Form 10-K/A
Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-32641

BROOKDALE SENIOR LIVING INC.

(Exact name of registrant as specified in its charter)

 

Delaware

(State or Other Jurisdiction of

Incorporation or Organization)

  

20-3068069

(I.R.S. Employer

Identification No.)

111 Westwood Place, Suite 400

Brentwood, Tennessee 37027

(Address of Principal Executive Offices)

 

(Registrant’s telephone number including area code)

   (615) 221-2250

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

Title of Each Class

Common Stock, $0.01 Par Value Per Share

  

Name of Each Exchange on Which Registered

New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   No  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  

 

Accelerated filer  

Non-accelerated filer  

 

Smaller reporting company  

 

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No  

The aggregate market value of common stock held by non-affiliates of the registrant on June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1.7 billion. The market value calculation was determined using a per share price of $9.09, the price at which the registrant’s common stock was last sold on the New York Stock Exchange on such date. For purposes of this calculation only, shares held by non-affiliates excludes only those shares beneficially owned by the registrant’s executive officers, directors and stockholders owning 10% or more of the Company’s outstanding common stock.

As of April 24, 2019, 186,189,888 shares of the registrant’s common stock, $0.01 par value, were outstanding (excluding unvested restricted shares).


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Explanatory Note

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K for Brookdale Senior Living Inc. (“Brookdale,” the “Company,” “we,” or “our”) for the fiscal year ended December 31, 2018, which was filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2019 (the “Original Filing”).

We are filing this Amendment to include the information required by Part III and not included in the Original Filing, as we will not file our definitive proxy statement within 120 days of the end of our fiscal year ended December 31, 2018. The reference on the cover page of the Original Filing to our incorporation by reference of certain sections of our definitive proxy statement into Part III of the Original Filing is hereby deleted.

Except as set forth in Part III below and the updates to the List of Exhibits, no other changes are made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing. Unless expressly stated, this Amendment does not reflect events occurring after the filing of the Original Filing, nor does it modify or update in any way the disclosures contained in the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and our other filings with the SEC.

Table of Contents

 

Part III      3  

Item 10. Directors, Executive Officers and Corporate Governance

     3  

Item 11. Executive Compensation

     10  

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     50  

Item 13. Certain Relationships and Related Transactions, and Director Independence

     52  

Item 14. Principal Accounting Fees and Services

     53  
Part IV      55  

Item 15. Exhibits, Financial Statement Schedules

     55  
Appendix A – Reconciliations of Non-GAAP Financial Measures      A-1  

 

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information Concerning Directors

The Company’s Board of Directors (the “Board”) consists of eight directors and is currently divided into three classes. The terms of the Class I, Class II and Class III directors will expire at the annual meetings of stockholders to be held in 2020, 2019 and 2021, respectively. We are the process of phasing out the classified structure of the Board pursuant to an amendment to our Certificate of Incorporation approved at the 2018 annual meeting of stockholders such that all director nominees standing for election at or after the 2021 annual meeting of stockholders will be elected to hold office for a term of one year. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” below for a description of securities beneficially owned by our directors.

 

 

Lee S. Wielansky

 

Position:

Non-Executive Chairman of the Board

(Class I)

 

Age:

67

 

Joined Board:

April 2015

                

 

Mr. Wielansky has more than 40 years of commercial real estate investment, management and development experience. He currently serves as Chairman and CEO of Opportunistic Equities, which specializes in low income housing. He has also served as Chairman and CEO of Midland Development Group, Inc., which he re-started in 2003 and focused on the development of retail properties in the mid-west and southeast. Prior to Midland, he served as President and CEO of JDN Development Company, Inc. and as a director of JDN Realty Corporation. Before joining JDN, he served as Managing Director—Investments of Regency Centers Corporation, which in 1998 acquired Midland Development Group, a retail properties development company co-founded by Mr. Wielansky in 1983. Mr. Wielansky became Non-Executive Chairman of the Board in February 2018. He also serves as Lead Trustee of Acadia Realty Trust and served as a director of Isle of Capri Casinos, Inc. from 2007 to 2017 and Pulaski Financial Corp. from 2005 to 2016. Mr. Wielansky received a bachelor’s degree in Business Administration, with a major in Real Estate and Finance, from the University of Missouri—Columbia, where he is currently a member of the Strategic Development Board of the College of Business. He also serves on the Board of Directors of The Foundation for Barnes-Jewish Hospital.

 

Mr. Wielansky’s real estate investment, management and development experience, as well as his service as a director of several public companies, led to the conclusion that he should serve as a member of the Board.

 

          

 

 

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Lucinda M. Baier

 

Position:

President, Chief Executive Officer and Director

(Class I)

 

Age:

54

 

Joined Board:

February 2018

                

 

Ms. Baier has served as Brookdale’s President and Chief Executive Officer and as a member of the Board since February 2018, after having served as Brookdale’s Chief Financial Officer since December 2015. In addition to experience as a seasoned Chief Financial Officer in several companies, she has had multi-billion dollar P&L responsibility, served as an executive officer of a Fortune 30 company, been the chief executive officer for a publicly-traded retailer and has served for more than a decade as a board member of public and private companies, including serving as the chairman of the board. Prior to joining Brookdale, Ms. Baier served as Chief Financial Officer of Navigant Consulting, Inc., a specialized global expert services firm, since March 2013 and its Executive Vice President since February 2013. Additionally, Ms. Baier has served as the Chief Financial Officer of Central Parking System, Inc., Movie Gallery, Inc., and World Kitchen, LLC. Ms. Baier’s experience also includes serving as the Senior Vice President and General Manager of Sears, Roebuck and Co.’s Credit and Financial Products business and serving as the Chairman of Sears National Bank. Ms. Baier currently serves as a member of the Board of Directors of the National Investment Center for the Seniors Housing & Care Industry (NIC), the American Seniors Housing Association (ASHA), and the Nashville Health Care Council, and previously served from 2007 to 2016 as a member of the Board of Directors and Audit Committee of The Bon-Ton Stores, Inc. Ms. Baier is a Certified Public Accountant and is a graduate of Illinois State University, with Bachelor and Master of Science degrees in Accounting.

 

Ms. Baier’s appointment as the Company’s President and Chief Executive Officer after demonstrating her abilities as a change-oriented executive as our Chief Financial Officer and in multiple leadership roles at other companies led to the conclusion that she should serve as a member of the Board.

 

          

 

 

Marcus E. Bromley

 

Position:

Independent Director

(Class III)

 

Age:

69

 

Joined Board:

July 2017

                

 

Mr. Bromley brings more than 35 years of real estate industry leadership experience. He served as Chairman of the Board and Chief Executive Officer of Gables Residential Trust from 1993 until 2000, and then as a member of its Board until the company was acquired in 2005. Prior to joining Gables Residential Trust, Mr. Bromley was a division partner for the Southeast operation of Trammell Crow Residential Company. Mr. Bromley has served as a member of the Board of Cole Credit Property Trust V, Inc., a non-listed real estate investment trust, since March 2015 and served as its Non-Executive Chairman from June 2015 to August 2018. Mr. Bromley also currently serves as a member of the advisory board of Nancy Creek Capital Management, LLC, a private mezzanine debt and equity investment firm, and Sealy Industrial Partners, a private partnership specializing in the acquisition and operation of various industrial real estate properties. Previously, Mr. Bromley served as a member of the Boards of Cole Corporate Income Trust, Inc. from January 2011 until January 2015, of Cole Credit Property Trust II, Inc. from 2005 until July 2013, and of Cole Credit Property Trust III, Inc. from 2008 until 2012, each of which was a non-listed real estate investment trust. Mr. Bromley holds a B.S. in Economics from Washington & Lee University and an M.B.A. from the University of North Carolina.

 

Mr. Bromley’s significant executive, leadership and advisory experience in the real estate industry led to the conclusion that he should serve as a member of the Board.

 

          

 

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Frank M. Bumstead 

 

Position:

Independent Director

(Class I)

 

Age:

77

 

Joined Board:

August 2006

                

 

Mr. Bumstead has over 40 years’ experience in the field of business and investment management and financial and investment advisory services. He also has represented buyers and sellers in a number of merger and acquisition transactions, including the sale of CMT (now a nationwide cable network) from its previous owners to Gaylord Entertainment, Inc. Mr. Bumstead is a principal shareholder of Flood, Bumstead, McCready & McCarthy, Inc., a business management firm that represents artists, songwriters and producers in the music industry as well as athletes and other high net worth clients. He has been with the firm since 1989. From 1993 to December 1998, Mr. Bumstead served as the Chairman and Chief Executive Officer of FBMS Financial, Inc., an investment advisor registered under the Investment Company Act of 1940. Prior to our acquisition of American Retirement Corporation (“ARC”), Mr. Bumstead served as the Lead Director of ARC, where he had served as a member of the Board of Directors for 11 years. He served in 2015 as Chairman of the Board of Directors of the Country Music Association and is also Vice Chairman of the Board of Directors and Chairman of the Finance and Investment Committee of the Memorial Foundation, Inc., a charitable foundation. He also currently serves on the Board of Directors of Nashville Wire Products, Inc. Mr. Bumstead has also served as a director and as a member of the Audit Committee of Syntroleum Corporation. He previously served on the Boards of the Dede Wallace Center, The American Red Cross, ECA, Inc., American Constructors, Inc., American Fine Wire, Inc., Junior Achievement of Nashville, and Watkins Institute. In addition, he previously served as a member of the Board of Advisors of United Supermarkets of Texas, LLC and was Chairman of its Finance and Audit Committee. Mr. Bumstead received a B.B.A. degree from Southern Methodist University and a Masters of Business Management from Vanderbilt University’s Owen School of Management.

 

Mr. Bumstead’s experience in business management and as a director of several public companies, along with his knowledge of the senior housing industry (through his prior service as a director of ARC), led to the conclusion that he should serve as a member of the Board.

 

          

 

 

The Honorable Jackie M. Clegg 

 

Position:

Independent Director

(Class II)

 

Age:

57

 

Joined Board:

November 2005

                

 

Ms. Clegg brings extensive transactional and financial experience, along with expertise in corporate governance and public policy, through her work as a strategic consultant, in government service and as a director of a number of public companies. She founded the strategic consulting firm Clegg International Consultants, LLC, and has served as its Managing Partner since 2001. Prior to that, Ms. Clegg was nominated by the President of the United States and confirmed by the U.S. Senate to serve as the Vice Chair of the Board of Directors and First Vice President of the Export-Import Bank of the United States, the official export credit institution of the United States of America, and then served as Chief Operating Officer. In her role with the Export-Import Bank, Ms. Clegg had direct supervisory responsibilities for the financial operations of the Export-Import Bank and was responsible for financing more than $50 billion in U.S. exports and a portfolio of $65 billion, budgeting decisions for the Export-Import Bank’s operational and program budgets and opening Export-Import Bank programs in several countries. Ms. Clegg also served as chair of the Loan and Audit Committees of the Board of Directors and as chair of the Budget Task Force and the Technology and Pricing

 

          

 

 

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Committees of the Export-Import Bank. Prior to her Export-Import Bank service, Ms. Clegg worked in the U.S. Senate, focusing on international finance and monetary policy, national security and foreign affairs. Ms. Clegg also draws on her significant experience in service on the boards of directors of public companies and private organizations. She currently serves on the Board of Directors and chairs the Audit Committee of the Public Welfare Foundation. She has previously served as a director of CME Group Inc. (the parent company of the Chicago Mercantile Exchange), the Chicago Board of Trade, Cardiome Pharma Corp., Javelin Pharmaceuticals, Inc., IPC Holdings, Ltd. and Blockbuster, Inc. She previously chaired the Nominating and Corporate Governance Committees of Blockbuster, Inc., IPC Holdings, Ltd. and Cardiome Pharma Corp. and the Audit Committees of the IPC Holdings, Ltd., Chicago Board of Trade, Cardiome Pharma Corp. and Javelin Pharmaceuticals, Inc. She has also chaired and served on numerous special committees overseeing mergers, acquisitions, and financing transactions and has helped companies through the IPO process. Based on her current and former positions and directorships, Ms. Clegg has gained significant financial, corporate governance, public policy, infrastructure, operating and real estate experience.

 

Ms. Clegg’s extensive transactional and financial experience, as well as her experience in the public sector and as a director of numerous public companies (including her service as chairman of the foregoing standing and special committees) led to the conclusion that she should serve as a member of the Board.

 

   

 

 

Rita Johnson-Mills 

 

Position:

Independent Director

(Class III)

 

Age:

60

 

Joined Board:

August 2018

                

 

Ms. Johnson-Mills is an experienced healthcare executive, with more than 20 years of experience in the broader healthcare industry, including experience in the public sector. She most recently served from August 2014 to December 2017 as President and Chief Executive Officer of UnitedHealthcare Community Plan of Tennessee, a health plan serving more than 500,000 government sponsored healthcare consumers with over $2.5 billion of annual revenue, after having previously served as Senior Vice President, Performance Excellence and Accountability for UnitedHealthcare Community & State since 2006. Ms. Johnson-Mills also previously served as the Director of Medicaid Managed Care for the Centers for Medicare and Medicaid Services and as Chief Executive Officer of Managed Health Services Indiana and Buckeye Health Plan, wholly owned subsidiaries of Centene Corporation. Ms. Johnson-Mills earned a B.S. degree from Lincoln University and an M.A. degree in Labor and Human Resource Management and M.P.A. degree in Public Policy and Management from The Ohio State University.

 

Ms. Johnson-Mills’ experience as an executive in the healthcare space, including her expertise in healthcare operations and strategy, led to the conclusion that she should serve as a member of the Board.

