HEALTH CARE REIT, INC.

 

TABLE OF CONTENTS

 

HEALTH CARE REIT, INC.
One SeaGate
Suite 1500
P.O. Box 1475
Toledo, Ohio 43603-1475

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE ANNUAL MEETING

 

 

To Be Held on May 7, 2009

 

To The Stockholders of Health Care REIT, Inc.:

 

The Annual Meeting of Stockholders of Health Care REIT, Inc. will be held on May 7, 2009 at 10:00 a.m. in the Auditorium of One SeaGate, Toledo, Ohio, for the purpose of considering and acting upon:

 

 

The Board of Directors of Health Care REIT, Inc. unanimously recommends that you vote “for” Proposals 1, 2 and 3. Stockholders of record at the close of business on March 12, 2009 will be entitled to notice of, and to vote at, the Annual Meeting or any adjournment thereof. Information relating to the matters to be considered and voted on at the Annual Meeting is set forth in the Proxy Statement accompanying this Notice. In addition, the Proxy Statement, Annual Report and a form of Proxy Card are available on the Internet at www.hcreit.com/proxy.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Erin C. Ibele

Senior Vice President-Administration and
Corporate Secretary

 

Toledo, Ohio

March 18, 2009

 

 

 

 

 

HEALTH CARE REIT, INC.
One SeaGate
Suite 1500
P.O. Box 1475
Toledo, Ohio 43603-1475

 

 

VOTING SECURITIES OUTSTANDING

 

As of March 12, 2009, the Company had outstanding 110,883,249 shares of common stock, $1.00 par value per share. The common stock constitutes the only class of voting securities of the Company entitled to vote at the Annual Meeting. Stockholders of record at the close of business on March 12, 2009 are entitled to notice of, and to vote at, the Annual Meeting and any adjournments thereof. Each share of common stock is entitled to one vote on all matters to come before the Annual Meeting.

 

CLASS III
Directors Whose Terms Continue (1)

 

Thomas J. DeRosa, age 51.   Mr. DeRosa is former Vice Chairman and Chief Financial Officer of The Rouse Company (real estate development and operations), a position he held from September 2002 until November 2004 when The Rouse Company merged with General Growth Properties, Inc. From 1992 to September 2002, Mr. DeRosa held various positions at Deutsche Bank (Deutsche Bank AG) and Alex. Brown & Sons, including Global Co-Head of the Health Care Investment Banking Group of Deutsche Bank and Managing Director in the Real Estate Investment Banking Group of Alex. Brown & Sons. Mr. DeRosa also serves as a Director of Dover Corporation (global provider of equipment, specialty systems and services for various industrial and commercial markets). Mr. DeRosa has served as a Director of the Company since 2004 and is a member of the Board’s Audit, Investment, Nominating/Corporate Governance and Planning Committees.

 

Jeffrey H. Donahue, age 62.   Mr. Donahue is President and Chief Executive Officer of Enterprise Community Investment, Inc. (provider of affordable housing), a position he has held since January 2003. Mr. Donahue was Executive Vice President and Chief Financial Officer of The Rouse Company (real estate development and operations) from December 1998 to September 2002. Mr. Donahue has served as a Director of the Company since 1997 and is a member of the Board’s Compensation, Investment and Planning Committees.

 

Fred S. Klipsch, age 67.   Mr. Klipsch is Vice Chairman of the Company, a position he has held since December 2006, and Chairman of the Board and Chief Executive Officer of Klipsch Group, Inc. (global speaker manufacturer), a position he has held since 1989. Since 1990, Mr. Klipsch also has served as Chairman of the Board of Klipsch Audio Technologies and Chairman of the Board and Chief Executive Officer of Klipsch Lanham Investments. Mr. Klipsch served as Chairman of the Board and Chief Executive Officer of Windrose Medical Properties Trust from its formation in 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Klipsch has served as a Director of the Company since December 2006 and is a member of the Board’s Investment and Planning Committees.

 

CLASS I
Directors Whose Terms Continue (2)

 

William C. Ballard, Jr., age 68.   Mr. Ballard is former Of Counsel to Greenebaum Doll & McDonald PLLC (law firm), a position he held from 1992 to June 2008. From 1970 to 1992, Mr. Ballard was Executive Vice President, Chief Financial Officer and Director of Humana Inc. (provider of integrated health care services). Mr. Ballard also serves as a Director of UnitedHealth Group Incorporated (diversified health and well-being company). Mr. Ballard has served as a Director of the Company since 1996 and is a member of the Board’s Compensation, Executive, Investment and Planning Committees.

 

Peter J. Grua, age 55.   Mr. Grua is a Partner of HLM Venture Partners (provider of venture capital), where he has held various positions since 1992. Mr. Grua also serves as a Director of The Advisory Board Company (provider of best practices research and analysis to the health care industry). Mr. Grua has served as a Director of the Company since 1999 and is a member of the Board’s Executive, Investment, Nominating/Corporate Governance and Planning Committees.

 

R. Scott Trumbull, age 60.   Mr. Trumbull is Chairman and Chief Executive Officer of Franklin Electric Co., Inc. (manufacturer of water and fuel pumping systems), a position he has held since January 2003. From October 2001 through December 2002, Mr. Trumbull was Executive Vice President and Chief Financial Officer of Owens-Illinois, Inc. (manufacturer of glass containers). From 1993 to October 2001, Mr. Trumbull served as Executive Vice President, International Operations & Corporate Development of Owens-Illinois, Inc. Mr. Trumbull has served as a Director of the Company since 1999 and is a member of the Board’s Audit, Investment and Planning Committees.

 

 

 

BOARD AND COMMITTEES

 

Independence and Meetings

 

The Board has adopted Corporate Governance Guidelines that meet the listing standards adopted by the New York Stock Exchange and a Code of Business Conduct and Ethics that meets the New York Stock Exchange’s listing standards and complies with the rules of the Securities and Exchange Commission. The Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on the Company’s website at www.hcreit.com and from the Company upon written request sent to the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475.

 

Pursuant to the Corporate Governance Guidelines, the Board undertook a review of Director independence in January 2009. During this review, the Board considered transactions and relationships between each Director, or any member of his or her immediate family, and the Company and its subsidiaries and affiliates. The purpose of this review was to determine whether any relationships or transactions were inconsistent with a determination that a Director is independent.

 

The Board determined that other than Messrs. Braun, Chapman and Klipsch, all of the Directors (Ms. Oster and Messrs. Ballard, Borra, DeRosa, Donahue, Grua, Otten and Trumbull) meet the specific minimum independence requirements of the New York Stock Exchange. The Board also determined that, other than Messrs. Braun, Chapman and Klipsch, all of the Directors (Ms. Oster and Messrs. Ballard, Borra, DeRosa, Donahue, Grua, Otten and Trumbull) have no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and are therefore independent under the general independence standards of the New York Stock Exchange and the Corporate Governance Guidelines.

 

In evaluating the independence of Mr. DeRosa, the Board considered Mr. DeRosa’s former employment relationship with Deutsche Bank and its affiliates from 1992 to 2002 and that Mr. DeRosa received a deferred payment in 2005 from Deutsche Bank relating to services provided in the past. Although Deutsche Bank provided investment banking services to the Company during this period, and continues to provide such services, the Board determined that this prior relationship is not material to Mr. DeRosa, the Company, or Deutsche Bank because Mr. DeRosa has not been affiliated with Deutsche Bank since 2002. The Board has determined that this former relationship will not affect the ability of Mr. DeRosa to exercise independent judgment.

