996 which was subsequently amended in May 1999, August 2002, January 2003, February 2004 and April 2010. Mr. Cohen’s employment agreement is for a term of three years and automatically extends for a two-year term on a consecutive basis, and his compensation thereunder generally consists of (i) a minimum annual base salary of $636,366, subject to annual adjustments, (ii) an annual bonus as determined by the Compensation Committee, and (iii) participation in our employee benefit plans for senior executive officers.

 

We entered into an employment agreement with Mr. Johannessen in November 1996 which was subsequently amended in June 1999, January 2003 and April 2010. Mr. Johannessen’s employment agreement is for a term of three years and automatically extends for a two-year term on a consecutive basis, and his compensation thereunder generally consists of (i) an annual base salary of $375,006, subject to annual adjustments, (ii) an annual bonus as determined by the Compensation Committee, and (iii) participation in our employee benefit plans for senior executive officers.

 

We entered into an employment agreement with Mr. Beattie in May 1999 which was subsequently amended in January 2003 and April 2010. Mr. Beattie’s employment agreement is for a term of three years and automatically extends for a two-year term on a consecutive basis, and his compensation thereunder generally consists of (i) an annual base salary of $350,115, subject to annual adjustments, (ii) an annual bonus as determined by the Compensation Committee, and (iii) participation in our employee benefit plans for senior executive officers.

 

We entered into an employment agreement with Mr. Brickman in December 1996 which was subsequently amended in December 2000 and January 2003. Mr. Brickman’s employment agreement is for a term of three years and automatically extends for a two-year term on a consecutive basis, and the compensation thereunder generally consists of (i) an annual base salary of $146,584, subject to annual adjustments, (ii) an annual bonus as determined by the Compensation Committee, and (iii) participation in our employee benefit plans for senior executive officers.

We entered into an employment agreement with Mr. Goodpaster in December 1996. Mr. Goodpaster’s employment agreement is for a term of two years and automatically extends for a one-year term on a consecutive basis, and the compensation thereunder generally consists of (i) an annual base salary, subject to annual adjustments, (ii) an annual bonus as determined by the Compensation Committee, and (iii) participation in our employee benefit plans for senior executive officers.

 

For a description of the process by which the annual base salary adjustments and the cash performance bonuses are determined, please refer to “Compensation Discussion and Analysis” beginning on page 16 of this proxy statement.

 

In addition, each of the above-described employment agreements contains severance provisions which provide for certain payments to be made by us to each such named executive officer upon the occurrence of certain events which result in his employment with us being terminated, including upon a “fundamental change” of us. Included in each employment agreement is a covenant of the employee not to compete with us during the term of his employment and for a period of one year thereafter. For a detailed description of the severance provisions contained in the employment agreements, please refer to “Termination of Employment and Change in Control Arrangements” beginning on page 37 of this proxy statement.

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

OPTION EXERCISES AND STOCK VESTED

 

The following table presents the amounts each named executive officer received in 2010 upon exercise of options and the value realized upon the vesting of restricted stock awards. The value realized on the exercise of options and vesting of restricted stock does not account for the personal tax liability incurred by our named executive officers.

 

 

 

 

Employment Agreements

 

As previously discussed, we have entered into an employment agreement with each of our named executive officers, which, among other things, provides for severance benefits to be paid upon an involuntary termination of the named executive officer’s employment or the occurrence of certain other events that may affect the named executive officer, with the amounts of such benefits varying based upon such individual’s position with us. In addition, each employment agreement contains a non-competition provision. Certain of the employment agreements which we have entered into with our named executive officers contain provisions with respect to severance benefits and covenants not to compete which are substantially identical to those contained in an employment agreement which we have entered into with another of our named executive officers. Accordingly, the following discussion is separated into sections, with a separate section for each grouping of our named executive officers who have entered into employment agreements with us which contain substantially identical terms with respect to severance benefits and non-competition.

 

In addition, pursuant to such employment agreements, each named executive officer has agreed that he will not, either during the term of his employment with us or at any time thereafter, divulge, communicate, use to our detriment or for the benefit of another, or make or remove any copies of, our confidential information or proprietary data or information. Such confidentiality obligations do not apply to information which is or becomes generally available to the public other than as a result of disclosure by the named executive officer, is known to him prior to his employment with us from other sources, or is required to be disclosed by law or regulatory or judicial process.