 

          

 

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James R. Seward 

 

Position:

Independent Director

(Class II)

 

Age:

66

 

Joined Board:

November 2008

                

 

James R. Seward has extensive experience in senior management and oversight in the investment sector, including significant experience in mergers and acquisitions and capital markets transactions. Mr. Seward is a Chartered Financial Analyst and, since 2000, has been a private investor. Previously, Mr. Seward was Executive Vice President, Chief Financial Officer, and director of Seafield Capital Corporation, a publicly-traded investment holding company. In that capacity, Mr. Seward also served as a director and as a member of the executive committee and as Audit Committee Chairman of LabOne, a provider of health screening and risk assessment services to life insurance companies and clinical diagnostic testing services to healthcare providers, until LabOne was sold to Quest Diagnostics in 2005. Mr. Seward also previously served as Chief Executive Officer and President of SLH Corporation, a spin-off of Seafield Capital Corporation. He also currently serves as Chairman of the Board of Trustees and as a member of the Audit Committee and Valuation, Portfolio and Performance Committee of RBC Funds, a registered investment company. He previously served as a director of ARC and has also served as a member of the Board of Directors and Audit Committee of Syntroleum Corporation. Mr. Seward received a Bachelor of Arts degree from Baker University, a Masters in Public Administration, City Management from the University of Kansas and a Masters in Business Administration, Finance from the University of Kansas.

 

Mr. Seward’s experience and credentials in investing and finance, along with his knowledge of both the senior housing industry (through his prior service as a director of ARC) and the health care industry (through his prior service as a director of LabOne), led to the conclusion that he should serve as a member of the Board.

 

          

 

 

Denise W. Warren 

 

Position:

Independent Director

(Class III)

 

Age:

57

 

Joined Board:

October 2018

                

 

Ms. Warren brings more than 30 years of operational, financial and healthcare experience. Since October 2015, she has served as Executive Vice President and Chief Operating Officer of WakeMed Health & Hospitals, where she is responsible for the strategic, financial and operational performance of the organization’s network of facilities throughout the North Carolina Research Triangle area. Prior to that, from 2005 to September 2015, Ms. Warren served as Chief Financial Officer of Capella Healthcare, Inc., an owner and operator of general acute-care hospitals, as well as its Executive Vice President since January 2014, and as its Senior Vice President prior to that. Before joining Capella, she served as Senior Vice President and Chief Financial Officer of Gaylord Entertainment Company from 2000 to 2001, as Senior Equity Analyst and Research Director for Avondale Partners LLC and as Senior Equity Analyst for Merrill Lynch & Co. She also currently serves on the Board of Directors of Computer Programs and Systems, Inc. Ms. Warren earned a B.S. degree in Economics from Southern Methodist University and a M.B.A. from Harvard University.

 

Ms. Warren’s extensive executive, financial and operational experience in the healthcare and other industries led to the conclusion that she should serve as a member of the Board.

 

          

 

 

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Audit Committee

We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee is currently chaired by Ms. Warren and also consists of Messrs. Bromley and Seward. All members are independent directors as defined under the listing standards of the NYSE and under section 10A(m)(3) of the Exchange Act, and the Board has determined that each of the current members of the Audit Committee is an “audit committee financial expert” as defined by the rules of the SEC. No member of the Audit Committee simultaneously serves on the audit committees of more than three public companies.

Corporate Governance

The Board has adopted a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including our principal executive officer, our principal financial officer, our principal accounting officer or controller, or persons performing similar functions, as well as a Code of Ethics for Chief Executive and Senior Financial Officers, which applies to our President and Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Treasurer, both of which are available on our website at www.brookdale.com/investor. Any amendment to, or waiver from, a provision of such codes of ethics granted to a principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions, or to any executive officer or director, will be posted on our website.

Executive Officers

The following table sets forth certain information concerning our executive officers. See “Information Concerning Directors” above for biographical information for Ms. Baier.

 

Name

   Age    Position

 

Lucinda M. Baier

 

  

 

54

 

  

 

President, Chief Executive Officer and Director

 

 

Steven E. Swain

 

  

 

51

 

  

 

Executive Vice President and Chief Financial Officer

 

 

Mary Sue Patchett

 

  

 

56

 

  

 

Executive Vice President – Community Operations

 

 

Chad C. White

 

  

 

43

 

  

 

Executive Vice President, General Counsel & Secretary

 

 

George T. Hicks

 

  

 

61

 

  

 

Executive Vice President – Finance and Treasurer

 

 

H. Todd Kaestner

 

  

 

63

 

  

 

Executive Vice President – Corporate Development

 

 

Anthony V. Mollica

 

  

 

48

 

  

 

Division President (Health Care Services)

 

Steven E. Swain joined Brookdale as Executive Vice President and Chief Financial Officer in September 2018. Prior to joining Brookdale, Mr. Swain served as Senior Vice President and Chief Financial Officer of DISH Network Corporation from October 2014 to August 2018, after having served as its Senior Vice President of Programming from April 2014 to October 2014, and as its Vice President of Corporate Financial Planning and Analysis since joining the company in 2011. Prior to DISH Network, Mr. Swain spent more than 15 years working in the telecommunications sector, most recently at CenturyLink, Inc. and Qwest Communications International, Inc. (acquired by CenturyLink), where he served in multiple leadership roles in finance, including corporate financial planning and analysis, treasury and investor relations, as well as in network engineering.

Mary Sue Patchett became our Executive Vice President—Community Operations in November 2015 after having served as Division President for one of our senior housing divisions since February 2013 and as Divisional Vice President since joining Brookdale in September 2011 in connection with our Horizon Bay acquisition. Ms. Patchett has over 30 years of senior care and housing experience serving in leadership roles. Previously, Ms. Patchett served as

 

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Chief Operating Officer of Horizon Bay from January 2011 through August 2011 and as Senior Vice President of Operations from March 2008 through December 2011. Prior to joining Horizon Bay, she was President and owner of Patchett & Associates, Inc., a management consulting firm for senior housing and other healthcare companies, from 2005 until March 2008. Ms. Patchett had previously served as Divisional Vice President for Alterra for over six years and started in senior living with nine years in numerous leadership positions at Sunrise Senior Living. Ms. Patchett has served on numerous industry boards and is serving on the Board of Directors of Argentum and the Board of Directors of Florida Senior Living Association as its past chair.

Chad C. White joined Brookdale in February 2007 and has served as our Executive Vice President since January 2018, our General Counsel since March 2017 and our Secretary since March 2013. He previously served as our Senior Vice President and General Counsel from March 2017 until January 2018, our Senior Vice President and Co-General Counsel from July 2014 to March 2017, our Vice President and Co-General Counsel from March 2013 to July 2014, and our Associate General Counsel and Assistant Secretary prior to that. Before joining Brookdale, Mr. White served in legal roles with Dollar General Corporation and Bass, Berry & Sims PLC.

H. Todd Kaestner became our Executive Vice President—Corporate Development in July 2006, and his responsibilities include acquisitions and dispositions, development, asset management, procurement and lessor and joint venture relations. Previously, Mr. Kaestner served as Executive Vice President—Corporate Development of ARC since September 1993. Mr. Kaestner served in various capacities for ARC’s predecessors since 1985, including Vice President—Development from 1988 to 1993 and Chief Financial Officer from 1985 to 1988.

George T. Hicks became our Executive Vice President—Finance in July 2006 and our Treasurer in January 2016. Prior to July 2006, Mr. Hicks served as Executive Vice President—Finance and Internal Audit, Secretary and Treasurer of ARC since September 1993. Mr. Hicks had served in various capacities for ARC’s predecessors since 1985, including Chief Financial Officer from September 1993 to April 2003 and Vice President—Finance and Treasurer from November 1989 to September 1993.

Anthony V. Mollica joined Brookdale as Division President for the Company’s Health Care Services business in March 2016. Prior to that, he served as Vice President Operations for Omnicare, Inc. since March 2014 and then CVS Health following its merger with Omnicare, where he oversaw operations of the Omnicare Specialty Care Group. Prior to Omnicare, Mr. Mollica served in various roles for Giant Eagle, a regional grocery and pharmacy provider, including most recently as Vice President of Pharmacy Operations, and held leadership roles at Target Corporation and Rite Aid Corporation. Mr. Mollica is a Registered Pharmacist.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors and ten-percent stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) reports they file. We reviewed copies of the forms received by us or written representations from certain reporting persons that they were not required to file these forms. Based solely on that review, we believe that during the fiscal year ended December 31, 2018, our officers, directors and ten-percent stockholders complied with all Section 16(a) filing requirements applicable to them.

 

 

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  Item 11. Executive Compensation

 

 

  Executive Compensation

 

 

 

Compensation Discussion and Analysis

This Compensation Discussion and Analysis explains the key elements of our executive compensation program and compensation decisions regarding the following named executive officers for 2018:

 

Name

   Position

 

 

Lucinda M. Baier

  

 

 

President and Chief Executive Officer

 

 

Steven E. Swain

  

 

 

Executive Vice President and Chief Financial Officer

 

 

Mary Sue Patchett

  

 

 

Executive Vice President—Community Operations

 

 

Chad C. White

  

 

 

Executive Vice President, General Counsel & Secretary

 

 

Cedric T. Coco

  

 

 

Former Executive Vice President and Chief People Officer

 

 

Teresa F. Sparks

  

 

 

Former Interim Chief Financial Officer

 

 

Bryan D. Richardson

  

 

 

Former Executive Vice President and Chief Administrative Officer

 

 

T. Andrew Smith

  

 

 

Former President and Chief Executive Officer

During 2018, we made several changes to our key leadership. The Board appointed Ms. Baier, who had served as our Chief Financial Officer since 2015, as our President and Chief Executive Officer and member of the Board effective February 28, 2018. Ms. Sparks served as Interim Chief Financial Officer beginning March 28, 2018 until Mr. Swain joined as our Executive Vice President and Chief Financial Officer effective September 4, 2018. In addition, the employment of each of Messrs. Coco, Richardson and Smith was terminated without cause effective December 31, March 9, and February 28, 2018, respectively. Information regarding the compensation arrangements of Ms. Sparks is discussed separately under “Compensation of Interim CFO” below.

 

 

 

Table of Contents to Compensation Discussion and Analysis

 

Executive Summary      11  
Compensation Philosophy      12  
Principal Elements of Compensation      12  
Process for Determining Executive Compensation      13  
2018 Compensation Decisions      15  
2018 Compensation Results      20  
Status of Outstanding Performance-Based Restricted Shares Granted in Prior Years      26  
Other Compensation Policies      27  
Compensation of Interim CFO      28  
Employment Agreement and Severance Policies Applicable to Named Executive Officers      28  
2019 Compensation Decisions      29  

 

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Executive Summary

New Executive Leadership and Strategy . . .

In February 2018, the Board concluded a lengthy strategic review and determined to pursue an operational turnaround strategy under new leadership. Despite continued strong industry headwinds, where new community openings outpaced demand, we made significant progress on our operational turnaround strategy and successfully executed on transformative changes to our business. Highlights from 2018 include:

 

 

New Executive Leadership

  

 

•  Lucinda M. Baier—President and CEO (February 2018)

 

•  Steven E. Swain—EVP and CFO (September 2018)

 

 

Operational Turnaround Strategy

  

 

•  Operations organization realignment led to improved number of leads and visits and resident satisfaction, evidenced by lower controllable move-outs

 

•  Delivered G&A cost savings of >$25 million and achieved financial results within guidance ranges

 

 

Real Estate Strategy

  

 

•  Renegotiated and restructured leases with two of our largest lessors

 

•  Initiated real estate strategy to generate >$250 million of net proceeds from sales of owned communities, which is nearing completion

 

•  Sold or terminated leases or management on 131 communities (16% reduction in units)

 

•  We now own approximately 50% of our consolidated communities

 

 

2018 CEO Pay Mix (1)

 

LOGO

 

(1)

Represents elements of 2018 target total direct compensation. See “Summary of 2018 Compensation Program” below for more information.

 

(2)

Represents percentage of votes cast.

 

(3)

Represents weighted average payout for the named executive officers for the applicable year who were serving at the end of such year.

. . . Same Philosophy

The Committee’s philosophy remains the same: to ensure market-competitive executive compensation opportunities through a program designed to emphasize pay for performance, align our executives’ long-term interests with those of our stockholders, and attract and retain key executives to execute on our strategy.

 

2018 Say-on-Pay Results

99% in favor(2)

 

Annual Incentive Plan

Despite making significant progress in the first year of our turnaround plan, 2018 annual incentive plan payouts reflect financial performance below our budgeted expectations.

2018 Average Payout (3)

 

     Weighting    Average
Payout

Facility Operating Income

   40%    0%

Combined Adjusted Free Cash Flow

   20%    0%

Resident Fee Revenue

   10%    0%

Strategic Objectives

   30%    82%

2016-2018 Average Payout (3)

 

LOGO

 

Long-Term Incentive Awards

The Committee awarded time-based restricted shares in January 2018, reflecting an enhanced emphasis on retaining key leaders at a time when the outcome of the strategic review was uncertain. With the appointment of new leaders in 2018, the Committee awarded performance-based restricted shares that, for the first time, have a TSR performance objective.

For 2019 annual awards, the Committee resumed its practice of using a 50/50 mix of time- and performance-based restricted shares, which continue to have a TSR performance component.

 

 

 

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Compensation Philosophy

 

The Compensation Committee (the “Committee”) intends to ensure market-competitive executive compensation opportunities through a program designed to:

 

 

emphasize pay for performance by linking a significant portion of target total direct compensation to variable, at-risk components measured by our short- and long-term financial performance and other objectives designed to focus executives on key strategic initiatives;

 

 

align our executives’ long-term interests with those of our stockholders; and

 

 

attract and retain key executives to execute on our strategy.