 

The Board determined that all of the members of the Audit Committee (Messrs. Borra, DeRosa and Trumbull) are independent under the general independence standards of the New York Stock Exchange and the Corporate Governance Guidelines and under the separate independence standards for audit committee members under Rule 10A-3 of the Securities Exchange Act of 1934, as amended. Additionally, the Board determined that all of the members of the Compensation Committee (Ms. Oster and Messrs. Ballard and Donahue) are independent, non-employee and outside directors, as the case may be, under the rules of the New York Stock Exchange, Securities and Exchange Commission and Internal Revenue Service. Finally, the Board determined that all of the members of the Nominating/Corporate Governance Committee (Messrs. Borra, DeRosa and Grua) are independent under the rules of the New York Stock Exchange.

 

The Board also determined that of the four nominees for election at the Annual Meeting (Ms. Oster and Messrs. Borra, Chapman and Otten), Ms. Oster and Messrs. Borra and Otten are independent from the Company and its Management under the standards set forth in the Corporate Governance Guidelines.

 

The Board met five times during the year ended December 31, 2008. The Company’s policy is to schedule a meeting of the Board on the date of the annual meeting of stockholders and all of the Directors are encouraged to attend that meeting. Ten Directors attended last year’s annual meeting of stockholders.

 

The Board has standing Audit, Executive, Compensation, Investment, Nominating/Corporate Governance and Planning Committees. In 2008, all incumbent Directors attended at least 75% of the aggregate of the meetings of the Board and the committees on which they served.

Executive sessions of non-Management Directors are held after regularly scheduled meetings of the Board and an executive session of independent Directors is held at least once each year. The presiding Director of these executive sessions is the Chair of the Nominating/Corporate Governance Committee, currently Mr. Grua.

 

Audit Committee

 

The Audit Committee has the authority and responsibility to engage and discharge the independent registered public accounting firm, pre-approve all audit and non-audit services to be provided by such firm, review the plan and results of the auditing engagement, review Management’s evaluation of the adequacy of the Company’s system of internal control over financial reporting, direct and supervise investigations into matters within the scope of its duties, and perform the duties set forth in its written charter and such other duties as are required by applicable laws or securities exchange rules. The members of the Audit Committee are Messrs. Borra, DeRosa and Trumbull, with Mr. DeRosa serving as Chair. The Audit Committee met six times during the year ended December 31, 2008.

 

The Audit Committee is comprised solely of Directors who are not officers or employees of the Company and who the Board has determined have the requisite financial literacy to serve on the Audit Committee. Additionally, the Board determined that no member of the Committee has any material relationship with the Company that might interfere with the exercise of the member’s independent judgment and that each member meets the standards of independence established by the Securities and Exchange Commission and the New York Stock Exchange. See “Independence and Meetings” above for a discussion of independence determinations.

 

The Board, after reviewing all of the relevant facts and circumstances, determined that Messrs. Borra, DeRosa and Trumbull are “audit committee financial experts.”

 

The Audit Committee is governed by a written charter approved by the Board of Directors. The charter is available on the Company’s website at www.hcreit.com and from the Company upon written request sent to the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475.

 

Compensation Committee

 

The Compensation Committee is responsible for determining the nature and amount of compensation for Executive Officers. The members of the Compensation Committee are Ms. Oster and Messrs. Ballard and Donahue, with Mr. Donahue serving as Chair. The Compensation Committee met eight times during the year ended December 31, 2008. The Board determined that the members of the Compensation Committee are independent, non-employee and outside directors, as the case may be, under the rules of the New York Stock Exchange, Securities and Exchange Commission and Internal Revenue Service. The Compensation Committee is governed by a written charter approved by the Board of Directors. The charter is available on the Company’s website at www.hcreit.com and from the Company upon written request sent to the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. See “Executive Compensation — Compensation Discussion and Analysis” for additional information regarding the Compensation Committee.

 

Executive Committee

 

The function of the Executive Committee is to exercise all the powers of the Board (except any powers specifically reserved to the Board) between meetings of the Board. The Executive Committee is also responsible for reviewing and approving the Company’s investments between meetings of the Investment Committee. The members of the Executive Committee are Messrs. Ballard, Chapman and Grua. The Executive Committee did not meet during the year ended December 31, 2008.

 

Investment Committee

 

The function of the Investment Committee is to review and approve the Company’s investments in health care and senior housing real estate. During the year ended December 31, 2008, the Investment Committee met four times. Each member of the Board is a member of the Investment Committee. The Executive Committee is

responsible for reviewing and approving the Company’s investments between meetings of the Investment Committee.

 

Nominating/Corporate Governance Committee

 

Responsibilities and Members.   The Nominating/Corporate Governance Committee is responsible for reviewing and interviewing qualified candidates to serve on the Board, to make nominations to fill vacancies on the Board and to select the nominees for the Directors to be elected by the stockholders at each annual meeting. In addition, the Committee is responsible for evaluating, implementing and overseeing the standards and guidelines for the governance of the Company, including monitoring compliance with those standards and guidelines, developing and implementing succession plans and evaluating the performance of the Board. The members of the Nominating/Corporate Governance Committee are Messrs. Borra, DeRosa and Grua, with Mr. Grua serving as Chair. The Nominating/Corporate Governance Committee met twice during the year ended December 31, 2008.

 

The Committee is comprised solely of Directors who are not officers or employees of the Company. The Board has determined that no member of the Committee has any material relationship with the Company that might interfere with the member’s exercise of his independent judgment and that each member meets the standards of independence established by the New York Stock Exchange.

 

The Nominating/Corporate Governance Committee is governed by a written charter approved by the Board of Directors. The charter is available on the Company’s website at www.hcreit.com and from the Company upon written request sent to the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475.

 

Consideration of Director Nominees.   The Board believes that a nominee for Director should be or have been a senior manager, chief operating officer, chief financial officer or chief executive officer of a complex organization such as a corporation, university, foundation or governmental entity or unit or, if in a professional capacity, be accustomed to dealing with complex problems, or otherwise have obtained and excelled in a position of leadership. In addition, Directors and nominees for Director should have the education, experience, intelligence, independence, fairness, reasoning ability, practical wisdom and vision to exercise sound business judgment and should have high personal and professional ethics, strength of character, integrity and values. Also, Directors and nominees for Director should be available and willing to attend regularly scheduled meetings of the Board and its committees and otherwise able to contribute a reasonable amount of time to the Company’s affairs, with participation on other boards of directors encouraged to provide breadth of experience to the Board. The age at the time of election of any nominee for Director should be such to assure a minimum of three years of service as a Director.

 

In identifying and evaluating nominees for Director, the Committee first looks at the overall size and structure of the Board each year to determine the need to add or remove Directors. Second, taking into consideration the characteristics mentioned above, the Committee determines if there are any specific qualities or skills that would complement the existing strengths of the Board.

 

The Committee uses multiple sources for identifying and evaluating nominees for Directors, including referrals from current Directors and Management, and may seek input from third party executive search firms retained at the Company’s expense. If the Committee retains one or more search firms, such firms may be asked to identify possible nominees, interview and screen such nominees and act as a liaison between the Committee and each nominee during the screening and evaluation process. The Committee will review the résumé and qualifications of each candidate and determine whether the candidate would add value to the Board. With respect to candidates that are determined by the Committee to be potential nominees, the Committee will obtain such background and reference checks as it deems necessary, and the Chair of the Committee and the Chairman of the Board will interview qualified candidates. Once it is determined that a candidate is a good prospect, the candidate will be invited to meet the other members of the Committee. If the candidate is approved by the Committee, the candidate will have an opportunity to meet with the remaining Directors and Management. At the end of this process, if the Committee determines that the candidate will be able to add value to the Board and the candidate expresses his or her interest in serving on the Board, the Committee will then recommend to the Board that the candidate stand for election by the stockholders or fill a vacancy or newly created position on the Board.