Lawrence A. Cohen

 

Termination Not in Conjunction with a Fundamental Change.  If we terminate the employment of Mr. Cohen because of death or disability or for any reason other than for “cause,” or if Mr. Cohen voluntary resigns for “good reason,” then Mr. Cohen will be entitled to:

 

 

A resignation by Mr. Cohen shall be deemed to be a resignation for “good reason” if the resignation is based on (i) a material diminution in Mr. Cohen’s duties, which is not part of an overall diminution for all of our executive officers, or (ii) our material breach of our obligations to Mr. Cohen under his employment agreement or under our stock incentive plan.

 

A termination of Mr. Cohen’s employment by us shall be deemed to be “for cause” if it is based upon (i) a final, nonappealable conviction of Mr. Cohen for commission of a felony involving moral turpitude, (ii) Mr. Cohen’s willful gross misconduct that causes us material economic harm or that brings substantial discredit to our reputation, or (iii) Mr. Cohen’s material failure or refusal to perform his duties in accordance with his employment agreement, if Mr. Cohen has failed to cure such failure or refusal to perform within 30 days after we notify him in writing of such failure or refusal to perform.

 

If the employment of Mr. Cohen is terminated for any other reason, then we are to promptly pay Mr. Cohen his base salary and pro-rated annual bonus up to and through the date of termination as well as all accrued but unpaid or unused vacation, sick pay and expense reimbursement.

 

Termination in Conjunction with a Fundamental Change.  If the employment of Mr. Cohen is terminated in conjunction with a “fundamental change” of us, Mr. Cohen will be entitled to receive the same severance payments and benefits described above (not in conjunction with a “fundamental change”), except that Mr. Cohen will be entitled to receive his base salary plus his annual bonus at the rate paid during the previous 12 months for three years from the date of the notice of termination.

 

Pursuant to his employment agreement, the term “fundamental change” generally means:

 

 

Non-Competition.  Pursuant to his employment agreement, Mr. Cohen has agreed that during the term of his employment with us and for one year thereafter, he will not, directly or indirectly, acquire, develop or operate senior living facilities anywhere in the United States, other than through us and except as otherwise requested by us. Notwithstanding the foregoing, the ownership by Mr. Cohen of a class of securities listed on a stock exchange or traded on the over-the-counter market that represents five percent or less of the number of shares of such class of securities then issued and outstanding is permitted.

Keith N. Johannessen and Ralph A. Beattie

 

Termination Not in Conjunction with a Fundamental Change.  If we terminate the employment of Mr. Johannessen or Mr. Beattie because of death or disability or for any reason other than for “cause,” or if Mr. Johannessen or Mr. Beattie voluntary resigns for “good reason,” then Mr. Johannessen or Mr. Beattie, as applicable, will be entitled to:

 

 

A resignation by Mr. Johannessen or Mr. Beattie shall not be deemed to be a resignation for “good reason” if it is based upon (i) a material diminution in such executive officer’s base salary which is not part of an overall diminution for all of our executive officers, or (ii) our material breach of our obligations to such executive officer under their respective employment agreements or under our stock incentive plan.

 

A termination of Mr. Johannessen’s or Mr. Beattie’s employment by us shall be deemed to be “for cause” if it is based upon (i) such executive officer being charged with and then convicted of any misdemeanor or any felony involving personal dishonesty, (ii) disloyalty by such executive officer to us, including but not limited to embezzlement, or (iii) such executive officer’s failure or refusal to perform their duties in accordance with their respective employment agreements based on a standard of reasonableness.

 

If the employment of Mr. Johannessen or Mr. Beattie is terminated for any other reason, then we are to promptly pay Mr. Johannessen or Mr. Beattie, as applicable, his base salary and annual bonus paid in the past 12 months up to and through the date of termination as well as all accrued but unpaid or unused vacation, sick pay and expense reimbursement.

 

Termination in Conjunction with a Fundamental Change.  If the employment of Mr. Johannessen or Mr. Beattie is terminated in conjunction with a “fundamental change” of us, Mr. Johannessen or Mr. Beattie, as applicable, will be entitled to receive the same severance payments and benefits described above (not in conjunction with a “fundamental change”), except that each will be entitled to receive his base salary plus his annual bonus at the rate paid during the previous 12 months for three years from the date of the notice of termination. Under their employment agreements, the term “fundamental change” means a merger, consolidation or any sale of all or substantially all of our assets that requires the consent or vote of our stockholders where we are not the survivor or in control.