In determining the appropriate level and mix of compensation for each executive officer, the Committee takes into account the officer’s experience, scope of responsibility, individual performance and retention risk; the Committee’s independent consultant’s market compensation studies; management input; internal equity; and other information as it deems necessary and appropriate. No pre-determined weighting is assigned to any factor, and the emphasis placed on a specific factor may vary among executive officers, reflecting market practice, business needs and retention and succession considerations at the time compensation decisions are made.

 

 

 

Principal Elements of Compensation

 

Our executive compensation program generally consists of these principal elements:

 

Element

   Form    Description    Link to Stockholder Value  

 

Base Salary

  

 

Cash

  

 

Amount intended to reflect the level and scope of responsibility, experience, and skills of an executive, the individual performance of the executive, retention risks, and competitive market practices.

  

 

Assists us in attracting, and encourages retention of, key executives through an amount of fixed income paid throughout the year.

 

Annual Incentive Plan

  

 

Cash

  

 

Opportunity is at-risk with no guaranteed payout. Level of payout tied to achievement of company financial objectives and strategic objectives approved by the Committee each year, which generally are reflective of, or support, our annual budget and business plan.

  

 

Focuses executives on taking steps necessary to meet expectations set forth in the annual budget and business plan, which the Committee believes will in turn drive longer-term performance results.

 

Long-Term Incentive Awards

  

 

Time-Based Restricted Shares

  

 

Awards granted in 2018 are eligible to vest ratably in four annual installments beginning approximately one year following the grant date and/or in two annual installments (75%/25%) beginning approximately three years following the grant date, in each case subject to continued employment.

  

 

Promotes retention, stock ownership, and alignment of executives’ long-term goals with those of our stockholders.

  

 

Performance-Based Restricted Shares

  

 

Opportunity is at-risk with no guaranteed vesting. Awards granted in 2018 are eligible to vest in February 2021 subject to the achievement of compound annual total shareholder return (TSR) targets set by the Committee.

  

 

Encourages executives to achieve long-term goals in order to increase the market value of our common stock.

 

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Process for Determining Executive Compensation

 

The Committee’s process for determining executive compensation is outlined below, including the role of the Committee, results of our annual say-on-pay advisory vote and other stockholder feedback, the Committee’s independent consultant, our management, and our compensation peer group.

Role of the Committee

The Committee, which is comprised solely of independent directors, is responsible for developing, reviewing annually, and administering our compensation program and plans applicable to our executive officers. The Committee meets regularly, typically at least five times per year, to approve all decisions regarding the compensation of our executive officers. Compensation decisions regarding our President and Chief Executive Officer are also approved by the independent members of the Board. The Committee reports on its actions to the full Board following each Committee meeting. In fulfilling its responsibilities with respect to executive compensation, the Committee reviews and approves:

 

 

Any changes to our executive compensation philosophy;

 

 

The base salary, levels of incentive-based compensation and all other compensation or perquisites of our executive officers;

 

 

The design and framework of our incentive-based compensation plans and awards, including the applicable performance objectives and targets;

 

 

Levels of achievement under such performance objectives and targets;

 

 

Updates to our compensation peer group;

 

 

Any employment agreements or severance arrangements with our executive officers; and

 

 

Compliance with, and any changes to, our officer stock ownership and retention guidelines.

Role of Say-on-Pay Vote and Stockholder Feedback

The Committee considers the results of our annual say-on-pay advisory vote and other feedback received from stockholders throughout the year when making executive compensation decisions. At our 2018 annual meeting of stockholders, approximately 99% of the votes cast on the say-on-pay advisory vote were in favor of our executive compensation program. The Committee believes this vote affirmed our stockholders’ support of our executive compensation approach and provided assurance the program is reasonable and aligned with stockholder expectations.

Role of Independent Compensation Consultant

The Committee has engaged F.W. Cook & Co., Inc. (the “Consultant”) as its independent compensation consultant. The Consultant reports directly to the Committee, which has the direct responsibility for appointment, compensation and oversight of the work of the Consultant. The Consultant does not provide any services to the Company other than services provided to the Committee. From time to time at the request of the Committee, the Consultant provides recommendations regarding the design and framework of, and amounts awarded under, our executive compensation programs, recommends updates to our compensation peer group and conducts independent market compensation studies using that peer group and other published survey information, attends meetings of the Committee, and communicates with one or more members of the Committee outside of such meetings. For 2018, the Consultant provided each of these services.

The Committee conducted a specific review of its relationship with the Consultant and determined that the Consultant’s work for the Committee did not raise any conflicts of interest, consistent with the guidance provided under the Dodd-Frank Act of 2010 by the SEC and by the NYSE.

 

 

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Role of Management

When making compensation decisions, the Committee considers input from our President and Chief Executive Officer and certain of our other executive officers. Such input generally includes providing information and analyses for review and advising the Committee concerning compensation decisions (other than when their own compensation is determined) and the design, framework, and performance objectives of our incentive-based compensation plans and awards. Our President and Chief Executive Officer provides compensation recommendations related to our other executive officers for the Committee’s consideration.

Compensation Peer Group

Typically annually, the Committee reviews and approves a compensation peer group comprised of companies recommended by the Consultant. The compensation peer group data is then used by the Consultant when preparing independent market compensation studies for the Committee. The Committee generally uses such peer group data and the Consultant’s studies:

 

 

As inputs when determining amounts of base salaries and the target amounts of annual and long-term incentive compensation;

 

 

To assess the competitiveness of the target direct compensation and underlying pay mix awarded to our executive officers; and

 

 

To evaluate the design, framework, and performance objectives of our incentive-based compensation plans and awards.

The Committee, as advised by the Consultant, generally considers target total direct compensation within a range of +/- 25% of median as reported in the Consultant’s market compensation studies to be competitive.

In 2018, the Consultant recommended updates to our compensation peer group, which had last been updated in 2016. The 2018 peer group included 16 companies in the health care facilities, healthcare services, managed healthcare, healthcare REIT, hospitality and restaurant industries. The Committee believes that inclusion of companies from these industries is reflective of the talent market for our business. The peer group companies chosen from the various industries are intended to be reasonably comparable to Brookdale in terms of their median levels of revenue, market capitalization, enterprise value, EBITDA and number of employees.

 

    

 

2018 Peer Group

    
     
Acadia Healthcare Company, Inc.    Hyatt Hotels Corporation    Quest Diagnostics Incorporated
Centene Corporation    Kindred Healthcare, Inc.    Select Medical Holdings Corporation
Community Health Systems, Inc.    Laboratory Corporation of America Holdings    The Ensign Group, Inc.
Darden Restaurants, Inc.    LifePoint Hospitals, Inc.    Universal Health Services, Inc.
Encompass Health Corporation    National Healthcare Corp.    Welltower Inc.
Wyndham Worldwide Corporation      

 

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2018 Compensation Decisions

Context to Decisions

The Committee’s annual review of our executive compensation program was conducted in the context of, and immediately following, a lengthy strategic review process initially announced in February 2017 and concluded in February 2018. At the conclusion, the Board determined to pursue an operational turnaround strategy under new leadership. As part of the leadership change, Ms. Baier was appointed as President and Chief Executive Officer and as a member of the Board effective February 28, 2018, having previously served as our Chief Financial Officer since 2015. The employment of each of Mr. Smith, our former President and Chief Executive Officer, and Mr. Richardson, our former Executive Vice President and Chief Administrative Officer, was terminated without cause effective February 28, 2018 and March 9, 2018, respectively. In addition, at the conclusion of the strategic review process, Mr. Smith and two other members of the Board resigned from the Board, including our former Executive Chairman, and the Board appointed Mr. Wielansky as our Non-Executive Chairman.

When making decisions regarding the annual executive compensation program, the Committee reviewed the Consultant’s market compensation study and, additionally, placed an enhanced emphasis on the retention element of our executive compensation program due to the then-uncertain outcome of the strategic review and the need to retain go-forward leadership who would be critical to executing on a turnaround strategy. In line with such emphasis, the Committee determined to utilize solely time-based restricted shares for the long-term incentive awards made in January 2018 and not to award long-term equity to Messrs. Richardson and Smith. In addition, the Committee deployed a retention bonus program for our key leaders, including several of the go-forward named executive officers. The Committee resumed awarding performance-based restricted shares when making awards in connection with Ms. Baier’s promotion and Mr. Swain joining as our Executive Vice President and Chief Financial Officer effective September 4, 2018.

Summary of 2018 Compensation Program

The table below sets forth the target total direct compensation (base salary, annual incentive opportunity, and long-term incentive awards) for the named executive officers who were serving as of December 31, 2018. The table excludes the amounts reported in the All Other Compensation column of the Summary Compensation Table (generally employer matching on our 401(k) plan, employer-paid premiums on life and disability insurance and the incremental cost to us of relocation expenses), Mr. Swain’s signing bonus, and retention bonus payments made to Ms. Patchett and Messrs. White and Coco.

 

     Base Salary (1)      Target Annual
Incentive
Opportunity (1)
     Grant Value of
Restricted Shares (2)
    

2018

Target Total

Direct Compensation

 

Ms. Baier

   $ 782,248        125%      $ 4,500,005      $ 6,260,063  

Mr. Swain

   $ 161,538        100%      $ 1,000,007      $ 1,323,083  

Ms. Patchett

   $ 437,750        100%      $ 800,004      $ 1,675,504  

Mr. White

   $ 350,000        80%      $ 350,009      $ 980,009  

Mr. Coco

   $ 442,900        100%      $ 800,004      $ 1,685,804  

 

(1)

Represents a blended base salary for Ms. Baier reflective of her appointment as President and Chief Executive Officer effective February 28, 2018 (Jan. and Feb. 2018 – $566,500; thereafter – $825,000) and a partial-year of service for Mr. Swain who joined as Executive Vice President and Chief Financial Officer effective September 4, 2018 with an annual base salary of $500,000. The target annual incentive opportunity was based on base salary earned during 2018.

 

(2)

Represents the grant date fair value of restricted shares awarded as calculated in accordance with Accounting Standards Codification 718 (“ASC 718”), except that Ms. Baier’s and Mr. Swain’s awards of performance-based restricted shares reflect the grant value (i.e., number of shares granted multiplied by the stock price on the date of grant). The ASC 718 grant date fair values of such performance-based restricted shares were approximately 63% and 40% lower than the grant value included in the table for Ms. Baier and Mr. Swain, respectively.

 

 

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Base Salaries

Annual Review and Decisions

In January 2018, the Committee made the following adjustments to the base salaries of the named executive officers effective January 1, 2018:

 

     2018      2017      % Change  

Ms. Baier

  

 

$  566,500

 

  

 

$  550,000

 

  

 

3.0%

 

Ms. Patchett

  

 

$  437,750

 

  

 

$  425,000

 

  

 

3.0%

 

Mr. White (1)

  

 

$  350,000

 

  

 

$  300,000

 

  

 

16.7%

 

Mr. Coco

  

 

$  442,900

 

  

 

$  430,000

 

  

 

3.0%

 

Mr. Richardson (2)

  

 

$  430,500

 

  

 

$  430,500

 

  

 

0%

 

Mr. Smith (2)

  

 

$  950,000

 

  

 

$  950,000

 

  

 

0%

 

 

(1)

Mr. White’s base salary increase reflects his promotion from Senior Vice President to Executive Vice President in January 2018.

 

(2)

Due to the potential leadership changes that would occur if we were to pursue an operational turnaround strategy, the Committee made no changes to the base salaries for Messrs. Richardson and Smith at that time.

Promotion and Onboarding Decisions

The Committee received and reviewed a separate CEO market compensation study prepared by the Consultant at the time of Ms. Baier’s promotion to President and Chief Executive Officer and determined to increase Ms. Baier’s base salary to $825,000 effective March 1, 2018 as set forth in an employment agreement dated as of such date. Mr. Swain joined as our Executive Vice President and Chief Financial Officer effective September 4, 2018, and the Committee approved his annual base salary of $500,000 as set forth in an offer letter.

Annual Incentive Plan

The named executive officers were eligible to participate in our 2018 annual incentive plan. The amounts payable under the plan were to be determined by the Committee following conclusion of the 2018 performance period based on our results relative to company financial objectives and strategic objectives approved by the Committee. There were no guaranteed payout levels utilized in the 2018 annual incentive plan.

The table below shows the target annual incentive opportunity available to our named executive officers expressed as a percentage of base salary earned during 2018. The target opportunities were consistent with the prior year, except that Ms. Baier’s target opportunity was increased to 125% of her base salary in connection with her promotion to President and Chief Executive Officer, and Mr. White’s target opportunity was increased to 80% of his base salary in connection with his promotion to Executive Vice President.

 

    Target Opportunity as a % of
Base Salary
              Minimum Payout as a %
of Target Opportunity
                Maximum Payout as a %
of Target Opportunity (1)
 
 

President and CEO

  125%                                    
 

Other Named Executive Officers 

  100%         0%           170%  
 

Mr. White

  80%                                                

 

(1)

Mr. Smith’s maximum payout as a percentage of the target opportunity was 175% due to the weighting of his performance objectives noted below.

 

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The following table shows the weighting of the company financial objectives and strategic objectives approved by the Committee on March 1, 2018 after considering management’s recommendations. The Committee determined to increase the weighting of the Facility Operating Income objective from 20% to 40%, and to reduce the weighting of Combined Adjusted Free Cash Flow objective from 40% to 20%, compared to 2017, which reflects an emphasis on our operational turnaround strategy. The target levels for the company financial objectives were generally reflective of our budget and business plan approved by the Board in January 2018. The performance targets and achievement levels of the annual incentive plan are described below under “Company Financial Objectives and Results.”