The Committee will consider qualified nominees recommended by stockholders who may submit recommendations to the Committee in care of the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. The Committee requests that stockholder recommendations for director nominees be submitted by November 25, 2009 and be accompanied by: (1) the name, age, business address and, if known, residence address of the nominee; (2) the principal occupation or employment of the nominee for at least the last five years and a description of the qualifications of the nominee; (3) the class or series and number of shares of the Company’s stock that are owned beneficially or of record by the nominee; and (4) any other information relating to the nominee that is required to be disclosed in solicitations for proxies for election of Directors under Regulation 14A of the Securities Exchange Act of 1934, as amended, together with a written statement from the nominee that he or she is willing to be nominated and desires to serve, if elected. Also, the stockholder making the nomination should include: (1) his or her name and record address, together with the name and address of any other stockholder known to be supporting the nominee; and (2) the class or series and number of shares of the Company’s stock that are owned beneficially or of record by the stockholder making the nomination and by any other supporting stockholders. Nominees for Director who are recommended by stockholders will be evaluated in the same manner as any other nominee for Director.

 

In addition to the right of stockholders to recommend director nominees to the Committee, the By-Laws provide that a stockholder entitled to vote for the election of Directors may make nominations at a meeting of stockholders of persons for election to the Board if the stockholder has complied with specified prior notice requirements. To be timely, a stockholder’s notice of an intent to nominate a director at a meeting of stockholders must be in writing and delivered to the Senior Vice President-Administration and Corporate Secretary not more than 120 days prior to the meeting and not less than 45 days before the date on which the Company first mailed or otherwise gave notice for the prior year’s annual meeting of stockholders. With respect to the 2010 Annual Meeting, such a notice must be received by the Senior Vice President-Administration and Corporate Secretary by February 8, 2010. The By-Laws further require that such a notice include all of the information specified in the preceding paragraph for stockholder recommendations to the Committee for director nominees.

 

The Company may require that the proposed nominee furnish other information as the Company may reasonably request to assist in determining the eligibility of the proposed nominee to serve as a Director. At any meeting of stockholders, the Chairman of the Board may disregard the purported nomination of any person not made in compliance with these procedures.

 

Planning Committee

 

The function of the Planning Committee is to assist Management with identifying strategic opportunities for the Company. The Planning Committee met once during the year ended December 31, 2008. Each member of the Board is a member of the Planning Committee.

 

COMMUNICATIONS WITH THE BOARD

 

Stockholders and other parties interested in communicating with the Board of Directors or any specific Directors, including the presiding Director of executive sessions, or the non-employee Directors as a group, may do so by writing to the Board of Directors, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. The Nominating/Corporate Governance Committee has approved a process for handling letters received by the Company and addressed to members of the Board. Under that process, the Senior Vice President-Administration and Corporate Secretary of the Company reviews all such correspondence and regularly forwards to the Board a summary of the correspondence (with copies of the correspondence attached) that, in the opinion of the Senior Vice President-Administration and Corporate Secretary, relates to the functions of the Board or committees thereof or that she otherwise determines requires their attention (for example, if the communication received relates to questions, concerns or complaints regarding accounting, internal control over financial reporting and auditing matters, it will be summarized and forwarded to the Chair of the Audit Committee for review). Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence.

 

EXECUTIVE OFFICERS

 

The following information is furnished as to the Executive Officers of the Company:

 

George L. Chapman, age 61.   Mr. Chapman has served as Chairman and Chief Executive Officer of the Company since October 1996. Mr. Chapman assumed the additional title of President of the Company in January 2009 upon the resignation of Raymond W. Braun. As described above, Mr. Chapman has served in various executive capacities with the Company since 1992.

 

Fred S. Klipsch, age 67.   Mr. Klipsch has served as Vice Chairman of the Company since December 2006. As described above, Mr. Klipsch also serves in various capacities for Klipsch Group, Inc., Klipsch Audio Technologies and Klipsch Lanham Investments and served as Chairman of the Board and Chief Executive Officer of Windrose Medical Properties Trust until December 2006.

 

Scott A. Estes, age 38.   Mr. Estes has served as Senior Vice President and Chief Financial Officer of the Company since March 2006 and was promoted to Executive Vice President and Chief Financial Officer in January 2009. Mr. Estes served as Vice President of Finance of the Company from April 2003 to March 2006. From January 2000 to April 2003, Mr. Estes served as a Senior Research Analyst and Vice President with Deutsche Bank Securities.

 

Frederick L. Farrar, age 52.   Mr. Farrar has served as Executive Vice President of the Company since December 2006. Since 2000, Mr. Farrar has served as President of Klipsch Lanham Investments. Mr. Farrar served as President, Chief Operating Officer and Treasurer of Windrose Medical Properties Trust from March 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Farrar served as Chief Financial Officer of Hospital Affiliates Development Corporation, formerly a subsidiary of Windrose Medical Properties Trust and now a subsidiary of the Company (now known as HCN Development Services Group, Inc.), from 1990 until March 2002.

 

Charles J. Herman, Jr., age 43.   Mr. Herman has served as Executive Vice President and Chief Investment Officer of the Company since March 2006. Mr. Herman served as Vice President and Chief Investment Officer of the Company from May 2004 to March 2006 and served as Vice President of Operations from August 2000 to May 2004. From 1998 to August 2000, Mr. Herman was a founding member and President of Herman/Turner Group, LLC, a health care consulting company. Prior to that date, Mr. Herman was a founder and Chief Operating Officer of Capital Valuation Group, a health care consulting firm founded in 1991.

 

Jeffrey H. Miller, age 49.   Mr. Miller has served as Executive Vice President and General Counsel of the Company since March 2006 and assumed the additional title of Executive Vice President-Operations in January 2009. Mr. Miller served as Vice President and General Counsel of the Company from July 2004 to March 2006. From 1996 to June 2004, Mr. Miller was a partner in the real estate practice group of the law firm of Shumaker, Loop & Kendrick, LLP.

 

John T. Thomas, age 42.   Mr. Thomas has served as Executive Vice President-Medical Facilities since January 2009. Mr. Thomas served as President and Chief Development Officer of Cirrus Health, an owner and operator of hospitals, ambulatory surgery centers and other health care facilities, from July 2005 to January 2009. Mr. Thomas served as Senior Vice President/General Counsel for Baylor Health Care System from October 2000 to July 2005 and as General Counsel/Secretary for the St. Louis division of the Sisters of Mercy Health System from April 1997 to October 2000.

 

Michael A. Crabtree, age 52.   Mr. Crabtree has served as Vice President and Treasurer of the Company since March 2006 and was promoted to Senior Vice President and Treasurer in January 2009. Mr. Crabtree served as Treasurer from July 2000 to March 2006 and served as Controller of the Company from 1996 to September 2002. From July 1993 to July 1996, Mr. Crabtree was Chief Financial Officer of Westhaven Services Co., a provider of pharmaceutical services to nursing homes.

 

Erin C. Ibele, age 47.   Ms. Ibele has served as Senior Vice President-Administration and Corporate Secretary of the Company since March 2006 and served as Vice President-Administration and Corporate Secretary of the Company from January 1993 to March 2006. Since 1986, Ms. Ibele has served in various capacities with the Company.

Daniel R. Loftus, age 58.   Mr. Loftus has served as Senior Vice President of the Company since December 2006. Mr. Loftus served as Secretary and General Counsel of Windrose Medical Properties Trust from March 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Loftus was Of Counsel to Bone McAllester Norton PLLC during 2002 and Wyatt, Tarrant & Combs, LLP in Nashville, Tennessee from late 1997 to March 2002.

 

 

 

Based upon filings made with the Securities and Exchange Commission in 2009, the only stockholders known to the Company to be the beneficial owners of more than 5% of the Company’s common stock at March 12, 2009 are as follows:

 

 

 

 

Section 16(a) Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s Directors and Executive Officers, and persons who own beneficially more than 10% of the shares of common stock of the Company, to file reports of ownership and changes of ownership with the Securities and Exchange Commission and the New York Stock Exchange. Copies of all filed reports are required to be furnished to the Company pursuant to Section 16(a). Based solely on the reports received by the Company and on written representations from reporting persons, the Company believes that the Directors and Executive Officers complied with all applicable filing requirements during the fiscal year ended December 31, 2008.

 

 

 

Compensation Committee Procedures

 

The Compensation Committee of the Board is responsible for determining the nature and amount of compensation for the Company’s Chief Executive Officer and for reviewing and approving the compensation for the Company’s other nine Executive Officers. The Committee consists of three non-employee Directors. Jeffrey H. Donahue is the Compensation Committee Chair and William C. Ballard, Jr. and Sharon M. Oster are Committee members.

 

Compensation Consultant

 

The Compensation Committee engages Frederic W. Cook & Co. as its independent compensation consultant to advise the Committee on compensation program design, the components of the Company’s executive compensation programs and the amounts the Company should pay to its executives. Frederic W. Cook & Co. also provides the Committee with information on executive compensation trends and best practices and advice for potential improvements to the executive compensation programs. Frederic W. Cook & Co. also advises the Committee on the design and amount of compensation for non-employee Directors.

 

Frederic W. Cook & Co. does no work for Management unless requested by the Compensation Committee Chair, receives no compensation from the Company other than for its work in advising the Committee and maintains no other economic relationships with the Company. The consultant generally attends meetings of the Committee, and the Chair of the Committee frequently interacts with the consultant between meetings to define the nature of work to be conducted, to review materials to be presented at Committee meetings and to obtain the consultant’s opinion and perspective on proposals prepared by Management. As part of the process of assessing the effectiveness of the Company’s compensation programs and assisting with implementation, the consultant also interacts with members of Management. The consultant’s primary contacts with Management are the Executive Vice President and Chief Financial Officer and the Senior Vice President-Administration and Corporate Secretary.

 

Input of Executive Officers on Compensation

 

The Compensation Committee receives input from executives on a variety of issues related to compensation.

 

 

 

Annual Review of Executive Compensation

 

Each year, with the assistance of its independent consultant, the Compensation Committee conducts a comprehensive review of the executive compensation programs in terms of program design and compensation levels. This year, the results of the competitive review were first presented and discussed at the Committee meeting held on July 22, 2008.

 

This review for 2008 included a competitive analysis of the Company’s compensation practices versus those of its peers. The comparative peer group used in 2008 included four REITs in the health care sector and 10 other REITs of similar size to the Company in terms of market and total capitalization. These REITs were:

 

 

The comprehensive review included a competitive benchmarking analysis for the Company’s 10 Executive Officers, including the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated Executive Officers of the Company who were serving at the end of 2008 (collectively, the “Named Executive Officers”). The competitive benchmarking included all components of pay: base salary, annual incentive compensation, total annual compensation (base salary plus annual incentive compensation), long-term incentive compensation, total direct compensation (total annual compensation plus long-term incentive compensation), other compensation (perquisites, change in pension values and nonqualified deferred compensation, etc.) and total compensation. In addition, the review included a competitive analysis of peer company aggregate long-term incentive practices, including annual share usage and fair value transfer from long-term incentive compensation and potential share dilution from equity compensation plans. Finally, the Committee reviewed a five-year history of each compensation component individually and annualized compensation in total, as a form of “tally sheet” to track compensation earned over time. This annual comprehensive review enables the Committee to identify those executives whose target compensation levels deviate from the desired median competitive positioning, to examine the link between pay and performance in the Company’s compensation programs, and to plan compensation adjustments accordingly. The Committee uses the benchmarking data and the tally sheet in assessing internal pay relationships among executives and in making decisions regarding adjustments to each executive’s compensation opportunities.

 

Discussions — August through January.   Based on the results of the competitive review discussed at the July meeting, the Compensation Committee engaged in a dialogue over the next several months to discuss preliminary recommendations for changes to the programs for the upcoming year. These changes included potential adjustments

to base salaries and annual and long-term incentive opportunity ranges, changes to the performance measures and weightings (if any) for the annual and long-term incentive programs and changes (if any) to the long-term incentive grant types.

 

January 2009 Meeting.   At the January 29, 2009 meeting, the Committee reviewed the Company’s performance for 2008 against the pre-established performance measures and goals and approved the dollar amount of annual and long-term incentive compensation earned for each Executive Officer. Long-term incentive grants for 2008 performance were approved by the Committee and made on January 29, 2009. Cash bonuses for the Executive Officers for 2008 performance were approved by the Committee on January 29, 2009 and paid in February 2009. At the January meeting, the Committee also reviewed and approved adjustments to base salaries for 2009 for each of the Executive Officers.

 

Compensation Elements

 

Our executive compensation programs have the following elements:

 

 

Base Salary

 

We pay base salaries because some minimum level of fixed compensation is necessary to attract and retain executive talent. Our base salaries are generally targeted to the competitive market median, but may deviate from this competitive position based on the scope of the individual’s role in the organization, his or her level of experience in the current position and individual performance. Base salaries are reviewed annually and may be adjusted to better match market competitive levels and/or to recognize an individual’s growth and development in his or her position. The base salaries for the Named Executive Officers are as follows:

 

 

 

 

Consistent with the 2.5% salary increases for the Executive Officers, we increased the base salaries of Messrs. Chapman and Herman by 2.5% for 2009. The 2009 base salary increases for Messrs. Estes and Miller were higher than our overall merit increase budget because each of them received promotions in 2009. Mr. Miller has been promoted to Executive Vice President-Operations and General Counsel and will have greater responsibility for the Company’s operations. Mr. Estes has been promoted to Executive Vice President and Chief Financial Officer in recognition of his continued individual development and efforts in promoting the Company in the capital markets.

 

Annual Incentives

 

In 2008, all of the Named Executive Officers participated in our annual incentive program, which provides rewards for the achievement of certain performance objectives tied to our annual business plan, as well as achievement of individual performance objectives. Under this program, a range of earnings opportunity is

established for each executive at the beginning of the performance period, expressed as percentages of base salary and corresponding to three levels of performance (threshold, target and high performance levels). Annual incentives are paid in cash in the first quarter of the year following the performance year (e.g., 2008 bonuses were paid in the first quarter of 2009).

 

The corporate performance measures and weightings set by the Compensation Committee for 2008 under the annual incentive program, as well as our achievement for each goal, were as follows:

 

 

 

 

For Messrs. Chapman and Braun, 80% of the bonus was determined by corporate performance, as defined above, and 20% by individual performance. The corporate component was set at 80% because the Committee believes that almost all of the Chief Executive Officer’s and the President’s annual incentive compensation should be based on overall corporate performance given their high levels of responsibility for our performance. For Messrs. Estes, Herman and Miller, 60% of the bonus is determined by corporate performance and 40% by individual performance. The Committee believes that overall corporate performance should be the primary basis for determining annual incentives for these executives, but gave individual performance a heavier weighting (as compared to Messrs. Chapman and Braun) to reflect the importance of several strategic initiatives for which the executive is primarily responsible.

 

Factors considered in the assessment of individual performance include: implementation of targeted investment strategies, including initiatives relating to combination senior housing properties, continuing care retirement communities and modern medical facilities, professional development of and succession planning for Management, accountability with rating agencies and effective capital raising and communication with investors. The Chairman, Chief Executive Officer and President provides recommendations for individual performance scores for the executives who report to him, based on his assessment of performance versus the individual factors. The Committee assesses the Chairman, Chief Executive Officer and President’s performance against his individual factors to determine his individual performance score. For 2008, the Committee determined that each of Messrs. Chapman, Estes, Braun, Herman and Miller generally achieved the high level of individual performance.

The table below illustrates each executive’s total annual incentive earnings opportunity, taking into consideration both corporate and individual performance, under the annual incentive program and the actual bonuses for 2008 performance that were approved at the Committee’s January 29, 2009 meeting.

 

 

Long-Term Incentives

 

In 2008, all of the Named Executive Officers participated in the Company’s long-term incentive program. The objectives of our long-term incentive program are to focus our executives on creating value for our stockholders, to promote long-term corporate goals and to assist us in attracting and retaining key executives. Similar to the annual incentive program, long-term incentive awards for the Named Executive Officers are based on the achievement of pre-established corporate and individual goals for the performance year. For each executive, a range of earnings opportunity, expressed in dollar values, is established at the beginning of the performance period corresponding to three levels of performance (threshold, target and high performance levels) for long-term incentive compensation. Seventy-five percent of the value of the long-term incentive compensation award is based on corporate performance goals set by the Compensation Committee and 25% is based on individual performance. The corporate performance goals for 2008, as well as our achievement for each goal, were as follows:

 

 

 

 

Each of Messrs. Chapman, Estes, Braun, Herman and Miller generally achieved the high level of individual performance. The assessment of individual performance was based on the same factors as used to determine individual performance in the annual incentive program.

 

Long-term incentive amounts earned are delivered through equity grants from the 2005 Long-Term Incentive Plan. The Committee determined that 75% of the value of long-term incentive compensation earned for 2008 should be granted in the form of shares of restricted stock and 25% should be granted in the form of stock options. Our long-term incentive mix is heavily weighted toward restricted stock because we believe that restricted stock provides a

strong incentive to create and preserve long-term stockholder value. We use stock options to add share price performance leverage into the program. Stock options have no value to the holder unless value is created for our stockholders through share price appreciation. Generally, equity grants made on an annual basis vest ratably over five years. This multi-year vesting creates a retention mechanism for our executives and subjects them to the same share price risk over a long-term period as other investors, thereby aligning their interests with those of our stockholders.

 

The 2008 long-term incentive earnings opportunities are reflected in the “2008 Grants of Plan-Based Awards Table” below as dollar amounts. The table below outlines the long-term incentive earnings opportunities for 2008 and the amounts that were approved at the Committee’s January 29, 2009 meeting.

 

 

 

 

Stock Options with DERs.   In prior years, the stock option component was split evenly between stock options with dividend equivalent rights (“DERs”) and stock options without DERs (“plain vanilla” stock options). Options with DERs entitle the optionholder to receive a cash payment equal to the dividend paid on a share of the Company’s common stock. We used options with DERs because they reward total stockholder return, in the form of both share price appreciation and dividends. As a REIT, we have a high dividend distribution requirement, so a significant portion of our stockholder return is provided in the form of dividends.

 

Upon vesting, the holder of each DER receives a lump sum cash payment equal to all the dividends paid on a share of common stock from the date the DER was granted to the date the DER vested. After vesting, the holder of each DER receives a cash payment equal to the value of the dividends paid on a share of common stock at the same time dividends are paid to our common stockholders. Originally, the DERs were to terminate on the earlier of the 10th anniversary of the grant of the DER or the date that the underlying stock option is exercised. However, informal statements from the Internal Revenue Service (the “IRS”) suggest that DERs that terminate upon exercise of the underlying stock option will cause the underlying stock option to become subject to, and automatically violate, Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). As a result, on December 29, 2008, we amended the stock option agreements to provide for DER payments for a fixed term, regardless of whether the underlying stock option had been exercised. The fixed term for each grant of DERs was chosen so that the fair value of the award was the same before and after the modification, resulting in no incremental expense to the Company.

The table below sets forth the termination dates of the DERs on each of our outstanding grants, as a result of these amendments.

 

Our preferred design would be for the DERs to terminate upon exercise of the underlying stock option. Our rationale is that upon exercise of the stock option, the employee will hold our common shares and be entitled to receive actual dividends. Continuation of the DER payments after exercise of the underlying stock options will result in the payment of “double” dividends. Because of the IRS statements described above, we have decided not to make any further grants of stock options with DERs unless the IRS clarifies that DERs that terminate upon exercise of the underlying stock option will not cause the underlying stock option to be subject to Section 409A.

 

Timing of Awards

 

Under our equity granting policy, grants to our Named Executive Officers are approved by the Compensation Committee on the date of our January Board meeting, or if later, as soon as possible following the calculation of the corporate performance measures and the completion of annual reviews of the Named Executive Officers and review and consideration of compensation recommendations. Grant values are converted to shares based on the closing price of the Company’s common stock on the date of grant. The exercise price of stock options is the closing price of the Company’s common stock on the date of grant.

 

Benefits and Perquisites

 

The Named Executive Officers participate in the same benefit programs as all other Company employees, including health and dental insurance, group life insurance, short-term and long-term disability coverage, payment of health club/gym membership fees and participation in the Company’s tax-qualified 401(k) plan. In addition, Messrs. Chapman and Braun each received certain perquisites in 2008, including:

 

 

The Committee reviews the Company’s policies with respect to perquisites on a regular basis. Mr. Chapman is entitled to receive these perquisites in 2009 and Mr. Braun, as a consultant to the Company, may receive certain perquisites in 2009. See Note 6 to the “Summary Compensation Table” for additional information regarding perquisites, including the dollar values of the perquisites provided by the Company in 2008.

 

Supplemental Executive Retirement Plan

 

The SERP is a non-qualified defined benefit pension plan adopted by the Compensation Committee on January 1, 2001. Messrs. Chapman and Braun were the only two participants in the SERP in 2008. Since Mr. Braun’s employment ceased as of January 31, 2009, Mr. Chapman will be the only participant in the SERP for the remainder of 2009. The SERP benefit is designed to provide a benefit payable at retirement at age 65 or older equal to 35% of the participant’s average compensation at retirement, offset by the actuarial equivalent of the benefit provided by the Company’s tax-qualified retirement plan and trust (the “401(k) Plan”). Since the SERP benefit accrues over the career of the participant, if the participant retires before his 65th birthday, the benefit will be subject to a reduction for proration of length of participation and a further reduction based upon the number of months the participant’s retirement occurs prior to his or her 65th birthday. “Average compensation” is defined

under the SERP to mean the average of the three highest years of salary and bonus compensation considering all years completed prior to the date of retirement. The actuarial equivalent of the benefit provided by the Company’s 401(k) Plan represents the value of Company contributions to the participant’s plan accounts projected to age 65 and expressed as a monthly benefit payable for life. The projected value of Company contributions is determined by using all contributions made on behalf of the participant for plan years completed prior to the date of retirement and a 7.5% interest rate compounded annually.

 

In the event of a change in corporate control of the Company, if Mr. Chapman’s employment is terminated, either voluntarily or involuntarily for any reason, he will be entitled to receive the full retirement benefit, unreduced by the proration for length of participation or the early retirement reduction.

 

Ownership Guidelines

 

We require our executives to own shares of our common stock with a fair market value of at least three times their base salary (five times for the Chief Executive Officer). Our non-employee Directors are required to own shares of our common stock with a fair market value of at least $150,000. Shares owned directly and indirectly, restricted shares and deferred stock units count towards the ownership requirement, but unexercised stock options do not. Executives and non-employee Directors have five years from their date of hire or appointment, as applicable, to achieve the required ownership level. As of December 31, 2008, each of the Named Executive Officers and each of our non-employee Directors were in compliance with the ownership requirement.

 

Tax Deductibility of Executive Compensation

 

The Compensation Committee has considered the anticipated tax treatment to the Company regarding the compensation and benefits paid to the Named Executive Officers under Section 162(m) of the Code. Although the Company does not pay corporate federal income taxes (except with respect to its taxable REIT subsidiaries) because it is a real estate investment trust, the Compensation Committee will strive to provide executives with attractive, well-designed compensation packages that will generally preserve the deductibility of such payments for the Company. Certain types of compensation payments and their deductibility depend upon the timing of an Executive Officer’s vesting or exercise of previously granted rights. Moreover, interpretations of any changes in the tax laws and other factors beyond the Compensation Committee’s control may affect the deductibility of certain compensation payments. As mentioned above, however, since the Company does not pay corporate federal income taxes (except with respect to its taxable REIT subsidiaries), the loss of this deduction would not have adverse consequences for the Company. If deductibility becomes an issue, the Compensation Committee will consider various alternatives to preserve the deductibility of compensation payments to Executive Officers and benefits to the extent reasonably practical and to the extent consistent with its other compensation objectives, but the Committee reserves the right to make incentive-based awards not exempt from these limits where such awards are appropriate and will not have a material impact on stockholder value.

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis of the Company with Management. Based on the review and discussions, the Compensation Committee recommended to the Board of Directors, and the Board has approved, that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

Employment and Consulting Agreements

 

The Company has employment agreements with each of Messrs. Chapman, Estes, Herman and Miller and a consulting agreement with Mr. Braun. The employment agreements with the Named Executive Officers were amended and restated on December 29, 2008 for the sole purpose of bringing them into compliance with Section 409A of the Code. In particular, each employment agreement was modified to (1) specify that severance payments by the Company that are subject to Section 409A will be deferred for six months following the executive’s separation from service with the Company, (2) incorporate Section 409A compliant payment dates for the annual bonus and other payments under the agreement, and (3) require the payment of severance in a lump sum (rather than in monthly installments) upon an involuntary termination by the Company or upon a resignation or an involuntary termination following a change in corporate control.

 

George L. Chapman — Employment Agreement

 

The Company has entered into an employment agreement with George L. Chapman, Chairman, Chief Executive Officer and President of the Company, that expires on January 31, 2010; however, Mr. Chapman has the option to extend the term for an additional year. Mr. Chapman receives a base salary that is reviewed and adjusted each year by the Compensation Committee and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. In addition, the Company pays the initiation fees and membership dues for two dining/country clubs, costs relating to up to three business-related conferences, conventions or seminars attended by Mr. Chapman and his spouse each year and the costs required to maintain a disability insurance policy on Mr. Chapman. The Company also provides Mr. Chapman with reimbursement for the costs of physical examinations. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Chapman upon his termination or a change in corporate control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Special Retention and Incentive Award.   On January 22, 2007, Mr. Chapman received a grant of 60,000 shares of restricted stock as a special retention and incentive award. The restrictions on these shares will lapse if Mr. Chapman remains employed by the Company through January 31, 2010. Mr. Chapman also received a grant of 60,000 shares in performance awards with DERs, which will be paid in shares of common stock if Mr. Chapman remains employed by the Company through January 31, 2010 and the Company meets certain strategic objectives. Mr. Chapman receives DER payments with respect to 30,000 of the performance awards as dividends are paid on shares of common stock, and DER payments on the remaining 30,000 performance awards will be paid if the underlying shares of common stock are earned by Mr. Chapman.

 

Scott A. Estes — Employment Agreement

 

The Company has entered into an employment agreement with Scott A. Estes, Executive Vice President and Chief Financial Officer of the Company, that expires January 31, 2011, and provides for optional successive two-year renewal terms. Mr. Estes receives a base salary that is reviewed and adjusted each year by the Compensation Committee and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Estes upon his termination or a change in corporate control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Raymond W. Braun — Consulting Agreement

 

The employment agreement between the Company and Raymond W. Braun, formerly the President of the Company, expired on January 31, 2009. Mr. Braun received a cash bonus for his performance in 2008 and his long-term incentive compensation award for performance in 2008 was paid in cash. In connection with such expiration, all stock options and restricted stock granted to Mr. Braun under the Company’s stock incentive plans became fully vested and, in the case of stock options, exercisable in full. Mr. Braun may exercise all or any portion of such stock

options until December 31, 2009. For a description of the provisions of the employment agreement regarding compensation and benefits that would have been payable to Mr. Braun upon his termination or a change in corporate control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

The Company has entered into a consulting agreement with Mr. Braun that expires December 31, 2009. Mr. Braun receives a base consulting fee of $800,000 and will be eligible to receive a discretionary bonus of between 75% and 125% of the base consulting fee based on extraordinary performance during the term of the agreement.

 

Charles J. Herman, Jr. — Employment Agreement

 

The Company has entered into an employment agreement with Charles J. Herman, Jr., Executive Vice President and Chief Investment Officer of the Company, that expires January 31, 2011, and provides for optional successive two-year renewal terms. Mr. Herman receives a base salary that is reviewed and adjusted each year by the Compensation Committee and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Herman upon his termination or a change in corporate control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Jeffrey H. Miller — Employment Agreement

 

The Company has entered into an employment agreement with Jeffrey H. Miller, Executive Vice President-Operations and General Counsel of the Company, that expires January 31, 2011, and provides for optional successive two-year renewal terms. Mr. Miller receives a base salary that is reviewed and adjusted each year by the Compensation Committee and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Miller upon his termination or a change in corporate control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

 

 

 

2008 Pension Benefits Table

 

The table below provides information regarding the SERP adopted by the Compensation Committee of the Board of Directors effective January 1, 2001. The SERP is a non-qualified defined benefit pension plan that provides certain executives selected by the Compensation Committee with supplemental deferred retirement benefits. The SERP provides an opportunity for participants to receive retirement benefits that cannot be paid under the Company’s 401(k) Plan because of the restrictions imposed by ERISA and the Code. During 2008, George L. Chapman and Raymond W. Braun participated in the SERP.

 

 

 

 

The SERP benefit is designed to provide a benefit payable at retirement at age 65 or older equal to 35% of the participant’s average compensation at retirement, offset by the actuarial equivalent of the benefit provided by the Company’s 401(k) Plan. Since the SERP benefit accrues over the career of the participant, if the participant retires before his or her 65th birthday, the benefit will be subject to a reduction for proration of length of participation and a further reduction based upon the number of months the participant’s retirement occurs prior to his or her 65th birthday. Average compensation is defined under the SERP to mean the average of the three highest years of salary and bonus compensation considering all years completed prior to the date of retirement.

 

The actuarial equivalent of the benefit provided by the Company’s 401(k) Plan represents the value of Company contributions to the participant’s plan accounts projected to age 65 and expressed as a monthly benefit payable for life. The projected value of Company contributions is determined by using all contributions made on

behalf of the participant for plan years completed prior to the date of retirement and a 7.5% interest rate compounded annually.

 

The SERP is unfunded and all benefits will be paid from the general assets of the Company. Eligibility is limited to a select group of Management or highly compensated employees whose qualified plan benefits are limited by ERISA and the Code. See “Executive Compensation — Compensation Discussion and Analysis — Compensation Elements — Supplemental Executive Retirement Plan” above for additional information regarding the SERP.

 

Potential Payments Upon Termination or Change in Corporate Control

 

Pursuant to their respective employment or consulting agreements, each of the Named Executive Officers would be entitled to the following benefits upon termination or change in corporate control.

 

George L. Chapman

 

Severance Payments and Benefits.   If Mr. Chapman is terminated without cause, he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for each month during the remaining term of the agreement or for 24 months, whichever is greater (the “Severance Period”). If Mr. Chapman resigns or is terminated without cause during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for 36 months. The monthly severance payments would be calculated using an amount equal to the sum of one-twelfth of the sum of his annual base salary and the greater of the average of his annual bonuses for the two fiscal years immediately preceding the termination or change in corporate control or a minimum bonus equal to 100% of his annual base salary. The present value would be calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported on the date of termination or change in corporate control. Mr. Chapman also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement (but not less than 12 months and not more than the period during which he would be entitled to continuation coverage under Section 4980 of the Code, if he elected such coverage and paid the applicable premiums), or until the date he obtains comparable coverage from a new employer. If Mr. Chapman is terminated without cause and he obtains a replacement position with a new employer, Mr. Chapman would be obligated to repay to the Company an amount equal to all amounts he receives as compensation for services performed during the Severance Period; provided that the aggregate repayment obligation will not exceed the amount of the lump sum severance payment. If it is determined that any payment by the Company to Mr. Chapman in connection with a change in corporate control would be a golden parachute subject to excise tax, the Company would be obligated to make an additional payment to him to cover such excise tax.

 

In the event of Mr. Chapman’s death, his beneficiary would receive a lump sum payment equal to the present value of a series of monthly payments for each month during the remainder of the term of the agreement (but not less than 24 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the average of his annual bonuses for the two fiscal years immediately preceding the date of death or a minimum bonus equal to 100% of his annual base salary. In addition, the death benefits payable under any retirement, deferred compensation, life insurance or other employee benefit maintained by the Company will be paid to the beneficiary designated by Mr. Chapman.

 

In the event of Mr. Chapman’s involuntary termination following a Board determination that he is disabled, Mr. Chapman would receive monthly payments for each month during the remainder of the term of the agreement (but not less than 24 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the average of his annual bonuses for the two fiscal years immediately preceding the date of disability or a minimum bonus equal to 100% of his annual base salary. These payments would terminate if Mr. Chapman returns to active employment, either with the Company or otherwise. In addition, these payments would be reduced by any amounts paid to Mr. Chapman under any long-term disability plan or other disability program or insurance policies maintained by the Company.

If Mr. Chapman voluntarily terminates his employment or is terminated for cause, Mr. Chapman only would be entitled to accrued but unpaid base salary and vacation pay, any bonuses earned but unpaid and any nonforfeitable benefits under the Company’s deferred compensation, incentive and other benefit plans.

 

Vesting of Incentive Awards.   Mr. Chapman’s stock option and restricted stock awards granted under the Company’s incentive plans (including the 60,000 shares of restricted stock granted in connection with the agreement) would become vested and immediately exercisable in the event of a change in corporate control, or upon his death, disability or termination without cause. With respect to the performance awards granted in connection with the agreement, in the event of a change in corporate control, or upon his death or disability, all 60,000 of the performance awards would become earned and payable. In the event of a termination without cause, 30,000 of the performance awards would become earned and payable and the remaining 30,000 may be earned and payable if the Board determines that the strategic objectives described in the agreement have been attained.

 

Non-Competition and Non-Solicitation.   In the event of a voluntary termination by Mr. Chapman or a termination for cause by the Company, Mr. Chapman would be subject to a one-year non-competition agreement. In addition, upon the termination of the agreement for any reason, Mr. Chapman would be subject to a non-solicitation agreement for a period of one year from the time the agreement ceases, or if later, during the Severance Period (in the event of an involuntary termination by the Company) or for a period of 24 months after an involuntary termination or voluntary resignation following a change in corporate control.

 

Scott A. Estes

 

Severance Payments and Benefits.   If Mr. Estes is terminated without cause, he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for each month during the remaining term of the agreement or for 12 months, whichever is greater (the “Severance Period”). If Mr. Estes resigns or is terminated without cause during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for 24 months. The monthly severance payments would be calculated using an amount equal to the sum of one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the termination or change in corporate control or a minimum bonus equal to 35% of his annual base salary. The present value would be calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported on the date of termination or change in corporate control. Mr. Estes also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement (but not less than six months and not more than the period during which he would be entitled to continuation coverage under Section 4980 of the Code, if he elected such coverage and paid the applicable premiums), or until the date he obtains comparable coverage from a new employer. If Mr. Estes is terminated without cause and he obtains a replacement position with a new employer, Mr. Estes would be obligated to repay to the Company an amount equal to all amounts he receives as compensation for services performed during the Severance Period; provided that the aggregate repayment obligation will not exceed the amount of the lump sum severance payment. If it is determined that any payment by the Company to Mr. Estes in connection with a change in corporate control would be a golden parachute subject to excise tax, the Company would be obligated to make an additional payment to him to cover such excise tax.

 

In the event of Mr. Estes’ death, his beneficiary would receive a lump sum payment equal to the present value of a series of monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of death or a minimum bonus equal to 35% of his annual base salary. In addition, the death benefits payable under any retirement, deferred compensation, life insurance or other employee benefit maintained by the Company will be paid to the beneficiary designated by Mr. Estes.

 

In the event of Mr. Estes’ involuntary termination following a Board determination that he is disabled, Mr. Estes would receive monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of disability or a minimum bonus equal to 35% of his annual base salary. These payments would terminate if Mr. Estes returns to active employment, either

with the Company or otherwise. In addition, these payments would be reduced by any amounts paid to Mr. Estes under any long-term disability plan or other disability program or insurance policies maintained by the Company.

 

If Mr. Estes voluntarily terminates his employment or is terminated for cause, Mr. Estes only would be entitled to accrued but unpaid base salary and vacation pay, any bonuses earned but unpaid and any nonforfeitable benefits under the Company’s deferred compensation, incentive and other benefit plans.

 

Vesting of Incentive Awards.   Mr. Estes’ stock option and restricted stock awards granted under the Company’s incentive plans would become vested and immediately exercisable in the event of a change in corporate control, or upon his death, disability or termination without cause.

 

Non-Competition and Non-Solicitation.   In the event of a voluntary termination by Mr. Estes, the election by Mr. Estes not to extend the term of the agreement or a termination for cause by the Company, Mr. Estes would be subject to a one-year non-competition agreement. In addition, upon the termination of the agreement for any reason, Mr. Estes would be subject to a non-solicitation agreement for a period of one year from the time the agreement ceases, or if later, during the Severance Period (in the event of an involuntary termination by the Company) or for a period of 24 months after an involuntary termination or voluntary resignation following a change in corporate control.

 

Raymond W. Braun

 

The employment agreement between the Company and Mr. Braun expired on January 31, 2009. The provisions of such agreement relating to termination and change of control were substantially similar to the provisions of the employment agreement with Mr. Estes (as described above), except that the minimum bonus payable to Mr. Braun in connection with his death, termination without cause, termination following a disability determination, or his resignation or termination without cause following a change in corporate control was equal to 55% of his annual base salary. In connection with the expiration of his employment agreement, all stock options and restricted stock granted to Mr. Braun under the Company’s stock incentive plans became fully vested and, in the case of stock options, exercisable in full. Mr. Braun may exercise all or any portion of such stock options until December 31, 2009.

 

The Company has entered into a consulting agreement with Mr. Braun that expires December 31, 2009. Mr. Braun may terminate the consulting agreement at any time after May 1, 2009 upon 30 days notice to the Company. In addition, the agreement will terminate if Mr. Braun becomes employed by another entity. Upon such an event, the Company will have no obligation to pay the remaining portion of the base consulting fee. Mr. Braun is subject to a non-competition agreement until December 31, 2009.

 

Charles J. Herman, Jr.

 

Severance Payments and Benefits.   If Mr. Herman is terminated without cause, he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for each month during the remaining term of the agreement or for 12 months, whichever is greater (the “Severance Period”). If Mr. Herman resigns or is terminated without cause during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for 24 months. The monthly severance payments would be calculated using an amount equal to the sum of one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the termination or change in corporate control or a minimum bonus equal to 30% of his annual base salary. The present value would be calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported on the date of termination or change in corporate control. Mr. Herman also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement (but not less than six months and not more than the period during which he would be entitled to continuation coverage under Section 4980 of the Code, if he elected such coverage and paid the applicable premiums), or until the date he obtains comparable coverage from a new employer. If Mr. Herman is terminated without cause and he obtains a replacement position with a new employer, Mr. Herman would be obligated to repay to the Company an amount equal to all amounts he receives as compensation for services performed during the Severance Period; provided that the aggregate repayment obligation will not exceed the amount of the lump sum severance payment. If it is determined that any payment by the Company to Mr. Herman in

connection with a change in corporate control would be a golden parachute subject to excise tax, the Company would be obligated to make an additional payment to him to cover such excise tax.

 

In the event of Mr. Herman’s death, his beneficiary would receive a lump sum payment equal to the present value of a series of monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of death or a minimum bonus equal to 30% of his annual base salary. In addition, the death benefits payable under any retirement, deferred compensation, life insurance or other employee benefit maintained by the Company will be paid to the beneficiary designated by Mr. Herman.

 

In the event of Mr. Herman’s involuntary termination following a Board determination that he is disabled, Mr. Herman would receive monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of disability or a minimum bonus equal to 30% of his annual base salary. These payments would terminate if Mr. Herman returns to active employment, either with the Company or otherwise. In addition, these payments would be reduced by any amounts paid to Mr. Herman under any long-term disability plan or other disability program or insurance policies maintained by the Company.

 

If Mr. Herman voluntarily terminates his employment or is terminated for cause, Mr. Herman only would be entitled to accrued but unpaid base salary and vacation pay, any bonuses earned but unpaid and any nonforfeitable benefits under the Company’s deferred compensation, incentive and other benefit plans.

 

Vesting of Incentive Awards.   Mr. Herman’s stock option and restricted stock awards granted under the Company’s incentive plans would become vested and immediately exercisable in the event of a change in corporate control, or upon his death, disability or termination without cause.

 

Non-Competition and Non-Solicitation.   In the event of a voluntary termination by Mr. Herman, the election by Mr. Herman not to extend the term of the agreement or a termination for cause by the Company, Mr. Herman would be subject to a one-year non-competition agreement. In addition, upon the termination of the agreement for any reason, Mr. Herman would be subject to a non-solicitation agreement for a period of one year from the time the agreement ceases, or if later, during the Severance Period (in the event of an involuntary termination by the Company) or for a period of 24 months after an involuntary termination or voluntary resignation following a change in corporate control.

 

Jeffrey H. Miller

 

Severance Payments and Benefits.   If Mr. Miller is terminated without cause, he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for each month during the remaining term of the agreement or for 12 months, whichever is greater (the “Severance Period”). If Mr. Miller resigns or is terminated without cause during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive a lump sum severance payment equal to the present value of a series of monthly severance payments for 24 months. The monthly severance payments would be calculated using an amount equal to the sum of one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the termination or change in corporate control or a minimum bonus equal to 30% of his annual base salary. The present value would be calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported on the date of termination or change in corporate control. Mr. Miller also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement (but not less than six months and not more than the period during which he would be entitled to continuation coverage under Section 4980 of the Code, if he elected such coverage and paid the applicable premiums), or until the date he obtains comparable coverage from a new employer. If Mr. Miller is terminated without cause and he obtains a replacement position with a new employer, Mr. Miller would be obligated to repay to the Company an amount equal to all amounts he receives as compensation for services performed during the Severance Period; provided that the aggregate repayment obligation will not exceed the amount of the lump sum severance payment. If it is determined that any payment by the Company to Mr. Miller in connection with a change

in corporate control would be a golden parachute subject to excise tax, the Company would be obligated to make an additional payment to him to cover such excise tax.

 

In the event of Mr. Miller’s death, his beneficiary would receive a lump sum payment equal to the present value of a series of monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of death or a minimum bonus equal to 30% of his annual base salary. In addition, the death benefits payable under any retirement, deferred compensation, life insurance or other employee benefit maintained by the Company will be paid to the beneficiary designated by Mr. Miller.

 

In the event of Mr. Miller’s involuntary termination following a Board determination that he is disabled, Mr. Miller would receive monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of disability or a minimum bonus equal to 30% of his annual base salary. These payments would terminate if Mr. Miller returns to active employment, either with the Company or otherwise. In addition, these payments would be reduced by any amounts paid to Mr. Miller under any long-term disability plan or other disability program or insurance policies maintained by the Company.

 

If Mr. Miller voluntarily terminates his employment or is terminated for cause, Mr. Miller only would be entitled to accrued but unpaid base salary and vacation pay, any bonuses earned but unpaid and any nonforfeitable benefits under the Company’s deferred compensation, incentive and other benefit plans.

 

Vesting of Incentive Awards.   Mr. Miller’s stock option and restricted stock awards granted under the Company’s incentive plans would become vested and immediately exercisable in the event of a change in corporate control, or upon his death, disability or termination without cause.

 

Non-Competition and Non-Solicitation.   In the event of a voluntary termination by Mr. Miller, the election by Mr. Miller not to extend the term of the agreement or a termination for cause by the Company, Mr. Miller would be subject to a one-year non-competition agreement. In addition, upon the termination of the agreement for any reason, Mr. Miller would be subject to a non-solicitation agreement for a period of one year from the time the agreement ceases, or if later, during the Severance Period (in the event of an involuntary termination by the Company) or for a period of 24 months after an involuntary termination or voluntary resignation following a change in corporate control.

Quantification of Benefits

 

The table below reflects estimates of the amounts of compensation that would be paid to the Named Executive Officers in the event of their termination. The amounts assume that such termination was effective as of December 31, 2008, including Mr. Braun, whose employment agreement expired on January 31, 2009. The actual amounts to be paid to an executive can only be determined at the time of such executive’s separation from the Company. See “Potential Payments Upon Termination or Change in Corporate Control” above for a description of the actual benefits received by Mr. Braun in connection with the expiration of his employment agreement.