 

Non-Competition.  Pursuant to their employment agreements, Mr. Johannessen and Mr. Beattie each agreed that for one year after termination of their employment and receipt of the last payment pursuant to their employment agreements, they will not, directly or indirectly, commence doing business, in any manner whatsoever, which is in competition with all or any portion of our business in any state in which we then operate, own, asset manage, or are in the process of developing more than two facilities. Notwithstanding the foregoing, the ownership by Mr. Johannessen or Mr. Beattie of a class of securities listed on a stock exchange or traded on the over-the-counter market that represents five percent or less of the number of shares of such class of securities then issued and outstanding is permitted. In addition, pursuant to his employment agreement, if Mr. Johannessen’s employment with us is terminated “for cause” or he voluntarily resigns, he shall not be deemed to violate the foregoing restrictions if he accepts and works within the one year period at a position as an on-site administrator or on-site executive director at a nursing or retirement facility for a salary equal to or less than a comparable position at a comparable facility in the area.

 

David R. Brickman

 

If we terminate the employment of Mr. Brickman because of death or disability or for any reason other than for “cause,” including a “fundamental change,” or if Mr. Brickman voluntary resigns for “good reason,” then Mr. Brickman will be entitled to:

 

 

 

A resignation by Mr. Brickman shall not be deemed to be a resignation for “good reason” if it is based upon (i) a material diminution in Mr. Brickman’s base salary which is not part of an overall diminution for all of our executive officers, or (ii) our material breach of our obligations to Mr. Brickman under his employment agreement or under our stock incentive plan.

 

A termination of Mr. Brickman’s employment by us shall be deemed to be “for cause” if it is based upon (i) Mr. Brickman being charged with and then convicted of any misdemeanor or any felony involving personal dishonesty, (ii) disloyalty by Mr. Brickman to us, including but not limited to embezzlement, or (iii) Mr. Brickman’s failure or refusal to perform his duties in accordance with his employment agreement based on a standard of reasonableness.

 

If the employment of Mr. Brickman is terminated for any other reason, then we are to promptly pay Mr. Brickman his base salary up to and through the date of termination as well as all accrued but unpaid or unused vacation, sick pay and expense reimbursement. Pursuant to Mr. Brickman’s employment agreement, the term “fundamental change” means a merger, consolidation or any sale of all or substantially all of our assets that requires the consent or vote of our stockholders where we are not the survivor or in control.

 

Non-Competition.  Pursuant to his employment agreement, Mr. Brickman agreed that for one year after termination of his employment and receipt of the last payment pursuant to his employment agreement, he will not, directly or indirectly, commence doing business which is in competition with all or any portion of our business in any state in which we then operate, own, asset manage, or are in the process of developing more than two facilities. The ownership of a class of securities listed on a stock exchange or traded on the over-the-counter market by Mr. Brickman that represents five percent or less of the number of shares of such class of securities then issued and outstanding shall not constitute a violation of these restrictions.

 

Robert L. Goodpaster

 

If we terminate the employment of Mr. Goodpaster because of death or disability or for any reason other than for “cause,” including a “fundamental change,” or if Mr. Goodpaster voluntary resigns for “good reason,” then Mr. Goodpaster will be entitled to:

 

 

A resignation by Mr. Goodpaster shall not be deemed to be a resignation for “good reason” if it is based upon (i) a material diminution in Mr. Goodpaster’s base salary which is not part of an overall diminution for all of our executive officers, or (ii) our material breach of our obligations to Mr. Goodpaster under his employment agreement or under our stock incentive plan.

 

A termination of Mr. Goodpaster’s employment by us shall be deemed to be “for cause” if it is based upon (i) Mr. Goodpaster being charged with and then convicted of any misdemeanor or any felony involving personal dishonesty, (ii) disloyalty by Mr. Goodpaster to us, including but not limited to embezzlement, or (iii) Mr. Goodpaster’s failure or refusal to perform his duties in accordance with his employment agreement based on a standard of reasonableness.

 

If the employment of Mr. Goodpaster is terminated for any other reason, then we are to promptly pay Mr. Goodpaster his base salary up to and through the date of termination as well as all accrued but unpaid or unused vacation, sick pay and expense reimbursement. Pursuant to Mr. Goodpaster’s employment agreement, the term “fundamental change” means a merger, consolidation or any sale of all or substantially all of our assets that requires the consent or vote of our stockholders where we are not the survivor or in control.