 

Measure (1)

   Weighting (2)    Rationale

Facility Operating Income (“FOI”)

   40%   

FOI reflects the net result of our revenue and the facility operating expenses of our consolidated senior housing portfolio and Health Care Services segment, which are the largest drivers of our financial results and which management has the ability to impact on a day-to-day basis. The Board and management use this measure in the budgeting process and when evaluating our results.

 

Combined Adjusted Free Cash Flow (“CAFCF”)

   20%   

CAFCF reflects the cash generated through our operations and our proportionate share of cash generated at our unconsolidated ventures after non-development capital expenditures and certain other adjustments. The Board and management use this measure in the budgeting process and when evaluating our ability to service indebtedness, to pay dividends or engage in share repurchases, and to make additional capital investments. In addition, the constituent parts of CAFCF are used in our forward-looking guidance and in our quarterly reporting.

 

Resident Fee Revenue

   10%   

Improving our occupancy and revenue is critical to our operational turnaround. The Board and management use this measure in the budgeting process and when evaluating our results.

 

Strategic Objectives

   30%   

Objectives chosen for 2018 were intended to focus executives on key strategic initiatives supporting our operational turnaround plan and real estate strategy, based on their roles in achieving such initiatives. The Committee used a rigorous process in selecting the strategic objectives, which were predominately to be measured based on objective target scoring criteria, in order to maintain our pay-for-performance approach to incentives and to differentiate results among executives and their objectives. See “Strategic Objectives and Results” below for details on the objectives and their achievement.

 

 

 

(1)

FOI was defined as our 2018 consolidated resident fee revenue less facility operating expense. CAFCF was defined as the sum of our consolidated Adjusted Free Cash Flow plus our proportionate share of unconsolidated ventures’ Adjusted Free Cash Flow for 2018, adjusted to exclude transaction, retention and severance costs in excess of budgeted amounts and any capital expenditures related to the purchase and installation of power generators at Florida communities. Resident fee revenue was defined as our 2018 consolidated resident fee revenue.

 

(2)

For Mr. Smith, the resident fee revenue and strategic objectives components were weighted 15% and 25%, respectively, consistent with his prior year weighting.

 

 

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Long-Term Incentive Awards

Annual Review and Decisions

 

The Committee granted long-term incentive awards in January
2018 while the strategic review was ongoing. Due to the
uncertain outcome of the strategic review and the need to
retain go-forward leadership who would be critical to executing
on a turnaround strategy, the Committee determined to utilize
solely time-based restricted shares for the annual long-term
incentive awards (rather than utilizing a 50/50 split among
time- and performance-based restricted shares as in prior
years). In addition, due to the leadership changes that would
occur if we were to pursue an operational turnaround strategy,
       No. of Restricted
Shares
     Grant Value  
 

Ms. Baier

  

 

154,959

 

  

$

  1,500,003

 

 

Ms. Patchett

  

 

82,645

 

  

$

  800,004

 

 

Mr. White

  

 

36,158

 

  

$

  350,009

 

 

Mr. Coco

  

 

82,645

 

  

$

  800,004

 

       
the Committee determined that it would not grant long-term incentive awards to Messrs. Smith and Richardson at that time. The grant date values (i.e., number of shares granted multiplied by the stock price on the date of grant) were consistent with the prior year, except that Mr. White’s award was increased reflective of his promotion from Senior Vice President to Executive Vice President. One-half of the restricted shares are eligible to vest ratably in four annual installments beginning on February 27, 2019, and the other one-half are eligible to vest 75% on February 27, 2021 and 25% on February 27, 2022, in each case subject to continued employment.

 

Promotion and Onboarding Decisions

After reviewing the Consultant’s market compensation study with respect to the CEO role and considering Mr. Smith’s former compensation arrangements, on March 5, 2018 the Committee awarded Ms. Baier additional restricted shares with a grant value of approximately $3 million as set forth in her employment agreement (i.e., for a total of $4.5 million target grant value long-term incentive award for 2018). One half of such award (207,469 shares) are time-based restricted shares eligible to vest ratably in four annual installments beginning on February 27, 2019, subject to continued employment. The other one-half of such award (207,469 shares) are performance-based restricted shares eligible to vest on February 27, 2021, subject to continued employment and the achievement of the compound annual TSR performance targets described below.

In connection with Mr. Swain’s joining as our Executive Vice President and Chief Financial Officer effective September 4, 2018, the Committee awarded Mr. Swain restricted shares with a grant value of approximately $1 million as set forth in his offer letter. One-half of such award (53,249 shares) are time-based restricted shares eligible to vest ratably in four annual installments beginning on November 19, 2019, subject to continued employment. The other one-half of such award (53,248 shares) are performance-based restricted shares eligible to vest on February 27, 2021, subject to continued employment and the achievement of the compound annual TSR performance targets described below.

For the 2018 performance-based restricted shares, the Committee determined to use compound annual TSR as the performance goal calculated using a beginning price per share of $6.53 as of February 28, 2018, the date that Ms. Baier became President and Chief Executive Officer, compared to the volume-weighted average price for the 15 trading days ending December 31, 2020 and assuming reinvestment in our common stock of any dividends or distributions paid during the period. The Committee determined to use such performance goal, and to set difficult targets, to further align Ms. Baier’s and Mr. Swain’s compensation opportunity with our stockholders’ interests and to reinforce their buy-in to our operational turnaround strategy following conclusion of the strategic review process. Due to the difficulty of the targets, the ASC Topic 718 grant date fair values of their awards of performance-based restricted shares were approximately 63% and 40% lower than the grant values targeted by the Committee for Ms. Baier and Mr. Swain, respectively. The table below sets forth the percentage of such restricted shares that will vest based on the various compound annual TSR performance levels. Performance below the threshold level of

 

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achievement will result in forfeiture of all such shares, achievement of the targeted level of performance (or above) will result in the vesting of 100% of such shares, and vesting percentages will be interpolated between the steps shown in the table below.

 

% of Shares Eligible to Vest

   Compound Annual TSR    Implied Ending Price per Share

100% (Target and Max)

  

³23.91%

  

$12.00

75%

  

20.17%

  

$11.00

50% (Threshold)

  

16.20%

  

$10.00

Other Terms of 2018 Restricted Share Awards

The restricted share agreements associated with the awards described above contain non-solicitation, non-disparagement and confidentiality covenants, and to the extent the named executive officer was such at the time of grant, a non-competition covenant. The applicable restricted share agreements set forth the treatment of such awards in connection with termination of employment and a change in control (as described below under “Potential Payments Upon Termination or Change in Control”) and provide that the named executive officer will be entitled to receive dividends on outstanding unvested restricted shares to the extent we declare dividends in the future.

Other 2018 Decisions

Reductions to Potential Severance Pay

In connection with Ms. Baier’s appointment as President and Chief Executive Officer, she requested that her severance arrangements be reduced compared to our former President and Chief Executive Officer’s arrangements and that the severance arrangements available to Ms. Patchett and Mr. Coco be reduced in light of the fact that the strategic review process had been concluded and to move our severance arrangements more in line with market practice. On March 1, 2018, the Committee approved certain amendments to the Severance Pay Policy, Tier I, which amendments were set forth in an amendment and restatement of the Severance Policy effective April 15, 2018 (the “Severance Policy”). As a result of such amendments, among other things, effective for terminations of employment of Ms. Patchett or Mr. Coco on or after December 13, 2018, the amount payable for termination of employment without cause was reduced from 250% of the sum of such executive’s annual base salary and target annual bonus to 150% of such sum; and the amount payable for termination of employment without cause or for good reason within 18 months of a change in control was reduced from 300% to 200% of such sum. A detailed description of potential severance payments pursuant to the employment agreement and the Severance Policy is set forth under “Potential Payments Upon Termination or Change in Control” below.

Retention Bonus Awards

On March 1, 2018, the Committee approved a retention bonus to Ms. Patchett and Mr. Coco in an amount of $450,000 and $350,000, respectively, payment of which would occur upon remaining employed through December 13, 2018. The Committee had also made retention bonus awards to Mr. White and other key executive and non-executive leaders in December 2017. The retention bonus opportunity was awarded to ensure the continued contributions of these key leaders during the strategic review and the initial phase of the turnaround strategy and, with respect to Ms. Patchett and Mr. Coco, in recognition of the reduced severance pay that would be available to them on and after December 13, 2018, as described above.

Transaction Bonus Awards

In April 2018, we announced that we had entered into mutually-beneficial agreements with Ventas, Inc. under which we would restructure our portfolio of 128 communities that we leased from Ventas. The Committee and the Board

 

 

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evaluated the significance of the transactions to the Company, including the expected benefits thereof, and the extraordinary efforts of certain members of the Company’s management team, including Ms. Baier and Mr. White, to successfully negotiate such agreements, and determined to pay each of them a cash bonus of $50,000.

 

 

 

2018 Compensation Results

Summary of Compensation Results

To provide a better understanding of the results of our executive compensation program, the table below sets forth the amount of compensation realized in 2018 by our named executive officers who were serving as of December 31, 2018. The value of restricted shares that vested is based on the closing price per share of our stock on the applicable vesting dates. The table excludes the amounts reported in the All Other Compensation column of the Summary Compensation Table (generally employer matching on our 401(k) plan, employer-paid premiums on life and disability insurance and the incremental cost to us of relocation expenses) and the $100,000 signing bonus paid to Mr. Swain.

 

     Base Salary Earned      Annual Incentive
Opportunity Earned
     Value of Restricted
Shares that Vested
     Retention and
Transaction
Bonuses
Earned
     Total
Compensation
Realized
 

Ms. Baier

   $   782,248      $   281,023      $   276,516      $   50,000      $   1,389,787  

Mr. Swain(1)

   $   161,538      $   46,038                    $   207,576  

Ms. Patchett

   $   437,750      $   62,905      $   155,463      $   450,000      $   1,106,118  

Mr. White

   $   350,000      $   81,396      $   60,990      $   300,000      $   792,386  

Mr. Coco (2)

   $   442,900      $   95,534      $   120,891      $   350,000      $   1,009,325  

 

(1)

Mr. Swain’s base salary and annual incentive opportunity earned reflect his partial year of service beginning September 4, 2018.

 

(2)

Excludes vesting of time-based restricted shares that accelerated pursuant to Mr. Coco’s restricted share agreements upon his termination of employment without cause effective December 31, 2018.

Although we made significant progress on our operational turnaround and real estate strategies during 2018, our performance for the year was below our budgeted expectations. As a result, consistent with our pay-for-performance philosophy, such named executive officers’ realized compensation was significantly less than the amounts targeted by the Committee (see “Summary of 2018 Compensation Program” above) and the amounts reported in the Summary Compensation Table for 2018. Such named executive officers earned between 14% and 29% of the target annual incentive opportunity, and the majority of performance-based restricted shares eligible to vest in 2018 were forfeited as a result of failure to achieve the threshold level of performance.

 

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Annual Incentive Plan Results

A summary of the achievement and payment to our named executive officers under the 2018 annual incentive plan is provided below, broken out by objective and in total.

 

    

Company
Financial Objectives

 

         

Strategic Objectives

 

         

Total

 

 
     Achieved      Payout                 Achieved   Payout            Achieved   Payout  
 

Ms. Baier

                                                                  95.8%   $   281,023             28.7%   $   281,023  
 

Mr. Swain (1)

              95.0%   $   46,038             28.5%   $   46,038  
 

Ms. Patchett

              47.9%   $   62,905             14.4%   $   62,905  
 

Mr. White

     0%                  96.9%   $   81,396             29.1%   $   81,396  
 

Mr. Coco (1)

              71.9%   $   95,534             21.6%   $   95,534  
 

Mr. Richardson (1)

              78.1%   $   20,561             23.4%   $   20,561  
 

Mr. Smith (1)

                          0%                 0%      

 

(1)

Mr. Swain participated in the 2018 annual incentive plan on a pro-rata basis resulting from his partial year of service beginning September 4, 2018. Under the terms of the Severance Policy and Mr. Smith’s former employment agreement, Messrs. Coco, Richardson and Smith were entitled to receive a pro-rata portion of their annual incentive opportunity, to the extent earned, based on the number of days they were employed during 2018.

Company Financial Objectives and Results

The table below sets forth the target levels for the company financial objectives, which were generally reflective of our budget and business plan approved by the Board in January 2018, and our actual performance. Performance below the threshold level would result in no payout for the performance objective, and payout percentages were to be interpolated between the steps shown in the table below. Our actual performance failed to meet the threshold level of the company financial objectives. Accordingly, the Committee determined that no portion of the annual incentive opportunity based on such objectives would be paid.

 

Goal

   Weighting    Payout Opportunity    Targets
($ in 000s)
     Actual Performance
($ in 000s)
    Payout
Earned
 

FOI

   40%    200% (Max)

100% (Target)

90%

80%

20% (Threshold)

   $

$

$

$

$

  1,168,236

  1,112,606

  1,090,354

  1,084,791

  1,056,976

 

 

 

 

 

   $ 995,883       0%  

CAFCF

   20%    200% (Max)

100% (Target)

90%

80%

20% (Threshold)

   $

$

$

$

$

  83,064

  79,109

  76,136

  75,945

  71,798

 

 

 

 

 

   $ 56,818  (1)      0%  

Resident Fee Revenue

   10%    200% (Max)

100% (Target)

90%

80%

20% (Threshold)

   $

$

$

$

$

  3,689,582

  3,653,051

  3,634,786

  3,631,133

  3,609,214

 

 

 

 

 

   $   3,449,211       0%  

 

 

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(1)

CAFCF is a financial measure that is not calculated in accordance with generally accepted accounting principles (GAAP). Appendix A to this Amendment shows how we calculated CAFCF, including a reconciliation of the measure to our net cash provided by operating activities.

Strategic Objectives and Results

In February 2019, the Committee evaluated the level of achievement for each of the strategic objectives and determined the payout percentage with respect to each named executive officer. The level of achievement for each named executive officer (other than Ms. Baier) was recommended by Ms. Baier, and Ms. Baier’s level of achievement was determined by the Committee and reviewed with the Board as part of its CEO performance evaluation. The tables below describe the strategic objectives applicable to the named executive officers and their achievement levels for each objective and on an aggregate basis. Unless otherwise noted, the strategic goals applicable to each named executive officer were weighted equally among, and within, the applicable categories.

Objectives for Baier, Patchett, White, Coco and Richardson

 

    Achieved    Baier    Patchett    White     Coco     Richardson

Narrow Focus—Identify and evaluate all innovation initiatives pushed to communities since 2014 and currently being considered and determine whether to maintain or discontinue based on our strategy.

  100%    X    X    X    X    X

Narrow Focus—Meet or exceed targeted scores under our community quality assurance program, and achieve targeted quality rating for at least 75% of our home health agencies.

  75%    X    X    X    X    X

Rationalize G&A Expense—Prepare and execute on plan to rationalize G&A expense by keeping G&A expense at or lower than 2018 budget.

  100%    X    X    X    X    X

Real Estate StrategyDevelop management recommendation, and obtain Board approval, for real estate strategy and implement 75% of the steps with 2018 deadlines.

  100%    X         X         X

Real Estate Strategy—Complete comprehensive review of community portfolio to determine capital expenditure needs by the end of 2018 and present recommendations to the Board/Investment Committee.

  100%    X         X         X

Real Estate Strategy—Launch Fresh Impressions Program into communities and achieve a targeted score under the housekeeping assessment of our community quality assurance program.

  100%    X         X         X

Win Locally—Increase consolidated comparable community portfolio initial visits, without materially reducing conversion rate, by a targeted percentage.

  0%         X              X

Win Locally—Outperform competitors in 15 key markets, measured by comparing our year-over-year occupancy and RevPAR growth in the fourth quarter of 2018 to industry-reported data.

  50%         X              X

 

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    Achieved    Baier    Patchett    White     Coco     Richardson

Optimize Marketing—Collaboratively determine marketing spend to optimize mix of local and national spend, measured by not exceeding 2018 budget while meeting a floor number of move-ins.

      0%           X               

Build Relationships—Improve non-death move-outs at the consolidated comparable community portfolio by a targeted percentage compared to the prior year.

      100%           X               

Build Relationships—Increase consolidated comparable community portfolio internally generated move-ins by a targeted percentage, and increase quality survey rating of Health Care Services and increase institutional referrals by a targeted percentage.

      50%           X               

Protect Core—Improve relationships and operating protocols with third-party owners on behalf of whom the Company provides management services, and ensure that managed communities are operated in a manner consistent with the consolidated community portfolio.

      100%                X          

Talent—Improve 2018 consolidated comparable community retention of the key community leaders and full-time voluntary turnover for all other community positions by a targeted percentage versus the prior year.

      0%           X         X     

Associate Value Proposition—Reduce total rewards cost by a targeted amount and complete job title taxonomy and executive director leveling.

      100%                     X     

Aggregate Strategic Goals Achievement:

             95.8%    47.9%    96.9%    71.9%    78.1%

Objectives for Mr. Swain

 

     Weighting    Achieved

Narrow Focus—Take over financial reporting processes from Interim CFO for third quarter reporting; prepare and deliver 2019 budget to the Board, including G&A expense rationalization and capital expenditure plans; complete planned agency financings and amendment and restatement of revolving credit facility; and develop framework for 2019 annual incentive plan.

   50%    100%

High Performance Team—Assess current finance organizational structure and team and build staffing plans to support the business demands.

   25%    100%

Optimize Analytics—Identify and provide recommended steps to implement resource allocation analyses regarding company value creation.

   25%    80%

Aggregate Strategic Goals Achievement:

        95.0%

 

 

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Objective for Mr. Smith

 

     Weighting    Achieved

Strategic Review—Lead to conclusion the Company’s process of exploring options and alternatives to create and enhance stockholder value with input from the Company’s legal and financial advisors, with measurement based on the Board’s evaluation of offers and indications of interest resulting from such process.

   100%    0%

Long-Term Incentive Awards Results

Summary of Vesting and Forfeitures

During 2018, the named executive officers realized the compensation shown in the table below with respect to vesting of restricted shares granted prior to 2018. The value of shares that vested is based on the closing price per share of our stock on the vesting date.

 

     Vesting of Time-Based
Restricted Shares
Granted in 2014—2017
              Vesting of Performance-Based
Restricted Shares
Granted in 2014—2015 (1)
             Total  
     No. of Shares      Value               No. of Shares      Value              No. of Shares      Value  

 

Ms. Baier

 

  

 

 

 

 

37,602

 

 

 

 

  

 

$

 

 

  276,516

 

 

 

 

             

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

            

 

 

 

 

37,602

 

 

 

 

  

 

$

 

 

  276,516

 

 

 

 

 

Mr. Swain

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

             

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

            

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

Ms. Patchett

 

  

 

 

 

 

20,489

 

 

 

 

  

 

$

 

 

  144,118

 

 

 

 

             

 

 

 

 

1,666

 

 

 

 

  

 

$

 

 

  11,345

 

 

 

 

            

 

 

 

 

22,155

 

 

 

 

  

 

$

 

 

  155,463

 

 

 

 

 

Mr. White

 

  

 

 

 

 

8,343

 

 

 

 

  

 

$

 

 

  58,293

 

 

 

 

             

 

 

 

 

396

 

 

 

 

  

 

$

 

 

  2,697

 

 

 

 

            

 

 

 

 

8,739

 

 

 

 

  

 

$

 

 

  60,990

 

 

 

 

 

Mr. Coco (2)

 

  

 

 

 

 

16,517

 

 

 

 

  

 

$

 

 

  120,891

 

 

 

 

             

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

            

 

 

 

 

16,517

 

 

 

 

  

 

$

 

 

  120,891

 

 

 

 

 

Mr. Richardson (2)

 

  

 

 

 

 

29,011

 

 

 

 

  

 

$

 

 

  197,565

 

 

 

 

             

 

 

 

 

3,264

 

 

 

 

  

 

$

 

 

  22,228

 

 

 

 

            

 

 

 

 

32,275

 

 

 

 

  

 

$

 

 

  219,793

 

 

 

 

 

Mr. Smith (2)

 

  

 

 

 

 

105,664

 

 

 

 

  

 

$

 

 

  719,572

 

 

 

 

             

 

 

 

 

15,041

 

 

 

 

  

 

$

 

 

  102,429

 

 

 

 

            

 

 

 

 

120,705

 

 

 

 

  

 

$

 

 

  822,001

 

 

 

 

 

(1)

Details regarding our performance relative to the applicable performance targets are provided in the section below.

 

(2)

Excludes vesting of time-based restricted shares that accelerated pursuant to the applicable restricted share agreements upon Mr. Coco’s, Mr. Richardson’s and Mr. Smith’s termination of employment without cause effective December 31, 2018, March 9, 2018 and February 28, 2018, respectively (Mr. Coco–37,180 shares; Mr. Richardson–17,897 shares; and Mr. Smith–62,250 shares).

 

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Results of Performance-Based Restricted Shares Eligible to Vest in 2018

During 2014 and 2015, the Committee granted performance-based restricted share awards to the named executive officers included in the table below. Twenty-five percent of the 2014 awards and seventy-five percent of the 2015 awards were eligible to vest on February 27, 2018, subject to continued employment and achievement of performance goals established for each award by the Committee. The table below sets forth information regarding the performance goals and targets, our actual results and the number of shares that vested on February 27, 2018 based on our actual results. The value of shares that vested is included in the summary table above and is based on the closing price per share of our stock on the vesting date. Performance below the threshold level of achievement would have resulted in forfeiture of all shares in the applicable tranche, achievement of the targeted level of performance (or above) would have resulted in the vesting of 100% of the applicable tranche, and vesting percentages were to be interpolated between the steps shown in the table below.

 

 Award
 Year
  Performance
Goal
  % of Shares
Eligible to Vest
  Targets   Actual
Results
  Percent
that
Vested
                  No. of
Shares
that
Vested (1)
    Value of
Shares
that
Vested
 
 

 

 2014

 

 

2017 Return on Investment (“ROI”) on Program Max Projects approved in 2014 and completed prior to the end of 2015

 

100% (Maximum)

20% (Threshold)

 

³12%

8%

  15%   100%                     
 

 

Ms. Patchett

 

 

 

 

1,666

 

 

 

 

$

 

  11,345

 

 

 

 

Mr. White

 

 

 

 

396

 

 

 

 

$

 

  2,697

 

 

 

 

Mr. Richardson

 

 

 

 

3,264

 

 

 

 

$

 

  22,228

 

 

   

 

Mr. Smith

 

 

 

 

15,041

 

 

 

 

$

 

  102,429

 

 

       
                           
 
 2015  

 

3-Year Compound Annual Growth Rate (“CAGR”) of CFFO per Share (2) comparing 2017 results versus a 2014 base year

 

 

100% (Maximum)

60%

40% (Threshold)

 

³10%

6%

5%

  <0%   0%                     
 

 

Ms. Patchett

 

 

 

 

 

 

 

 

$

 

 

 

 

 

Mr. White

 

 

 

 

 

 

 

 

$

 

 

 

 

 

Mr. Richardson

 

 

 

 

 

 

 

 

$

 

 

 

   

 

Mr. Smith

 

 

 

 

 

 

 

 

$

 

 

 

       
                           

 

(1)

With respect to the 2015 awards eligible to vest on February 27, 2018, the following number of shares were forfeited as a result of failure to achieve the threshold level of performance: Ms. Patchett-3,905 shares; Mr. White-927 shares; Mr. Richardson-8,768 shares; and Mr. Smith-51,525 shares.

 

(2)

CFFO per share was defined as Cash From Facility Operations (CFFO) per share as reported by the Company, excluding acquisition, EMR and other transaction costs and federal income taxes to the extent we had become a federal income taxpayer.

 

 

          25


Table of Contents

 

 

Status of Outstanding Performance-Based Restricted Shares Granted in Prior Years

 

During 2015 through 2017, the Committee granted performance-based restricted share awards to the named executive officers, 75% of which were or are eligible to vest on February 27 in the third year following the year of grant, and 25% of which were or are eligible to vest on February 27 in the fourth year following the year of grant, in each case subject to continued employment and achievement of performance goals established for each award by the Committee. The table below sets forth information regarding the performance goals and targets and the number of shares subject to such awards for our current named executive officers. Performance below the threshold level of achievement will result in forfeiture of all shares in the applicable tranche, achievement of the targeted level of performance (or above) will result in the vesting of 100% of the applicable tranche, and vesting percentages will be interpolated between the steps shown in the table below.

 

Award
Year
  Vesting
Year
    Performance Goal   % of Shares
Eligible to Vest
  Targets            Shares at Target   
 
 2015     2019     2018 ROI on Program Max Projects approved in 2015 and completed prior to the end of 2016  

100% (Target/Max)

 

20% (Threshold)

 

³ 12%

8%

          Ms. Patchett     1,302  (1) 
  Mr. White     309  (1) 
 
 2016     2019     3-Year CAGR of Adjusted CFFO per share(2) comparing 2018 versus a 2015 base year  

100% (Target/Max)

20% (Threshold)

 

³ 8%

4%

      Ms. Baier     38,820  (1) 
      Ms. Patchett     18,245  (1) 
          Mr. White     2,211  (1) 
    2020    

2019 ROI on Program Max Projects approved in 2016 and completed prior to the end of 2017 or approved prior to 2016 and completed during 2017

 

 

100% (Target/Max)

 

20% (Threshold)

 

³12%

 

8%

 

  

 

  

 

 

 

Ms. Baier

 

 

 

 

12,940

 

 

 

Ms. Patchett

   
6,082 
 
 

Mr. White

 

    737   

 

 2017

    2020     3-Year CAGR of CAFCF(3) comparing 2019 results versus a 2016 base year  

 

100% (Target/Max)

 

80%

 

60%

 

40%

 

20% (Threshold)

 

 

³23.1%

 

14.3%

 

11.8%

 

9.3%

 

3.8%

         

 

 

 

Ms. Baier

   

 

37,904 

 

 

 

 

Ms. Patchett

    17,814   
 

Mr. White

 

 

 

 

    2,158   
    2021    

 

2020 ROI on Program Max Projects approved in 2017 and completed prior to the end of 2018 or approved prior to 2017 and completed during 2018

 

 

100% (Target/Max)

 

60%

 

20% (Threshold)

 

³11.0%

 

9.0%

 

8.0%

         

 

 

Ms. Baier

    12,635   
 

Ms. Patchett

    5,939   
 

Mr. White

 

 

   

 

 

720 

 

 

 

 

 

 

(1)

Based on our actual results, all of the shares from the 2015 awards eligible to vest on February 27, 2019 vested on such date, and all of the shares from the 2016 awards eligible to vest on such date were forfeited.

 

(2)

For purposes of these performance-based restricted shares, CFFO per share was defined as Cash From Facility Operations (CFFO) per share as reported by the Company, excluding acquisition, EMR and other transaction costs and federal income taxes to the extent we had become a federal income taxpayer.

 

(3)

For purposes of these performance-based restricted shares, CAFCF is defined as the sum of our Adjusted Free Cash Flow and our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures, in each case as reported by the Company, excluding transaction, transaction-related and severance costs and federal income taxes to the extent we become a federal income taxpayer.

 

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Other Compensation Policies

 

Annual Risk Assessment

In accordance with its charter, the Committee conducts an assessment annually of the relationship between our risk management policies and practices, corporate strategy and our compensation arrangements. As part of this assessment, the Committee evaluates whether any incentive and other forms of pay encourage unnecessary or excessive risk taking. For our 2018 executive compensation program, the Committee concluded that the program, including the performance goals and targets used for incentive compensation, is appropriately structured not to encourage unnecessary or excessive risk taking, and that any risks arising from the program are not reasonably likely to have a material adverse effect on us.

Stock Ownership and Retention Guidelines

 

Our stock ownership and retention guidelines are applicable to certain of our officers, including our named executive officers, and are intended to further align the interests of our executives with those of our stockholders. Our named executive officers are expected to hold a number of shares with a minimum market value     
      

 

Multiple of Base Salary     

 

 

Chief Executive Officer

  

 

5.0x

 

 

Chief Financial Officer

  

 

4.0x

 

 

Executive Vice Presidents                                                 

  

 

3.0x

    

expressed as a multiple of their base salary as shown in the table. Unvested equity awards do not count toward the expected level of ownership, except that the estimated number of after-tax time-based restricted shares scheduled to vest within 90 days may be counted towards compliance. The expected level of ownership must be achieved by the fifth anniversary of such officer’s becoming subject to the guidelines. Until the expected ownership level is achieved, each officer is expected to retain at least 50% of after-tax shares obtained through our equity compensation plans. This holding requirement also applies in situations where an officer has achieved the expected stock ownership level but changes in the market price of our stock or the officer’s base salary result in such officer’s failure to maintain the expected stock ownership level. All of our current named executive officers are in compliance with our stock ownership and retention guidelines and will be expected to retain at least 50% of their after-tax shares obtained through our equity compensation plans until they meet their applicable required holdings.

Policy on Hedging and Pledging

Our insider trading policy provides that no one subject to the policy may engage in short sales, puts, calls or other derivative transactions involving our securities. It further provides that none of our directors or executive officers may engage in hedging or monetization transactions involving our securities, pledge our securities as collateral for a loan, or hold our securities in a margin account.

Clawback Policy

We have not adopted a separate executive compensation clawback policy. However, our 2014 Omnibus Incentive Plan provides that any award thereunder that is subject to recovery under any law, government regulation or stock exchange listing requirement will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement or as may be required pursuant to any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement.

Tax Considerations

Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation that a company may deduct in any one year with respect to “covered employees”. Effective for taxable years beginning after December 31, 2017, the tax reform legislation enacted in December 2017 eliminated a Company’s ability to

 

 

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Table of Contents

deduct “qualified performance-based compensation” in excess of $1 million paid to named executive officers under Section 162(m). Under the new legislation, the definition of covered employees has been expanded to include a company’s chief financial officer, in addition to the chief executive officer and three other most highly paid executive officers, plus any individual who has been a covered employee in any taxable year beginning after December 31, 2016. The Committee will continue to consider tax implications in making compensation decisions and, when believed to be in the best interests of our stockholders, we may provide compensation that is not fully deductible under Section 162(m) to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals. In making decisions about executive compensation, the Committee also considers the impact of other tax laws, including Section 409A of the Internal Revenue Code regarding non-qualified deferred compensation and Section 280G of the Internal Revenue Code regarding compensation in connection with a change in control.

 

 

 

Compensation of Interim CFO

In connection with Ms. Sparks’ appointment and service as our Interim Chief Financial Officer, the Committee determined that Ms. Sparks would receive a bi-weekly salary of $19,230.76 (equivalent to $500,000 on an annualized basis) and would be eligible to participate in a cash bonus program established for her role, with such bonus amount targeted at 100% of her base salary earned during her tenure. The bonus would be paid subject to Ms. Sparks’ fulfillment of individual objectives following the conclusion of her service. Such objectives included successfully transitioning the financial reporting and investor relations processes from Ms. Baier for first quarter reporting (30% weighting), identifying areas of improvement for our financial planning and analysis and analytics functions (50% weighting), and building the finance team to support the business demands (20% weighting). Following conclusion of her service, the Committee determined that Ms. Sparks had achieved such objectives resulting in payout at the 100% level of performance. Due to the interim nature of Ms. Sparks’ position, she was not be eligible to participate in our severance policies, the 2018 annual incentive plan or our 2014 Omnibus Incentive Plan.

 

 

 

 Employment Agreement and Severance Policies Applicable to Named Executive Officers

We are party to an employment agreement dated March 1, 2018 with Ms. Baier, which we entered into in connection with her promotion to President and Chief Executive Officer effective February 28, 2018. The employment agreement has a three year term, subject to automatic extensions for additional one year periods, unless either we or Ms. Baier gives written notice to the other party no less than 90 days prior to the expiration of the term that the term will not be extended. Ms. Baier’s initial base salary was $825,000 per year, which may not be reduced without Ms. Baier’s approval. In addition, Ms. Baier is eligible to receive an annual cash incentive opportunity with a target of at least 125% of base salary paid during the calendar year, subject to the terms of our annual incentive plan for senior executive officers. Ms. Baier was entitled to receive an initial award of time- and performance-based restricted shares with an aggregate grant date value of $3,000,000 under our 2014 Omnibus Incentive Plan. The terms of such awards, which were granted on March 5, 2018, are described above in “2018 Compensation Decisions.” Ms. Baier is eligible to participate in various benefit plans that we make available to our senior executive officers (other than our severance policies). In addition, we will provide Ms. Baier with basic term life insurance benefits of at least 100% of her base salary at no cost to Ms. Baier. Under her employment agreement, Ms. Baier is entitled to severance payments if her employment is terminated by us without cause or by her for good reason. Severance payments in connection with a change in control are “double trigger,” which requires the occurrence of a change in control followed by termination of employment within 18 months of the change in control by us without cause or by Ms. Baier for good reason. Under Ms. Baier’s employment agreement, any payments that are not deductible by us under Section 280G of the Internal Revenue Code will be cut back only to the extent that the cutback results in a better after-tax position for Ms. Baier. The employment agreement contains non-competition, non-solicitation, confidentiality and mutual non-disparagement covenants. The non-competition restrictions will continue in effect during Ms. Baier’s employment and for one year following termination of employment. The non-solicitation

 

28          

 


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restrictions will continue in effect during her employment and for two years following her termination of employment. The confidentiality and mutual non-disparagement obligations will apply during her employment and thereafter.

Our other named executive officers do not have employment agreements, but are eligible to participate in the Severance Policy. Ms. Patchett participates, and Messrs. Coco and Richardson participated, in our Severance Policy as a “Designated Officer” as defined therein, and Messrs. Swain and White participate in our Severance Policy as a “Selected Officer.” Under the Severance Policy, the participating named executive officers are entitled to severance payments if their employment is terminated by us without cause or, following a change in control, by the executive for good reason. The severance payments under the Severance Policy applicable in connection with a change in control are “double trigger,” which require the occurrence of a change in control followed by termination of employment by us without cause or by the executive for good reason. If payments pursuant to the Severance Policy and other arrangements are not deductible by us under Section 280G of the Internal Revenue Code, such payments shall be reduced (or repaid) in order to ensure our deduction of payments in connection with a change in control.

A detailed description of severance payments pursuant to the foregoing employment agreement and the Severance Policy, as well as the effect of certain terminations and a change in control pursuant to our restricted share agreements, is set forth under “Potential Payments Upon Termination or Change in Control” below.

 

 

 

2019 Compensation Decisions

When making annual decisions for 2019, the Committee conducted a comprehensive review of our executive compensation program that included, among other considerations, external market compensation practices, our recent overall performance and 2019 business plan, our performance objectives under our incentive plans, and the responsibilities and individual performance of each of our named executive officers. With respect to market compensation practices, the Consultant reviewed our compensation peer group and recommended that it be updated to remove Kindred Healthcare, Inc. due to its going private and to replace Laboratory Corporation of America Holdings, Centene Corporation and Darden Restaurants, Inc. with Amedysis, Inc., Magellan Health, Inc. and Bloomin’ Brands, Inc. to more closely align the median levels of financial metrics and number of employees of the peer group with ours. The Consultant also completed a market compensation study that indicated each element of Ms. Baier’s target total direct compensation was below or at the low end of the market range. It further indicated that each of the other named executive officers’ base salaries, target long-term equity awards, and target total direct compensation were at the low end, or below, the market range, and that their target annual incentive opportunities were high relative to the market range.

Following the completion of its review, the Committee approved the principal elements of compensation of our named executive officers for 2019 as summarized in the table below. With the 2019 changes, the target total direct compensation of each of our named executive officers fell within the market ranges shown in market compensation study, but continues to be below the market median.

 

    2019 Base
Salary
    Change v.
2018 (1)
    2019 Target
Annual
Incentive
Opportunity
    Change v.
2018
   

 

2019 Grant
Value of
Long-Term
Incentive
Awards (2)

    Change v.
2018 (2)
    2019 Target
Total Direct
Compensation
    Change v.
2018
 

 

Ms. Baier

 

 

 

 

$   910,000

 

 

 

 

 

 

10%

 

 

 

 

 

 

135%

 

 

 

 

 

 

8%

 

 

 

 

 

 

$  4,750,000

 

 

 

 

 

 

6%

 

 

 

 

 

 

$   6,888,500

 

 

 

 

 

 

8%

 

 

 

Mr. Swain

 

 

 

 

$   515,000

 

 

 

 

 

 

3%

 

 

 

 

 

 

100%

 

 

 

 

 

 

0%

 

 

 

 

 

 

$  1,300,000

 

 

 

 

 

 

30%

 

 

 

 

 

 

$   2,330,000

 

 

 

 

 

 

17%

 

 

 

Ms. Patchett

 

 

 

 

$   467,500

 

 

 

 

 

 

7%

 

 

 

 

 

 

100%

 

 

 

 

 

 

0%

 

 

 

 

 

 

$     900,000

 

 

 

 

 

 

13%

 

 

 

 

 

 

$   1,835,000

 

 

 

 

 

 

10%

 

 

 

Mr. White

 

 

 

 

$   397,500

 

 

 

 

 

 

14%

 

 

 

 

 

 

70%

 

 

 

 

 

 

-13%

 

 

 

 

 

 

$     450,000

 

 

 

 

 

 

29%

 

 

 

 

 

 

$   1,125,750

 

 

 

 

 

 

15%

 

 

 

(1)

Percent change in base salary is based on the annual base salary of the named executive officer in effect as of December 31, 2018.

 

(2) 

The dollar amount of the 2019 long-term incentive awards, and the percentage change versus 2018, is based on the grant value of such awards (i.e., number of shares granted multiplied by the stock price on the date of grant).

 

 

          29


Table of Contents

The 2019 annual incentive opportunity, as approved by the Committee, continues to be based on company financial objectives and strategic objectives, with the target levels of performance generally reflective of our 2019 budget. The strategic objectives were developed to focus our leaders on execution of our operational turnaround strategy, and they were generally cascaded to our corporate, divisional and community leadership. The table below sets forth the weighting of the objectives at target under our 2019 annual incentive plan.

 

   

 

Weighting

 

 

Performance Measure

 

Company Financial Objectives

 

 

 

40%

 

 

 

FOI

 

 

 

10%

 

 

 

CAFCF

 

 

 

10%

 

 

Resident Fee Revenue

Strategic Objectives

 

 

 

15%

 

 

 

Move-ins and non-death attrition

 

 

 

15%

 

 

Retention of key community leaders; full-time voluntary turnover for all other community positions; and retention of corporate associates

 

 

 

10%

 

 

Net promoter score and response rate to resident survey

 

For the 2019 long-term incentive awards, the Committee resumed its practice of using a 50/50 grant value mix of time- and performance-based restricted shares to all the named executive officers. The time-based restricted shares are eligible to vest ratably in four annual installments beginning February 27, 2020, subject to continued employment. Seventy-five percent of the performance-based restricted shares are eligible to vest on February 27, 2022 and twenty-five percent are eligible to vest on February 27, 2023, in each case subject to continued employment and achievement of performance goals established by the Committee. The performance goal for the first tranche is 3-year CAGR of same community RevPAR for fiscal 2021 versus a 2018 base year, and for the second tranche is relative TSR comparing our compound annual TSR to the constituent companies of the S&P Midcap 400 index for the period beginning January 1, 2019 and ending December 31, 2021, assuming reinvestment of dividends or distributions. Same community RevPAR means the average monthly senior housing resident fee revenues per available unit of the same community portfolio, calculated as resident fee revenues, excluding Health Care Services segment revenue and entrance fee amortization, of the same community portfolio for the applicable fiscal year, divided by the weighted average number of available units in the same community portfolio for the applicable fiscal year, divided by twelve. Performance below the threshold level of achievement will result in forfeiture of all shares in the applicable tranche, performance at the targeted level of achievement will result in the vesting of 100% of the applicable tranche, and performance at the maximum level of achievement will result in vesting of up to 125% of the first tranche and 150% of the second tranche, with vesting percentages to be interpolated between the levels. In addition, the applicable restricted share agreements provide that the named executive officers will be entitled to receive dividends (or dividend equivalents) on unvested restricted shares only to the extent the underlying shares ultimately vest.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the disclosure set forth above under the heading “Compensation Discussion and Analysis” with management and, based on the review and discussions, it has recommended to the Board that the “Compensation Discussion and Analysis” be included herein.

Respectfully submitted by the Compensation Committee of the Board,

COMPENSATION COMMITTEE

Frank M. Bumstead, Chairman

Jackie M. Clegg

Denise W. Warren

 

30          

 


Table of Contents

Summary Compensation Table for 2018

The following summary compensation table sets forth information concerning the compensation earned by, awarded to or paid to our named executive officers for the periods indicated.

 

 Name and Principal Position (1)   Year     Salary
($)
    Bonus
($) (2)
    Stock
Awards
($) (3)
   

 

Non-Equity
Incentive Plan
Compensation
($) (4)

    All Other
Compensation
($) (5)
   

    Total    

($)

 

 

Lucinda M. Baier

President and

Chief Executive Officer

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

782,248

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

 

 

 

 

3,551,872

 

 

 

 

 

 

 

 

 

281,023

 

 

 

 

 

 

 

 

 

9,112

 

 

 

 

 

 

 

 

 

4,674,255

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

550,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500,013

 

 

 

 

 

 

 

 

 

196,150

 

 

 

 

 

 

 

 

 

161,025

 

 

 

 

 

 

 

 

 

2,407,188

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

552,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500,005

 

 

 

 

 

 

 

 

 

222,750

 

 

 

 

 

 

 

 

 

217,497

 

 

 

 

 

 

 

 

 

2,492,367

 

 

 

 

 

Steven E. Swain

Executive Vice President and

Chief Financial Officer

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

161,538

 

 

 

 

 

 

 

 

 

100,000

 

 

 

 

 

 

 

 

 

802,324

 

 

 

 

 

 

 

 

 

46,038

 

 

 

 

 

 

 

 

 

162,235

 

 

 

 

 

 

 

 

 

1,272,135

 

 

 

 

             
                                                       

 

Mary Sue Patchett

Executive Vice President,

Community Operations

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

437,750

 

 

 

 

 

 

 

 

 

450,000

 

 

 

 

 

 

 

 

 

800,004

 

 

 

 

 

 

 

 

 

62,905

 

 

 

 

 

 

 

 

 

7,783

 

 

 

 

 

 

 

 

 

1,758,442

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

425,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

705,004

 

 

 

 

 

 

 

 

 

134,995

 

 

 

 

 

 

 

 

 

7,026

 

 

 

 

 

 

 

 

 

1,272,025

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

426,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

705,011

 

 

 

 

 

 

 

 

 

145,350

 

 

 

 

 

 

 

 

 

7,811

 

 

 

 

 

 

 

 

 

1,284,807

 

 

 

 

 

Chad C. White

Executive Vice President,

General Counsel & Secretary

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

350,000

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

 

 

 

 

 

350,009

 

 

 

 

 

 

 

 

 

81,396

 

 

 

 

 

 

 

 

 

7,198

 

 

 

 

 

 

 

 

 

1,088,604

 

 

 

 

             
                                                       

 

Cedric T. Coco

Former Executive Vice President and Chief People Officer

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

442,900

 

 

 

 

 

 

 

 

 

350,000

 

 

 

 

 

 

 

 

 

800,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

169,826

 

 

 

 

 

 

 

 

 

1,762,730

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

430,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

800,009

 

 

 

 

 

 

 

 

 

149,484

 

 

 

 

 

 

 

 

 

419,449

 

 

 

 

 

 

 

 

 

1,798,942

 

 

 

 

                                                       

 

Teresa F. Sparks

Former Interim Chief

Financial Officer

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

221,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

221,918

 

 

 

 

 

 

 

 

 

545

 

 

 

 

 

 

 

 

 

444,381

 

 

 

 

             
                                                       

 

Bryan D. Richardson

Former Executive Vice President and Chief Administrative Officer

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

87,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,001,514

 

 

 

 

 

 

 

 

 

1,089,270

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

430,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

880,012

 

 

 

 

 

 

 

 

 

122,536

 

 

 

 

 

 

 

 

 

9,199

 

 

 

 

 

 

 

 

 

1,442,247

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

432,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

880,007

 

 

 

 

 

 

 

 

 

159,500

 

 

 

 

 

 

 

 

 

9,829

 

 

 

 

 

 

 

 

 

1,481,452

 

 

 

 

 

T. Andrew Smith

Former President and

Chief Executive Officer

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

157,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,552,199

 

 

 

 

 

 

 

 

 

2,709,314

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

950,000

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356,709

 

 

 

 

 

 

 

 

 

9,120

 

 

 

 

 

 

 

 

 

1,315,829

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

953,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,225,007

 

 

 

 

 

 

 

 

 

418,594

 

 

 

 

 

 

 

 

 

11,339

 

 

 

 

 

 

 

 

 

6,608,594

 

 

 

 

 

(1)

The named executive officers served in the positions noted in the table at all times during the years presented, except that: Ms. Baier served as Chief Financial Officer until being appointed as our President and Chief Executive Officer effective February 28, 2018; Mr. Swain joined the Company as Executive Vice President and Chief Financial Officer effective September 4, 2018; each of Messrs. Coco, Richardson and Smith served in the positions noted in the table until termination of his employment without cause effective December 31, 2018, March 9, 2018 and February 28, 2018, respectively (and Mr. Smith took on the additional role of President on March 18, 2016); and Ms. Sparks served as Interim Chief Financial Officer from March 28, 2018 until September 4, 2018.

 

(2)

The 2018 amount for Ms. Baier consists of, and for Mr. White includes, a cash bonus award of $50,000 paid to each of them for their extraordinary efforts in connection with our successfully restructuring a portfolio of 128 leased communities in April 2018. The 2018 amount for Mr. Swain represents a cash sign-on bonus. The 2018 amount for Ms. Patchett and Mr. Coco consists of, and for Mr. White includes, payment of a retention bonus in the amount of $450,000, $350,000 and $250,000, respectively, for their continued service through December 13, 2018.

 

 

          31


Table of Contents
(3)

Represents the aggregate grant date fair value of time- and performance-based restricted shares computed in accordance with ASC 718. See Note 14 to our Consolidated Financial Statements included in the Original Filing for a summary of the assumptions made in the valuation of these awards. For each of Ms. Baier and Mr. Swain, see footnote 4 to the Grants of Plan Based Awards Table for the grant values of performance-based restricted shares awarded in 2018 assuming performance at the target level or above.

 

(4)

Represents the payout of each named executive officer’s annual cash incentive opportunity with respect to performance in the applicable year. Pro-rata payouts under the 2018 annual incentive plan for Messrs. Coco’s and Richardson’s service through their termination dates are included in All Other Compensation.

 

(5)

For each of the named executive officers, the 2018 amount includes the employer matching contribution to our 401(k) Plan and premiums on Company-provided life and disability insurance. For Mr. Swain, the 2018 amount also includes the incremental cost to the Company of $161,361 for relocation assistance provided to Mr. Swain, including amounts paid to Mr. Swain, or on his behalf, for moving and storage costs, closing costs for Mr. Swain’s sale of his former home, temporary housing in the Nashville area, a $5,000 moving allowance and associated tax gross ups of $67,111. For Mr. Coco, the 2018 amount also includes $95,534 representing payout of the pro-rata portion of his 2018 annual incentive opportunity earned for his service through December 31, 2018 and the incremental cost to the Company of $65,623 for relocation assistance provided to Mr. Coco, including amounts paid to Mr. Coco, or on his behalf, for moving and storage costs and associated tax gross ups of $26,535. For Mr. Richardson, the 2018 amount also includes $938,269 of severance payments made in 2018, $20,561 representing payout of the pro-rata portion of his 2018 annual incentive opportunity earned for his service through March 9, 2018, $33,115 representing payout of his accrued paid time off (PTO) balance and $7,883 representing the employer portion of continuation of health coverage. For Mr. Smith, the 2018 amount also includes $2,466,346 of severance payments made in 2018, $73,077 representing the payout of his accrued PTO balance and $11,386 representing the employer portion of continuation of health coverage.

 

32          

 


Table of Contents

Grants of Plan-Based Awards

The following table summarizes grants of plan-based awards made to our named executive officers in 2018. All of our named executive officers are eligible to receive dividends on outstanding unvested restricted shares granted in 2018 (to the extent that dividends are declared on our shares of common stock).

 

Name

  Grant Date    

 

Estimated Possible Payouts

Under Non-Equity Incentive
Plan Awards

         

 

Estimated Possible Payouts

Under Equity Incentive

Plan Awards

   

 

All Other

Stock

Awards:

Number

of Shares

of Stock

or Units

(#)

   

Grant

Date
Fair

Value of

Stock

Awards

($)

 
 

Threshold

($)

   

Target

($)

   

Maximum

($)

         

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

 

 

Ms. Baier

 

   

 

–  (1)

 

 

 

   

 

136,893

 

 

 

   

 

977,810

 

 

 

   

 

1,662,277

 

 

 

           
 

 

 

 

 

1/5/2018  (2)

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,480

 

 

 

 

 

 

 

 

 

750,006

 

 

 

 

 

 

 

 

 

1/5/2018  (3)

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,479

 

 

 

 

 

 

 

 

 

749,997

 

 

 

 

 

 

 

 

 

3/5/2018  (4)

 

 

 

 

         

 

 

 

 

103,735

 

 

 

 

 

 

 

 

 

207,469

 

 

 

 

 

 

 

 

 

207,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

551,868

 

 

 

 

 

 

 

 

 

3/5/2018  (2)

 

 

 

 

                                 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

207,469

 

 

 

 

 

 

 

 

 

1,500,001

 

 

 

 

 

Mr. Swain

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

22,615

 

 

 

 

 

 

 

 

 

161,538

 

 

 

 

 

 

 

 

 

274,615

 

 

 

 

           
 

 

 

 

 

9/10/2018  (4)

 

 

 

 

         

 

 

 

 

26,624

 

 

 

 

 

 

 

 

 

53,248

 

 

 

 

 

 

 

 

 

53,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

302,316

 

 

 

 

 

 

 

 

 

9/10/2018  (2)

 

 

 

 

                                 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53,249

 

 

 

 

 

 

 

 

 

500,008

 

 

 

 

 

Ms. Patchett

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

61,285

 

 

 

 

 

 

 

 

 

437,750

 

 

 

 

 

 

 

 

 

744,175

 

 

 

 

           
 

 

 

 

 

1/5/2018  (2)

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,323

 

 

 

 

 

 

 

 

 

400,007

 

 

 

 

 

 

 

 

 

1/5/2018  (3)

 

 

 

 

                                 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,322

 

 

 

 

 

 

 

 

 

399,997

 

 

 

 

 

Mr. White

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

39,200

 

 

 

 

 

 

 

 

 

280,000

 

 

 

 

 

 

 

 

 

476,000

 

 

 

 

           
 

 

 

 

 

1/5/2018  (2)

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,079

 

 

 

 

 

 

 

 

 

175,005

 

 

 

 

 

 

 

 

 

1/5/2018  (3)

 

 

 

 

                                 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,079

 

 

 

 

 

 

 

 

 

175,005

 

 

 

 

 

Former Named Executive Officers

 

                   

 

Mr. Coco

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

62,006

 

 

 

 

 

 

 

 

 

442,900

 

 

 

 

 

 

 

 

 

752,930

 

 

 

 

           
 

 

 

 

 

1/5/2018  (2)

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,323

 

 

 

 

 

 

 

 

 

400,007

 

 

 

 

 

 

 

 

 

1/5/2018  (3)

 

 

 

 

                                 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,322

 

 

 

 

 

 

 

 

 

399,997

 

 

 

 

 

Ms. Sparks

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

221,918

 

 

 

 

 

 

 

 

 

221,918

 

 

 

 

                                               

 

Mr. Richardson

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

12,286

 

 

 

 

 

 

 

 

 

87,756

 

 

 

 

 

 

 

 

 

149,185

 

 

 

 

                                               

 

Mr. Smith

 

 

 

 

 

–  (1)

 

 

 

 

 

 

 

 

 

29,459

 

 

 

 

 

 

 

 

 

196,394

 

 

 

 

 

 

 

 

 

343,690

 

 

 

 

                                               

 

(1)

For the named executive officers other than Ms. Sparks, the amounts represent the threshold, target and maximum payout levels under our 2018 annual incentive plan (and reflect the partial year of service for Messrs. Swain, Richardson and Smith). For Ms. Sparks, the amounts represent the payout levels under the incentive plan applicable for her interim service in 2018. The actual payouts under such plans are reported in the Summary Compensation Table as Non-Equity Incentive Plan Compensation or All Other Compensation, as indicated in the footnotes thereto, in the following amounts: Ms. Baier–$281,023; Mr. Swain–$46,038; Ms. Patchett–$62,905; Mr. White–$81,396; Mr. Coco–$95,534; Ms. Sparks–$221,918; Mr. Richardson–$20,561; and Mr. Smith–$0.

 

(2)

Represents time-based restricted shares granted under our 2014 Omnibus Incentive Plan which are eligible to vest ratably in four annual installments beginning on February 27, 2019 (November 19, 2019 for Mr. Swain), subject to continued employment. Pursuant to the terms of Mr. Coco’s restricted share agreement, 10,330 shares accelerated and vested, and remainder of the award was forfeited, upon his termination without cause effective December 31, 2018.

 

 

          33


Table of Contents
(3)

Represents time-based restricted shares granted under our 2014 Omnibus Incentive Plan, 75% of which are eligible to vest on February 27, 2021 and 25% of which are eligible to vest on February 27, 2022, subject to continued employment. Pursuant to the terms of Mr. Coco’s restricted share agreement, 10,331 shares accelerated and vested, and remainder of the award was forfeited, upon his termination without cause effective December 31, 2018.

 

(4)

Represents performance-based restricted shares granted under our 2014 Omnibus Incentive Plan which are eligible to vest on February 27, 2021, subject to continued employment and the achievement of compound annual TSR performance targets as described above. The value reported in the table represents the grant date fair value computed in accordance with ASC 718. The grant value (i.e., number of shares granted multiplied by the closing stock price on the date of grant) was approximately $1.5 million for Ms. Baier and approximately $500,000 for Mr. Swain, assuming performance at the target level or above. Performance below the threshold level of achievement will result in forfeiture of all such shares, achievement of the targeted level of performance (or above) will result in the vesting of 100% of such shares, and vesting percentages will be interpolated between threshold and target.

 

34          

 


Table of Contents

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the outstanding equity awards held by each of our named executive officers as of December 31, 2018. The market values of such awards are based on $6.70 per share, the closing market price of our stock on December 31, 2018.

 

          Stock Awards  

Name

  Grant Date    

Number of Shares

or Units of Stock

That Have Not

Vested (#) (1)

   

Market Value of

Shares or Units of

Stock That Have

Not Vested ($)

   

Equity Incentive Plan

Awards: Number of

Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)

   

Equity Incentive Plan

Awards: Market or

Payout Value of

Unearned Shares, Units

or Other Rights That
Have Not Vested ($)

 

 

Ms. Baier

 

 

 

 

 

 

2/26/2016

 

 

 

 

 

 

 

 

 

25,880

 

 

 

 

 

 

 

 

 

173,396

 

 

 

 

 

 

 

 

 

20,704  (2)

 

 

 

 

 

 

 

 

 

138,717

 

 

 

 

 

 

 

 

 

2/13/2017

 

 

 

 

 

 

 

 

 

37,905

 

 

 

 

 

 

 

 

 

253,964

 

 

 

 

 

 

 

 

 

20,215  (3)

 

 

 

 

 

 

 

 

 

135,441

 

 

 

 

 

 

 

 

 

1/5/2018

 

 

 

 

 

 

 

 

 

77,479

 

 

 

 

 

 

 

 

 

519,109

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/5/2018

 

 

 

 

 

 

 

 

 

77,480

 

 

 

 

 

 

 

 

 

519,116

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3/5/2018

 

 

 

 

 

 

 

 

 

207,469

 

 

 

 

 

 

 

 

 

1,390,042

 

 

 

 

 

 

 

 

 

103,735  (4)

 

 

 

 

 

 

 

 

 

695,025

 

 

 

 

 

Mr. Swain

 

 

 

 

 

 

9/10/2018

 

 

 

 

 

 

 

 

 

53,249

 

 

 

 

 

 

 

 

 

356,768

 

 

 

 

 

 

 

 

 

26,624  (4)

 

 

 

 

 

 

 

 

 

178,381

 

 

 

 

 

Ms. Patchett

 

 

 

 

 

 

2/5/2015

 

 

 

 

 

 

 

 

 

1,302

 

 

 

 

 

 

 

 

 

8,723

 

 

 

 

 

 

 

 

 

1,302  (5)

 

 

 

 

 

 

 

 

 

8,723

 

 

 

 

 

 

 

 

 

2/26/2016

 

 

 

 

 

 

 

 

 

12,164

 

 

 

 

 

 

 

 

 

81,499

 

 

 

 

 

 

 

 

 

9,731  (2)

 

 

 

 

 

 

 

 

 

65,198

 

 

 

 

 

 

 

 

 

2/13/2017

 

 

 

 

 

 

 

 

 

17,816

 

 

 

 

 

 

 

 

 

119,367

 

 

 

 

 

 

 

 

 

9,501  (3)

 

 

 

 

 

 

 

 

 

63,657

 

 

 

 

 

 

 

 

 

1/5/2018

 

 

 

 

 

 

 

 

 

41,322

 

 

 

 

 

 

 

 

 

276,857

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/5/2018

 

 

 

 

 

 

 

 

 

41,323

 

 

 

 

 

 

 

 

 

276,864

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. White

 

 

 

 

 

 

2/5/2015

 

 

 

 

 

 

 

 

 

927

 

 

 

 

 

 

 

 

 

6,211

 

 

 

 

 

 

 

 

 

309  (5)

 

 

 

 

 

 

 

 

 

2,070

 

 

 

 

 

 

 

 

 

2/26/2016

 

 

 

 

 

 

 

 

 

4,423

 

 

 

 

 

 

 

 

 

29,634

 

 

 

 

 

 

 

 

 

1,180  (2)

 

 

 

 

 

 

 

 

 

7,906

 

 

 

 

 

 

 

 

 

2/13/2017

 

 

 

 

 

 

 

 

 

6,478

 

 

 

 

 

 

 

 

 

43,403

 

 

 

 

 

 

 

 

 

1,151  (3)

 

 

 

 

 

 

 

 

 

7,712

 

 

 

 

 

 

 

 

 

5/4/2017

 

 

 

 

 

 

 

 

 

3,560

 

 

 

 

 

 

 

 

 

23,852

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/5/2018

 

 

 

 

 

 

 

 

 

18,079

 

 

 

 

 

 

 

 

 

121,129

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/5/2018

 

 

 

 

 

 

 

 

 

18,079

 

 

 

 

 

 

 

 

 

121,129

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Named Executive Officers

 

         

 

Mr. Coco

 

 

 

 

 

 

2/13/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,696  (6)

 

 

 

 

 

 

 

 

 

18,063

 

 

 

 

 

Ms. Sparks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

–     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Richardson

 

 

 

 

 

 

2/5/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,893  (6)

 

 

 

 

 

 

 

 

 

19,383

 

 

 

 

 

 

 

 

 

2/26/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,555  (6)

 

 

 

 

 

 

 

 

 

30,519

 

 

 

 

 

 

 

 

 

2/13/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,965  (6)

 

 

 

 

 

 

 

 

 

19,866

 

 

 

 

 

Mr. Smith

 

 

 

 

 

 

2/5/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,176  (6)

 

 

 

 

 

 

 

 

 

115,079

 

 

 

 

 

 

 

 

 

2/26/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,045  (6)

 

 

 

 

 

 

 

 

 

181,202

 

 

 

 

 

(1)

Represents time-based restricted shares, the vesting of which is subject to continued employment. The awards granted during January, February, March and September have vested or are eligible to vest ratably in four annual installments beginning on February 27 (November 19 for Mr. Swain) in the year following the year of grant, except that with respect to the second award with a grant date of January 5, 2018, 75% of the award is eligible to vest on February 27, 2021 and 25% of the award is eligible vest on February 27, 2022. The award granted during May 2017 will vest ratably in three annual installments beginning on May 20 in the year following the year of grant.

 

(2)

Represents performance-based restricted shares, the vesting of which is subject to continued employment and the achievement of specified performance targets. Up to 75% of the shares awarded were eligible to vest on February 27, 2019 based on our 3-year CAGR of Adjusted CFFO per share, and up to 25% of the shares awarded are eligible to vest on February 27, 2020 based on our 2019 ROI on Program Max projects. The number of shares reported represents the threshold level of performance for the first tranche and the target level of performance for the second tranche. The threshold level of performance for the first tranche was not achieved; therefore, the named executive officers forfeited the following number of shares on February 27, 2019: Ms. Baier–38,820 shares; Ms. Patchett–18,245 shares; and Mr. White–2,211 shares.

 

 

          35


Table of Contents
(3)

Represents performance-based restricted shares, the vesting of which is subject to continued employment and the achievement of specified performance targets. Up to 75% of the shares awarded are eligible to vest on February 27, 2020 based on our 3-year CAGR of Combined Adjusted Free Cash Flow, and up to 25% of the shares awarded are eligible to vest on February 27, 2021 based on our 2020 ROI on Program Max projects. The number of shares reported represents the threshold level of performance for the first tranche and the target level of performance for the second tranche.

 

(4)

Represents performance-based restricted shares with the terms described in footnote 4 to the Grants of Plan-Based Awards Table. The number of shares reported represents the threshold level of performance.

 

(5)

Represents performance-based restricted shares, the vesting of which was subject to continued employment and the achievement of specified performance targets based on our 2018 ROI on Program Max projects. The number of shares reported represents the target level of performance, and such reported shares vested on February 27, 2019 based on our actual performance.

 

(6)

Represents performance-based restricted shares which remained outstanding pursuant to the applicable restricted share agreements following termination of the individual’s employment without cause. The shares were eligible to vest on February 27, 2019 based on achievement of specified performance targets based on our 2018 ROI on Program Max projects for the 2015 awards, our 3-year CAGR of Adjusted CFFO per share for the 2016 awards, and our 2-year CAGR of Combined Adjusted Free Cash Flow for the 2017 awards. The number of shares reported for the 2015 awards represents the target level of performance, and such reported shares vested on February 27, 2019 based on our actual performance. The number of shares reported for the 2016 and 2017 awards represents the threshold level of performance. The threshold level of performance for the 2016 and 2017 awards was not achieved; therefore, the named executive officers forfeited the following number of shares on February 27, 2019: Mr. Coco–13,477 shares; Mr. Richardson–37,599 shares; and Mr. Smith–135,222 shares.

Stock Vested for 2018

The following table summarizes the vesting of time- and performance-based restricted shares and the value realized by our named executive officers as a result of such vesting during 2018.

 

   

 

Stock Awards

 

Name

  Number of Shares Acquired on Vesting (#)      Value Realized on Vesting ($) (1)  

 

Ms. Baier

 

 

 

 

 

 

37,602

 

 

 

 

  

 

 

 

 

276,516

 

 

 

 

 

Mr. Swain

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

Ms. Patchett

 

 

 

 

 

 

22,155

 

 

 

 

  

 

 

 

 

155,463

 

 

 

 

 

Mr. White

 

 

 

 

 

 

8,739

 

 

 

 

  

 

 

 

 

60,990

 

 

 

 

 

Former Named Executive Officers

 

    

 

Mr. Coco

 

 

 

 

 

 

53,697

 

 

 

 

  

 

 

 

 

369,997

 

 

 

 

 

Ms. Sparks

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

Mr. Richardson

 

 

 

 

 

 

50,172

 

 

 

 

  

 

 

 

 

351,873

 

 

 

 

 

Mr. Smith

 

 

 

 

 

 

182,955

 

 

 

 

  

 

 

 

 

1,228,494

 

 

 

 

 

(1)

The value realized is based on the closing market price of the underlying stock on the date the shares vested (or the most recent trading day if such date was not a trading day): February 27, 2018 (Ms. Baier–25,575 shares; Ms. Patchett–16,821 shares; Mr. White–6,959 shares; Mr. Coco–6,738 shares; Mr. Richardson–32,275 shares; and Mr. Smith–120,705 shares); February 28, 2018 (Mr. Smith–62,250 shares); March 9, 2018 (Mr. Richardson–17,897 shares); May 20, 2018 (Mr. White–1,780 shares); November 19, 2018 (Ms. Patchett–5,334 shares; and Mr. Coco–9,779 shares); December 3, 2018 (Ms. Baier–12,027 shares); and December 31, 2018 (Mr. Coco–37,180 shares). For each of Messrs. Coco, Richardson and Smith, shares that vested on the last vesting date represent the accelerated vesting of time-based restricted shares pursuant to the applicable restricted share agreements for a termination the individual’s employment without cause on such vesting date.

Pension Benefits

None of our named executive officers participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by us. The Committee may elect to adopt qualified or non-qualified defined benefit plans in the future if it determines that doing so is in our best interests.

Nonqualified Deferred Compensation

None of our named executive officers participates in or has an accrued benefit in non-qualified defined contribution plans or other non-qualified deferred compensation plans maintained by us. The Committee may elect to adopt non-qualified defined contribution plans or other non-qualified deferred compensation plans in the future if it determines that doing so is in our best interests.

 

36          

 


Table of Contents

Potential Payments Upon Termination or Change in Control

The following table sets forth potential amounts payable upon termination of employment or a change in control to our current named executive officers assuming termination of employment on December 31, 2018, with equity-based amounts based on $6.70 per share, the closing market price of our stock on December 31, 2018.

 

Name/Benefit

 

Voluntary

Resignation by
Executive

($)

   

Termination

by us for
Cause

($)

   

Termination

by us without

Cause

($)

   

 

Termination

by us without

Cause

following a

Change in

Control

($)

   

Termination

by Executive

for Good

Reason

($)

   

Disability

($)

   

Death

($)

 

 

Ms. Baier

 

             

 

Salary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,237,500

 

 

 

 

 

 

 

 

 

1,650,000

 

 

 

 

 

 

 

 

 

1,237,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro-Rata Bonus  (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

281,023

 

 

 

 

 

 

 

 

 

281,023

 

 

 

 

 

 

 

 

 

281,023

 

 

 

 

 

 

 

 

 

281,023

 

 

 

 

 

 

 

 

 

281,023

 

 

 

 

 

Severance Bonus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,466,715

 

 

 

 

 

 

 

 

 

1,955,620

 

 

 

 

 

 

 

 

 

1,466,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PTO

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

COBRA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,219

 

 

 

 

 

 

 

 

 

15,219

 

 

 

 

 

 

 

 

 

15,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accelerated Vesting of Restricted Shares  (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

778,419

 

 

 

 

 

 

 

 

 

4,931,073

 

 

 

 

 

 

 

 

 

347,509

 

 

 

 

 

 

 

 

 

778,419

 

 

 

 

 

 

 

 

 

778,419

 

 

 

 

 

Total

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

73,012

 

 

 

 

 

 

 

 

 

3,851,888

 

 

 

 

 

 

 

 

 

8,905,947

 

 

 

 

 

 

 

 

 

3,420,978

 

 

 

 

 

 

 

 

 

1,132,454

 

 

 

 

 

 

 

 

 

1,132,454

 

 

 

 

 

Mr. Swain

 

             

 

Salary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

750,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro-Rata Bonus  (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46,038

 

 

 

 

 

 

 

 

 

46,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance Bonus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161,538

 

 

 

 

 

 

 

 

 

242,307