 

Non-Competition.  Pursuant to his employment agreement, Mr. Goodpaster agreed that for one year after termination of his employment and receipt of the last payment pursuant to his employment agreement, he will not, directly or indirectly, commence doing business which is in competition with all or any portion of our business in

any state in which we then operate, own, asset manage, or are in the process of developing more than two facilities. The ownership of a class of securities listed on a stock exchange or traded on the over-the-counter market by Mr. Goodpaster that represents five percent or less of the number of shares of such class of securities then issued and outstanding shall not constitute a violation of these restrictions.

 

The 1997 Stock Incentive Plan

 

Although the 1997 Stock Incentive Plan was terminated on May 8, 2007, awards granted under the 1997 Stock Incentive Plan continue to be governed by the terms of the 1997 Stock Incentive Plan. Pursuant to the 1997 Stock Incentive Plan, in the event of a “change in control” transaction or a “potential change in control” transaction, unless otherwise expressly provided by the Compensation Committee prior to such transaction:

 

 

If an award is so accelerated, the portion of the award which is accelerated is limited to that portion which can be accelerated without causing an “excess parachute payment” as determined under Section 280G of the Internal Revenue Code, determined by taking into account all of the holder’s “parachute payments” determined under Section 280G of the Internal Revenue Code, all as reasonably determined by the Compensation Committee.

 

For purposes of the 1997 Stock Incentive Plan, a “change in control” generally means the first to occur of:

 

 

For purposes of the 1997 Stock Incentive Plan, a “potential change in control” means the first to occur of (i) the approval by our stockholders of an agreement by us, the consummation of which would result in a “change in control,” or (ii) the acquisition of beneficial ownership, directly or indirectly, by any entity, person or group of five percent or more of the combined voting power of our outstanding securities and the adoption by the Compensation Committee of a resolution to the effect that a “potential change in control” has occurred for purposes of the 1997 Stock Incentive Plan.

In addition, pursuant to the 1997 Stock Incentive Plan, the unexercised portion of an option to purchase shares of our common stock will terminate on, among other things, the date that the holder ceases to be employed by us, if such cessation is for “cause.”

 

The 2007 Stock Incentive Plan

 

Pursuant to the 2007 Stock Incentive Plan, in the event of a “change in control” transaction or a “potential change in control” transaction, unless otherwise expressly provided by the Compensation Committee prior to such transaction:

 

 

For purposes of the 2007 Stock Incentive Plan, a “change in control” generally means the first to occur of:

 

 

For purposes of the 2007 Stock Incentive Plan, a “potential change in control” mean the first to occur of (i) approval by our stockholders of an agreement by us, the consummation of which would result in a “change in control,” or (ii) the filing of a Schedule 13G or 13D under the Exchange Act and, within 15 days after such filing, the adoption by the Compensation Committee of a resolution to the effect that a “potential change in control” has occurred for purposes of the 2007 Stock Incentive Plan.

 

In addition, pursuant to the 2007 Stock Incentive Plan, the unexercised portion of an option to purchase shares of our common stock will terminate on, among other things, the date that the holder ceases to be employed by us, if such cessation is for “cause.”

 

Restricted Stock Award Agreements.  When Messrs. Cohen, Johannessen, Beattie, Brickman and Goodpaster were awarded shares of restricted stock on January 5, 2009 under the 2007 Stock Incentive Plan, each of them

entered into a restricted stock award agreement with us. Each agreement provides that, if, before the vesting date for the restricted shares (to the extent not previously vested), the individual’s employment with us is terminated for any reason, the restricted shares that have not previously vested shall, automatically and without notice, terminate and be permanently forfeited as of such date.

 

Potential Realizable Value of Equity Awards Upon a Change in Control Without Termination

 

Under the 1997 Stock Incentive Plan and the 2007 Stock Incentive Plan, in the event of a “change in control” or a “potential change in control” the vesting of outstanding awards may be accelerated regardless of whether the employment of the holder of such an award is terminated in connection therewith. The following table provides quantitative disclosure of the potential realizable value of outstanding awards granted to our named executive officers pursuant to the 1997 Stock Incentive Plan and 2007 Stock Incentive Plan, assuming that:

 

 

 

 

 

Payments Upon Termination Without a Fundamental Change or Change in Control.

 

The following table provides quantitative disclosure of the estimated payments and benefits that would be provided to our named executive officers assuming that:

 

 

 

 

 

 

Payments Upon Termination in Connection with a Fundamental Change and Change in Control.

 

The following table provides quantitative disclosure of the estimated payments and benefits that would be provided to our named executive officers assuming that: